Report No. 1095a-PH The- Phlp,,e -Snp I Ile ri -FLEa &-lD Priorities ana rrospecs IoUr ueveIup,, I I,I I Basic Economic Report (In Three Volumes) Volume II: The Sectors May 5, 1976 East Asia and Pacific Region East Asia and Pacific Programs Department FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY AND OTHER EQUIVALENTS Currency Unit = Peso (P) US$1.00 = P 7.5 P 1.00 = US$0.1333 US$1 million P 7.500.000 Fiscal Year Through 1976 July 1 to June 30 Beginning 1977 January 1 to December 31 Tables .. = zero or neglig1ble -- - not applicable n.a. = not available FOR OFFICIAL USE ONLY This report is based primarily on the findings of an economic mission which visited the Philippines in April/May 1975. The prelinminary findings of the mission were further updated after discussions with the Government in December 1975 and January 1976. Mission Merabers Russell j rT,heet-ham rhipf nf Missinn Bruce Jones General Economist Mnelliticiirlnn CQ TnchiiCnon Frnnnmi ct Carroll Long Editor/Urban Specialist (Consultant) Guenter H. Reif Gener h nost Ellen Schaengold Research Assistant/General Economist VteV4n voung General vconor.,4st I%L .iL .1- '411 IS _. Lt T. _A ± fl IA TIII _. 2 .. :_ w__:A V 1iaUim L L) LJ rVILIULIU Van sL V rl conoA L UUL D Frank Lowenstein Agricultural Economist reter K. Pollak, LOU-IUU.-uLLty Sp[ec.-Ilt L Augustin V. Que Financial Economist Mr Hajimu Maeda and Ms Inai Y. Bradfield also contributed to the mission's work in the fields of power and transportation, respectively, as did I-s Beatriz A. Florendo in the collection and tabulation ot the external debt data. The report was completed under the direction of Mr Edward K. Hawkins, Senior Economist. This dUmen: has a restricted distribution and may, be used by remipients nnv in thie nprfnrmrnc I of their official duties. Its contents may not otherwise be disclosed without World Bank authorizat-on. Chapter 3 URBAN DEVELOPMENT Table of Contents Page No. A. Patterns of Urban Growth ................................ 1 Size and Distribution of Urban Centers .... ......... 2 Production and Employment in Urban Areas .... ....... 7 Level of Urban Incomes ............................. 9 Patterns of Urban Expenditures ..................... 13 The Shortage of Housing in Urban Areas .... ......... 15 Level and Quality of Other Urban Services .... ...... 19 B. Urban Development StrateRies ............................ 22 Decentralization ................................... 23 Distribution of Urban Services ..................... 25 Sector Strategies .................................. 26 Technical Nntes T= The Svntem nf L.nral Gnvernment in the Philippinec 43 II. Denfinitions an Ponnilationa nf TTrhbn Areas.4m 8 Chapter 3 URBAN DEVELOPMENT A. Patterns of Urban Growth 3.01 Although the Philippines is still a predominantly rural economy, a substantial proportion of its population lives in urban areas. in 1974, almost 30 percent of the population lived in chartered cities and other urban areas. 1/ This is a higher percentage than in many other southeast Asian countries 2/ and represents a steady increase over the 25 percent of the Philippine population in urban areas in 1960 (Table 3.1). The urban sector is characterized by the extreme primacy of the Manila Metropolitan Area (MMA), which accounts for over one-third of the urban population, and by a number of rapidly growing secondary cities. 3. Much of the population growth of these urban centers may be attributed to migration from rural areas to search for more productive employment. Rapid expansion of the service sector, 3/ especially the informal service subsector, has prevented this population growth from being translated into open unemployment in the cities. More than three-quarters of new jobs in the cities are being provided by the service sector, which now accounts for well over half of urban employment. Despite the significantly higher average incomes in urban areas - especially of the MMA - than of rural areas, the disparities are greater, and a substantial proportion of the urban po- pulation lives in absolute poverty with inadequate housing and limited or no access to water suDplies and sanitation facilities, electricity, and urban transportation. 1/ The definitions of urban concepts used 4n this chapter are discussed in Technical Note I attached to this chapter. 2/ The proportion of the population resident in urban areas of some other Asian countries in 1970 waS: 10 percent 4i Laos, 1T in.- Ta'-r.d,C--- I . - w I~~~~* J-- J , I_ J jJAL _=LL L. LL& LILk 18 percent in Indonesia, and 28 percent in Malaysia. Figures are based or. Population Dniv is-0iotJn, Dear,mn of_ E.o.oic ano A,'ar ofI ** * JJ~V ~LI.JAL, LJ~JjJO.LAtLiU-_LL UL 1:A.U1UUII1LLb iLLU 0V9;Ja.L B..LLairs ofU the United Nations Secretariat, "Trends and Prospects in Urban and Rural Populatio, 19502000 , EJAt/'r.J4t. (Ne#w York, AprlL. 2J, 197J). 3/ The service sector 'ncludes: comuerce; electricity, gas, water and sanitation; transport, storage, and communications; government, coWUInUitLy, UUs'Ln1ess aL1U recretdLoUne UdoLmesiLL erviceslC; andu perouLa services other than domestic. This broad definition naturally 'nludes w±ide divergencies I l the relaDiailLy oX UaLa available on the various subsectors, but is the one normally used in the Philippines for the collection of employment information. - 2 - Size and Distribution of Urban Centers 3.03 The urban population of the Philippines increased from approxi- mately 6.9 million in 1960 to about 10.0 million in 1970 at an average an- nual growth rate of 4.0 percent (Table 3.1). During the same period, the overall population of the country increased from 27 to 37 million at an average rate of 3.0 percent per annum. This urban growth has not, however, been spread evenly across cities of various sizes, but appears to have been greatest in a few of the largest urban centers. The MMA, for example, which has 12 percent of the national population, also has one of the highest growth rates of the country. 3.04 Natural increase accounts for approximately two-thirds of the growth rates in most urban areas, and rural-urban migration is estimated to account for about one-third. Many of those who migrate are able to earn higher incomes than in their places of origin; few therefore return to their rural homes in spite of the squatter and slum conditions in which many of them live when they arrive in the largest cities. 1/ Though the natural rate of increase plays a large role in the growth of urban areas, it is less than that in the countryside because of the rising age of marriage in urban areas and the more rapid spread of family planning methods in urban than in rural areas. Therefore, despite the lower mortality rate of urban areas, their rate of natural increase was 2.6 percent in 1970 compared to 3.2 percent in rural areas. 3.05 While there has been a significant concentration of the urban popu- lation into a few large centers, these centers are distributed across the maior islands (Map 3.1). Many of the urban areas besides those in the MMA with substantial growth rates are located on Mindanao. Population movement to Mindanao has been caused both by opportunities for industrial employment (particularly in the Iligan Bay area, where the availability of hydroelectric power has generated significant industrial activitv) and by the availability of land, which has caused new farmlands to be cultivated and agricultural orocessing and marketing centprs to grnw- The Dromige of avriruilt,,ral on- portunities on Mindanao has only recently begun to decline as immigration ha.s cratedA nonlplation nrQci11rac nn thp Pn- tina Acg-rcui1tuiral land 3.06 The locations of the urban centers appear to reflect the significant economic and social disparities among the eleven regions. The less developed regions (ITlocos, ragayan., Bicol, Eastern V4sayas, and Central Vi4sayas) are generally less urbanized than the more developed ones, and the rate of urban- ization has been slower. 1/ For a discussion of migration in the Philippines, see K.L. Zachariah, 'Migration in the Philippines with Particular Reference to less Devel- oped Regions," restricted circulation memorandum of the Development Economics Department, World Bank, July 2, 1975. -3- Table 3.1 Urban Population: 1960 and 1970 Population Percent of Average Annual Area (In thousands) Urban Population Growth Rate 1960 1970 1960 1970 1960-70 Maniln Metropolitan Area 2,722 4,) 33 3 5.o Manila City 1,139 1,331 13.9 11.0 1.6 Quezon City 398 754 4.9 6.2 6.6 Caloocan 146 274 1.8 2.3 6.5 Pasay 133 206 1.6 1.7 4.5 O'thers 0u 1,839 11.1 i5.2 7.3 Major Chartered Cities b/ Davao 226 392 2.8 3.2 5.6 Cebu 251 347 3.1 2.9 3.3 Iioilo 151 2.0 1.8 1.7 3.4 Zamboanga 131 200 1.6 1.7 4.3 Bacolod 119 '87 1.5 1.5 I06 Basilan 156 144 1.9 1.2 -0.8 Angeles 76 135 1.0 1.1 509 Butuan 80 131 1.0 1.0 3.3 Cagayan de Oro 69 124 1.0 1.1 6.o Cadiz 89 124 1.1 1.0 3.4 Batangas 83 109 1.0 1.0 2.8 Olongapo 45 108 1.0 1.0 9.2 San Pablo 71 106 1.0 1.0 4.1 ILU4& 5L.0 1.0 6.o Other Urban Areas C8Jl1 ?2h6 47.0 43.5 3.2 Total Urban 8,168 12,0714/ 100.0 100.0 4.° Adjusted Urban/ 6,861 10,140 .o Total Philippines 27,088 36,684 3.0 a/ As defined by the Bureau of the Census snd Statistics (BCS) in 1970. b/ Chartered cities with populations over 100,000 in 1970, excluding cities in the NMA. c/ For adjustment rationale and methodwology, see Table I, Chapter 4. d/ Based on 1960 definition of urban by the BCS. According to the 1970 census definition, th~e urban populat-ion was 11,66P,,51OOO. UIL~ I1i~L" i ULLL aL.L Id JUVU ,VVJ~. Sources: 3CS. The Growth of the Urban Population in the Philippines and its Perspective (Manila, n.p. 1973), p. 23; Mercedes B. Concepcion, "110 Million by the Year 2001," Philippine Sociological Review (July-Oct. 1970), p. 216, and Ernesto Pernis,"The Philippire Urban Structure," University of the Philippines Populr- tiori Tnstitute Research Note 25 (197h), Tsble 3; and Mission estimates. IBRO 72006 | 120° 1¶44 FEBRUARY 1976 The boundaries shown on this nwp do not PHILIPPINES tonply enJdorsement or acceptance by the I World Bank and irs affiliates. MAJOR URBAN AREAS Gruguesarc _______________ 000.000 OVER San Fernando®E( 21000040.0 LU'ZON 100.001 200.000 ~~~~zzz ~50.00 1 100,000 . - u ..o ~ r~rna..eJ{J> 0 50 100 150 200 I ngar CugurA ' 400 KILOMETERS 1U t.- 50- : 100 - 1' K 1 b> MkLS 190;; r 14u- \. i - MiLES MASBATE \ -; 1 |PANA Y, -. GJ' , oa I , k ' .4-.- v § q S n 7i9 ^ l K L 4/2nsn $- MINODANAO I4CHINA,'f/TAIWAN 1 CL da41> V- IETNAM Ss6mbange COlA P$¶WPINESV - 'BASILAN | Aj I E I S3 ; IETN LAM Y 610 MALAYSESIA . 1 801 N-'DONESIA Il11200 3.07 Manila Metropolitan Area: The MMA dominates the urban sector with 37 percent of the total urban population. 1/ It contains over 4.5 million in- habitants and has been growing at a rate of 5 percent per annum. The MMA comprises 5 cities and 23 municipalities which form parts of 4 provinces. These jurisdictions, with a total land area of 870 square kilometers, include a core city (Manila City), an inner ring of 9 urbanized communities, and an outer ring of 18 communities which have only recently begun to urbanize (Map 3.2). The inner ring has grown rapidly and now contains over half the MMA population. Manila City, on the other hand, has declined steadily as the population center of the MMA and now accounts for only one-third. 3.08 It is estimated that in the laraest urban centers. including the MMA, migration accounted for about half the total population gain in recent years. Because the largest Dronortion of migrants to the MMA in the nast settled in the core city, Manila City became the most densely populated area in the Philinninesj with 31474 npersons a snqinre kilnmet-er Overrrnwdin8 is reflected in the average household size of 6.9 persons, the largest among tha trhbn nrv:a 'f tha Philinnppnes. 2/ 3.0 UlInt-il venr1y recent,s- no tiveyl1 nAminia,-i-ix4u nv nrplit-icasl entbity- had jurisdiction over the entire area generally known as the MMA. This lack many be traced to such factors a-s its rapiA aroth anA th- resulting blurring of boundaries, as well as to the strong commitment to local government 9o my ng some -f e1-c al ut n am.-.4 I-o Ant1y. 4in NoveMber 1a75 w four cities 3/ and thirteen municipalities 4/ placed under the authority of a govenor nd Metopoitan Mrnila Commission responsibu.le for coordir,ating tne integrated development of the area. 11 In only nine other developing countries does the principal city hold a larger percentage of the total national population than does Manila, and in only two (Thailand and Peru) is there a greater dominance of the principal city over the next three largest cities within the nation. 2/ It is interesting to note that while the number of households in the Philippines increased by 43 percent from 1961 to 1971, the number of urban households increased by only 26 percent during that same period. The slower rate of household growth was due to an increase in the aver- age size of the urban household resulting in large part from migration and the high cost of land and other amenities. In Manila and its suburbs. the average household size increased from 6.1 members in 1960 to 6.9 members in 1970. Other urban areas increased in household size from 4.7 members in 1960 to 6.1 members in 1970. See Bureau of the Census and Statistics, (BCS), Population Census of the PhiliDnines. 1960 and 1970. 3/ Manila, Quezon, Pasay, and Caloocan. 4/ Makati, Mandaluyong, Paranaque, San juan, Pasig, Navotas, Malabon, Valenzuela, Marikina, Las Pinas, Muntinglupa, Pateros, and Taguig. IBRD 12007 r , I 1210 oo / NORZAGAHAY \ 12; 15' FEBRUARY 19161 ) \ ~~I I } __,'-_- \ LUZON IDO-ANGAT AREADP I c' Chi.& , . /I --N I AREA OF,; 5 II \% otp t____ / , /! ml NAVOA27RSROAfi=.l- f.///'- 1MANAOR 2B S. 120V45' CITIES AND MUNICIPALITIES F I MANILA CITY W. 3PASAY CITY -- ' A 6 MANDALUINr 3 7PARAAUE CY 0A24 BACOOR 'PI 10 ~ HIIPIE NAVTA 27 ROSARIO I IMALABON 28 STA. ROSA 12 VALENZUELA 29 OBANDO '2) 13 MARIKINA 30 MARIL.AO -* ROSICALBUDRIES ~ / TE7 S IA4 LAS PIRAS 31 SAN JO 0SE 16 17 AYT AY 34 ANTIPOLOIA -RA(E)ES/ IC t~~ASl DEINED B YTHMTRPLITANmllI .m ~ ''I:)z~, //__A/r~;? 18 PATEROS 35MANGONO 20 MUNTINGLUPA 37 IMUS - 21 SAN PEDRO 3A AR E w-e ~~___ IAfL MEOROIAONEGS EINDB rE 22 RINAN. P NG______| __: - -0 9 MANIAUMTRPOIAN MOROFIE V #l * / 23 CAVITE CITYME0 CALAMBA ICARD NA TDCD .'ITKIMTR_ bT :. PHILIPPINES AAr-DDn TAIAAAKIII A ADr-A UIh.P I I1%WI JL.I IIf-% IE[ I'IL ~Ii~I IA L I (Current Definitions of MetropolitanMai) rI4~~~~I,IN ERRING WO INTER RING -- - -MUNICIPAL BOUNDARIES - PROVINCIAL BOUNDARIES MANI LA CITY AND SUBURBS ASDEFINED BY THE METROPOLITAN /--- MAYORS COORDINATION COUNCIL(MMCC) MANIA MTROOLIAN REAAS DFNDBY THE MANILA METROPOLITAN AEASDFNDBY THE , BUREAU OP CENSUS AND STATISTIGS MANILA METROUPOLITAN AREA AS DEFINED BY THE.' / MANILA BAY METROPOLITAN REGIONSTAEI PLAN (MBMRSP)I MANI LA METROPOLITAN AREA DEFIFIlP BY fl4F / METRO MANILA COMMISSION B 10 lB5 S BNO I20*45 ~ ~~~~KILOMETERS LOSAJO 120I'45' ~ MILES 12100/2I 3.10 Other Urban Areas: The structure of anrd relationships amon-g the urban areas of the Philippines are rapidly changing. The greatest growth since 10960 has occurred i-n the population andu raiumer o,L c'et'es of 100,000 or more. The population contained within this group of cities grew at 4.2 percent per ar.num during the 1960s, compared to 5.0 percent for the MA and 4.0 percent per annum for all urban centers (Table 3.1). While the number of such cities doubled during the decade, in 1970 they continued to repre- sent about 20 percent of the total urban population. In contrast to cities larger tlan 100,000, other urban areas grew much more slowly, increasing on average by 3.2 percent per annum during the 1960s. While it is possible that there were significant gross population flows to and from these centers, on a net basis migration accounted for only a small proportioa of their growth. 3.11 A detailed discussion of the growth of small and medium-sized urban centers is hampered not only by inadequate information about their characteristics, but also by the lack of a clear and consistent definition of an urban place in the Philippines over successive census periods. The current definition includes places with certain urban characteristics, even though a large part of the labor force and land may be in agriculture. In addition, some of the places listed in the census as "cities" have populations of less than 5,000, while others with populations in excess of 5,000 are not defined as urban areas. Production and Employment in Urban Areas 3.12 The functional characteristics of the major urban centers are indicated by the distribution of employment. In 1973 about 29 percent of employed persons were in urban areas. Since 1965, when BCS data on urban employment first became available, urban employment has expanded at approximately the same rate as the labor force (about 3.5 percent per annum), with no apparent secular trend in urban unemployment, which ranged from 8 to 12 percent during the 1965-1973 period. This growth in employment was almost wholly due to the service sector, which accounted for over 80 percent of new jobs and increased its already large share of employment in urban areas from 60 percent in 1965 to 67 percent in 1973. Industry provided about a quarter of employment in 1973, while the remainder was in agriculture. 1/ 3.13 A large portion of the growth in service sector employment has apparently been in the informal subsector, which is estimated to account for over 60 percent of total service employment in both urban and rural areas combined. As such, this low-wage subsector is playing an important role by providing "safety valve" employment, especially for migrants, in the Pnilippines' rapidly growing cities. 1/ Because of the way in which the census defines urban areas. much of the urban population lives in areas that are predominantly rural in character. Consequently; mUch of the emplovment is in agriculture. See Technical Note I to this chapter. - 8 - 3.14 Employment in the MMA presently accounts for approximately one- tenth of the national employment. In 1970 services accounted for over two-thirds of MMA employment, and industry (manufacturing and construction) for slightly less than one-third. 1/ (Table 3.2) Table 3.2. Resident Employment in Metropolitan Manila by Sector, 1970 /a Metropolitan Manila Philippines Sector Number Percent Number Percent Agriculture 46,515 3.1 6,440,000 51.2 Minina and cuarrving 5,495 0.4 56,000 0.5 Manufacturing 332,750 22.1 1,472,000 11.7 Ut-ilitie-s 11,484 0.8 58,000 0.4 Construction 98,665 6.6 467,000 3.7 Commerce 207j937 13.8 1,531,000 12.2 Transport and communications 145,178 9.7 518,000 4.1 Services 595,554 39.6 1 ,32,000 9.0 Total- 1b 1,503,350 100.0 12,584,000 100.0 /a The BCS definition of the MMA reflects a larger share of the population eng aged in agricultural activity tha indicatedA olcewhnere in t-hic report. /b Because sectors with relatively little employment are excluded, col-umns duo not addJ to totals. Source: JBCS, Population Clensus of th-e Philipp'ns, 19701 A "an LS U -u r vey o usehOAU-, 1971. 3.15 The unemployment rate in Metropolitan Manila has tended to be significantly higher than the ratlonal rate. 2/ The BCS data on the labor force, employment, and unemployment show that between 1965 and 1971 mea- sured unemployment remained at approximately 6 to 7 percent for the Philip- pines as a whole, and declined within the MMA from 16 to 11 percent. In general the highest unemployment rates were experienced by the male population. 1/ There are, however, a large number of people in the information serv- ice subsector whose earnings and savings potential is not substan- tially greater than that of the mass of people in rural areas. 2/ Much of the unemployment in the MMA and other urban areas, however, is of a temporary nature; migrants often spend their initial weeks or months in the area searching for employment. 3.16 a M t-rnn14tanM nila has trAdit-ionall1v hbn anminnt not onny no the population center of the country, but also as a source of growth within the national econom-. The Mhsa or.nt-ribu4..tiont t-n agross nati-4oal nrodAuct has been increasing and is now over 26 percent. Her economic dominance is de- monstrate-d ev,en m,ore vividly by her regio4r.'s share of groaa dostic - prod which, according to the latest regional account figures available, amounted to nelarly one-half in 1967. I/ TIn c 311 s 1A.eo ont.r4ibuteA significantly to gross national product. In terms of gross value added, it ^ ~LALVU s JL UJ j _ < 4 _ _ I.. . L _ L . . _ 4 _ . 7 1 _ _ 4. _ I. .A.A 4 U L.L L .L A _ t cent in commerce; 77 percent in transport; 69 percent in communications and storage; al.u 5J4 percerLt iLn services. 2t/ ±L1;e IMALIl accounLts L'o a vrry 1high proportion of sectoral value added in all secondary and tertiary fields, with a relatively low percentage of the national labor force working 'n these sectors. This indicates that average labor productivity is substantially greater in the Mcanila area than in the rest of the Philippines. Level of Urban Incomes -/ 3.17 it is estimated that total family income in the Phiilppines grew by about 4.7 percent per annum in real terms during 1961-71, and that urban incomes increased at about 5.5 percent a year during that period. By 1971 the average family income in urban areas was about P 9,500 (US$1,500), more than twice that in rural areas. 3.18 According to income and expenditures surveys, the distribution of incomes in urban areas improved between 1965 and 1971; the Gini coefficient decreased from 0.53 in 1965 to 0.45 in 1971 (Table 3.3). The share of reported income going to the 40 percent of urban families with the lowest incomes increased from 11.3 percent in 1963 to 14.0 percent in 1971. The share of the top 20 percent decreased from 57.2 percent in 1965 to 50.7 percent in 1971. In view of the problem of understatement of income, however, it is not clear that these were, in fact, the actual trends. 1/ National Economic and Development Authority (NEDA). "Regional Accounts" (Manila, 1967, processed). 2/ As would be expected, its contribution was much less significant in agriculture; fisheries, and forestry (18 percent) and in mining and quarrying (7 percent). 3/ The main source of information about urban and rural incomes and ex- npndiriires nrp the Familv Tnrnme and ExnPenditure Surveys conducted by the Bureau of the Census and Statistics in 1957, 1961, 1965, and 1971. TheiTr useifiulness in Qstudyvina trends in inrtnme and penPnditure growth and distribution, however, is limited by the apparently exten- sive uderreortir f i.come and, to - lesser etn,epniue and population. It is believed that the underestimation of income was about 25 percer.t ir. 1956l., 19l6, anA 19t6, anA about --5 pcent in 1971. Private consumption expenditures were probably underestimated b-y about 19 percer.t in 196 -an 1'7 -percent -r, 1971, ..t -oghy..-ce Lt I e Ln I 7 VIIU I I jJnLatioaLL LL 71 i nUL 1965.1.Ly the national accounts in 1965. 3.19 A more accurate assessment of household incomes can probably be obtained by analyzing* chaanges i-n the udi st rifb;uti4on of famil1y consumption patterns over the same period of time. In terms of the distribution of f41 miy expen.ditures, the consumption among th-e 'lowest 40 percer,; in urban areas remained approximately the same from 1961 to 1965 - around 15 per- cent - but grew to approximately 17 percent ,. 1971 (T able J. TLIe sLIhare of consumption of the upper 20 percent, on the other hand, declined slightly in the same peroLd (1961 - 1971), from 48 percent Lo 45 percent. Any im- provement in the distribution of wealth in urban areas that has occurred nas probably Ueen influenced buy suclhZ fLactors as thle access to educational opportunities within urban areas and the upward mobility associated with hiigher educational levels. Thus the expansion in the informal service sUb- sector, which provides income-earning opportunities for those with even relatively little education, would also have contributed to this end. 3.20 The considerable data on income and expenditure in the Philippines indicate that urban incomes are substantially higher than rural incomes and that there are significant disparities both among and within cities. After the average minimum income of F 650 per capita 1/ is adjusted for the higher living costs of urban areas, 30 percent of the urban population was below the minimum income level in 1971 (Table 3.4). Urban poverty, however defined, appears to be concentrated in Metropolitan Manila and in the key urban centers of the Visayas, which have absorbed some of the spillover of the rural poor. Although the incidence of urban poverty is higher in the Visayas than in Metropolitan Manila, however, the absolute numbers of those in poverty are significantly less in the Visayas. 3.21 Living conditions of the urban poor are best illustrated by reference to the Metropolitan Manila area. Low income households in the MMA have tended to concentrate in Manila City, where 45 percent of the total slum and squatter population reside. Six municipalities in the inner ring also have heavy concentrations of the poor, while the outer ring has a relatively low per- centage who are poor. Available data suggest marked similarities in the characteristics of the poor within Metropolitan Manila, regardless of their location. 3.22 Poor families are distinguished from the rest of the metropolitan population by a lack of regular employment, inadequate housing, and a low level of publicly provided services. There is a greater concentration of employment in marginal sectors (e.g., informal services), more sporadic employment, and a higher percentage of unemployed. According to a 1968 survey of a slum settlement in Tondo, the common complaints of the respondents were the lack of water, roads, and toilets. 2/ The level of education among poor 1/ See Chapter 7. 2/ ADrodirio L= Laauian- "Slums and Squatters in Six PhiliDpine Cities-' Final report on a research grant from the Southeast Asia Development Advisory Grniin (SEADAG( of the Asia onriety (New Ynrk: SRADAG, March 23, 1972, processed), p. 70, and Zachariah, "Migration in the Philip- pines," p. 34. Table 3 3. Distribution of Family Income and ]Houseshold 4i,cpenditures in All PhiliTpines mid Urban Areas 1957 1961 _ 1965 _U_o 1971 Fatmily Income Group Total- Urbcn Total Urban Urban Total Urban Percentae of Total li a m Income Lowest 20 percent 4.5 4..5 4.2 3.8 3.5 3.8 3.7 4e.6 Second ;20 percent 8.1 8.0 7.9 7.5 8.0 8.0 8.2 9'4 Thi i 20 percent 12.4 12.2 12.1 12.5 12.8 12.0 13.2 13,4 Fourth 20 percent 19.8 20.0 19.3 19.5 20.2 18.7 21.C) 21.9 Top 20 percent 55.1 55,3 56.4 57.1 55.4 57.5 53.S 50.,7 Top 10 percent 39.4 39.6 41.0 40o9 40.0 41.7 36.9 33.4 Percentage of Total Household Exp nditures. Lowest 20 percelnt 5.04 n.a. 5.98 5.09 5.65 5.24 5.92 6.2 Second 20 percent 9.03 n.a. 10.32 9.78 10.25 9.67 10.1.8 10.52 Thira 20 percent 13.02 n.a. 14.68 14.56 14.57 14.1a 14.76 15.68 Fourth 20 percent 20.03 n.a. 21.03 22.36 21.10 21.37 21.98 24.59 Top 20 percent 52.88 n.a. 47.98 48.22 48.43 49.31 47.16 45.23 Top 10 percent 35.42 n.a. 31.66 31.09 32.49 32.73 30081 26.79 Top 5 percent 23.38 n.a. 21.00 18.73 21.43, 18,80 19.37 16.50 Gini coefficient 0.148 0.49 0.50 0.52 0.51 0',3 0. 49 0.45 Source: BCS, Famiily Income cnd Expenditure Surveys for 1957, 1961, 1965 andL 1971. - 12 - Table 3.4: Urban Poverty, 1971 Metropolitan Other Urban All Urban Category Manila Areas Areas Threshold income per capita /a P 870 P 700 n.a. Population /b (in thousands) 4,648 7,907 12,555 Population below thrshnold incomp (in thousands) 1,525 2,230 3,755 Percentage of population hblnw threshnlA i,'nme 32-8 9R 2 30n0 /a Pesos per capita in 1971 prices. /b Unadjusted urban population. See Table 3.1. Note: In Chapter 7, P 650 per capita is given as the average threshold i;ncom.e for th-e PT-iltppines, tha i, th ini--m-InIu aour.t r.eeded to provide an adequate diet and other essential needs. This income level, h0wever, is not an a u aL measure of -Lfin-Au. r.eeds 0i'n urbuan areas, where living costs are significantly higher. Different threshold incomes were thlerefore esti'mated for Metropolitan Manila and other urban areas. This was done by using the Philippine-wide estimate of P 650 as a base and applying to it the cost of living factors for Manila and other urban areas implicitly derived by Lucinda Abrera, 'rhilippine Poverty Thresholds," in Development Academy of the Philippines, Measuring Philippine Welfare: Social indicators Project (Manila, 1975), Chap. 5. Source: BCS, Family Income and Expenditure Survey, i971, and Mission estimates. - 13 - fAm1iles in MetroDolitan Manila, nowever, is surprisingly high. In various areas, between 5 and 15 percent have some college level training, although the average is lower than that of the overall metropolitan area. 3.23 In general despite the economir and snocal diadvanntages which frequently mark the poor in Philippine cities, squatters and slum dwellers nonsidar their nresent lives better than their former 'a4ti nor. Thos8e making such a positive assessment include 86 percent of respondents in a surveyi in. BOagu4, 9O0 nrcnt 4-in Cebu, 8822 percent 4in - , 8 -1 perce in Iligan, 68 percent in Iloilo, and 51 percent in Manila. It is interesting to note that the smallest perce.tage is found in Mnila. ,1/ Patterns of Urban Expedritures 34 F pater. of bot urban and rLUL. proLUUUcL.LUL aduLU 1UPLUIYMerL will be increasingly influenced by the consumption preferences of urban hoUUseh1oldUs , sinXlce the::i u-reas maey e expeCted LO auuouiiL for an increasingly larger proportion of population and expenditures. The urban population, which represents about 30 percent of the total population, is estimated to account for approximately 40 percent of total private expenditures in the Philippines. 3.25 Food accounts for nearly half the household budget of all income groups in urban areas (Table 3.5). There is a high level of malnutrition, however, and a correlation between income ievei and nutritionai status. Large, low-income families receive fewer calories per capita and less adequate nutrition than higher income groups, although the same percentage of the household budget is spent on food. Housing expenditures represent 12 to 13 percent of total family expenditures and have fluctuated around that level for the past decade. The percentage expenditures for most other items in the household budgets have remained nearly the same for the same period. 3.26 Expenditure elasticities appear to be highest for consumer durables, housing, medical care, education, and transport, all of which are greater than unity. Estimates suggest that elasticities for expenditures on services within urban areas are less at higher levels of income, following the same pattern as in rural areas. 1/ Laquian, "Slums and Squatters," p. 70. TabLe 3 .5 Distribution of Expend:itures .nd Expenditure Elasticities for TTrbpn ;'Pmilies Percentage Distribution of Family icpernditures j (In percent) _ menditure Flasticities 1__ 1961 19g Tb u III i F'oocd 50.3 08.2 48.9 .95 AD Alcohol and tobacco 5,7 4.6 4. 17 .,62 .63 1.C18 Clothing 6 6.0 6.3 .97 1 .02 1.63 Consumer durables 2.1 2.0 2. 6 1,39 1.19 Housing 10.9 13.7 12.5 1,.26 1.27 1.63 Utilities 3.o 3.6 3.6 .84 .34 Medical care 1.9 1.7 2.0 1.10 1.02 2.20 Educ-ation 4.C 4.4 .4.4 1.18 1.20 TransportatioDn 2.0 3.6 4.O -.69 1.42 2.77 Other services 10.2 10.1 9.13 .92 1.32 ( 1.90 Taxes and gifts 1.7 2.1 1.2 .32 n.a. ( Total 100.0 100.0 100.0 Sources: a/ Data from BCS, Family Income and acpenditure Surveys for re:Levant years. b/ Mission calculation of aggregate expenditure e:Lasticity using ratio of percentage change dur-ing 1961--71 of specific items to that of total expenditure, at 1965 constalt prices, after first adjusting survey expenditure data to correct for underestimation of pop- ulation and expenditures., c/ Unpublished per capita expenditure elasticities estimated by, A. &elly, Duke University, and J. Williamsoni, University of Wisconsin, from BCS, Family Incorne and Expenditure Survey, 1965. ELasticities are derived fror a log- linear expenditure function for each commodity group. d/ Data from Eklita A. Tan and Gwendo:lyn c. qlecson, "Patterns of' Consumption in the Philippines,, I Institute of Economic Development and Research, University of the Philippines,, Discussion Paper No. 74-9,5 July 15, 197T, processed. E4timlLtes uLsed a double 'log expenditure ftnction. - 15 - The Shortage of Housing in Urban Areas 3.27 The large and growing housing shortage in the urban areas of the Philippines has been caused by a number of interrelated factors, including the low levels of household incomes, high and rising costs of land and con- struction, a shortage of credit, and relatively inactive public sector involvement in construction and financing. Although the housing shortage appears to exist in all major urban areas, it is particularly acute in Manila. It is also especially acute for the low income households in rapidly growing urban areas, which results in a large proportion of the population squatting and/or living in dwelling units without either adequate access to services or credit to improve their housing conditions. Although the housing problems of the Philippines are not unique, they appear to be more serious than in at least some other developing countries in the region where the rate of urbanization has not been as high (e.g., Malaysia) or where the Government has played a more important role in the housing sector (e.g., Singapore). 3.28 Stock and Quality of Dwellings: In 1970 the total stock of housing in the Philippines was estimated at 5,573,000 units, of which 1,350,000 (or 24 percent) were in urban areas. It is difficult to analyze changes in the housing stock with any degree of accuracy because of the lack of annual construction statistics and the differentiation in classifications used in the 1960 and 1970 census. Roughly speaking, the annual growth rate of housine construction between 1960 and 1970 was about 3.0 oercent- with urban areas averaging 4.5 percent per annum and rural areas only 1.9 percent. 1/ These filures indirate that houcinQ in urban areaQ ha%R it.t kent narp with population growth and has not allowed for the replacement of physically inadpniqte dwell-ings. / The qhnrtage nf housing, reisilting in ovrcrowding, poor construction quality, and inadequate services, appears to be growing part-ici1r1 rapidly na pniilafinn nreactsr-A 4ne-,anaa Beca,,usa Mgropv^n^1 4tan Manila is experiencing the greatest inflows of migrants, its housing shortage is espec-ially acute. In a 107') stuy, the Pres4dent4al A-4sitn or. Uous- ing and Resettlement Agency (PAHRA) concluded that about 50 percent of the tn-tional housirgn shortage was concentrated 4i the Metropolitan Mvaniln A-ea. 3.29 A variety of 4ous4.g urits arecurrently 3vailable in the urban areas of the Philippines. Eighty-five percent in 1970 were single family dwellings, WI.LeL a pece.t Were aparte.tLLLs, ar&.U V WpL. -re -kesh.Li f 1/ International Labor Office (Geneva: ILO, 1974), Sharing in Development, p. 212. 2/ Of the total dwelling units classified as physically inadequate in -4 n 1 - 1 _ -- -l fL f I7 1970, 64 percent were in urban areas. See JacUo a. DeC Vtra, LVUUr.gL% Need up to the year 2000 and Its Financial Implications" NEDA, National Conference on Housing, Development Academy of the Philippines (Tagaytay City, October 19-21, 1973), p. 6. - 16 - dwellings. 1/ In urban areas, 38 percent of the households are estimated to own both their houses and lots, compared to 54 percent in rural areas: 19 percent of those in urban areas rent both their houses and lots, compared to 0.3 percent in rural areas. The types of tenancy of the remainin8 population are described in Table 3.6. 3.30 The growing shortage of housing in urban areas is related to the qualitv of housing and the access to services. Acrording to information from the 1967 survey of households, only about 20 percent of existing dwellings had nined water and flush toilets were avai1ah1e in only about 10 percent of the units. Electricity was used for lighting in between 15 and 20 prrcent of the dwellings and for rooking in only ahount 10 percent. 331 C-onstruction and Access to FinSnce: ExenanA4dtus on housing construction during the period 1968-73 averaged about 2.5 percent of GNP (Table 3.7). Virtually all housing construction has been undertaken by the private sector. The traditional heavier construction is gradually being joir.ed by mo,re sel f~-const-ructed, lightea,ra 1weligs as migr.ansmv to the urban centers and build makeshift housing. Government housing con- struction for the low-income noniuf-tin is niimorially r.egljcligibe, wit-h on-l 13,500 units constructed from 1948-72. Neither the Government nor private induAstry has rellated housing co.n-struction to overall urban development plan and this has resulted in an inadequate provision of services as well as of employment opportunities near residential~ --- --as par icual near l-- 1 SAl 6~jtSA76ACLL AjJjS.6 LULJ.L~ ~~* *~J.CLA .LQ. -& L, Fa 6Lt.LLU.LOL±JL. LA=OL AS.W income districts. 1/ BCS, Census of the Philippine Population and Housing: Summary, Vol. II, 1960; and BCS, "Metropolitan Manila" (Manila, January 1973, processed). - 17 - Table 3.6. Quality Indicators of Dwelling Units, 1967 (In percent) All Indicator Philippines Urban Rural Lighting used Electricity 22.9 62.8 5.8 Kerosene pressure lamp 14.2 10.7 15.8 Other Kerosene lamp 57.7 24.1 72.1 Others 5.2 2.3 6.4 Not reported 0.1 0.1 Total 100.0 100.0 100.0 Source of Drinking Water Water works 22.9 56.2 8.6 Comm,_-a! drilled wells 15 9 13-7 16 8 Private drilled wells 11.4 13.5 10.5 Closed well with Dump 11.5 6.7 13.5 Open well 21.3 6.9 27.4 Spring 11.5 0.8 16.1 Creek, stream, river irrigation 4.4 0.6 6.0 Rain water 1.3 1.5 1.2 Total 100.0 100.0 100.0 Toilet Facilities Water sealed a/ 12.8 Q4.0 3.7 Cement bowl b/ 7.2 14.1 4.2 r,Closed-, Itt 26. 0 '21 /.4 2_ 9. Open pit 17.6 9.4 21.2 1~~..L1.t,. .....J1.~~~~~~~~ 1 -, '2 0 A 0 Public toilet 1L.7 I.8 0 Pail system 0.3 1.1 None j3.L .0oU 40.7 Not reported 0.2 0.1 0.2 Total ~ ~ ~ lf.f 100 '00f.0 '00.0 lota'L ~~I.Vu.U IV.U% k LVU.kU Type of Tenancy Both house or building and lot owned 49.3 37.9 54.2 House or building owned; lot free or squatted on 28.9 17.4 33.8 House or building owned; lot rented 11.1 18.6 7.9 Both house or building and lot free of charge 4.6 6.7 3.6 Both house or building and lot rented 6.0 19.3 0.3 Not reported 0.1 0.1 0.2 Total 100.0 100.0 100.0 a/ Enamel or cement bowl with seat. b/ Set level with the floor, without a seat. 3ru'-ce "Living Quarters in the PhiliDDines." Journal of Philitoine, Statistics, Vol. 19, No. 3, (July-September 1968), PD. ix-xxtii. - 18 - Table 3.7: Value of Housing Construction in the Philippines (In millions of pesos, at current prices) Housing Construction Investment Year Public /a Private lb Total Share in GNP (In percent) 1968 1 771 772 2.7 1969 2 829 831 2.6 1970 1 895 896 2.4 1971 1 1,021 1,022 2.3 1Q72 2 1 214 1 916 2 3 1973 1 1,538 1,539 2.5 /a Tni-ava-m,-a in social housing by the p-i-ate sector. / 1 Tnc ..UAe- O,,4 ,. uing const *r.u. teA b- *th n.-o 4-n en4 . - - fl v A A -4 _ _mA v I, a E ..-a _ *.A-V . -- _& -A ..- r--_. -P * . ....a.usu VJ-Y public institutions such as the Government Service Insurance System anA t-he Social Security System. Source: Nz1'tional E ducation ar,d Developmer,t Authorit (NEDTA). ~'.'IAL L~ . ,,uLA1J&An~ ~ L.- -U~.VU 1 UL.LLLIJL A. 1.3 J.J3 2 The maJUr portion of. LLUUs.Lgr, fa.LU cin4Lr, Lhas alsU been carLL.LdU out by the private sector. Though there are public programs aimed at financing low-cost d-wellings, in practice they have nearly al-ways excluded the lower- income populations from obtaining home financing. The major formal sources of credit have been the Government Service Insurance System (GSIS) and the Social Security System (SSS). Their loans are available only to members, however, and usually benefit the highest paid employees in urban areas, particularly those in Metropolitan Manila. 3.33 Since the average loans of both the GSIS and SSS (about P 28,609 and P 21,767 respectively in 1970) amount to 8-9 times the median Philippine family income, it is evident that both institutions finance housing for families in the top 10 to 20 percent of the income distribution scale. Thus the relatively low earning GSIS member has, through his mandatory contribution, subsidized the housing of a few high income employees. A less important source of housing has been the Development Bank of the Philippines (DBP). Together, the GSIS, SSS, and DBP provided about 20 percent of the E 1,100 million estimated to have been invested during 1971. As far as the private sector goes, savings banks, commercial banks, and savings and loan associations have become increasingly important sources of housing finance and currently account for another 20 to 30 percent of investment in housing. 1/ 1/ ILO, Sharing in Development, pp. 214-215. - 1 9 - L evel and Quality of Other-T ULrbua loerv'Lces 3.34 D-irectly related to bousing an' ovqerall la.-,d use 's -he provLs'ion ~~. ~ L.A. L.. A L.D &I %&LA fAI 13I~.. LU la .L L.L L V.~LJ of public services, including social and physical infrastructure as well as transport fPacilities. Ir the Philippi.Les, urbar. growth appears to ave out- paced these services, and there is no set pattern for administering them in the ruiA or elsewhere. Some services are the responsibility of the central government, city or province, while others are shared among various levels of government or provided privately. Many variations in the provision of services exist among jurisdictions depending on the financial and technical resources available, historical precedent, and political factors. .3 s The range of services provided by a chartered city generally depends upon its income. Manila City and Quezon City are more autonomous than many because of their relatively high incomes; they can administer and even expand their services without depending on national aid. Manila City, for instance, provides free education from first grade to high school, while other local units of Metropolitan Manila rely much more on the central government. It is important to note that disparities in public service levels exist both among jurisdictions, as suggested above, and within jurisdictions, e.g., among neighborhoods within local units. 1/ 3.36 In addition, some services are unevenly distributed throughout the country, with the poorer regions less adequately served. This situation tends to promote the lack of development in those regions and results in migration to the richer regions. The unequal pattern of investment in public services within jurisdictions and among regions is apparent not only in the case of public utilities such as water supply and sewerage, but also in the provision of health and educational facilities, in the location of Government offices and financial institutions, and in transportation facil- ities. The lack of Government intervention in the provision of some services has tended to exacerbate the situation. The telecommunications system, for example, which is privately controlled, has experienced cutthroat competition in the high density areas and a complete absence of service in other areas where profitability seems low. This situation has led to underutilization of channel capacity and parallel services to the high density markets, as well as to a complete lack of service to about two-thirds of the country. 1/ The ratio of 1.26 hospital beds per 1,000 population in Tondo, the largest squatter area within the MMA, is far below the Manila City average of 6.48, and bus and jeepney capacity is below the city average in 80 percent of the below-average income districts, including Tondo. 3.37 Water Supply: The infrastructure for water supply, sewerage, and dirainage-- 4S inadequate throughout the Philippines './ (Table 3.8). 'rue m,ost- u a nag,c isa in.auqua Le L,n h .r..6hna. U. LLUO I ..k w.~ I k, ~ * L ,~ .1** nns recent National Health Plan (1975-78) cited poor environmental sanitation as a I-,IJLor Lactor in tLie i incidence of communicable dal in the country. Potable water is currently available to less than half the popu- LatioUn in the[ PrhilippineLs. OLLyL cLbL Uu 7 1 U6L.9m LiULn peop.Le CLr esiLraILedL to have had an adequate supply of water in FY70; 3 million of these were in the Manila Metropolitan area. Morte thai1,00 I 0 barrios, 800 uui---palties, and 6 cities are currently estimated to be without water supply systems. Moreover, existing systems require improvements and rehabilitation to meet the needs of a fast-growing population. The carrying capacity of the transmission and distribution mains has decreased over the years, and leakage has increased because of fractures in pipes as they settle, corrosion, and heavier traffic and loadings. 3.38 in the past, water was provided with little or no treatment in urban areas from springs or wells located in or adjacent to the urban centers. Although the growth in the urban population has now greatly in- creased the demand for a safe water supply, distribution systems have not expanded. The growing demand, the age of the systems, and the high leakage rates have gradually reduced water main pressure throughout the distribution systems; consequently the majority of those served receive an inadequate supply. There is low pressure during most of the day, and many systems are only supplied for a few hours at night. In many water districts, negative pressures exist in portions of the distribution system for at least part of the day, risking back siphonage of foul water into the mains. 3.39 There are few public faucets in many urban areas; their use is discouraged by many water districts because of excessive wastage. Fre- quently, however, one or two adjacent households will share a connection. Those not served by the public supply obtain water from springs, wells, streams, and rivers, or from vendors who sell water in cans or trucks. Pre- liminary census data show no substantial changes in the distribution of households by type of water supply used from 1967 to 1970; in addition, the -I,/ In the Mlan"ia area, wa-e is provided by the Metropo i Jtan -Wa t e wo rks L/ L.I LLI 7LcL IL±4L. a W L.1-- L.O F.UV4.U=U U)' tLIC-. CIT_LL', J.S L &~~Va~ W,L and Sewerage System (MWSS), while in the provinces the Local Water Utilities Administration (LW1UAJ aids in guiding water supply Udvelop- ment in districts with populations of 30,000 or more. The develop- ment of water supply facilities for urban populations or less than 30,000 and in the rural areas is under the Department of Local Government and Community Development. - 21 - Table 3.8 Percentage of Urban Population Served by Water Supply and Sewage Disposal Facilities in Selected Countries, 1970 Urban Connections Philippines Thailand Korea India Water Supply House connections 55 52 8 39 Public standpipe 10 8 4 17 Total population served 65 60 88 56 Sewage disposal Public sewer system 4 na 31 34 Treated 28 na ... 12 Untreated 72 na 100 88 Household svstems a/ 84 66 31 46 Total population served 88 66 61 80 a/ m rt r- spntie- tank- and bhuckeAts Source: Wbrld Health Statistics Report (Geneva: Wbrld Health Organization, 1973), Vnl -P- nprt 2.. tahbleq I and 5. absolute numbers of households with and without "adequate" 1/ service has grown at about thLe sard!,e rate as the totaLL ntLLber ofL LhouseUhoLds T hILe iLnadequacy and unreliability of existing water supply systems may even affect the location of industries, forcing then to locate near a water course to supply their own needs. 3.40 Sewerage and Drainage: Sewerage and drainage facilities in the Pnhilippines also need improvement and expansion. In 1975 not a single municipality in the country was completely sewered. Many districts rely principally on individual septic tanks, pits, and the direct discharge of untreated sewage into nearby water courses. Well-planned and maintained drainage systems are nonexistent, and iow-iying parts of the urban areas in many districts are subject to flooding each year. Because of population growth and the resulting increase in the quantity of sewage, the already high contamination risk to private wells and boreholes is increasing every year, especially during flood periods. 3.41 The prevailing method of solid waste refuse disposal in the Philip- pines is open dumping, coupled with burning and scavenging; this practice gives rise to health hazards such as rat and vermin infestation and the pollution of air and water. Because of inadequate sewage disposal facili- ties in the MMA, raw sewage is discharged into Manila Bay. Since no pro- vision is made for collecting industrial waste, companies are obliged to locate their plants near waterways, even though this means of disposal in- creases the incidence of disease and pollution. B. Urban Development Strategies 3.42 An increasing proportion of the Philippine population will become urban in the future. Although the natural rate of urban growth may decrease, the limited employment opportunities in rural areas will probably cause the rate of rural-urban migration to accelerate, at least during the next decade. The net effect of these two trends is likely to be a continuation of the present urban growth rate of 4 percent per annum, resulting in an urban population in 1985 of approximately 18 million, one-third of the total, compared to one-quarter in 1960. 3.43 Urbanization patterns in the Philippines have been influenced more by general economic conditions than by any snecific Dolicies for alter- ing the distribution of activities and population among regions, rural and urban areas, or urban centers of different sizes. Tn the past, the growth 1/ Adequate service for urban dwelling units refers to piped water. See Development Academy of the Philippines, "Measuring Philippine Welfare," Social Indicators Project, part 2 (Tagaytay Citv. January 1975, Dro- cessed), pp. 6-18. - 23 - of many of the urban centers was spontaneous; there are indications that it will be increasingly directed in the future. More attention will have to be given to the geographical distribution of the population across the national territory and to the decentralization of urban development away from the Manila Metropolitan area to a number of other urban growth centers. There will also need to be an intensification of efforts to deal with the problem of absorbing the growing population in individual urban areas. Because of Metronolitan Manilats large size and the inadequate living conditions of much of the population, particular attention should be given to improving the level of services in the MMA and makin2 them more accessible to low- income families. Decentralization 3.44 Despite the predominance of the MMA, a network of urban areas already exists across the major islands. They have gonw aA eentar8 of trading, agricultural processing and marketing, and industrial activity. The g:rowth of th.ese cenrs ha8 influ-nced a significant relocant1ionr of the population from rural areas, which has resulted in the formation of large sl8m and squatter cO.mmunitie-s. The heaviest flows of migrants have tradi- tionally been to Metropolitan Manila, There is a strong case for trying VW slo=" pouair.g^,-h"t- ha e vvn cle li nfdee- tralization. To date, the intermediate-sized cities have been neglected 4i +the Ph4lp-nes as afocus of poliey bn +the n.atennsl goeriment and even by their own municipal officials, who in most instances have given rn,Ir scnt+ t++tenton to 1boa AIn rnnn T-In rn-n4na h Kan nf lmi4+.nd TI L --lresources. 3.46 A policy of giving increased attention to the development of small and medium-sized cities and creating urban gro-wth centers has particu'ar merit in the Philippines. Such an approach should relieve population pressure both in the MKA and in rural areas, and increase the modernization spin-off which such urban centers would provide to the surrounding rural areas, in particular to rural areas in the Cagayan Valley and the Visayas, which have been neglected in the past. The recently-issued Presidential Decree 752, which grants to local governments the power to borrow from lending institu- tions, could significantly spur the growth and development of urban centers outside the MMA. Clear and detailed policy guidelines will still be required, however, to implement a policy of decentralization. 3.46 One regional center where significant growth may be expected in the future is Cebu City in the Visayas, which in 1970 was the third largest city in the Philippines, with about 350,000 people. Cebu, with the contiguous cities of Mandawe, Lapu-Lapu, Talisay, and Cordoba, is already becoming rapidly urbanized due to its mining and industrial potential. It has the - 24 - second most varied manufacturing base in the Philippines and its strategic location and accessibility make it the trading center for the centrai part of the Philippine archipelago. The Visayas currently contribute heavily to migration to both the aMA and Mindanao. The development of infrastructure and services in Cebu could aid in promoting private investment in the region and alter that pattern of migration. 3.47 On the island of Mindanao, two possible urban/regional growth poles - one in the south (Davao City) and another in the north (the Iligan Bay area) - should probably be encouraged. Davao is the largest city in Mindanao and the second largest in the country, with a population of 392,000 in 1970. The Iligan Bay area includes Iligan and Cagayan de Oro, with populations of 104,000 and 128,000, respectively, in 1970. The cities are separated by a distance of only 60 kilometers. The Iligan-Cagayan de Oro region has significant industrial growth potential, while Davao City is basically oriented towards agricultural production. Two closely linked urban centers such as Iligan and Cagayan de Oro should provide flexibility in planning the growth of the region and opportunities for developing specializations in close proximity. Cagayan de Oro presently has Xavier University and several good secondary schools, which offer the opportunity to build on an already existing educational base. Iligan City, with its growing industrial base, could develop specialized facilities for technical and machine-trade skills. 3.48 In cases like the Cagayan de Ore-Iligan area, where there are several urban centers to be built up within a single region, a persuasive case can be made for fostering development over more extensive areas than individual cities. Some regions (e.g., Southern Mindanao) need better trans- Dortation systems between their urban areas. Regional policy measures, perhaps introduced through the Regional Development Councils, 1/ should aid in imDroving transDortation and communications linkazes among the respective urban centers. A. planning approach which takes into account areas laropr than single citieS should also consider the comDeting demands being made on the land by urban-industrial needs and by agricultural activ- ity. Prime agricuiiltiir2l lnd shnou ld be nrot-PetPd frnm urban encroachment- so that it can continue to provide food for the growing urban complexes. Particular attention will have to be ogivn en t-hbc nrnhl nm in the Maniln area and in the Western Visayas. 3.49 The question is how public policy can promote decentralization. Th=e r-ajo a.1 2jJLv. C-OVenu.es open to Government are t em f 4ndustry t-o locate in these growth centers and the improvement of their physical and social infrastructure. These closly intterrelated measures are discussed in some detail in subsequent sections on industry, water supply, housing, and transportation. Other sectors which have an important beari.ng On the development of growth centers are discussed elsewhere in this report. Of 1/ See Cnapter 4. - 25 - particular note are the Government's efforts to improve the electric Dower base outside the Central Luzon region. The power program proposes a re- lativelv rapid annual growth in caDacitv in Mindanan and the Visavas (13 percent) compared to Luzon (8 percent). 1/ Distribution of Urban Services 3.50 The need to improve the distribution of services within cities is particularly relevant for Metrnnnlit-n. M.ni1a. MnailA dnTnin at the urban sector, and even with a successful effort to decentralize urban gr,ow., th, 4i w411 reai4. byhu far the Ph4li4p4ineo 1-aest ity ir. 4 he foreseeabnle future. It accounts for a large share of the urban poor, and has not been able to cope with its rapid ---ul atio rwth. Aa a result, a' 1r and growing number of families do not have access to essential urban infra- structure andu servi ces, notabl,y wa-e supply, sewaediposl, -an tns= ~ ~LLU ~ V.L ~ L. W gL J. ~U.'r'J.L , UJ.OjJUam., dZIU LcL portation. In addition, the housing market has not provided housing at stan,uaruds thlat .low income families can aLforU, wi.hl the- LL1UVe.LLU.LC UdVe.Uve - ment of a large slum and squatter population. For these reasons, an intensive eLLort must ue made to imyprove tne living conuditons of Low income h'ousenuhaS in Metropolitan Manila. In order to have the maximum impact on as large a population as possible, trade-offs between the quality of service and the number of persons covered should be made in favor of the latter. Measures to improve services in Metropolitan Mianiia are discussed in more detail in the following sections on water supply, housing, and transportation. 3.51 Administration is an important element of any attempt to improve the levels of public services. The newly created Metropolitan Manila Commission under the overall supervision of a governor should facilitate the coordination of the activities of 17 local governments. Attempts at metropolitan area coordination in the delivery of certain services, partic- ularly fire control and police activities, are now being made. 3.52 A National Housing Authority has also been established recently and is expected to have a separate division related to Metropolitan Manila. The Government is considering the establishment of a Metropolitan Manila Transportation Council which would be responsible for the planning and budget- ing of all transportation projects. Each of these agencies is expected to be transferred eventually to the new Metropolitan Manila Commission. They should make it significantly easier for the Government to formulate and implement coherent strategies for the individual sectors and to focus available resources on disparities in service levels among jurisdictions. 1/ This effort is discussed i&n detail in append'ix I..I. - 26 - Sector Strategies 3.53 Strategies for four sectors - industry, housing, water supply and sewerage, and transport - that are particularly pertinent for urban de- velopment are set out below. Other major sectors - electric power, health, and education - with significant implications for the urban strategy proposed are discussed elsewhere in the report. 1/ In general, the strategies proposed in these sections aim at a more equitable distribution of public and nrivate resources both among urban areas and within urban areas. 3.54 Industry: Manufacturing activity is concentrated in the Greater Manila area and the adjoining provinces of Central and Southern Luzon. Sta- tistical data relating to industrial establishments employing 5 or more workers indicates that 45 percent of all industrial workers are mplo-ed in the Greater Manila area alone. More detailed information on regional distribution for establishments emnloying 20 or more workers indicates that of a total of about 332,000 industrial workers, 156,000 are employed in Metropolitan Manila 1Q00;000 more in other arts of Luzorn, and only 76,000 in the rest of the country, chiefly in Negros, Cebu, and three industrial centers in Mindanao. 3.55 The Government would like to distribute industrial employmen.t on a much wider geographical basis, and it appears to recognize the complementary role of laroe and small ind-ustriFs In the process. 2/ So far as large industries are concerned, it has made a beginning by encouraging the ex- pansion of some indu,stries in areas where little exists at present, while prohibiting such growth in the Greater Manila area. An example is the textile industry, which is imo. to provide substantial em,plo-yment per unit of capital invested. 3.56 Because of the need of industries, especially large-scale ones, for substantial infrastructure facilities and support 'rom other industries, Government policy must emphasize not only dispersal but also creation of areas of industrial concentration. It wouuld not be practical to encourage a dispersal of individual units unless the units are large enough or dependent on, local availability of raw materials to an extent that justifies the creation of necessary supporting facilities at a new location. 3.57 The Government is proceeding along a number of avenues. The Board of Investments (BOI), for instance, often negotiates the location of a proj- ect before it is approved. At the same time, Government effort is beginning to improve the basic infrastructure in areas outside Manila. Perhaps this is most noticeable in the power sector where the Government has embarked on an ambitious program to generate and distribute electricity in Mindanao i/ See Annex III and Chapter 7. 2/ See Chanter 6 for a more detailed d4scussion of these issues. and the Visayas. The Government has also pursued a policy of location by fiat, such as prohibiting certain industries from locating in Manila. whnile such a policy can prohibit investments in one place, it cannot guarantee investments in desired locations. The requirements for investments in a particular location are adequate supporting infrastructure (such as electricity, water, transportation, and financial services), the availability of qualified labor, and access to markets. Fiscal incentives without the inf.rastructure, labor, and markets are unlikely to be sufficient to induce most investments and, with these requirements, are probably not needed. The emphasis of policy should therefore be towards providing the necessary infrastructure, including the establishment of industrial estates in a few selected growth centers, rather than relying primarily on fiscal incentives or administrative decree. Housing 3.58 The ILO mission estimated the future growth of demand for housing in the PhiliDDines. 1/ as a function of the rate of growth of household formation, the rate of growth of real income per household, and the income elasticity of housing demand. Under the assumption of 5 percent real income growth per household, the ILO model indicates the growth of housing con- st-rtuction to be about 9 Dercent Der annum during the decade. Applying this rate to the estimated investment in housing in 1974 results in a housing invPetment of PR -1R billion (at 1974 orices) by 1980 or about 2.6 percent of GNP (Table 3.9). This forecast, however, does not include public housing, because the analysis is bhased on effea-tive demand, whih is nealiaible for low income groups under existing supply conditions. 3.59 The combination of very low average incomes, high natural rates of popu'lati4 on growth, rapid urbanization, anr. pnibllc- sector inar-t7ivit1v in -* yy~Ues& r4W~* -..- L......., --- the field of low cost housing has accentuated the housing problem in the DI- 4 ~,4 . . 1`...,1- . -f .A- -f-p @c nn-tle-niln~ipv nA-littp in J &L.L. ipp Lines .LL The &WaaaA 5= - - - shous -- - c in the larger and faster growing urban centers, as evidenced by their high concentrations oe squatters. I'm nuber ol estimates, although roUgh, 4ir.di that the housing construction needs of the Philippine population will be ernormous over tlhle next tWO decades. One f-----, for n4rste Sugge8e that the present annual pace of housing construction of two dwelling units per 1,000 populatiLoi will satiLs'Ly orL.ly one-;hird o L_ the futr zd 2 1/ ILO, Sharing in Development, pp. 218-219. =9/ or instance, De "Vera in "P.ousing lee-Is up lo th-e Year 20"estir-ates '1 ~~JL .L.w aII.~, '~ ~ LLL Li J~±L , Li~tL UfA L. LI L i IL'.UU U L4C% the additional housing requirement as 3.2 million units during 1970-80 and as M * . mlliXon duurLing 1 9700-805, iXcrza5LIIig Lte toLaL sLock Dy 1 I percent during 1970-80. K.V. Ramachandran, et. al., in "Housing Pro- jections for the PhIlippines, 1960-80," Econom:ic Researcn Journai, Vol 19, No. 1 (June 1972), pp. 20-33, estimate the housing need as 10 million additional units during 1960-80, more than two and one-half times the housing stock in 1960. - 28 - 3.60 The large variance between estimated housing requirements and production reflects a fundamental discrepancy between the current conditions of supply and demand in the housing market. Though this discrepancy cannot be measured precisely, its magnitude can be illustrated. While almost all housing construction in the Philippines is undertaken by the private sector, only a very small percentage of families can afford housing at current market prices. It has been estimated that only 14 percent of urban families, i.e.. those with annual incomes of at least P 10,000, can afford current market prices for housing provided by the private sector. The dilemma may be roughly illustrated by using family expenditure data (Table 3.9). Assume a family with an annual income equal to the national average familv income (P 3,746 or US$564), 1/ no savings, and 55 percent of total income spent on food. After food exDenses. the familv has P 1.690 (USS254) left to meet other living needs. It seems reasonable to assume that a "low priced" house nf P 28-O00 (II$4-217) 2/ i9 beyond such families' means, since euen under moderately concessional terms (10 percent downpayment and 10 percent interest ouvr 92 vpers), this wotulrd inunlup an nnnim1 ouitlav of P 2,800, which is almost 80 percent of total income and one- and two-thirds times .llr:inhalin.n. A/ Tf thi : citi,tiinn ic diffifiilt fnr a nprcnn wit-Ih :n average income, it is hopeless for the poor. 3.61 The income constraint to increases in the housing stock is becoming more severe because the costs of land, building materias and construtr have been rising faster than the average level of family income. The cost of dwellings has also been affected by the gradual adoption (and often imposition) of higher construction standards. Because of this fact and the shortage of credit available to low income f-41 4-i it 4i 4impr-le-.,l that the private market will be able to provide adequate housing for the b-ulk ofC the population. Ile need for Govern,ment ineveto --s- -_lear, UL _L u. Lil~ LjU. LJ L. 1 i~ LLLIi % \JJ L~Lt~L .LnLLL~J.V LL .L LLLL .L0 L..Lu~ar its exact role less so. Because there appears to be a great deal of undeveloped anu unuderdevelopedu Lard w.thin thge presently urbanized area of the !*A, one step the Government should probably consider is the formulation of a policy to locate, acquire, au develop vacant lands for housing anA general urban development. 1/ Approximately one-third of IThA families, and 45 percent of Tondo Fore- shore familHes; Pern less thnn thic amnunt. 2/ A Jnrld Pink ,irh:n surrvey miic ion in 1Q73 estimated thieXs to e a1 the lowest priced house currently being brought to the market in _/ This isa crude calculation, based A estimates of cost of house, income, and percentage of income which might be available to purchase housing. - 29 - Table 3.9: Family Expenditures, 1971 (In percent) Expenditure Total Family P 500 P 3,000 to P 6,000 and Item Expenditure to P 2,999 P 5,999 over Food 53.7 63.6 54.7 42.5 Clothing 6.2 5.4 6.4 6.6 Housing and furnishing 17.7 14.1 16.6 22.6 Recreation and personal care 5.2 3.9 5.2 6.8 Education, trans- portation, and communications 6.6 3.6 6.5 9.6 Miscellaneous 10.6 9.5 10.6 11.9 Total 100.0 100.0 100.0 100.0 Source: BSC and Jacop S. deVera, "Housing Need up to the Year 2000 and Its Financing rinTmn1lir ns," NEDA, Nationnal rnfenrev on Housing, Development Academy of the Philippines (Tagaytay City, October 19-21, 1973). 3.62 As noted above, the G-over--nrto past involvement in constructIng housing has been negligible. The largest Government effort to date to aid the lowerAic-.omne groups has beer. the relocation of squatter families in the MMA to resettlement sites. By 1973, over 16,000 squatter families, or about 20 percent of that portio.n of the *MLA sqe atter population. bel4 eved to be indigent, had been resettled; more than half of them went to three project areas = Carmona, San Pedro, and Sapang Palay. An additional 9,000 families were relocated to their province of origin or elsewhere. The - 30 - resettlement program has suffered serious setbacks, however, with families abandoning their resettlement sites and returning to the MMA. 1/ 3.63 Although the public efforts have been small and less than successful, fully meeting the housing need is beyond the financial and physical capacities of the Government alone. To triple the rate of housing investment, which some projections indicate is necessary, would require the Government to invest annually some 4 to 5 percent of GNP in housing - almost double the rate of total public investment - and would involve a considerable subsidy. The Mission believes that a more realistic goal for the Government at this time would be to allocate public funds equal to about 0.2 percent of GNP by 1980. These funds could provide inexpensive home improvements for existing dwellings and the low-cost construction of new dwellings. Standards could be tailored to the income level of the population so that there would be full cost recovery. Designs could attempt to take advantage of the obvious capability of lower income groups to construct their own housing. and emphasis could be put on sites and services projects and the upgrading of existing dwellin2s. The Drocess of extending minimum urban services to the poorest areas in what is known as squatter upgrading should serve to significantly improve the living conditions of Manila's poor if it is made on a comprehensive, area-by-area basis 2/ and accompanied by measures to regularize land tenure. 3-64 Tf housing investment of this tvye and magnitude is to occur, however, the costs of construction materials and land will need to be stahi117ePd Attention will also have to be given to legislation related to the provision of housing if low-income groups are to receive more benefits than" they have in the past. 3.65 wAn indicative program of sites and se.vces housir.g and squatter upgrading has been roughly sketched for Metropolitan Manila by the World 1/ Nearly 80 percent of those relocated to Sapang Palay were reported to have returned by 1973, and 45 percent of those in Carmona to have abandoned their allocated lots. The main reason for the failure of the resettlement schemes seems to have been the distance of residential sites from employment opportunities. As a result, with the time and money costs of transportation high in relation to their low incomes, heads of families found it necessary to stay in Manila during weekdays and were forced to maintain two households. Many appear to have given up that system and have relocated their families to more central locations. In addition, these specific projects appear to have been poorly sited and planned, and there were features - such as inadequate basic services - which reduced their desirability. 2/ Sites ant services programs involve the provision of plots of land, basic infrastructure, and credit for building materials that enable the recipient to construct his own dwelling unit. Squatter upgrading programs usually involve the simultaneous rather than phased provision of water supply, sewerage, surface water drainage, roads, and footpaths. - 31 - Bank's Transportation and Urban Projects Department. Because it was in- tended that the program should be self-financing, the target population was taken as those between the 15th and 70th income percentile. The group below the fifteenth percentile was assumed to largely lack an effective demand for permanent housing, while the top 30 percent could be provided for by the private market. The target population was divided into: a) those in existing squatter dwellings, which would be upgraded, and b) the incremental population which would require new housing. For each group three different packages were used to reflect the range of income levels and, hence, their ability to pay for housing. The unit cost (in 1974 prices) for one new unit ranged from US$1,070 to US$1,675 and for upgrading from US$470 to US$600 per unit. 1/ By 1980 the program could be providing new dwellings of a site and services nature to about 75,000 people and upgraded housing to about 400,000 people annually. The annual costs of this program would, by 1980, reach about US$33 million (1975 prices). Over the 10-year period 1976-85, the program would cost about US$350 million and improve the housing conditions of almost 3.5 million people. If extended by about a third to cover other urban areas, the overall program would be approximately the equivalent of 0.2 percent of GNP by 1980. This would be a substantial improvement over the past provision of public housing, yet it would be modest in relationship to the private housing market. 3.66 Self-financing is the key element of this program. Loans would be extended to the homeowner at 12 percent for 20 years to cover the full cost of the housing investment. Financing could be provided by the National Housing Authority (NHA), which would also implement the construction and upgrading comnonents of the program. In this case, the NRA would need considerable financing to bridge the gap between annual construction costs and annual loan rpnavments If the nlan for Manila were extended to other urban areas, the bridging finance required in 1980 would be about US$45 million nWA financing could eh nrovidpe from n numhbr of sources: enqitv contributions by the national government, local market borrowing, and foreign assistance. If shared equally among these sources, the burden. wud be manageable. Although these figures are crude, they do indicate that the Governmenrt could makA cnf1 asib impact on the housing plight of lnwe in.nme groups without putting undue strain on the national budget. 3.67 The projections given above imply that housing as a share of GNP Wul ir.crease from about 2.3 percen.t ir. 1974 to about 2.8 percent* i. 1980 and, if continued at these rates, to 3.0 percent of GNP by 1985. The p i aC ma4-, .- A__1 wA - 91 A @4 11 ac o n fo th buA of ho si _ con AAA991 ;AAstrucAA A- _| .vi uauL wVu.Jus s*,,L L.J & UJ UA. LVWL- 4 'SJur, UV..LU although there would be a considerable increase in public expenditures in ouus.Lug - from 'less tblan F , million at present LUo abou;L Fn 3 .00 . million by 1980 in 1974 constant prices (Table 3.10). 1/ These costs are based on estimates in the Tondo/Dagat-DaRatan Urban Project proposed to the World Bank for financing. - 32 - Table 3.10: Housing Forecast Investment Housing Stock (In millions of constant Share in GNP Year (In millions of units) 1974 pesos) Public Private Total Public Private Totai 1960 4,791 n.a. n.a. n.a. n.a. n.a. n.a. 1970 5,573 1 1,720 1,721 n.a. 2.2 2.2 1980 6,630 300 3,780 4,080 0.2 2.6 2.8 1985 7,570 635 5,820 6,455 0.3 2.7 3.0 Source: Mission estimates. 3.68 Owing to deficiencies in housing data, the number of dwellings that this investment would create can be only roughly estimated. If the average unit price of private housing remains at about the same level in real terms as is estimated for 1970, this investment would provide about 830,000 new units and 160,000 upgraded units during 1976-80. Allowing for some replacement of existing units, the housing stock at the end of the decade would be about 6.6 million units compared to 5.6 million in 1970. On a per capita basis this would mean an increase in the number of persons per dwelling unit from 6.6 in 1960 to 7.5 in 1980; however, if construction continues at this pace, by 1985 this ratio should not deteriorate further but remain at about the 1980 level. 3.69 Water Supply: The Development Academy of the Philippines found that, while the proportion of dwelling units with adequate water supply in- creased from 43 percent in 1956 to 51 percent in 1970, the absolute number of dwelling units without adequate water increased by almost 40 percent (Table 3.11). 1/ In addition, the lower-income families within urban areas frequently have less adequate access to water and pay significantly higher nrODortions of their incomes for it than do uDDer-income households. ',t /V Devejlopmer.t A of. th Philippines4- , M--t.0 - t..he Qualit of Life: Philippine Social Indicators, (Manila, 1975). - 33 - Table 3.11: Dwellings with Adeauate Water /a Number of Units Number of Units Ypar With Adenuate Service With Inadeauate Service (In thousands) (In percent) (In thousands) (In percent) 1956O; 1,63A'Al LL9 Y1 42R 8 Z1R1 57_2 1967 2,688 51.3 2,439 48.7 1 97rb 3,112 50.7 3,027 49.3 /a Adequate service is defined by BCS as piped water for urban units and pipe -ate - o_r dr-illedA anA closed W-11 '19for rural ur.its. ju U VUIULML UkL 1UUO=11U.LUAO W.L.L C&L =%aU J~L=L CLAU16 ±ILL~LaJACqUaL ib=V.LCC=. Source: BCS, rPhlippine-b Sat stibL.Lual. SULVeY yL ofUUb=kU.LUbd, .y 197ju BCS, Survey on Housing, May 1967; Census of the Population, 1970. 3.70 The Government has embarked on an ambitious water supply program to remedy the past neglect of this sector in investment expenditure. Water supply requirements to be met by the Metropolitan Waterworks and Sewerage System (MWSS) are expected to increase from the present demand of about 395 million gallons daily (mgd) to 830 mgd by 1985. To meet this demand, the MWSS has embarked on a long-range Metro Manila Waterworks Project to be under- taken in two phases. The first phase aims at increasing the total water supply to the Metropolitan Manila area by an average ot about 12U mgd, which the Asian Development Bank estimates will meet demand up to 1982. The implementation of this project would substantially increase the level of investment by MWSS; expenditures could increase from a level of about P 30 million in 1975 to an average of P 270 million annually during 19/6-80. 3.71 An ambitious development program for provincial waterworks systems has also been proposed. Approximately 300 communities of 30,000 population and more are now in need of safe and reliable water supply systems. These communities represent approximately 50 percent of the total Philippine population outside the Manila Metropolitan Area; many are areas of rapid population increase, where traditional water sources such as shallow wells, springs, and streams have become inadequate. 3.72 In 1973, the Government initiated a major program to provide potable water to the provinces. 1/ The Local Water Utilities Administration (LWUA) 1/ See Presidential Decree 198, the "Provincial Water Utility Act of 1973." - 34 - was created in that year to provide standards and regulations related to the design, construction, operation, and fiscal practices of local utilities as well as technical assistance and training programs. It was also given the power to monitor and evaluate local water utilities, to undertake systems integration, and to provide loans for developing local water utilities. Staff have been appointed and foreign consultants obtained to provide technical assistance in institution building and engineering assistance. There is no doubt, however, that it will take several years before LWUA can provide the technical assistance needed without relying on outside consulting services. 3.73 Using funds Drovided by the aovernments of the United States and Denmark, a series of feasibility studies has been initiated and construc- tion of a nimher of municinal wat-er supply systems has begun. During 1975-79, LWUA plans to improve and expand the waterworks systems in 16 mnior arpasQ inrl .,dinc Ranlnro San Pahin nfl-12 Gr2avsn riA nrfn, Tacloa%n, Baguio, Batangas, and Mandaue. Information is still needed on the facilities availahle outside the urhan renters as well as in the rural areas of the Philippines. Studies will have to be undertaken to provide that information, to investigate the nossihililries of r08t reoinve , from the potential beneficiaries of the systems, to review the financial aspects, and to iA o e4 fu nrn4onh-e fn n-a4lcQ 1 f4-.--4en 1- 1iA4-- a 4-A .I r -J x i - ~- r - ---- -- *-* O, --C. 3.74 Sewerage anA Drairge: The 4improved prov.44sn of wat su.. in the MMA and in other urban areas will have to be accompanied by the adequate colle.tion .an Aisposal of waste- -.ater- tru sewage anailitie if stagnant water is not to increase the already formidable health hazards. The_ pro-ision of solid waste dispsal acjlities_ -_ equll -important.- At J.LI= FUViD.O.LuL A.i SUL.LIL W ML Ui- J'Jmai- LaIL.L.LLiLO .LQ M4UCL.L±Y AAUPULL4XUL. ZIL present, solid waste collection and disposal is left entirely for the in- dividual community to undertake. The only sewerage development program proposed at the present time -- the review of an earlier study of the situa- cion -- is concentrateu enLirely within ahe mzA. Since open dumping is the prevailing method of disposal, the inspection and spraying of dumping sites is a critical first step in inhibiting pollution; draining the poblacion in each city may be the beginning of a solution to the problem of waste water disposal. 3.75 Flood Control: As a result of intense and prolonged rainfall during the monsoon and typhoon seasons, the Philippines frequently experi- ences serious flooding over large areas, both urban and agricultural. In the Manila area alone, more than 20 kilometers of drainage channels, known as esteros, which were originally natural drainage ways for storm water disposal, have disappeared. In the delta area of the Pampanga River System, riparian property owners have caused the silting up of river beds and banks in order to claim such silted area under the doctrine of ownership by natural accretion. There is extensive squatting on existing floodways brought about by population growth, the low incomes of the mass of the people, and by haphazard construction of embankments and bridges without adequate waterways, which causes backwaters to innundate the upstream areas. Largely as a result of the considerable damage done by the 1972 floods, - 35 - flood control has now been upgraded into a significant infrastructure ex- penditure. Expenditures on flood control increased from an average of P 6 million a year in FY67-72 to P 280 million in FY75. Judging from the creditable achievement of the last three years in this sector, it should be possible for the, Government to maintain its momentum in this area. 3.76 One of the main objectives of the future Government program is a solution to the flood problems in the MMA. The program would include the construction of the Mangahan Floodway to divert the excess flow of the Marikina River into Laguna de Bay; the construction of river banks on both sides of the Pasig River; pumping stations to drain flooded areas which cannot be drained by gravity; deepening and widening natural drainage streams; and renovating and improving existing drainage facilities. Other major flood control work is also planned or proposed for the the Central Luzon, Mindanao, and Bicol regions. 3.77 Urban Transnort Services: The maior urban transportation problems of the Philippines are concentrated in Metropolitan Manila, where chronic conges- tion has become the normal condition. Other cities of the Philipnines do not have transport problems of the dimension and magnitude confronted by Metropolitan Manila whirh would reqniire ontitide a.QiQtanrnce Their maior task for the future is to assure a development pattern which will avoid the problemscrated by over-concntranand dispersion. These growing cities have unique opportunities to obviate the need for transport by avoiding long distsr.ce commutin between residence and m-lo-ent. There- fore, this section focuses on transportation facilities in Metropolitan Mr.nla. 3.78~ ~ ~~ ---- Manila' tasottn rbe.s result lageyfrom excess-ive .1 J s~L.~LLa A. Li&#_.CLL0p.JL Ia&FL.&LJ FLWUA4.LU .=& 6~J.J ALJV crowding of population and activity into a small land area 1/ and from the v____ __________a A _ J. sor- 1 -3 _ __1- _ _2__1_ U±.ULueL XLy arL Lra1gemeIIntL of .LaIUU UbC2 LLIcLL tL M J E.La.-LLLg .LLoL%Ii aOLL%.Ly 6 LcLLCL demands on transportation requirements. The high density of urban buildings dLIULIL~ L0LL~LLL~LUL 01 ~1U9±UUI~LL .LL UWLIUWUL dII.La 1L4Vt: L;LCcaLtU a VU.LUUIC andu th-e concentrat'Lon. of' eup'loy-menlt inL do-wnto-wn 7li. r' la --e crete a3 -vlm of passenger and freight traffic that has become increasingly difficult to accommuuodate effectively. TLhle lines of1 automobiles, Jeepneys, buLseys, taxias and other vehicles inching their way through Manila's numerous intersections are o'vious mani1.estations Ul a cont'L±uuing anu growiLng imba lUance buLweeLL transport demand and available capacity. 3.79 The situation has been exacerbated by the fact that population growth and transport demand have been accompanied by a large growth in private passenger vehicles. With only about 10 percent of the total popu- lation, Metropolitan Manila now has over 40 percent of the totai registered 1/ The Manila Metropolitan Area comprises 870 square kilometers out of the total land area ot 300,000 square kilometers. - 36 - motor vehicles in the country. In 1975, the nation as a whole had one motor vehicle for every 60 inhabitants, while Manila had one for every 12 inhabit- ants. The available data show that a large portion of the total registered vehicles in Metropolitan Manila were cars, which comprised about 69 percent in 1975, followed by trucks, which accounted for 26 percent. The number of buses accounted for a mere one percent and jeepneys for 4.6 percent. Be- tween 1971 and 1975, the number of registered motor vehicles in Mietropolitan 14anila increased 36 percent, from 242,200 to 325,500. Trucks registered the largest growth, amounting to 46.6 percent, while cars grew 34 percent, jeepneys 12 percent, and buses 7 percent. Clearly, the growth rate of buses and jeepneys has been substantially less than that of private cars as well as that of the population. Table 3.12: Growth and Number Registered Motor Vehicles in Metropolitan Manila, 1971-75 /a 1971 1975 Percentage Growth Motor Vehicle Number Percent Number Percent 1971-75 Cars /b 167,300 69.3 224,100 68.5 34.0 Trucks 58,000 24.0 85,000 26.0 46.6 Jeepneys 13,400 5.6 15,000 4.6 11.9 Buses 2,700 1.1 2.900 0.9 7.4 Total 241,400 100.0 327,000 100.0 35.5 /a The table does not include motorcycles which registered the largest increase - 70 percent - from 1971 to 1975 (from 20,806 to 35,400). /b Includes automobiles and jeeps for private use. Source: The Land Transport Commission and the Board of Transport. 3.OU iTe transport system in M Ietropolitan !'adL Ii is amItIUL enILrely road-based, with rail commuter traffic comprising less than one percent or daily passenger trips. The major network consists of four semicircuin- ferential roads, all of which are around the Central Business District (CBD) and none of which is complete, plus nine radial roads, most of which are complete, extending from the CBD to outlying areas. Most of these roads have either four or six lanes. 3.31 Otherwise, tianilats road system consists of narrow and winding roads running through densely settled areas. Most of these roads have been built to standards that are inadequate for today's traffic. Typical - 37 - features are narrow rights-of-way and lane widths, poor drainage, and, for the most part, an antiquated grid pattern. Laid out long before the auto- mobile age and designed principally for convenient real estate planning and access to property, these obsolete rights-of-way are now crowded on both sides with commercial activities and dwellings. Most important, the concentration of traffic on narrow streets with many crossings makes it imDossihle to realize the sneed and service potentials of the motor vehi- cle. Moreover, due to poor drainage and maintenance, road conditions are generally noor with numerous notholes and cracked surfaces. There are only a few grade-separated intersections on major corridors and about 65 intersections have traffic signals; many of which are noorlv nlaced and are frequently out of operation. 3.82 Metropolitan Manila surface transport is further complicated by the Pasig River, which d4-vdoe t1he ritu into north andl sou,th, and is spanned by nine bridges of different capacities. Numerous esteros, water- ways, and creeks also stand as natural barriers, producing discontinuities in the road system and constraining traffic flows. 3.83 The major transport works undertaken in Metropolitan Manila s4nc- th-e 19o0s include th- con.struction f circu-mf-rnti4a1 ro-A C.-4 an the two intercity expressways emanating from C-4 to the north and south (Map 3.3). The construction cost of C=4 cannot readily be estimated, as the road was constructed in stages and by sections over several years with fedJeral, local, an' provir..ia fuds Excep for C-4/ an' the northern J1. UL L LL .. dIU jJL. A.V L L La .ULIUD. * A.j L % -t uL I-LI1~LU LIL I and southern expressways, which were built primarily to give better access to other economic centers in the country, there was only a LIIIILUL upgrading of a few radial roads inside C-4 until the early 1970s. At present, some ol t'ne missing links, notably C-1 and C-2, are being completed, but ruad construction in the urban center moves slowly. 3.84 In 1974 it was estimated that about 4.3 million inhabitants of Metropolitan Manila made 7.8 million trips in a typical work day, a rate of 1.8 trips per inhabitant. Jeepneys and buses, the major forms of mass transportation, account for three-quarters of the total trips. About half the total trips are by jeepney, by far the most dominant mode; buses account for 25 percent, and the remaining 25 percent is distributed among cars, taxis, and others. 3.85 Jeepneys and buses in Metropolitan Manila provide a variety and trequency ot services seldom tound in other cities and do so at no direct capital or recurrent cost to the Government. The system has been largely developed through private investment and operated with the vitality of private entrepreneurship. These two modes carry a one-directional hourly flow of 15,000 - 20,000 persons on the main roads during peak hours. In contrast, only about 1,500 - 2,000 passengers are moved by cars, although private cars are a numerically predominant mode of vehicular traffic, often comprising 50 percent or more. On the Guadalupe Bridge, where 92,000 daily vehicular traffic was recorded in a 1971 survey, private cars accounted I ~~~~~~~~~~~~~~~~~~~~~~~~IBRD 12210 I1160 120° 1240 APRIL 9b CLASSIFICATION OF PROVINCES BY GEOGRAPHICAL REGIONS I ILOCOS VI WESTERN VISAYAS i' P H I LIP PIN ES 1 llocos Norte 37 AklanP 2 Abra 38 Capiz 8l A TR A S OR',AT IONI NEITW K 2_Ai 4Mountain 40 bil 8 20 5 La Union 41 Negros Occidental _ _ tBenguet 42 Cebu MAJOR ROADS 7 Pangasinan 43 Negrs Oriental II CAGAYAN VALLEY 44 Bohol '-----RAILWAYS __ e 45 Siquijor r S Cagayan VIII EASTERN VISAYAS ,. 4 PORTS Kalnga-Apaya 46 Northern Samar 11 Isabela 47 Samar -' 12 3Iugao 48 Eastern Samar A… -…PROVINCIAL BOUNDARIES t3 Nuena Viacaya 49 Leyte '1 _________ 14 Quirino 50 Southern Leyte Loag | 6rr/ REGIONAL BOUNDARIES !1 CENTRAOLLUZON JX WESTERN MiNDANAO -/ -- O B 15 Nuena Ecija 51 Zamboanga del Norte 2INTERNATIONAL BOUNDARIES 1T Zarboc 52 Zamboanga del Sur tju 21un0toaraa 17 Zombales 9~~3 Basilan v 18 Pampanga 54 Sulu 19 Bulacan 55 Tawitawi 3laiun 20 Bataan X NORTHERN MINDANAO IV SOUTHERN TAGALOG , Surig0 dei Nuo n ot 21 Quezon 57 Camiguin ~ fu 22 Riztl 58 Agusan del Norte co 50 23A 59aMi-e ri' /jl9 50 i00 150 200 280 300 8 265 atangas CI0 Misamis Occidental 1 1 / KILOMETERS 160 - 26 Marinduque 1G1 Lanao del Norte 0 KILOM5TERS o60 - _50. 100 15 0 27 Mincdoro Oriental 62 Lanao del Sur 9 9 5 280 28 Mindoro Occidental DJ Bukidnon 29 Romblon 64 Agusan del Sur In 30 Palawan 65 Surigao del Sur S II It '-I The t,oeduems,e V-or thin -op dt¶ ttl VBI0_L - K imply ......c,en r acet- c by i/he LSOUTHeRN MiNDANAO W-Id B1t,k and it, uf/Oihet 31 Camarines Norte 68 Maguindanao \ 2 32 Camarines Sur 67 North Cotabato 212t 33 Catanduanes 68 Drvao af.FM t' i...'.' 34 Albay 69 Davao Oriental 35 Sorsogon 70 Davao del Sur N _D-b .OPa,tala : 36 Masbate 71 Sultn otanato ___ I - n >\1 ;,X_t W vi,.32 | _ ~ ~ ~ ~ ~ ; S t | lrka~~~~~egnsalr 2' N' a 73g. Y \R -, Vi.. . MIND IRO g eap I 5~ r, v- /tnagudI - 3Z- I28 12' ~ , < ) rK A 12 120 )i tw , xor ;, 1-Q imna'tF hbQ hag ,.neeoxn as It isq imnnQoA on only a few agricultural activities, particularly sugar and coconut production. W.h4ile the export tax seems to fall primarily on the return earned by sugar exporters and producers, who are frequently in the upper i-ncmeroup, the -export- t-ax on coconut products, the most important smallholder export crop in the Philippines, has distinct regressive features. In Vlew of thLe sti ffA comnpe"ition o'f copra with. other oils anA. fats in a nter- national markets, it is safe to assume that the tax has been borne mainly by tLhe domestic economy aLud, giver. the structLLure o'f coco.ut production., pri= marily by the smallholders growing coconut. This may hamper the Government's eff'OrtS LU revitallze tlis.LS l1Ing aleglctLU aLi.U.LLUL.L sUectoLr. 442 _L One area of fiscal policy thLat may LIave a potentiLaly important impact on distribution is the effective taxation of agricultural land. Even if the agrarian reform program is fully implemented, the distribution of agricultural land holdings will continue to be heavily skewed in favor of a relatively small number of owners. Like many other iess-developed countries, the Philippines does not have an effective system of taxation of agricultural land; there has been widespread evasion through nominal trans- fers of land holdings to relatives, by misclassifications of land potential, and by lax collection procedures. A more effective system of agricultural land taxation would offer one means of obtaining a reasonable contribution from the richer members of the rural community without destroying incentives related to agricultural output. ' ./ See Chapter 10 forz a iscussin of theze isaues. - 75 - 4.43 Another important aspect of fiscal policy as it affects the rural sector is the complex of issues falling under the general heading of cost recovery. In the past, charges have not been imposed to an adequate degree on those benefiting from publicly-financed investment projects or services. Since the amount and quality of many public services provided in rural areas has been low, revenue losses have not been too great and the beneficiary have not received excessive subsidies. However, this situation is likely to cnange dramatically in the future. For example, to achieve rice self- sufficiency, the Government has an ambitious program to expand irrigation services among farmers; it will be important to ensure that adequate charges are imposed for the irrigation water that is supplied. Moreover, since farmers with irrigation facilities are likely to be one group in the rural community whose incomes could rise relatively rapidly, the Mission believes that it will be even more important to ensure that they pay a reasonable share of the costs of providing this service. The Government is aware of this issue and, in recent years, the charges for irrigation water have been increased with the objective of recovering part of the investment cost; the Government has also been attempting to improve the collection record.1/ C. Administration and Institutional Development in Rural Areas 4.44 The national government will continue to carry the major responsi- bility for promoting rural development programs, but local communities could also play a greater role in their implementation. Unfortunately, until recently, the system of public administration in the Philippines did little if anything to foster local initiative. All too often, higher levels of Government were insufficiently informed about local needs, in part the result of over-centralization. The Government is cognizant of this problem and has been attempting to decentralize some of its authority. Administrative reforms should aim at enlarging local responsibility for formulating and administering projects and programs, and at increasing the amount of financial and technical assistance available at the local level to undertake develop- ment proiects. With the increased emphasis being placed on training local officials and with the gradual expansion of their financial powers, the need for a clearer statement of local aovernment's responsibility will become more urgent. The agency providing technical ass:rgtance to local officials is the Department of Loral Government and Community DeveloDment (DLGCD). which was created in 1972. 4.45 The reorganization and decentralization of the national government whritnh h,son in 1Q79 hfafl pvepn,nt-pred snme rpqiatanrep from VPqtpd int-prect groups in the Government who are reluctant to relinquish control over resources and some areas of decision-mnkJng. In addition, theva i8 the danger that the devolution of fiscal authority may proceed more rapidly than the training Of Ilocal officials, or that cor.flicts w411 arise asthe -eult LII Ld.LJ.lg J.±VLd±LL.LL;LJ.LO , "I. LLIaI L~ L. W_LL ~ 4 of overlapping jurisdiction and responsibilities among agencies and levels 1/ See Chapter 5 for a more detailed discussion of water charges. - 76 - of government. All of these problems will need close attention in the future. but they are an inevitable part of any real attempt by the Govern- ment to broaden the base of participation. The Role of Provincial and Municipal Government - 4.46 While the national government has indicated an interest in expand- ing the role of local authorities in development, there do not appear to be any gQidelines on precisely what this role should be in the immediate future: even less clear is what their role should be in the more distant future. The situation is further complicated by the presently uneven levels of responsibilities exercised by local zovernments. In the near future, one area of responsibility that. could be Riven to local authorities is the buildinng and maintenance of local roadsi. Another area in which there is scope for expanding the services provided by local governments is fishing. Providing sunh sprvirnp_ -nuld bh a lgitifmate. activity for local governments. In the case of services such as education, health. and nuitrition. the primarv reP.nn-nhilIt% for the time being should probably remain with the national government. Expanding Local Participation: The Role of the Barangays 4.47 More than 99 percent of the almost 34,000 barangays that existed .LLL Lthe PLhJiL ipJpir.e .LLL 1972 were located in ruraL area; ;C /or tLI average, they have a population of about 700 to 800 people. It is clear that programs to increase participation uy the rurai. population in the development process, and to improve their incomes and access to services, must necessarily involve the barangays; the hnistory of Darangay participation in self-help projects indicates that there is scope for expanding the participation of the is barangays in development. 4.48 Barrio Access to Resources: S'nce 1963 tne barrios have had the power to tax stores, signboards, cockfights, and to impose a small percent tax on property within the barrio. To date, tne barrios have exercised these powers to only a very limited extent. A Government survey of 215 bar- rios conducted in 1970 indicates that less than 10 percent of the barrio councils attempted to collect revenues. The main reasons given were that the residents of the barrio were too poor or the councils were unaware that they had the power to collect taxes. 3/ 1/ See Chapter 3, Technical Note I for a more complete discussion of local government. 2/ A barangay or barrio is a group of dwellings that may constitute a hamlet, village, suburb, or even an urban district. Although there is some disagreement over the precise geographical definition of a barangay and a barrio, the terms will be used interchangeably for the npurnngps of this reDort. 3/ ILO, Sharing in Development, p. 515. - 77 - 4.49 The second potential source of revenues for the barrios also stemmed from the 1963 Revised Barrio Charter, which entitles barrios to 10 percent of all taxes levied by the provincial and municipal governments on real property located within the barrio. This property tax has also been a meagre source of funds for barrios for at least two reasons. First, a large amount of the land in rural areas does not belong to the residents of the barrios; and second, effective real estate taxes have traditionally been very low, especially in rural areas, so that in many cases the 10 per- cent share has not been very significant. 1/ More recently, the barrios have been authorized to receive annual contributions provided for in Presi- dential Decree 144 from each province, city, and municipality in amounts not to exceed P 500 per barrio. However, these allocations are at the discre- tion of the upper levels of local government; there is nothing automatic or definite about the allocations and, hence, the barrios cannot really plan for their use. 4.50 The traditional source of funds--until 1972 when the DLGCD was creatPd--was the Presidential Arm on Community Develonment (PACD). Although the PACD allocations were primarily distributed at election time, the pro- ganm AiA npnriAd direct supnnnrt for almnot- 50,000 qelf-heln nroierts for the barrios through its grant-in-aid program. As a result of this program, the barri4^Cs hav h- 15 1,n Ih o4%rxn finnno4nl n"A nAm4ni"ntr4x7a Qiinnnrt thpv ~., .ave* ... .…._,r …r - can organize and carry out small-scale developmental projects. In 1971-72, aside from theP-ACD projects, the barri-os .dertoo a wide ranrge of additional self-help projects, financing some 85 percent through the provision of vo'luntary labor, locally ava4lable materials, project sites, ar.d -ash 9/ 4.. Ir, Taur 192,te PACDT' was Aissolv-ed and the Bureau of Co-mu.ity- '4 * 1 J LI January 1 9 71 2 , L'LL Lrzflu... WCLO ".La0..LV=U =&AU LI1L JL ~ ..~W.UA J . Development was formed under the DLGCD. The Bureau of Community Development provided funds for projects pri'- arily through gran,ts-in-aid an.d interest=free loans. Grants-in-aid (in the form of processed material) are provided for self-help projects under the uireceton of thle barrio counc'ls. Te bUaLLrU is required to supply 50 percent or more of the project costs in the form of manpower, material, and project sites. The Bureau of Co Munity Development provides interest-free loans for such projects as communal irrigation, cottage industries, fisheries, and livestock projects. In-serv'ce training and seminars are also carried out by the Bureau to support the self-help projects. In 1973-74 the DLGCD provided about r 5 nrillion for 829 grant-in-aid projects and P 4 million for 2,373 RICDF 3/ projects; tne Darrios provided P 22 million, or 85 percent, of the total cost for about 157,000 purely self-help projects in the form of materials and labor. 1/ In 1971, for example, the actual collection of real property taxes was only 55 percent of the collectable amount, and the assessed value of provincial agricultural land was only 39 percent of the "fair market value" in 1967. 2/ ThO, Snaring in Development, pp. 517-5108i 3/ Fairal improvement and Coimmnity DevelopTnent Funds, released to DLGwC from the Office of the President. -78 - 4.52 There are no data available about the totai amount of finn.a-nia resources allocated to the barrios, but it is almost certainly a relatively small amount and irreeular in sunnlv. Ways rouild hp founAd to- expanA the amount of financial resources and technical expertise available to the barrios for f1ufeionmpnt nroiptrfQ gicrh sa lon'n1 ronna :mto_ O..pluy public buildings, and communal irrigation. However, before there is any signifirant exnasnIon of harrio narti-icpation in rural development programs, a careful assessment is needed of the role of the barrios in relation to the nonoperativue A fa- n-an.ization. movements "hat t-he -n- ~ ~ ~ ~ V~L~L~ I-.Li L. L.LI Government is vigorously promoting. Since almost all members of the latt groups are barrio residents, there can be very substant.ial areas of overlapping responsibilities between the barrio representatives and those of the other organizations. This may become an increasingly important area of conflict in the future, and a clearer definition of roles is required. Cooperati4ve De-velopment anA rn_e rg_ lztin 4.53 In recent years, the G-vernment has been placing great-er em-pbasis *4 L. LC. uL U... -3 V LtlL I L 'C r.a .ab c L A. ~ w ..a on the rural cooperative movement and on developing farmer organizations. These L e o hlave inclu-41..Ad: thA,e requirement '-"at ternan fa-mers in .h agrarian reform program be members of a cooperative; the use of seldas (s-all Jo'nIL t .L.ability groups) LL fo UpprviLsedU LcreitUL prLUgaLL1, anu LtIh organization of various other pilot projects in different parts of the co-untry. Asa resuLt of these programs-, someZ A±iLU VI JtLvLWCL LrLan4zatLUU has now been established in almost every province, municipality, and barrio within the country. Some are profit-making, while otners are not; sume are registered with Government agencies, while others are independent of the Government. All of these organizations, however, exhibit a similarity of purpose, which is to promote social and economic development for small farmers, and all of them reflect the serious efforts being made by the Government to involve the farmer more closely in the country's political system and economic development. 4.54 Organizations and Membership: At the present time, a large number of different cooperative and farmer organizations exist. 1/ The most important of these in terms of geographical coverage and size of membership 1/ Although the following is not an exhaustive list, farmer organizations include: FACOMAS, Samahang Nayons, Farmer Barrio Cooperatives, com4pact farms, seldas, Irrigator Groups, Gen. Ricarte Agricultural Cooperative, Nueva Ecija Integrated Livestock Cooperative Program, Federation of Free Farmers, Filipino Agrarian Reform Movement, Federation of Land Reform Farmers' Association and Philippine Federation of Farmers Association. For a detailed discussion, see Mark A. Van 'Stenwvyk, A 'Study of Philippine Farmer Organizations, (Manila: USAID, February, 197 5 . - 79 - is the Samahang Nayon movement, which began in 1973. Some of the farmer organizations have been in operation for many years. With the suppression of the Huk movement in the early 1950s, numerous attempts were made by both the Government and private institutions to establish farmer organizations which would provide supporting services to the rural areas. In 1953, the Government set up the Agricultural Credit and Cooperative Financing Administration (the Agricultural Credit Administration after 1963), which was followed by the rapid expansion of cooperatives throughout the country. During the tirst three years, 400 Farmers' Cooperative Marketing Associations (FACOMAS) were established. After an initial period of success, the FACOMAS ran into serious difficulties. Management was weak and sometimes dishonest, and Government supervision was inadequate. Delinquencies on loans rose to two-thirds, and four-fifths of the cooperatives lost money. 4.55 Since the agrarian reform program was revitalized in 1972, the cooperative movement has been receiving much greater attention. The Gov- ernment decreed that a prerequisite for transferring titles to former rice and corn tenants was membership in a recognized farmers' cooperative. To implement this phase of the program, the newly-formed DLGCD began organiz- ing the Samahang Nayons, or Barrio Associations, which have provisional status as cooperatives. Upon the formation of a Samahang Nayon, the members have two years within which to qualify for registration as part of a full- fledged cooperative at the provincial level. During this time, the members are required to take 65 weeks of educational courses in cooperative princi- ples, agricultural practices, and management. The Samahang Nayons conform roughly to the geographic limits of a barrio and must have a minimum of 25 members. They have a registered corporate status with the right to own or dispose of property and to enter into contracts. 4.56 The formation of Samahang Nayons began in August 1973 and by December 1974. about 16,000 had been organized with a membership of 707,000 or 44 percent of the target membership of 1.6 million. Despite the requirement that recipients of Certificates of Land Transfer 1/ be members of a cooperative, there are indications that less than 40 percent of the tenants affected by the reform have comnlied. It is too soon to evaluate the effectiveness of the Samahang Nayons, and the organization of a nation-wide cooperative system is t-learlv in its infant stage. As of March 1975. only one coonerative bank had been registered in the whole country, and it has been encountering stiff opnnpsition from thee estAhlished rural banks in t-he area= 4L-,57 In terms of private institutions- the largest farmer-hased orga- nization has been the Federation of Free Farmers (FFF), which was created in 1953 by a group of Catholic laymen. The FF hnA only mniniTnl Qsuccess in expanding its organization during the 1950s and early 1960s, but member- ship began to increase du:ing the latter half of the 1960s. In 1974, the FFF had organizations in 60 provinces with a membership of about 200,000. 1/ See Appendix I., - 80 - The main function of the FFF is the provision of legal services to farmers and the development of local leadership through education and training. 4.58 Almost all farmer organizations receive some extension assistance from external sources. The nature and degree of this support varies and often is not adequate to meet the specific needs of the organization. To cite an examnle; Farmers' Barrio Cooneratives lonated in the Drovince of Nueva Ecija were receiving technical extension assistance from Department of Agrarian Reform technic{2ns= While these terhnicians were well schooled in land reform policies, they lacked education and experience having to do with the techni^nl maspect nf griPculture and, consequently, their extensin services in the area proved ineffective. 4.59 Because of the often distant and at times undependable nature of rh (n,rnmnTA - m c n.,-oC4 no r i no Fr,nor nrnon4 *,'a*4nn nr E4r.i tAlna ; F rnnrn - G- v e -v t- _ *- t- -- n.z - J- n- n-0 -X -r v e e r n- r5- n 4- Z -- t- -- -a - e -f idJ- ngitn-6 r- and more advantageous to organize their own. Samahang Nayons, Farmers' Barr C rooperatives, a nd Ct.. cnn hv ans for su.ho ir.terzal extension support. While members and committees within some of these organizations have already been desiganatA ton nrfnrf this arole, much t-ime and energy in the form of education and training will be needed before these 4 .A*4LJ_ a-._ .. 6a . L _U.f . 0 _ 6Lt SJUU k A. _ LL. L.LJU L _ _ 4 _ I. . ao _"F' _.~ ;L issue which needs to be considered is where priorities should be placed in prov'id.Ing thI'e n,ation'ts fa.mers wit-Lh more effective extensior, serviLces. A4en.6 Ento Per...ed by Organiza.ions: FVor - ----ost - par th various farmer organizations provide one or both of the following services: the supply and distribution of production inputs, ana processing and market- ing members' products. While some organizations, such as the Farmers' Barrio Cooperatives have developed elaborate cooperative structures to procure and funnel agricultural production inputs to farmer members, other organizations, like seldas, maintain only a loosely knit distribution channel, relying heavily on outside sources (either rural banks or private dealers) for input procurement. This has, on occasion, caused a conflict of interest where members of a selda or compact farm who are also members of a Farmers' Barrio Cooperative or Samahang Nayon have been required by a credit source (e.g., a rural bank) to purchase production inputs from another source as a precondition for credit assistance. To avoid such conflicts, credit institutions such as rural banks should not only coordinate more closely with Seldas but should also become more closely associated with the production needs and services of larger organizations such as Samahang Nayons which may exist in a given area. Where effective and complementary systems for input supply and distribution have been established between various farmer organizations occupying the same or overlapping areas, greater economic benefits and stronger organizational structures have resulted. 4.61 The degree to which a farmer organization may become involved with marketing activities varies. Farmers' Barrio Cooperatives in Nueva Ecija, for example, process and market portions of members' produce through their - 81 - jointly federated Area Marketing Cooperative. This system is similar to the federated grain processing and marketing facilities being developed Dy Samahang Nayons in limited target areas within the country. Smaller farmer organizations, such as seldas and compact f-arms, generally serve Only as assembly or collection points for marketing. Actual marketing may be done either through other larger organizational structures, such as Farmers? Barrio Cooperatives or Samahang Nayons, when they are present, or through private marketing channels. 4.62 Unnecessary conflicts and duplication of services do exist among farmer organizations to a degree which could be considered detrimental to their functional capabilities. While there may not be an immediate solution to the problem of coordinating the activities of farmer organizations, the need for some kind of regulatory system in the future seems clear. In considering such a measure, however, attention will have to be given to regional differences which could have an important bearing on the type of local organization that is likely to be most effective. The apparent lack of cooperation between government agencies responsible for rural and agricul- tural development only serves to exacerbate the spirit of competition which appears to dominate much of the organizations' activities. In fact, to some degree, the duplication of services between organizations is the result of competition rather than the source of it. 4.63 Access to Financial Resources: Many farmer organizptions require their members to make financial investments in the form of membership fees and/or annual dues to their respective organizations. In some cases, the members are also required to purchase shares of stock or contribute to special funds. The Samahang Nayons, for example, have a small entrance fee and the members are expected to contribute one cavan per hectare towards the Barrio Guarantee Fund which guarantees amortization payments for members affected by Presidential Decree 27. They must also contribute 5 percent of the value of each production loan received from an institutional source; this 5 percent contribution is then credited to their individual accounts in the Barrio Savings Fund and is used for investment purposes in the barrio. Members in arpas Resrvi-ed by more than one farmer organization comn1ain that their combined obligations to these various groups often become excessive. If allowed to gon ii nchePa, thpes problmsa c-nildA imArmi"e t-he very purpose for which the respective organizations were originally created. 4.64 Increasing evidence suggests that farmers who are members of particular f orga.niz ations- -are lesas likelal tob ha dAr.deAnnt. nn pivat e, r- …--- -- CO r-at noninstitutional credit sources than are farmers who are not members of such organizatior.s. Y.4,...n oor.-nflit car. emeargen,l. --- cd ources such as * UWW~V& , SL..a...O t.I -mS5 &a- " J I t ~ o..a rural banks require farmers to market their produce either through their own .hanr.els or other desigrated outlets, sucu as tbe National rransAthriy IL ~ .L L=&~ U=OaJ. CL6 LU WU6LJ. 0, ~ ULL ULJl -LJ.,JLI.L ~ ~ Lf'~. or private buyers. Again, this may weaken an organization which seeks to of_er its mem'uers ecorL1mJ sae r= W L L-A;_1 aUVA4_AA2L.C__ A ; _LLO AL t therefore, be made to design better systems for improved coordination between credLt institutions anda farmer organizatiLons enigaged in agricultural markLeting in order to insure greater economic returns for the farmer member while, at the same time, minimizing unnecessary duplication of effort and unwarranted competition in service. - 82 - Role of the National Government 4.65 Although efforts are being made to decentralize development plan- ning and implementation, the national government and its line agencies will undoubtedly continue to play a dominant role in the economic development of rural areas. No attempt is made here to provide a comprehensive over- view of the many-faceted role the national government is expected to have in the future. The full extent of its involvement becomes apparent from the discussion of individual programs in the subsequent chapters. In brief, however, it should continue to have primary responsibility for public invest- ment in rural areas and for major public services such as education, health, and family planning. 4.66 In addition to programs being administered by individual agencies, the Government has been formulating a growing number of programs that call for combined efforts by more than one agency. Since there is no one agency responsible for coordinating all rural development programs, there is a tendency for these activities to be fragmented and dispersed. The lack of coordination is at times complicated by insufficient knowledge about the location and characteristics of specific rural groups, or about the develop- ment potential of key areas. However, efforts are being made to promote more planning and coordination at the regional level with the recently estab- lished Regional Development Councils (RDCs). 4.67 One of the important objectives of the reorganization plan that was implemented in 1972 (Presidential Decree 1) was to decentralize the na- tional government's administration. The country was divided into 11 admninis- trative regions with an RDC for each region. Each department of the national government was then asked to reorganize by appointing a director to oversee the department's operations in the region. It is still too early to tell whether this attempt to strengthen planning and administration at the regional level will be more successful than the previous efforts. However, if efforts to exoand loral oartiripation in develoDment are to succeed, a less centralized national government bureaucracy will be a necessary adjunct. The reason for fhi4s is that tha nntinnal government is likely to conntrnl most of thhe public sector resources allocated for development programs even at the local level. If all dAeciin abt t-heo disonnsiti4-n of these reour-es haveo to be reforr-,eA to Manila, the move to increase local participation will probably be severely circr.nmscribedA Region-al representatives of the nti--onl governmen- wi11 have to be given a greater voice in the allocation of resources within their regions iIf thLUe s p iirl t of in,creased 'LocaJl auton,omy i s to become a reality. t vu ILL &%", L&& 's c L o Lt OIJU1 Vo L Lof C Lth reLona U-L direcLO VLthe IrLa tLUL1on government departments and bureaus, the mayors of the chartered cities, and the provincial governLors within each region. ThLe chaia-,an is c10ser. from among the elected representatives, with the National Economic and Development Authority (NEDA) director automatically naiueu as deputy chairman. The council is solely a planning council, with technical planning support provided by - 83 - regional NEDA staff. The major task of the RDCs will be to coordinate and integrate all the planning and program implementation activities in their respective regions. This is supposed to be done in close collaboration with the regional offices of different national government implementing agencies and with the various provincial development councils of each region. But one of the weaknesses of the present RDCs is that not all the pertinent na- tional government agencies are renresented. For example; reDresentatives of agencies dealing with fisheries, agricultural credit, forestry, agrarian reform and tunirism are not incl uded in the RDGrs On the other hand- if all were included, the RDCs would comprise up to 50 people, which is far too ,unwipldyv A grnun fnr effeatiue coordination at the regional level- This situation is of course, symptomatic of the more general problem of excessive fra-mentation of administratio. in the Phinnines I raQ Ac n ),-A" the 12n1 h:ar7c. no f4v2ni4!u1 roanivr,.ea aa f -ten implement any development plans that they may conceive. All budgetary ap- pror-riation4 s for regionanl deveAlopamentr mu-sta coMe through the 1ine aager.cia of the national government or from the provinces or cities. Budgeting by the lire age1s i as r.t- dne on r. a regional bass and sine the regional directors generally have very little influence on departmental budgets, the r e ons 4 . lr g _ _ S ly the ----A-.._--- n4e1.. .4.,A.4 av ailable to them. In effect, the RDCs must plan by persuasion and their role is severe'ly limited bJy the alusence of regional budges Lor Llle LLne agencies and by an effective mechanism to deal with conflicts in resource allocation at thle regional le-vel. 47 -aeIt appears that te RDCs w.ll not become effective vehicles 'or regional development unless they are provided with more legal and budgetary authority than at present. These difficulties are recognized by the national government and there has been some discussion of the possibility of a presidential appointment of the RDC Chairman as a Regional Coordinator. Some consideration has also been given to establishing a system of regional budgets among the national government line agencies. STRATEGIES FOR RURAL DEVELOPMENT Page No. A. Meeting Domestic Food Requirements ......................... 86 Increasing Cereal Production .86 Expanding the Output or Other Foods .9 B. Prospects for Agricuiturai Exports .00 The Coconut Industry. ii The Sugar Industry .105 C. Supporting Services for Agriculture .109 Fertilizer Use .109 Price Policies for Rice and Fertilizer. 112 Agricultural Extension and Research .115 Irrigation and Water Management .116 Agricultural Credit .123 D. Other Programs .130 Expanding Access to Electricity .130 Improving Transport Services .131 Water Resource Development .133 - 84 - Chanter 5 STRATEGIES FOR RURAL DEVELOPMENT 5.01 The rapid gro-t h of the population during the past two and one- half decades, combined with the gradual decline in the amount of new land ava ila-ble for cuitivntion,as credtad vrio,us problems for th- Phitip-ines Income distribution among the rural population has been deteriorating, and the average farm size and value nadded per laborer have been declining. Despite the overwhelmingly rural character of the Philippine economy, most eff4:orts a' mod4ernization h-ave b-een concent-rat-ed4 in urb-an areas. Govern= ment development policies, coupled with the influential role of a small but ' 'effc tl v e en tr ep re ne u riLaIl cl a s s, htLa ve t-e ndled AuILo em phs iz- e -capital~- 4-intensive- and geographically concentrated industrialization at the expense of agri- cuULturaL andU ruraL IIi R[cely, -le lovernmIent Ihas --econi-zed the limitations of this approach and has been giving priority to develop- ment n thile countrysiUe in an eCLlort to corrteCt the past urbant b-s _d_ its tendency to increase income disparities between urban and rural areas. The Government has focused its efforts un thL[e ollowing objectives: self- sufficiency in food grain production, an improvement in income distribution and nutritional levels, employment opportunities, and increasing agricultural exports in order to improve the balance of payments. 5.02 Until about 1960, agricultural growth was based primarily on an increase in the physical area 1/ of land under cultivation, with relatively little change in technology and total factor productivity. 2/ The harvested area grew by about 4.4 percent a year in the 1950s, in large part as a re- sult of a very rapid increase in the area devoted to food crops, particular- ly to rice and corn production. This expansion was concentrated on the readily accessible land of major river basins and lowlands. 5.03 By the end of the 1950s, most of the lowlands had been brought under cultivation, which caused a very different pattern of expansion to 1/ For the purpose of this report, the following definitions will be used: (i) "physical area" refers to the maximum number of hectares which can be cultivated at any one time; (ii) "cropping intensity" is the per- centage of the physical area cultivated within a 12 month period (i.e., a one hectare farm which is cultivated for only one season a year has a cropping intensity of 100 percent; a one hectare farm which has one hectare cultivated during the wet season and one-half hectare in the dry season has a cropping intensity of 150 percent); (iii) "cropped area" (or "planted area") is the physical area multiplied by the cropping intensity and covers a 12 month period; (iv) "harvested area" is the amount of the cropped area which is not lost during the growing season as a result of such factors as weather or disease. 2/ For a detailed analysis of the sources of past agricultural output growth, see C. Crisostomo and R. Barker. "Growth Rates of Philippine Agriculture; 1948-1969," The Philippine Economic Journal, First Semester. Vol. XI. No. 1 (1972), pp. 88-148. - 85 - occur in the 1960s. The overall rate of land expansion slowed down to 1.5 percent a year in the 1960s, 1/ and the ratio of harvested area to popula- tion declined steadily from 0.29 hectares in 1960 to about 0.24 hectares by the beginning of the 1970s. The rate of expansion onto previously un- cultivated land will probably continue to slow down in the future, but the harvested area is expected to maintain its growth rate as a result of the expansion of irrigation and the intensification of land use. It seems likely that the cropped area could grow by about 1.5 percent a year during the next 10 years. By 1985, the cropped area may be about 11 million hectares; even so, this would mean only about 0.20 hectares per person. (Table 5.1). 5.04 While estimates vary as to the amount of cultivable land remaining, it has become clear that increased production and farm incomes must come from widespread growth in yields per hectare and from the cultivation of higher value crops. 2/ The intensification of land use will depend primarily on an expansion of the irrigated area to permit multiple cropping and/or the introduction of new technology such as the high yielding variety seeds (HYVs). While multiple cropping will permit increases in the harvested area, the HYVs have the potential to substantially increase yields per hectare per crop. However, to achieve the best results from HYVs, there must be adequate water control, careful attention to the timing of operations (i.e., planting and harvesting) and improved farming practices including the control of weeds, pests, and disease, and applying the appropriate type and quantity of fertil- izer. The introduction and continued use of such practices on a large scale will depend in turn on the development of an effective, well-managed exten- sion program. 1/ The harvested area of food crops rose by only 0.4 percent a year during thp 196%s hbut that of exnort crops grew by almost 5 nercent a year, primarily as a result of increases in the area planted with coconuts in upnIlnd rpcions. . uAn agricultural sector sur-ey undertaken by the World Bank in 1972 con- cluded that as many as 2.5 million hectares could still be available for cultivation, including about one million hectares of cogon grasslands that are difficult to rehabilitate. See World Bank, Agricultural Sector Survey: Philippines, Report No. 39a-PH (May 2, 1973). More recent calculations by the International Labour Office (ILO) mission indicate higher figures. See TLO, Sharing Lin Development Gfeneva, 1973) p. 457. Most of the remaining large tracts of cultivable land appear to be in the Cagayan V7 alley, in the Agusan "alley, andi in oLiter par's of Miindanao. - 86 - Table 5.1: Actual and Projected Harvested Area of Crops (In thousands of hectares) /a Actual Mission Projection Crop 1950 1960 1970 1980 1985 Food Crops 3,604 6,160 6,397 7,350 7,650 Rice 2,210 3,278 3,186 3,500 3,700 Corn 909 2,000 2,350 3,000 3,100 Others 485 882 855 850 850 Export and other crops 1,475 1,621 2,590 3,200 3,400 Coconuts 979 1,088 1,926 2,400 2,600 Sugarcane 143 242 384 530 550 Others 353 291 280 270 250 Total 5,079 7,791 8,987 10,550 11,050 Ratio of area harvested to Philippine popul- lation (hectares) 0.25 0.29 0.25 0.22 0.20 /a Based on three year averages of 1949-51, 1959-61, and 1969-71, res- pectively. Source: Bureau of Agricultural Economics (BAECON) and Mission estimates. A. Meeting Domestic Food Requirements Increasing Cereal Production 5.05 The record of the Philippines in expanding food production to keep pace with the rapidly growing population during the past three decades has generall- heen -ood. Cereals provide most of th canlnriesct consmciid rlb the h C population. In 1974, for example, cereals accounted for about 72 percent of the total; of the cereals consumed, rice provided a little more than half the calories. Domestic production provided most of the food consumed nin 1974A.TIt is est4 .ated that dem.and for food will grow at about /, 0 per- cent a year during the next decade. (Table 5.2). 5.06 One of the Government's primary development objectives is to achieve self- sufficiency in rice and corn production. Total cereal pro- duction expanded by about 3.0 percent a year during the 1950s and 1960s (Table 5.3) but in the early 1970s, adverse weather and piant diseases, - 87 - Table 5.2. Actual and Projected Demand for Selected Ttem.s (In thousands of metric tons) Average Actual 'KAi4ssjon DroIte.LtJn Annual Tncrease Item 1973 1980 1985 (In percent) Cereals 5,242 6,624 7,831 3.4 Rice, 3,568- 4,509 5,329 3.4 Corn-" 1,262 1,573 1,842 3.2 Wheat 412 542 660 4.0 Meat and poultry 563 843 1.123 5.9 Pork 359 540 722 6.0 Beef 87 131 175 6.0 Poultry 117 172 226 5.7 Fish and other marine products 1,609 2,089 2,517 3.8 Dairy products 568 799 1,020 5.0 Sugar 738 958 1,155 3.8 Vegetable oil 169 233 293 4.7 a/ Adjusted downw.iard for a milling rate of 64 percent from the Food Balance Sheet figure of 3,681,000 metric tons, which is based on a mailling rate nf 66-2 nprepnt b/ Corn grits for human consumption only. Source: The Philippine Food Balance Sheet, 1973 (Manila, 1975) and Mission estimates . Table 5. 3. Domestic Production and Imports of Cereals, Calendar Years 1953-75 (In thousands of metric tons) Milled Rice Shelled Corn Wheat All Cereals Domestic Net Irport Domestic Net Import Net Domesitic Net Import ar Production Imports Dependence-/ Production Impcrts Dependence-/ Imports Production Imports Depeadence 2,093 -5 - 745 ... ..7. 17 2,Ei38 166 5.5 2,113 35 1.6 775 ... ... 201 2,888 236 7.6 2,1143 105 4.7 830 ... ... 257 2,981 362 10.8 2, 190 43 1.9 901 ... .. . 225 3,091 2158 8.0 2, 117 78 3.5 874 11 ... 300 3,041 38,9 11.3 2,279 231 9.2 934 21 ... 332 3,213 554 15.4 2,457 -6 ... 1,C91 -77 -7.6 232 3,548 149 4.3 2,46 3 -2 ... 1,187 -1.4 -1.2 293 3,650 277 7.0 2,570 188 6.9 1,238 -6 ... 347 3,721 529 12.4 2,627 ... ... 1,269 ... ... 365 3,1396 365 8.6 2,605 256 8.9 1,283 7 ... 433 3,8388 696 15.2 2,613 299 10.3 1,303 7 ... 414 3,'916 720 15.5 2,690 569 17.5 1,1346 6 ... 506 4,1336 1,081 21.1 2,7,47 108 3.8 1,407 2 ... 495 4,154 605 12.7 2,844 237 7.7 1,481 50 3.3 476 4,325 763 15.0 3,2139 -41 1.3 1,537 3 ... 525 4,B26 487 S9.2 3,264 ... ... 1,870 29 1.5 505 5,134 534 9.4 3,5832 ... 2,C107 . . ... 449 5,589 449 7'.4 3,496 370 9.6 2,C102 83 4.D 485 5,518 936 14.5 3, 149 451 12.5 1,920 168 8.0 490 5,069 1,109 16E.0 2,870 310 9.7 1,630 100 5.2 504 4,700 914 19. 4 3 2'79b/ 168b/ 4.9 2,289 11L 0 4.B 525 5,568 278 4 .8 3,861- 152- 3.8 2,568 1'21- 4.5 557 6,429 830 12,.9 dependence is the ratio of imports to total supply. :ted as of Noviomber 1, 1975 Data for 1953-69 are from the Food Balncne Sheets of the P'hilippines as published in various issues of The Statistical Reporter. Data for 1970-72 are from the National Ecomomic and Development Authority, The Philippine Food Balance Sheet 1971, (ManiLa, 1973) and The Philippine 'ood Balance Sheet, 1972 (Manila, 1974). Data for rice atid corn in 1973 are from Department of Agriculture, Eureau of Agriculture Economics, CosmocIity Profiles (Quezcn City, 1974). Wheat imports for 1973 are from NEDA Foreign Tralde Sector Study (Manila, 1975). Data for 1974 and 1975 are from the Department of Agriculture. - 89 - caused production to decline sharply. Imports of cereals increased in 1971-73, with the ratio of imports to total supply rising, as in the mid-1960s, to about 16 percent. In 1974/75, however, both rice and corn production increased and, because of very favorable weather con- ditions in the latter part of 1975, foodgrain production is expected to reach record levels in crop year 1975/76. As a result of the decline in production during the early 1970s, the Government intensified its efforts to achieve foodgrain self-sufficiency, primarily through supervised credit programs aimed at the small rice and corn farms. These programs and others are examined below. 5.07 Rice: Until the 1960s, increases in rice production were achieved primarily by an expansion of the physical area, which rose from an average of about 2.0 million hectares in the late 1940s to about 3.3 million in 1960. This expansion into new areas, which was strongly promoted by the Government, kept pace with population growth. Since 1960, the harvested area of rice has levelled off to an average of about 3.2 mil- lion hectares. National paddy yields, on the other hand, were virtually stagnant until the mid-1960s when they increased from their historic level of about 1.2 metric tons per hectare to about 1.6 metric tons per hectare. This rising trend in yields was due in large part to the spread of HYVs in the irrigated areas. After 1970, with about 60 percent of the irrigated area planted with HYVs, yields tended to level off at a national average of 1.6 metric tons per hectare. The difficulties in realizing signifi- cant yield increases have led to a more cautious assessment of the pros- pects for attaining sustained self-sufficiency in rice. 5.08 Tn thp wakp of thp dis r floodsi and tvnhoon damage to the main rice crop in 1972/73, the Government launched a program of supervised rredlit knrown as "tM4asagna 99"_ 1J/ Tn t-hp hnng nf imnrnvine thp 1Pv1 of institutional credit, inputs, and technical advice provided to the many szmall fnrmo.vr .zho dominnte theo indulst-rxy thic nrnornm aninuoe connsidrer- able success in the first year;in 1973/74, the Masagana program covered ahout 36 percent of the total lowland rice aroea However, during the second year of the program, 1974/75, a numer of difficulties emerged, ;n-'1uding inadeqate nubrs of 1 1well.trained nprodcion tench-onicians and a low loan repayment rate. In addition, the high farm gate price of fertilizer relative to the price of rice discouraged far-ers from apply- ing sufficient levels of fertilizer. 2/ Officials are well aware of the present weaknLLses ofse the [- ---"-- and artak steps tIo correct them Despite these difficulties, supervised credit programs such as Masagana 99 1/ "Masagana" is a Tagalog word meaning "abundant"; "99" refers to the targeL yelU Uo 99 CaVa1ns \4.q mLLetric tosL)1 Sper [Iectare. Dee the section on agricultural credit for a more detailed discussion of the program. L/ See the section on price policies ror rice and fertilizer. - 90 - have an important role to play in providing much needed supporting services to small farmers. l/ 5.09 It appears possible to meet domestic demand and eliminate imports by 1985 if total rice production expands by about 4.0 percent a year. Because the possibilities of expanding cultivation onto new arable land are severely limited, however, efforts to raise production will have to be concentrated on increasing the irrigated area and on improving yields. The potential for further increases in yields is readily apparent. Average yields in the Philippines continue to be among the lowest in Asia (Table 5.4). The primary reasons for this include an inadequate extension service, a lack of inputs and credit, and inefficient irrigation systems. Although about 40-percent of the harvested area in the Philippines is presently irrigated, since 1970 yields on irrigated areas have averaged only about 2.0 metric tons per hectare. 2/ Table 5.4: Average Annual Yields of Paddy Rice in Selected Countries (In kilograms per hectare) Area 1961-65 1966-70 1971-73 Philippines 1,257 1,510 1,532 Asia 2,048 2,172 2,322 Burma 1,641 1,642 1,695 China (People's Republic of) 2,780 2,928 3,145 Indonesia 1,761 1,910 2,300 Korea (Republic of) 4,111 4,311 4,681 Thailand 1,775 1.818 1.898 Source: Food and Agriculture Organization (FAO), Production Yearbooks 1972 and 1973 (Rome, FAO). 5.10 The potential for raising yields is greatest on irrigated areas planted with HYVs. (Table 5.5). With better water control, improved extension efforts, and adequate supplies of inputs at prices acceptable to farmers, average yields on irrigated areas planted with HYVs could be _/ ThI-e nee' 'or a supervised clred pcro m is made me urgen by the d appearance of landlords as a source of production credit due to the agrarian reform.. 4:,-.-- ~ ~ ~ ~ ~ ~ ~ ~ -A 1-- Z --- L / L L CLtIl daveg yieUlU U 11 1LL d LtU d L CEb lldU UCCI I . U 1u L L tons Ullb peL hectare instead of 2.0 metric tons in 1974/75, the Philipines would have had about a 50 percent increase in rice production in that crop year. Table 5.5. Actual and Projected Padcy Production, Yields, and Area Harvested' Actual Projected at!a Item ].968-69 1971-72 1979-80 1984-85 Amiount Percent Amount Percent Amount Percent Amount Percent Area harvested (in thousands of hectareg)L,,250 100.0 3,146 100.0 3,600 l10.0 3,700 100.0 Area with HYVs 1,140 35.1 1,604 51.0 2,700 75.0 3,100 83.8 Irrigated 731 22.5 912 29.0 1,6(00 44.4 2,000 54.1 Rainfed 409 12.6 692 22.0 1,10)0 30.6 1,100 29.7 Area without 'HYVs 21,110 64.9 1,542 49.0 900 25.0 600 16.2 Irrigated 650 20.0 434 13.8 100 2.8 - - Rainfed 1,017 31.3 714 22.7 500 1]3.9 400 10.8 Upland 443 13.6 394 12.5 300 8.3 200 5.4 Yield (in kilograms of paddy per hectare) 1,460 100.0 1,596 100.0 2.007 1(0.0 2.385 100.0 On HYV Areas Irrigated 1,711 117.2 2,046 128.2 2,6DO 129.5 3,000 125.8 Rainfed 1,298 88.9 1,455 91.2 1,600 79.7 1,750 73.4 On Areas without HYV Irrigated 1,701 116.5 1,743 109.2 2,200 109.6 - - Rainfed 1,278 87.5 1,392 87.2 1,600 '79.7 1,750 73.4 Upland 880 60.3 923 57.8 950 47.3 1,000 41.4 Production (in thousands of metric tons of paddy) 4,746 100.0 5,023 100.0 7,225 lti0.0 8,825 100.0 Area with HYVs 1,950 41.1 2,893 57.6 5,920 132.0 7,925 89.8 Irrigated 1,419 29.9 1,743 34.7 4,160 57.6 6,000 68.0 Rainfed 531 11.2 1,150 22.9 1,760 24.4 1,925 21.8 Area without HYVs 2,796 58.9 2,130 42.4 1,305 18.0 900 10.2 Irrigated 1,106 23.3 753 15.0 220 3.0 - Rainfed 1,30G 27.4 1,015 20.2 800 11.1 700 7.9 Upland 390 8.2 362 7.2 285 3.9 200 2..3 a/ Based on a three-year average. Source: Actual data from BAECON; projections by Mission. - 92 - i-ncrease from the present- loevel of abouit 92.0 metrir tons nper 'hecta,re to about 2.6 metric tons in 1980 and 3.0 metric tons in 1985 (or a growth rate of about 3 percent a year). The potential for increasing yields on irri- gated areas planted with traditional varieties, while less than that for the irrigated HYV areas, cou-,d1A be- substntial. ACCs ino the cro 1sam le1 clf improved services, average yields for irrigated areas planted with traditional varieties could be increa-ed from their present- level of aout 1.7 metri tons per hectare to about 2.2 metric tons in 1980. The extension service O> tIL UtI at 1L L CL D tLLL 1- =Cci 0 L LIE L ;0 Ct 1- L't: LO LL CA~jciI tiCI pXT *. L'> IJL Li LIt Ci X 1- 11 -LXII gated area planted with HYVs to 100 percent by 1980. 5.11 For lowland rainfed areas, the possibility of achieving signi- [lcant increasebs ln yeIlds ls sLLi ubstantlally rteduced UtcaUse U Lof Uthed LIUpende on weather, the reluctance of farmers to use inputs in such a high risk situa- tion, and techn I cal limItations on optimizing the use of a-vailable water. However, with an improved extension service applied to the lowland rainfed areas, it snould De possible to increase the growth rate of yields rrom Lile historical level of a little more than 1 percent a year to about 2 percent a year by 1980. For upland areas, the potential for increasing yields is much more limited. 5.12 High priority is already being given by the Government to expanding and improving the irrigation systems. As discussed below, it seems likely that the total irrigated harvested area could be expanded by about 650,000 hectares to reach a total of 2.0 million hectares by 1985. Thus, there would be almost a 50 percent increase in the irrigated area by 1985 compared to that in 1971/72. As a proportion of that total harvested area, however, the irrigated area would only rise from about 43 percent in 1971/72 to 53 per- cent in 1985; about 1.4 million hectares of lowland rice would still be grown under rainfed conditions in 1985. Moreover, attaining the full incremental increase in yields anticipated from the expansion and improvement of the irrigation systems usually does not take place until several years after the construction or rehabilitation has been completed. 5.13 The Government is also increasing its efforts to improve the extension service, but upgrading and expanding the training facilities and improving the quality of management will necessarily have to be a gradual process. Given these constraints, efforts to improve available organiza- tional and managerial resources should probably be concentrated, for the next five years at least, on those areas where the potential to increase yields is greatest: first, on the irrigated HYV areas, and second, on the irrigated areas planted with traditional varieties. 1/ Nonirrigated areas would continue receiving the same level of services as in the past; it should, however, be possible to develop a program to improve the extension capability-based on the experience gained in the irrigated areas - so that 1/ Income distribution problems which might result from an initial con- centration on the areas with the highest potential could be partly offset by a more aggressive water charge and land tax policy. See the section on irrigation and water management for a more detailed dls crussnn Table 5.6. Ac:tual and Projected Production and Consumpticon of Rice (In thouisands of metric tons) Padii-y Cro-) to be M:illed b/ Net Domestic c/ Change d/ Per Capita Year Paddy Production MilLed- Rice Output- Imports Consumption In Commercial Stocks - (lonsumption Ujn xicilcgrams) Actual 19155 3,992 3,8413 2,374 482 2,8C02 54 89.5 1966 4,073 3,926 2,423 327 2,767 -17 85.8 19157 4,094 3,947 2,435 215 2,575 -75 76.0 19658 4,561 4,397 2,713 119 2,596 236 75.9 196j9 4,445 4,285 2,644 ... 2,704 -87 76.7 1970 5,233 5,04.5 3,113 ... 3,227 -115 87.7 1971 5,343 5,151 3,178 18 3 ,272 -76 86.4 1972 5,100 4,9116 3,033 620 3,660 -7 93.9 1973 4,415 4,256 2,626 239 2,8319 26 70.8 1974 5,594 5,39:3 3,327 317 3,527 117 85.4 Pro,jecte d 1980 7,225 6,965 4,458 ... 4,509 -51 93.U 1985 8,825 8,507 5,444 ... 5,329 115 96.9 a/ Assumed to be 96.4 percent of production b/ Assumed to have a recovery rate of 61.7 percent for 1965-74 and 64 percent for 1980 and 1985. c/ Includes changes in household stocks d/ Stocks held for sale on the commercial mairket Source: Data on paddy production and commercial stocks are from ]BAECON; imports are from National Grain Authority. Other data are Mission estimates. the target area could eventually be broadened to include the rainfed areas. If these ambitious yield targets could be acnieved, the Philippines would probably be able to meet, on a sustained basis, the demand for rice from domestic production by 1985 (Table 5.6). 5.14 Corn: Corn production has increased at an average rate of about 5.5 percent a year since the early 1960s. Mfost of the increase occurred in the latter part of the 1960s when output rose by almost 9 percent a year; since 1970 output expansion has slowed to about 5 percent a year. Increases in area cultivated and yields contributed equally to output growth until 1970, but yields have stagnated since that time. During the 1960s and early 1970s, the harvested area of corn increased by an average of about 3 percent a year 1/. The physical areas of land cropped with corn grew from about 740,000 hectares in 1959/60 to about 1.1 million hectares in 1973/74. Since 1960 there has been a dramatic change in the regional distribution of corn production. More than 60 percent of the increase in output has come from Mindanao which also accounts for about 44 percent of the total harvested area and about 54 percent of total corn production. 5.15 Corn yields in the Philippines, like those for rice, are very low by international standards (Table 5.7). These low yields are due to such factors as the unavailability of disease resistant HYVs, the lack of drying facilities, inadequate seed control, the low level of fertilizer and pesticide use, and the resulting heavy losses from pests and diseases. Another problem is that corn farms are often located in inaccessible and/or geographically scattered areas, which makes extension work difficult. In some of these areas, weather conditions are unfavorable and, consequently, corn production losses during the growing season are often high. Table 5.7: International Comparison of Average Annual Yields of Corn (In kilograms of shelled corn per hectare) Area 1961-65 1966-70 1971-73 Philippines 660 798 824 Asia 1,652 1,990 1,833 China (People's Republic of) 2,479 2,688 2,798 India 992 1,066 1,039 Indonesia 997 952 1,012 Thailand 1,932 2.094 1,801 Source: FAO, Production Yearbooks, 1972 and 1973. I/ TII--n m--n--c three crops of corn a yeanr are obtained AordrAlng to the 1960 census, the first corn crop accounts for about 40 percent of the harvested area, and the second and th4rd crops each account for about 30 percent of the harvested area. 5-16 In the npat two vears- the Govprnment has heen develoning a nrogram of supervised credit for small corn farmers (named Miasaganang Maisan) that is modelled on the Masagana 99 program. The first phase of the program, which began in March 1974, failed to have any significant impact on production. There werp severnl reasons for this. inrl1icling thp dilution of effort over all regions, the use of traditional seeds, the poor quality of the available HYV seeds, the misuse of fprtili7pr, and indqpnuitP stornag nd drying facili- ties. The Government has been undertaking measures to overcome these prob- lems. For examn1p for the Qsecond year nf tha Magnang Maisan progrnm, the target area was reduced by 30 percent, to about 350,000 hectares (largely concentrated in Mindanao), and a significant increase in yields and production is expected during the next few years. 5.17 By 1980, total domestic demand for corn will probably be in the n.eighborhood of 2.8 ,million. tons of shelled corn (Table 5.8). Tn considering the prospects for output expansion to meet this demand, a plausible assumption 4.. L ICX IL X C1 t L CL LC af L WI! £t11 II tIl .LaltIt t O ULt& L~ A. C! U Il L U IA Ll. I.. it C. v. y pdLUnlnng -PrU-gr4m to reduce Lhe Durdens imposed by the current demographic situation. 7.34 The Government is keenly aware of the obstacles to expanding family planning practicelin the Philippines. Over the past year POPCOMu has developed a strategy for the future development of the program that involves shifts of emphasis compared with the past. The following are the key ele- ments of the new strategy: 1/ Annual Reports 1973-74, p. 2. 2/ Phillips, "The Philippine Family Programs," p. 18. 3/ See Chapter 3. (i) The number of clinics will be increased only marginally, because a- further increase in clinic density would be uneconomical and would most likely simply reduce the acreptor lnod at Pxisqting clinics TnIntead, there will be increased emphasis on effective utilization of the exictina rl inir QvyStPTm (44) Barrin respipnnlu pointc (RRPa) will hp estahlichpd in ruiral areas for family planning acceptors who initially enrolled at a tow. cllnic. These will be operated by satisfied acceptors, barrio councils, barrio health clubs, local stores, or other appropr4ate local instituti4ns. (iii), Th-e commerciall distribDution of contraceptives will be pro- moted; for example, oral contraceptives and condoms will become availl abdlel in. sa4ri-sari stores. k.JVJ I drL UICU1_; .,IUL : OiiU IJ4W luV ~C;J W4.4. UC HCLIIII LLGU *V pLF scribe contraceptives and lay motivators (non-medically traineLLd persoLnnLIL.L) Will be tLILLLU LU LtrtdUpp.Ly UsrLb WhIU are not experiencing problems. Midwives will receive train- irng 'La reorient the-r. for frarmily plnnn -l at 4egional tng to rUL.LL i~A OI.L4y jJ4.LLLIL.L&Lr, WUi_L. N CL. 1X=e_jUII"a± Training Centers, which are being constructed as part of a WUL . U DdLIrL ±Lidi1L.tU pUpU.Ld LlULL PLUJtCC L. (v) Mobile vans will be useu to .rJovide inform.Ation, educatior. and family nlnnning services in remote barrics. (vi) Local governments will become increasingly invoived in the planning, implementation, and monitoring of population activities. These commendable efforts to increase the accessibility of family planning services to the rural population should substantially enlarge family planning practice; the extent to which they do so should become evident in the pro- gram's reporting system in 1976. Because the proportion of women favoring large families still remains excessive, it will also be necessary to make the motivational aspects of the program more effective, in order to lay the foundation for the expansion of family planning practice in future years. 7.35 The prospects for influencing demographic rates through the family planning program are illustrated in Table 7.2. The figures show that if family planning practice remains at its current level, population growth will accelerate. Bec;-:se of the program improvements being instituted by POPCOM and POPCOM's demonstrated capacity to react flexibly to an evolving situation, family planning practice rates sheuli imrrcve con- siderably over the next decade. The current improvements in the accessibility of family planning services should bring family planning practice up to about 30 percent of eligible couples by 1980. Further progress would Table 7.2. Possible Demographic Rates, 1980 Family Crude Crude Population Planning Practice Births Birth Death Grovth Rate (In percent) In thcusamds Rate Rate (In percent) 20 1,996 41 9 3.2 30 1,855 38 9 2.9 40 1,715 35 9 2.6 50 1,574 32 9 2.3 Note: NCSO projects that there will be 11,073,000 women aged 15-h5 in 1980. If the eligibility factor of .605 (Table 6.1) is applied, there will be 6,699,000 eligible women in that year. POPCOM statistics indicate that the natural annual fertility rate among eligible women is .34; that is, in the absence of contraception, there wil1 tvni callvy be 3L bhirths npr year among 100 eligible women. Survey findings on the family planning program indicate that the average annual fertility rate among women practicing family planning is .13 (greater than zero be- cmiise some mpthods sueh as thA luse of condoms and rhvthm are relatively unreliable). Where X is the proportion of women nrnn'tie ircr familv plan1nning th-e n+llmhpr of hirths is 1 ecul ted as (6699) (X) (.13) + (6699) (1-X) (.34). The number of births is dividedar hyT t~he n"Aiaected pop 3 tion in 1980 to deprive the crude birth rate. The crude death rate is as projected by"'NCSO; r,r.rl,t1 .o roj+ra+eby the differen.ce betweer. the two. O - ~ M CZs r)v ^A-t -A V-4 ' 1s6;^P^+;^_^ fC ^v- h PMIA;N"inlac h-ir Province, 1970-2000 (Manila, 197t), pp. 22, 40; POPCOM, Four-Year Population P - (^arriT\ , 197-), p. 2; -- E- aing ard James F. Phillips, "Survey Findings on Family Planning Program Effects ins the Phli7ppineso (cniversity of the Philippines Popl-ation Irstitute, 197L, processed), p. iL. 'depend on a continuation of the change observed in recent years in attitudes toward childbearing and family planning. If attitudinal change continues during the second half of the 1970s at the same rate as the surveys indicate occurred during 1968-73, it should be possible to bring family pianning practice rates among eligible couples up to 40 percent by 1980. But, of course, such change is difficult to forecast, and, in encouraging rural people to practice family planning, the Government is attempting to undertake something, unlike rural roads or rural electrification, for which there is relatively little past Philippine experience to serve as a guideline. 7.36 As mentioned earlier, the population to date appears to have followed the medium projection of the NCSO. The future course of the popu- lation will probably lie between the medium and low projections. The medium, low, and medium-low projections are discussed in Technical Note 1 appended to this chapter; the achievement of a 40 percent family planning practice rate, which the Mission would regard as a reasonable objective, would indicate population growth along the medium-low projection. This would mean a popu- lation growth rate of more than 2 percent a year for the remainder of this century. It would also mean a population of about 55 million in 1985 and about 77 million by the year 2000. B. The Nutritional Status of the Population 7.37 Around 1950, the nutritional status of the Philippine population was comparable to that found in neighboring Asian countries such as Malaysia, Taiwan, and Japan. In most of these other countries, the nutrition of the population has improved so much over the past 25 years that it is no longer a major problem. In the Philippines, nutrition has also improved considerably, but the nutritional status of the population remains unsatisfactory. The relatively mediocre nutrition performance of the Philippines in comparison with its neighbors is due to the more highly skewed distribution of income, more rapid population growth, and the relatively disappointing performance of the food production sector. Current Nutritional Status 7-38 There arp three manor nutritional problems in the Philippines today. One is the inadequate caloric intake of much of the population, …ause… by insuffricint in…oT.es in rel-at-inn t-o fo pic that is, there is a nutritional poverty problem. The second is the special problem of infant and child malnutrition, in which poverty is on.ly one element of an etiology that also includes: excessive childbearing and poor child spacing; the high cost. of available wean.ing foods and fau.lt,y wear,i.ng practices; f alse beli efs and ignorance of proper nutrition; and inadequate food distribution within the fLLi.Ly . 1Thle hi.Lrd is th L1-Le prob3lem of di-etary iLr,1,aLLac LeanU.LLJ LU vitamin and mineral deficiencies, caused by poverty, ignorance of good nutri- tional practices, and cuLturaUL preferences that hinder adequate nutr'iLLon. The nutritional status of much of the population is also adversely affected by intestinal parasitism. 7.39 The Problem of Nutritional Poverty: The nutritional requirements of a population are deterL.in.ed by body size, which is influenced both by genetic factors and past nutritional levels; climate; the age-structure of the popuLatiLor; anlu the proportion of phyi.al work - that is- done by har labor rather than by animals or by machines. The World Health Organization Laa8 Westutefl ta.au . ccp;bn ern .lac,c 4f4- res I1Ub PUV±±L1.blU IULLCL.LILL b:LdLJLUtL.Uo LJAL %LV%-J.UWV.&&r YW=00- LR L~LL.L%. which are the ones adopted here. 1/ When applied to the Philippine popula- tion, these standards indicate an average daily requiremen.t of approxi- mately 2,100 calories and 30 grams of protein (Table 7.3). This compares with tne "tentative" requirement of about 2,190 calories and 54 gram,s ouf protein used by the National Economic and Development Authority in its food balance sheets. The latter protein requirement eviUe[tLy Uoes rot reflLect the- current thinking of nutritionists that the protein requirements of adults are less than previously believed, while continuing to emphasize the vital importance of adequate protein intake for infants and children. 7.40 Cereals currently provide the major portion (about 66 percent) of the calories consumed by the population, followed by meat, poultry, and sea- food (8 percent); sugar (9 percent); rootcrops, fruits and vegetables (8 percent); and others (9 percent). 2/ The portion of the diet coming trom meat, poultry, and seafood is sufficient to provide enough protein if an average quantity of food is eaten. However, the portions of the diet coming from dairy products and vegetables are grossly inadequate. In 1972, the con- sumption of dairy products was only 28 percent of the allowance recommended by the Food and Nutrition Research Center, and consumption of leafy green and yellow vegetables was only 27 percent of the recommended allowance. 7.41 Long-term trends in food availability over the past 20 years are illustrated in Table 7.4. The availability of cereals has increased only modestly. It has been offset particularly by the declining availability of rootcrops, an important secondary source of calories, as land has been di- verted to more valuable crops. The availability of meat and poultry has merely kept pace with population growth. The per capita availability of fish and dairy products, on the other hand, has approximately doubled, al- though the availability of dairy products remains very low by international standards. 7.42 The per capita availability of calories improved substantially during the 1950s and early 1960s, but since 1963 has stagnated at an unsatis- factory level. In recent years the Philippine economy has fallen somewhat short of providing enough food to meet the minimum caloric requirements of the population. In 1972, the most recent year in which a Food Balance 1/ World Health Organization, Western Pacific Regional Office, The Health Aspects of Food and Nutrition (Manila. 1969), p. 245. The WHO require- ments are called "interim" because they refer to existing average body size, rather than to greater body size believed to be attainable if adequate nutrition were available to all groups in the population. 2/ NEDA, The Philippine Food Balance Sheet, 1971 (Manila, 1973) and The Philippine Food Balance Sheet 1972 (Manila, 1974). Figures in the text are three-year averages for 1970-72. - 202 - Table 7.3. Daily Nutritional Requirements for the Philippine Population Caloric Requirements Protein Requirements Category Persons Per Person Total Grams Per Total Gr ins (In thousands) (In calories) (In millions of Person (In millions) calories) 0 - 4 years 6,212 1,100 6,833 12 75 5 - 3 years 5,529 1,700 9,399 17 94 10 - 14 years 5,030 2,300 11,569 29 146 Adult males 9,732 2,900 28,223 39 380 Adult females NPNL Ž1 8,715 2,050 17,866 35 305 Adult fem.ales PL a/ 1 ,467/ 2,250 3,301 39 57 Total or average 36,684 2,104 77,191 29 1,057 a/ PL: Pregnant or lactating 1UPNL: Non-pregnant, non-lactating b/ Assumed Pqual to estimated annual number of births. Sources: Population figures are for 1970 and are from NCSO, Age and Sex Population Pr-*Jecticns for the Phi-ppines± by Province, 1970=2 000at.&C , 141. p.'2. Caloric and protein requirements per person from WIorld Health Organization, Western Pacific Regional Office. The Health Asnects of Food and Nutrition Table 7.4. 'Daily Per Capita Availability of Miajor Food Groups Grams ALvai lable Calories Available b/ RooEts`=n Meat and Fish and I)airy Calories Three-year Year Cereals Tubers Poultry Shellfish Products a/ 'All Foods) Moving: Average 1953 3108 121 40 46 20 1,691 1954 310 120 42 48 22 1,725 1,727 1955 321 119 43 5i2 27 1,766 1,733 1.956 307 121 44 53 31 1,709 1,744 1.957 3,05 119 45 5i2 37 1,756 1,76C 1958 330 115 44 56 38 1,814 1,76L, 1.959 308 114 44 53 33 1,735 1,777 1.960 312 117 43 57 34 1,782 1,793 1961 331 110 40 5j5 35 1,862 1,827 1.962 318 108 40 53 32 1,836 1,925 1L963 353- 119 38 E82 31 2,077 1,990 1L964 347 122 38 84 41 2,057 2,098 1965 375 121 37 88 41 2,161 2.090 1L966 332 110 47 90 42 2,053 2.124 ]L967 354 99 50 95 41 2,159 2,093 1L968 359 93 45 107 50 2,068 2,125, 1L969 365 89 45 1)3 54 2,148 2,104 1L970 376 81 43 103 43 2,097 2,123 1L971 392 58 42 103 43 2,123 2,089 :L972 363 66 43 107 47 2,047 a// vlrcle mi.lk equivalenlts. 6U/ Refers to c-lories available for all foods, not; just the f,ive categories s'hown in this table. Source: National Economic and Development Authority KNEDA), Statistical Yearbook, 1975 (Manl:a, 1975) ,. 1I8! Figures for 1962-69 have beern adjusted to compensate for the fact that t!he population figures used in the Food Balence Sheets in the 1960s musit be considered, in the light of the 1970 census, to have been, overestimatec by as much as 3-4 percent. Sheet was published, an average of 2,048 calories per day were available to the populat;ion from domestic production and imports. Food consumption survey data indicate that the per capita availability of food, in caloric terms, Uec'inedU iAL 19 7/ J adLU 1 a.,d a.Lso1 tt tLh qIL l ofL. th d.ie -t, as measured by the proportion of calories coming from foods other than cereals and rootcrops, deterioratedu (Table 7.6). Tis_ deteriorati was causd by the food-price inflation in recent years, which was set off by the failure of food production to keep pace with population growth. 7.43 Although the Philippine economay has come close to accomplishLng the task of providing an amount of food sufficient to meet minimum nutri- tional requirements, there has always been a substantiai portion or tne population suffering from malnutrition, due to the uneven distribution of food among regions and among income groups. The evidence on the regional distribution of food comes from nutrition surveys conducted by the Food and Nutrition Research Center (FNRC) during the early and middle 1960s and food consumption surveys conducted by the National Food and Agriculture Council (NFAC) in 1970-72 (Table 7.5). 1/ The earlier surveys show that the regions with the greatest nutritional deficit were the Visayas and Southwestern Mindanao, with Southern Luzon, including Manila, also taring poorLy. The more recent surveys also reveal the Visayas and Southern Luzon as the regions with the lowest amount of food consumption, in addition to Bicol, which was not included earlier. The relatively high caloric intake of the Eastern Visayas, perhaps surprising in view of the region's reputation as one of the poorer ones, is offset by its diet quality rating, which was the poorest. Southern Luzon's low caloric intake and good diet quality score is probably explained by the existence of a low caloric intake among the urban poor in M4anila and good diet quality among the middle classes in the Manila area. In general, therefore, the poorer regions are the most nutritionally defi- cient, but the correlation-is not perfect. Northern Luzon, for example, is among the poorer regions, but has approximately average food consumption. 7.44 More severe than the uneven regional distribution of food intake is the maldistribution among income groups; as a result, inadequate nutri- tion appears to be commonplace among lower income groups in the Philippines. There are two kinds of evidence on this subject--direct observation from food consumption surveys, and inference from data on income distribution and food prices. The direct: evidence from the NFAC surveys that have been conducted since 1970 is shown in Table 7.6. The regularity with which 1/ 'M=e F-sTRr -an NTFAr uv are better suited for mal ... interprovincia -It ±LLC .tLL n.t&a..a tv a a J -V10t5. ~ 1- .s .1.5514 *SS=.CL JL VVJ A.L J.L comparisons than for intertemporal comparisons, since the two series were Aone by different agenciesa.-nd possibly ,.plye d e .UL r ment technioues. It is worth notine that whereas Food Ralance shopt anrd N1Ar f igures fLor caloric availability and corLsuinpt'on agree very closely, the average intake of 1,674 calories recorded in the FNRC surveys was only 85 percent of the average availability of caiories indicated by the Food Balance Sheets for the same years. Since the Food Balance Sheets were prepared on a&consistent basis over the period in question, this is a clear indication that the two series are not readily comparable. - 2o5 - Table 7.5. Caloric Intake and Diet Quality by Region Caloric Intake Diet Quality c/ Region FNRC Y Data FNAC b/ Data FNAC / Data (Year) (1970-72) (In percent) C.reater !anila 1.730 (1958) n.a. b/ n.a. b/ Ilocos - Mt. Province 1,970 (1960) ) ) ) 2,190 ) 70 Cagayan Valley 1,790 (1962) ) 2 Central Luzon n.a. 2,300 70 Southern Luzon 1,700 (1962) 2,010 66 Bicol n.a. 2,080 70 Western Visayas 1,640 (1964) 2,120 71 Central Visayas n.a. 2,055 72 Eastern Visayas 1,500 (1965) 2,170 74 ) 1,750 (1967) Sou,thpetpern Mindanao ? 2 240) Southwestern Mindanao 1.600 (1966) 2,190 69 t/ Food and Nutrition Research Center. b/ National Food and Agricultural Council. c/ Diet quality is indicated by the percentage of total calories coming from cereals and root crops; the higher the percentage, the lower the quality. d/ Greater Manila is included in Southern Luzon. Sou rces: E. rW. QioIA, &-. M .'ILL4avl eJa, arA V. Ram-os, "S.MI,r. P.esults cf tF.e Eight Regional Nutritional Surveys conducted in the Philippines by the Food and Nutrition Repear,h Center;" Philinpine Journal of Nltrition, vol. 22 (April-June 1969), pp. 61-0ol. M.Z.V. de los Angeles, et al., Regional Consumption Patterns for MaJor Foods (Quezon City: National Food and Agricultural Council, Department of Agriculture and Natural Resources, 1973). caloric intake increases from the poorest to the richest income group strongly supports the validity of the data. The poorest group is consis- tently deficient in caloric intake, averaging only 88 percent adequacy, while the richest group achieves 125 percent adequacy. Protein intake is, by WHO standards, adequate for all groups, confirming the prevailing view that the Filipino diet is of such a composition that it provides enough pro- tein if it provides enough calories, and, therefore, that there is no separa- ble protein deficiency problem. Within each income group, caloric adequacy deteriorates quite dramatically over time. This is largely due to the fact that the income groups are defined in terms of money incomes rather than real incomes, and that the real incomes of the groups have deteriorated due to inflation. Families have apparently adjusted consumption habits to cope with the erosion of real incomes and, as a result, diet quality has deteriorated. 7.45 The data in Table 7.6 also provide a basis for calculating the proportion of families that is inadequately nourished. The families in Group I were certainly undernourished throughout the period in question. In the last survey, by which time food price inflation had brought the caloric adequacy of Group II down to 90 percent, it is reasonable to regard half of the families in Group II as not receiving sufficient nutrition. The survey observations of the undernourished group, thus defined, cluster in the range of 32-36 percent, with an average of 34 percent. Assuming a normal distribution before the last survey, this figure should be regarded as a Inwer limit and a nrobable underestimate. 7=46 Another method for arriving at the Dronortion of families rereiu- ing inadequate nutrition is to calculate the minimum cost of an adequate diet and then rnmnpare thi4 snnt with income d4strihitinn data to see how many families could not afford such a diet. The year 1971 is convenient for this purn oenn s4ine nne nf th MNFAr fnnd rnnaim tinn suvys, wlhi4ch included food prices, was conducted in May 1971, and the Bureau of Census and Statistics also conducted a Familyt Incom,e and ETped4ture Su--ey (FIES) in May 1971. The representative weekly diet of the poorest group in the NFAC surveys is sho. inr Table 7.7. It is aaustere d 4et, draw-ing tbe greatest porportion of its calories from cereals and roots and tubers, and allo-wing for very little consu.ption ofL meat, eggs, or dairy proucts. This diet, providing only 1,913 calories daily, needs to be increased by 10 percent t-o achieve ca'loriLc a'dequaAcy. A miLnimuru aduequate 'dXet of' such' a compos'Lt'on cost P 432 per person in 1971. The FIES found that the poorest groups de- VULtU UO6. perCelnL U1 LtheiL eXpdllUrLULto LU lOUU TlHIe allocatLon o this proportion of the family budget to food and the remainder to non-food neces- sities indicates a "minimum needs" budget of P 650 per family member in 1971. Table 7.6. Daily Nutritional Inttake Per Capita by Income Group p Group I Group II rcu____ _ GrcII I_ roup IV Undernourithed ___ __ __ __ _ __ __ __ __ __ ___ ___GroupGr up JU IV. Caloric Pcrcentale Caloric Percentage Caloric Percentage Calor'c Percp"t.ge bireeetatS of Survery Date Adeauicv l'ocein ~ Tp_ercent ) ( ½ir percent) 19515 16,206 56.8 9,20)5 8,285 921 10.0 1957 16,719 56.6 9,46)3 8,791 672 7.1 1953 17,247 56.1 9,676 8,979 697 7.2 1959 17,791 55.1 9,803 9,225 578 5.9 1960 18,354 54.9 1.0,076 9,441 635 6.3 196:L L8,934 55.5 10,508 9,835 673 6.4 1962 199,532 56.0 10,938 10227 7:L1 6.5 196^3 ;20,149 56.4 11, 364 10,841 523 4.6 1964 20,786 55.1 11,4453 10,720 733 6.4 1965 21,443 55.0 11,7914 11,063 7:31 6.2 1966) 22,121 54.3 12,01.2 11,171 841 7.0 1967 22,820 53.1 12,117 11,184 9:33 7.7 1968 23,541 51.1 12,029 11,079 9i50 7.9 1969, 24, 285 49.2 11,948 11,147 801 6.7 197C 25,057 49.4 12,378 11,437 94i1 7.6 1971 25,901 439.2 12,743 12,068 67,5 5.3 197 2 26,782 49.8 13,337 12,617 720 5.4 1973 27,700 49.4 13,683 13,026 657 4.8 1974 28,65i6 49 .4 14,156 13,576 580 4.1 8a/ The years of age! or older. D/ The labor force participation rate (LFPIR) is defined as the proportion of the working-age population -~ sholding or seeking employment; three-year moving average. Source: Mission estimates. 9. It should be noted that the use of an aggregate LFPR for the entire working-age population, rather than disaggregated LFPRs for various age-sex groups. is iustified only if: (i) there are no marked trends in age- and sex-specific LFPRs; and (ii) there are no marked changes over time in the a8e and sex composition of the working-age population. As to the former, an inspection of age- and sex-specific LFPRs reported in the quarterly labor fnorce srveys from ?971 through 1974 rpvpals no disrernible trends. Regard- ing the latter, the sex composition of the population remains essentially constant. As pro4Aected the aae omTnnnitinn chan.ges slightly. In narti,iular, the proportion of teenagers, who have a low participation rate, goes down due to decreased fertility; and the proportion of older people, who also have a low participation rate, increases slightly, due to decreased mortality. Hovever, the cnhnanges in the pro4ection h thant would hbm hde by -s4ng age specific rates are so slight that, in view of the other uncertainties in- volved, i. was %A4ecAe A t4 -mly use the aggregate n~~~.a ucft.u. I.... _4_¼L ao _v.._ n.a a68 a6 X. La = ._ V, The&I asu F-aI Mo . O'' w- a LU Lis &- wU.J-sfLgs a population figures for the years 1975, 1980, 1985, and 1990 (the years for whiLich .igures are avaiL.abU.Le.# JTh1e resU.Lts are LWLJU Air L eLLLL I . .LJ.. *iI,e series shows that, although the annual rate of growth of the labor force wi.lJ.L dUecrease slo-wly from 3J.2L percerL in. 171J0 oU J3. percent rL. 1970-85 and 2.8 percent in 1985-90, the absolute magnitude of the increment to the labor force will inlcrease year uy year. ror tne foreseeaDle lfuture, tne Philippine economy will have to generate 500,000 new jobs annually in order to keep unemployment from growing, and will have to generate 600,000 jobs annually if any tightening up of the labor market is to be achieved. Table 7.III: Labor Force Projections Annual Average Year Labor Force Growth Rate Annual Increment (In thousands) (In thousands) (In thousands) 1975 14,650 3.2 496 1980 17,129 3.0 535 1985 19,802 2.8 587 1990 22,736 Source: Mission estimates. TECHNICAL NOTE II Enrollment Projections 1. The Department of Education and Culture has prepared high and low enrollment proJections for all three levels of education up to 1985. 1/ The Mission has also prepared its own enrollment projections, using recent population projections of the National Census and Statistics Office. The DFC and Mission projections are shown in Table 7.IV, and are based on the methodologies discussed below. Elementary Enrollments 2. DEC's high projection for elementary enrollments comes from a second degree equation derived by least squares. Since quantities such as school enrollments are generally believed to grow linearly or exponentially, this projection lacks intuitive appeal; furthermore, it leads to an enroll- ment ratio of 133 percent in 1980, which runs counter to the announced, and highly desirable, policy of reducing the enrollment ratio. Nonetheless, the high projection appears to be the one being used for planning purposes. 2/ The low projection, on the other hand, is based on population projections of the Bureau of Census and Statistics (the predecessor of NCSO) together with the assumption that compulsory education at the first grade level is strictly enforced and that enrollment in each grade level by age will be normalized, with a resultant reduction in enrollment at each grade. Clearly, the low projection is the more reasonable one. 3. The Mission's projection is based on the assumption that the enrollment ratio is brought down to 100 percent by 1980. For 1980 and 1985, the Mission projection is lower than the DEC low projection, but shows an almost identical growth during the 1980-85 period. Depending on the vigor with which continuous progression is instituted, elementary enrollment will probably run somewhere beetween the DEC low projection and Mission projections. Secondarv Enrollments 14. The DEC high projection for secondary enrollment is derived using the same method as that used for the high elementary projection. The DEC 1/ Republic of the Philippines, Department of Education and Culture, Division of Educational Planning, "Projections for the Ten-Year Development Plan for Education " (Manila, 1975). 2/ The high projection was given in response to an item concerning future enrollments on a Mission questionnaire to which NEDA responded. - 247 - low Drolection is based on the assumDtion that an enrollment ratio of 65 percent will be achieved'by 1985. The Mission regards the latter projection as reasonable. The DEC hiah Droiection irmnlies a rate of increane in the secondary enrollment ratio that is contrary to past experience and seems to be unreasonably high. High WdtwhAlon Enrollments upon its secondary enrollment projections, together with the assumption that past ratios of enro-l lme-nt incolleg by graduatin second-ar school students and past continuation rates in higher education will persist. Since seconda-r -n---l ma.t ratios a:e expected to rise, p4ro-cted higher education enrollment ratios will rise as well. The Mission forecast, on the other han, assumes IthIat- thae haigher eucat-ior. enrollment ratio remains at the constant level maintained during the period 1965-70. This is in accordance . 4- *1 h s t a t eApoL4 _%- ,. _whiC im 4at eL -nl nA r_ th4 *u r-, r owt _l Ofhrge edUC"to _^ bUoS< C% LC LCL p wtS.JL , WS ^t f CJ CLz S . Sib WLLaJ,..5 '"'~ L,'US ... UU5*L CI..A6.. t_ LJ.JU leading to a degree by means of the National College Entrance Examination an.d t.Uh prootion of post=secondar; t eclhIcal trinn. - 248 - Table 7.IV School-Age Population and Enrollment, Actual and Projected, 1965-85 (In thousands) Actual Proa Category 1965 1970 1974 198 198 Elementary r72-011) ~ 5,557 6,364 6,795 7,576 8,275 Secondary (13-16) 2,9h5 3,661 h,113 4,584 5,023 High^er (1-20) 2,-)'2 3,075 n a 4,103 4,466 airollment. actual and proJected Elementary 5,816 A, Q9 7-207 DEC high projection 10,099 11,252 DEC low projection 8,375 9,013 Mission projection 7,576 8,275 Secondary 1,169 1,715 1,637 D hig prjato 31 17 4. .0.4 DEC low projection 2,705 3,246 Mission projection Higher 509 638 n a DEC high projection 1,238 1,626 DEC low projection 1,137 1,364 Mission projection 861 936 Ratio of enrollment actual and projected to relevant age group (in cercent) D/ Elementary 105 110 107 I DEC high projection 133 129 DEC low projection 110 109 Mission projection 100 lC0 Secondary 39 h7 40 SI/ DEC high projection 68 81 DEC low projection 59 65 Mission projection Higher 21 21 n a DEC high projection 3° 36 DEC low projection 28 31 Mission projection 21 21 Note: Population figures refer to calendar years. Enrollment figures refer to school year beginning in that calendar year; for ammple, enrollment figures for school year June 1970-March 1971 are shawn under 1970. / The basic source of data on population is NCSO, Age and Sex Population Pro eGtion for the lbilip2i:ue by( Pvince. 19070-20.The NJCSO data are disaggregate b five-year age groups 0-4, 5-9, 10-l4, etc). The figures calculated here asmume that the elementary group is 60 percent of the 5-9 and 10-1h NCSO age group; the secondary group is 40 percent of the 10-l and 15-19 age groups; and the higher group is 75 percent of the 15-19 age group. For 1972, for which there was no NCSO projection, the figures are by interpolation. For 1965, the figures were derived by app]ying five-gear survival probabilities for 1965-70 (NC9D, p. 5) to 1970 age groups. / Actual figures for 1965 and 1970 from NEDA, Statistical Yearbook. 1975 (Manila, 1975), p. 458. Figures for 197h-75 are unpublished preliminary estimates by NEDA; the estimate for secondary enrollment would appear to be on the low side. DEC projections are from DEC, Division of Educational Planning, 'Projections for the Ten-Year Development Plan for Education" (Manila, 1975). Mission projections are based on the following assumptions about enrollment ratios: elementary ratio in 1975 is the same as the 1970-72 average, but is reduced to 100 100 oercent by 1980 as a result of Government policy. Secondary ratio increases by 6 percent every five years. Higher education ratio remains constant as a result of Government policy. NEDA estimates that the school participation rate, which is the proportion of children in the relevant age group who are enrolled in school, was 98 percent for children of elemaentarv school age and h pecnt f cdren of secondary school age in 1974-75. This rate differs from the enro]lment ratio because many students of secondary school age are enrolled in elementary school. - 249 - A _e,-dix I I4J9eLLUA.L.&J AGRARIAN REFORM 1. Tne Philippines has one of the highest tenancy rates 'iL Asia. Over 40 percent of all farms are cultivated by tenants, compared to about 25 percent in Thailand and about 16 percent in the Republic of Cnina. Tue rate of tenancy for rice farms is particularly striking in Central Luzon, where 75 percent of the rice area is tenanted, and in Southern Tagalog, where the rate is 70 percent. Existing data also suggest that as many as two-thirds of all tenant family incomes fall into the bottom 40 percent of the national income distribution. In the Philippines, as in other parts of Asia, the system of sharecropping often results in high rents (generally 50 percent of the harvest), unlawful ejections, and excessive interest rates charged by landlords, ranging anywhere from 50-400 percent. 1/ Partly as a result of these conditions, the Philippines has had a history of peasant unrest, primarily in Central Luzon. Consequently, there has been a long-standing commitment by the Government to a program of agrarian reform which would abolish sharecropping and provide greater security of tenure. A. Land Reform Prior to 1972 2. Land reform measures date back to the early 1900s when the Ameri- can colonial government purchased 160,000 hectares of tenanted land be- longing to the church and attempted to promote homesteading and colonization. The colonial government was deterred from actively enforcing these measures, however, because of its interest in promoting the rapid growth of exports and its political dependency on the landlords. 2/ A Rice Share Tenancy Act was passed in 1933, but the legislation was circumvented by landlord in- terests and was never implemented. Following World War II, peasant unrest, supported by the armed Huk resistance, again made land reform a major issue. Republic Acts 1911 and 1400 were passed in 1954-55 which established a formu- la for crop sharing, promoted the resettlement of public lands, and provided for the expropriation of landed estates to provide "family size" farms for landless tenants. Due to-a number of loopholes, including a land ceiling for ii !!"oney lending is a source of revenue to many l;nduuwHerus ldat aI.oUIut. equals the rental share," Joe R. Motheral, "Land Tenure in the Philip- pines," Journal of Farm Economics, Vol. 2UuVIII, NO. 2 (May 1956), p. 467. However, this may not always be the case; depending on the tenant-landlord relationship, there may not be any interest charge for the loan. See the study by J.M. Manto and R.D. Torres, "Sources and Cost of Credit to Rice Farmers in Central Luzon"l (National Food and Agricul- ture Council, Department of Agriculture, June 1974, Processed), p. 11. 2/ Harold D. Koone and Lewis E. Gleeck, Land Reform in the Philippines, (n.p., Agency fnr Tnternational Development; June 1970); p= 6. - 250 - indiv4,iAl laridlordsof300Acor.f'Annitiguinous hecta or. 19,15 hect1e 1Qere purchased between 1955 and 1962. 1/ 3. In 1963 the Agricultural Land Reform Code (Republic Act 3844) was rp oAs wh.h4.- -fted the eamhasi4 .-f 1A r_ferm atwa firom erXp. n._;-4 and resettlement to a two-staged conversion of sharecroppers into lease- holders and leaseholders into owner-operato -rs. Swer code's w to: establish owner-cultivation and family-size farms as the basis for Philippine agriculture; provide a iAg4nfieAd, more 4rAe- n e nce for small farmers; increase productivity and farm income; and have labor _laws aplenqalnoidstyadarclue .e cole reduced th ln Z~W.2 "FF/.L.U ='{U".L.Ly L6J .&AUUIA.-IAY OLLA. "S&AA 4LLULC. ±LL u . uuL~ tLLe .Landu ceiling from 300 to 75 hectares 2/ but provided no timetable for completion. 4. Although significant as landmarks in the legislative history of agrar. CaL L refLorm .in tLhLe PLbipL JLppiues, thLe 1795 aUd 1703 acts LadU li`t tLe if any impact on agrarian relations due to a lack of administrative and financial support and strong po±±L."U4.l UppoUicioU. Dy 1971, only about 50,000 sharecroppers, or about 5 percent of the tenant farms, had reached the leasehold stage. Of those sharecroppers who had become leaseholders, less than one-quarter had written contracts with fixed rents registered with the GOvernment. / e secondu stage of amwrtizing owuiLbp had been at- tained by only 3,400 former tenants in 1971. B. Agrarian Reform Since 1972 5. In i972 the Government reaffirmed its commitment to agrarian re- form. Tne entire country was declared a land reform area and a number of decrees were issued to accelerate the attainment of the objectives set forth in the 1963 Agrarian Reform Code. The first phase of the reform, the emancipation of tenants on rice and corn land, was outlined in Presidential 1/ Donald E. Douglas, "An Historical Survey of the Land Tenure Situation in the Philippines," Solidarity, Vol. V, No. 7 (July 1970), p. 76. The author also adds that: "It is-not exaggerating to state that some landowners made a proverbial 'killing' off the government through ex- propriation proceedings ...," p. 77. 2/ The land ceiling was again lowered in 1971 to 24 hectares. 3/ International Labour Office.Sharing in Development (Geneva. 1970). pp. 474-475. L.C. Panganiban writes that between 1964 and 1971 there were about 47;000 conversions to a leasehold a2reement and that almost 70 percent of these were oral, in Land Reform Administrative Procedures in the Philinnines: A Critiral Analvsis, (Madisnn: Universitv nf Wisconsin Land Tenure Center, 1971,processed), p. 32. - 251 - Decree 27. 1/ Although the entire country was declared a land reform area, according to the 1963 Agrarian Reform Code which remains the basic land reform law, sugar and tree crops such as coconuts were exempted. Presidential Decree 27 refers only to the emancipation of tenants on rice and corn land, leaving the status of those cultivating sugar and tree crops unclear. 6. In terms of regional distribution, the highest concentration of rice and corn tenants can be found in Ilocos and Central Luzon. Southern Mindanao (a major corn growing area), Central Luzon, and Ilocos have the largest tenanted areas. The largest number of landlords are located in Ilocos as is the highest percentage of landlords with holdings less than 7 hectares. For holdings between 7 and 49 hectares, the largest percentage of landlords can be found in Southern Mindanao. Scope of the Program 7. One of the first difficulties encountered bv the reform was de- termining its scope in terms of the number of tenants and landlords affected and hectares covered. When the reform was announced in October 1972, it was expected to cover about one million tenants and 350,000 landlords on about 1.8'million hectares of tenanted rice and corn land. In 1973. the Department of Agrarian Reform (DAR) reported there were about 1.1 million tenants. 221.000 landlords and about 1.3 million hectares. As of Februarv 1975, the DAR indicated that the program would cover 956,000 tenants, 431,000 landlords and about 1.S million hectares (Table I1). 2/ The most signifi- cant change between 1973 and 1974 was a 119 percent increase in the total area for tenanted holdinas of 7 hectares and be0lw and a L nprrcent decrease in the total area for holdings above 24 hectares. There could be many reasonn fnr thin shift- in area; includting stati-tirnl arrnr- the change in the DAR definition of the category for size of holding from total farm size to tenanted rice and corn land, or illegal nartitinning by some of the landlords. 1/ Presidential Decree 27 estaDiisned: (a) "family size" farms of either 5 hectares rainfed or 3 hectares irrigated for the former tenants; (b) landlord retention of not more than 7 hectares, provided the landlord is cultivating the land; (c) a fixed formula for the valuation of the land and for amortization; and (d) the requirement that all former tenants become full-fledged members of a recognized farmers' cooperative. 2/ It is belived that corn represents about 10 percent of the area under the reform. - 252 - Table I.1: Scope of Land Reform by Size of Tenanted Holding Size of Ter-anted H.oldi g Y..t-es Te^nant Tnlod (In hectares) (In thousands) 100 ful and abu-ove 2071. Q97 , 7 50 - 99.9 88.8 44.0 1.6 ')I. n l. 01 A ) r_ r_ 'i C A If. = 49.97 102.6u 60.3J 5.9 7 - 23.9 426.8 229.3 47.1 I andU LeULW 67J.3 J .JJ 1.7 J4.*4 ---- 4 rn * l n alr r 7 IL 4 4 Ju La4. I,I0. 7 70V.L- s. I Source: Department of Agrarian Reform. Implementation of the Land Transfer 8. Operation Land Transfer is being carried out under the overall direction of the DAR and consists of two main operations, the issuance and distribution of "Certificates of Land Transfer" and the transfer of titles to former tenants. Tne Certificate of Land Transfer is not a deed or title to the land. It is merely verification that the tenant is the tiller of the land he claims to be cultivating. Although the intention in 1972 was to transfer titles for all 1.5 million hectares, in 1974 the Government indicated that tenanted holdings of 7 hectares and below would be exempted from the land transfer. There are 374,000 landlords with tenanted holding below 7 hectares, and the average size tenanted holding of each landlord is less than 2 hectares. 9. Implementation of the land transfer program during the first year proceeded at a fairly rapid pace but has since slowed considerably (Table I.2). Administrative difficulties have arisen primarily as the result of the long delay in issuing rules and regulations for the DAR field teams. While financing has been less of a problem than in the past, landlord op- position remains a major obstacle. The emphasis of the 1972 reforms on the transfer of ownership has focused attention on another problem--incom- plete records of land titles and land rights. Lacking sufficient data, the Government has been attempting to undertake simultaneously the identi- fication of the tenants and landlords, the sketching and mapping of indi- vidual farm parcels, and the distribution of certificates. In the Republic of China, which is often cited as an example of a successful land reform program, registration of the land and information about its value, ownership - 253 - Table I.2. Progress of Philippine Land Reform December December December November Itemr. 1972 1973 1974 1975 No. of Land Transfer Certificates Issued Number of tenants 423 144,53A 18Q9121 907-QQ1 Number of certificates 423 207,417 268,541 293,994 Hectares covered 682 259,348 337,025 365,931 Number of provinces 4 54 64 64 Land Valuations Received by DAR Number of landowners -- -- 210 993 Nuim-be- of tnt 7 13,554 37,19 Hectares covered - 17,335 50,1o6 Number of provinces 14 27 5 Laond Valuatio*4ns P . .4-rA 'k.v T or.A floni, J.TtflU --~ '.i -LA -- ---L,~O -..' Number of tenants -- -- 6,381 27,860 ectares covered913 -- -- ,9,93 Estimated cost (thousands of pesos) _ 59,135 254,606 Nrmber of provin.ces in 19 TLardown.er Comper.sation. Paid b. , La,T-,d . N-umber of landowners _. __ 88 593 Number of tenants -- -- 3,177 16,410 Hectares covered -_ _- 5,799 31,325 Cost (thousands of pesos) __ __ 35,886 202,203 Number of provinces -- -- 12 31 Sniurre: DeDartment of Agrarian Reform. and cultivator were available in government records which had been up-dated in 1945. four vears before the implementation of the land reform nrogram. 1/ 10. The original target date for the comlpetion of the land transfer (including the processing of landlord compensation and the beginning of amortization navments) was December 1977. In retrospet. this target was overly optimistic in view of the many administrative problems which have been delaving the nrogram's imnlementation. Tf the Government were to significantly accelerate the pace of implementation, a more realistic ob- iectiue for DecPmber 1977 Tniaht e pthe cnmpletinn nf the first part of Operation Land Transfer, the issuance and distribution of the Certificates of Land Transfer and, in additinn, a natinnal radastrrl survey. While tenant amortization and landlord compensation will be taking place simul- tar.eouly with the delivery of ertificates--- this phase will probably -_'e considerably more time to implement. The majority of the landlords and tenants, however, could possibly be covered by 1980. ~-b^~~ s s ~--- r J * 7 11. A separate issue is t-he registration and enforcement of a lease- hold system. This aspect of the reform will cover over one-half of the tenants and, in the long term, will probably prnve t-n e the mostna difficult- to enforce. It is not clear how many (if any) of these tenants have been registered_b y 7 k Tl1 A n_DU-0. .11- A 1- ;_ _ O .. AeAA04_1AA*F &_ 6_Ow V - ~ A LIJ 6..^ i_e t, - V . & - - * -- - a S f . - . U system as the availability of the field staff permits. 12. Identification of Tenants and Landlords: The identification of tenar.ts anAu lan.UILOAS "and zC4 surv=eYy of th=e par%celsC i8 being -a.ri otU by field teams from the DAR and the Bureau of Land Acquisition, Distribution andU DeVe.LUoJpmLLe. As of.L JuLy 1975, yL1LIJCal-mst all ten.ants on hloLdiLngs abUove 24 hectares had been identified and their parcels surveyed. Initially, it was expecteu th.at tiet LaUdLoLUs ndIU LtrLaLLS WUUl.U cooperate ini VeULi.yiL the boundaries of the parcels, but due to landlord opposition, the DAR field teams have often had to proceed on the basis of the tenantLs description of the land. Discrepancies between the Bureau of Land's maps and the land titles have been found and a substantial number of cases are being delayed due to resurveying. 13. When the identification and mapping procedures are completed by field teams of the DAR and the Bureau of Land, the tenant can fill out an ap- plication for farm ownership provided he does not already own 3 hectares of agricultural land. If the tenant's claim to the land is not disputed, or if and when the dispute is resolved by the Court of Agrarian Relations, the DAR issues a Certificate of Land Transfer. 1/ Beginning around 1900 under the Japanese, cadastral surveys were con- ducted in the Republic of China every ten years. Consequently, the transfer of land titles in 1953 (the third phase of the land reform program) couild be carried out in one year. ;'It was largely due to a cadastral system that 1949 land reform legislation was quickly and effectively implemented,"' A.Y.C. Koo, Land Reform in Taiwan, (n.p., Agency for International Development, June 1970), p.4. 14. Although Presidential Decree 27 called for the establishment of "family size" holdings of 3 hectares irrigated or 5 hectares rainfed. this proved to be infeasible. Consequently, the practice has been to allocate estates among tenants on the basis of existinR occupancy. Another aspect of the reform which has been altered with implementation has been the con- dition that landlords could retain uD to 7 hectares. For tenanted holdings above 24 hectares a policy of zero retention for the landlords has been enforred! howpvpr; for those landlorda with holdings below 24 hprtares; this practice is being modified. The lack of authoritative guidelines has also resulted in the need for clarifination regarding sut'h nroblems as: (a) the definition of rice and corn tenants for holdings where mixed farminlg in hbing nracticed, And (b) th 8tatuin nf home lots which are not contiguous to the cultivated land or are rented from a different landlord. 15. Th. G.Yrnment is proceading with the idrtifi r of t-nar.ts and landlords on holdings of 7 to 24 hectares, 1/ but it is not clear whether the GovernmDent will erc1e1 theo4 tion provided by1 Letter of in-stuction No. 143 (October 31, 1973) of exempting those landlords who are completely dependent or the land for their lvelihood from having their land transferred. The DAR undertook a landlord identification survey to determine the number of absentee- owners in th-.e 71 to 24 hectare .-ange an"d thae i ,r f irrL , LlClUi "a OL d=eDenLdMLnte on the land. The results indicate that about 96 percent of the landlords _a.r_ -absentee 7 -p rcetoft v L-. L Avenv X cultiv, A 4 anu I percent are entirely or almost entirely (70-100 percent) dependent on the land for their in ome. However, the survey -de I indicate ho- ma-y of these absentee landlords are actually heads of households. 16. Land Valuation: The 1972 reforms established that the valuation of the land, using a ruethodl similar to thait- empoye in - .h epbico ".L iI~ La.U, UL1A~G i~LIEU IUL.LL LUL11L CEAqJ.LW7U 1.LA LL Uit AUUU±±L.. 08. China, would be 2.5 times the average production for three normal crop years prior to October 1972, at the official price of r 35 per cavan. 2/ As of December 1, 1975, the land valuations received by the DAR covered about 37,000 tenauts and 50,000 nectares. Initially, valuation was to be under- taken voluntarily by the landlords and tenants through a Landlord-Tenant Production Agreement. As discussed belo-w, iu pr-actice, many landlords have been boycotting the valuation procedure and, consequently, the responsibility has been given to the Barrio Committees on Land Production. 17. Organizationally, the Barrio Committees on Land Production are made up of the barrio captain and a DAR official, as well as elected repre- sentatives of the tenants, owner-cultivators, landlords and the barrio 1/ Letter of Instruction 221, November 16, 1974, and DAR Circular 23, flremhpr 1#1 1Q74. 2/ In practice, land valuations have been ranging from P 6,000 to P 12,000 for irrigated land and P 4,000 to P 6,000 for rainfed, which would mean the price being used is substantially higher than P 35 per cavan. It has been suggested that a negotiated price may be replacing the official price. - 256 - Samahang Nayon. The barrio committees determine the average production for each holding based on the data received from the DAR field teams, inter- views with farmers, landlords, rice thresher operators, rice millers, and others, and by holding public hearings. As of December 1, 1975, some 3,000 barrio committees had been organized out of a total of about 9,500. 18. The delay in the valuation procedure raises the question of re- sponsibility for recording rental payments dating from October 1972, when Presidential Decree 27 was issued, until the time the tenant begins his amortization payments. In theory, this rent should be credited toward the purchase of the land. However, the landlord is unlikely to be cooperative and the tenant may or may not be in a position to keep his own records. 1/ While some tenants who have been issued certificates have stopped paying their rents, others are making rental payments without being able to credit them toward amortization. 19. Certificates of Land Transfer: The issuing of Certificates of Land Transfer proceeded at a fairly rapid pace during 1973, but beginning in 1974, the pace slowed considerably. By the end of 1973, certificates had been issued to about 144,000 tenants; by December 1975, the number of tenants covered was only about 208.000 or 50 percent of those on holdings above 7 hectares. The decline in the number of certificates issued was due in part to landlord resistance; the difficulties created by inadequate records of ownership, yields, and tenancy; and administrative bottlenecks. There are indications, for example, that from 40 to 60 percent of the certificates which have been issued have not been delivered to the respective tenants; some 30 percent of these pending certificates are believed to be for holdings below 7 hectares which are exempt from the land transfer, but other certifi- cates have been delayed by incorrect land use classification, mispelled names. or legal disputes. I,/ Hitgh T r-Coo, evlaigteefcsof +v.h.e 1954-555 refo,m, obere that: "Spot checks in which the author participated showed that only a small percer.tage of thle tenants even kn-w t.e law, that L.hey keep no records of production or consumption credit received from the landlord, andu LhLaL LtUhy mLLc-y Ltur. UVrL LLLh Lcro%p at tuC eUL of Lthe yea accurd- ing to the landlord's records and begin to borrow again." "Land Reform anr' DLeve'LopmerLt i'Lri thLe PLiiLpplules," Laud Tenure, Industrialization and Social Stability (Milwaukee: The Marquette University Press, 1961), p. 173. - 257 - 20. The DAR is attempting to correct the errors in the distribution of certificates and to streamline Operation Land Transfer by: (a) issuing the certificates simultaneously with the land valuations and the amortization schedules, and (b) instituting a receipt system to verify and document their delivery to the tenants. Land titles are also being required before the Bureau of Land's map sketching operation begins in order to ensure greater accuracy. These measures should eventually help to improve administrative efficiency in handling individual cases, but in the short run, they are re- sulting in even greater delays and are partly responsible for the slowdown in the implementation of the program. 21. Transfer of Land Titles: With administrative problems and land- lord resistance causing serious delays in the implementation of the land reform program, it is not surprising that the compensation and amortization payments have also been proceeding more slowly than originally expected. The 6,000 hectares covered in 1974 were far below the Government's target of 100,000 hectares. Although the number of landlords receiving compensation is still quite small relative to the total, considerable progress was made during 1975. At the end of 1974, compensation covered about 88 landlords, 3,000 tenants, and approximately 6,000 hectares. By the end of November 1975, the number of landlords covered had increased to nearly 600, the number of tenants to nearly 17,000, and the area covered to about 31,000 hectares. This stage of the agrarian reform program is largely dependent on the progress of land valuations and the settlement of legal disputes over tenanev ri2hts and ownership. In one province alone, it was estimated that as many as 30 percent of the titles may have been registered in the name of dereased Dersons. ImDlementation of the Leasehold System 22. The majority of the tenanted rice and corn holdings are less than 7 hectares in size. In this category there are about 56 percent of the tenants, R7 nerc-ent of the landlords. and 46 percent of the reform area. The original intention was t-oFconvert these tenanted h-lIidngs to6freehold status, but in 1974 the Government indicated that holdings of 7 hectares and below would be exempt from the land transfer operation and would be nlaced under a le-eahold syvtem= The advantage of a leasphold status over sharecropping is the security of tenure and the legal establishment of a fixed rent- The hnbir lsw for the leasehnld svstem is the 1963 Ag'rarian Reform Code which sets the maximum rent at the equivalent of 25 percent of the average normal harvest, after ded,cit-ig nroductioir cost-s for the three crop years preceding the date of the contract. 23. Experience with other land reform programs indicates that rent reductI4ons do not readily lend themselves to enforcement. 1 ! In.ex.perience 1/ "Because of all the avenues for evasion, tenancy laws are either show- pieces full of loopholes or bulky and extremely complicated documents that would be incomprehensible to the tenants even if they were literate." Gunnar Myrdal, Asian Drama, Vol. II ((New York: Pantheon, 1968), p. 1324. with legal procedures on the part of many tenants, the structure of rural society and problems with registration and the supervision ot rents are complicating factors which would make the implementation of a leasehold sys- tem extremely difficult. It would undoubtedly impose severe demands on the DAR administrative staff and the Court of Agrarian Relations and would re- quire a relatively large and permanent field staff. C. The Distributive Impact of the Program 24. The rationale for land reform has been based on two major premises: that land reform would help raise productivity by providing the incentive of ownership to former sharecroppers, and that it would have a beneficial impact on the distribution of income in rural areas. The implications of a change in tenure status for farm productivity are not clear, but there is some evidence to suggest that it may have little, if any, effect on output. For example, surveys conducted in Central Luzon indicate that there is little or no difference in productivity between a tenanted and an owner-cultivated farm. 1/ The real constraint on productivity in rice and corn areas is the supply of supporting services and access to irrigation. Thus, signifi- cant changes in yields will depend primarily on improving access to pro- duction inputs. 2/ As part of the reform program, the Government has decreed that a prerequisite for transferring land titles to tenants is their member- ship in a recognized farmers' cooperative, which will provide marketing facilities, credit, and other production inputs. 3/ Amortization and Tenant Incomes 25. Presidential Decree 27 established that the value of the land would be equivalent to 2.5 times the average harvest of three normal crop years preceding the date of the decree, October 1972. Paymnents are to be made in 15 equal annual installments at an interest rate of 6 percent. On a comparative basis, in the Republic of China, the terms for amortization were 20 equal semi-annual installments at an interest rate of 4 Dercent: ' LILL= the VAY st Y by M r M"ngarws, Virginis A. mir¶rLao, and Romana P. de los Reyes, Tenants, Lessees, Owners: Welfare Implications of Tenure Changes, (Ma 1a IntAUA U:o rriippine Cuiture, July l974). 2/ Kenneth Parsons writes that: "Land reform. which provides only land to the tiller, is of minor significance without access to markets and ade- quate credit." "Land Reform and Agricultural Dloupl.-ment,-" *4r Tarn Tenure, ed. Kenneth H. Parsons, et. al. (Madison: University of Wisconsin Press, 1956), p. 10. 3/ "The Egyptian experience also illustrates the crucial importance of sunortina land .-efo.- boy programs ofi government assistance through co- operatives, community development programs and supervised agricul- tural _redit. T is one of thle few instances in which a distribution of land was followed by a vigorous attempt to provide guidance to new L&id n v.le needeo. rniiip M. Raup, "Land Reform and Agricultural Development," in Agricultural Development and Economic G-,v; u . L1d LL rle a ouutnworrn and Bruce F. Johnston (New York: CorneLl University Press, 1967), p. 286. - 259 - in Japan, the terms of pavment warp 30 annual installments at an interest rate of 3.2 percent. 26. While a change in tenure status per se would probably not affect farm nrntdzitivitvy- it -ould havp a qignifi-^ant impnat- on the in1nOmes of individual tenants. Assuming there is no difference in productivity, and that h inn oPQ are affprtpd nnlv by rha-^.ge in ann.Al navmants for the land, the income of a sharecropper who had become an amortizing owner could be inrraeaaA by as much as 8n nprcent in tVrmna of preseant tv_luen over n a3-yr period. 1/ (Table I.3). To put it another way, an amortizing owner's income in real telko Aould b dhat of a r a 15 yas For the sharecropper who had become a leaseholder with a rental payment of 25 percent of the netS hav st thr CsUA. A _ . . 5A be an immiSate 0 percent inAUA crease-in income. 2/ 27. Implementation of the present land reform (including both the transfer of t-itLes an,d the, enl.forcemer.t of rent reductionsU.AA Ic d beref4t between 6 and 7 million people, or almost one-quarter of the entire rural _o _.L _. UL. _II dUL Vb _dLU. _L,L UJ _U L_II _J~J _IL __ _ __w__O _I _~IL I. I. L _A _A UA_ I4_ population. A'Lle i-iuove clcvt;"`ations o'L potent'La' incr;ease 'L teat 'sLnc*somue from land reform make a strong case for pressing forward with the present program. n'owe-vLer these calculations dLo riot tLalk'e produuctiLon into account. There is very little detailed and current information available on the agricultural conditions of tenanted rice and corn farms -- that is, tne extent to which they are covered by supporting services, their average yields, and the amount of area*irrigated. If the productivity of the farms could be raised through improved supporting services, the long-term impact of the reform would be even more significant. lAndiord Compensation 28. The landlords were originally offered several different modes of payment under the 1972 reforms: (a) a cash payment of 10 percent and the balance in 25-year, tax- free Land Bank bonds at 6 percent interest; (b) payment of 30 percent in preferred shares of stock issued by the Land Bank and the balance in 25-year, tax-free Land Bank bonds at 6 percent interest; (c) full guarantee of the tenantis amortization payments in 15 equal annual installments; I/l See T"echAnical Note. 2/ For a discussion of what the redistributicn of income might mean in terms of increased consumption, see the study by M.R. Laforteza and T.M. Reves. "How Some Rice Farmers Used Their Increased Incomes." National Food and Agriculture Council, Special Studies Division Paper No. 74h-28 (September 1974, pjrocessed). Table I.3. Estimated Net Incomes of Land Reform Beneficiaries (Tn pes0os) 1.0 Hectare Fans - Rainfed 2.5 Hectare Farms - Rainfed 2.5 Hectare Fann -_Irrigated Ma3rei ' Lase- Amortizing I - Leae- Amortizin e rr¶e- A Tear cropper ho:Lder Owner c ropp er holdler Oimer aotopper holder Owner Current Prices 1975 560 8o40 i708 1,750 2,625 2, 213 2,585 3,877 3,076 1980 8184 1,325 1, 55 2,778 4,IL67 4,,269 14,138 6,207 6,183 198', 1,1406 2J,108 2,399 54,402 6,602 7,516 6,617 9,926 11,1141 1990 2,2226 31,338 4,1451 6,96X7 10,1451 13,934 1C),548 1L5,821 21,095 20014 8,018 12,026 16,035 25,301 38,011 50J,681 39,096 58J643 78,191 Conestant 1975 Pri.ces a/ 1975 560 840 o08 1#750 2,i625 2,,21 3 12,585 3,877 .l,076 FX 198C) 6,16 923 944 1,93,5 2,903 2J974 2,882 4,324 14,307 1985; 682 1,023 1iL614 2,13l6 3,203 3 ,647 3,211 14,816 ;4o6 199( 752 1,128 1,', 2 355 3,'32 4,709 li565 5,3h.i7 7,129 200b, 916 1,374 1,832 2,89t 4,342 5,789 4,466 68696 ei,931 Preeent Value Over Thizty-Year Period b/ 14,536 21,803 25,5sL 145 61i3 68,119 81,,433 68,960 103,4319 121,996 a/ Deflation rate of 7.5 percent. tI/ Discount rate of LO pe.reent. Source: See TechLical. Note attached to thisi appendixr. - 201 - (d) payment through annuities or pensions with insurance; (e) exchange arrangements for government stocks in government- owned or controlled corporations or private corporations where the Government has holdings. 29. Virtually all landlords have opted for a cash payment of 10 percent with the balance in Land Bank bonds. Fully guaranteed by the Goverjiment and transferable, the Land Bank bonds can be used as payment for goods sunder Japanese Government reparation payments or as collateral for loans in amounts up to 80 percent of their value. The loans, which carry an interest charge of 12 percent, can be granted by public sector lending institutions specif- ically for the purchase of stock or assets of government-owned or controlled corporations. 30. Landlord opposition to the reform has been due primarily to the compensation package with its small cash payment and theJuncertainty of the Land Bank bond's value over a 25-year period. If a parcel of land were valued at l 6,000,for example, using the 10 percent cash payment formula and a discount rate of 10 percent. the Dresent value of a P 5.400 bond includ- ing interest payments would be P 3,240, or 60 percent of its face value; at a discount rate of 15 Dercent the present value of the bond would be P 2,106, or about 40 percent of its face value. 31. In May 1975, the Government announced that the compensation pack- age would be amended for landlords with holdings between 7 and 24 hectareps They would receive 20 percent in cash and an additional cash payment up to 10 nperent fnr their childrenwe edcii-tion;, insuran.e nr housing. Tt wna expected that this increase in the cash portion would mollify some of the landlord dissati4sf-action with whWe land re-form. 32. Comp-red to the rental payments lardlords ould receive without the reform, their loss of income from the land reform could be substantial. For the laTndlord w.hnose lnand is transiferredp the present value of tho cnm- pensation payments over a 25-year period would be about one-quarter of the prresent value of the rental income (assn4 n 8 50 percen t rental pr.ffntN without the reform. 1/ For a landlord with a leasehold arrangement, the present value of rental 4+ncome over 25 yers wo ld be about 60 percent of what it could be under a sharecropping arrangement. Due to the Government's comU1Jensa J 4 on package, hwwvrer , 4.1 4.A 4- rest& i 1.4.L 16P .P-LU -L. 4&LJ1Je 4. WV&JlO6 P." v 6 a ^V V= It is in;w%e& ^ UJ V. U ;o noi-e i - I-A V-Ord s -in the 7 to 24 hectare range would probably be better off financially for the first .C.: -er --,an --he la,lrsw&. odrg elow I hectares -lo wou'ld re= .L.LV= Y71?LLO L1.1L1 L411 J.OLL1U.L%JLUO W-.L#-& L1IJ.U.LL11r ~L9J W L I ILt L.0~ witJWJUU tain their land under a leasehold system. 2/ 1/ See Technical Note. 2/ For landlords in the 7 to 24 hectare range whose land had been transferred, the present value of their compensation payments after five years would be about 50 percent higher than the present value of the incomes of landlords with a leasehold arrangement. - 2o2 - 33. lOn a comparative basis, the form of compensation adopted in the Philippines differs from that in the Republic of China, for example, where 70 percent of the compensation was made in commodity bonds at an interest rate of 4 percent and the remaining 30 percent was paid in stocks of Government-owned industry. Tne stocks were invested in fixed proportions in four public corporations. The result was that 40 percent of the total compensation was ultimately invested in industry and business. 34. In Japan, tne land reform became virtually confiscatory. Originally, land valuation was based on 40 to 48 times the rental value in 1938, but from the time the land was valued until the tenants actually bought it from the Government in 1950, rice prices in Japan increased 40 times. By 1950, due to inflation, the yen was worth only about one two-hundredths of its 1938 value. Consequently, the tenants paid only about 2.5 percent of the estimated value of the land. 1/ At the same time, the landlords received their total compensation in 30-year bonds at 3.2 percent interest. D. Financing the Land Transfer and the Role of the Land Bank 35. Financing the transfer of ownership, including collecting amorti- zation payments from the former tenants, is one of the main functions of the Land Bank of the Philippines (LBP). Created under the 1963 Agrarian Reform Code, the LBP has become the central financial institution for the land reform program. During the 1960s, the LBP was lacking in capital and organization; its bonds sold on the open market at a 20-40 percent discount. In July 1973, the Government increased the authorized capital of the LBP to P 3 billion and expanded its powers. 2/ As of December 31, 1974, the paid-up capital of the LBP was about P 800 million, which was received from the Government in the form of cash, government securities, real estate properties, and other assets. Under the 1973 charter, its main functions were defined as: (i) financing the transfer of ownership of farm lands covered by the Government's agrarian reform proaram: (ii) directing landlord investment into industry or other nro- ductive endeavors; and (iii) extending financial and technical assistance to the agri- cultural sector. 1/ Chao Kang, Economic Effects of Land Reform in Taiwan, Japan and Mainland China (Madison: Uaiversity of Wisconsin Land Tenure Center, November, 1972,processed), p. 4. 2/ Presidpnti1l Decree 251, July 21, 1973. - 263 - 36. The LBP is responsible for collecting amortization pa yments from about 425,000 tenants, financing compensation for some 57,000 landlords, and directing landlord investments into productive uses. As of December 1. 1975, it had begun compensation payments in the amount of about P 202 million to 593 landlords on behalf of some 16.400 former tenants. The most immediate problem facing the LBP in terms of the land reform program is the collection of amortization payments. Problems have arisen over the distri- bution of the Farmers' Undertaking to Pay the Land Bank, which is a document containing the tenant's amortization schedule. This document is supposed to be issued by the LBP simultaneously with payments to the landlords and the amortization pavments are to begin one year later. In realityv the distribution of the Farmers' Undertakings is being delayed and is result- ing in increasine arrears for the former tenant. As of February 10. 1975; only about 450 Farmers' Undertakings had been received by the former tenants and returned to the LBP out of a tot-al of ahout i4,400 tenants who should have received them. 37. The LBP may also have difficulties arranging for the collection of paymants frnm tha fnrmer tennnts. Tn meet thic problem, the TRP haR arranged for 21 private development banks and 34 rural banks to act as its agents. Tah.e pa ,ments are suppoossed t-no be gia ran teed Iby-a the Sa annnl nN ayor. but the number of tenants actually joining these barrio associations appears to be .relatively small A1tho,ug.h +4- T1RP ;Itself pr,vi,ADA thDe -overa 11 Sv t -s~ *- * ^ n-.---. -- r -~ guarantee for the land transfer, if the collection rate is allowed to fall muchl below 70 percent, this could creatCe seriot fina.,cial difficltes. 38 Ar. import-an-t 1i-L with1k amortizatiorn collections will undoubtedly .JO. tILL LA9 LMpW LL=L.1 L4.LiW A-iA aUJ. L.t_~ LAL'L L~ L.. LJ1 WA-. L LU- L~LL. be the LBP's responsibility for guaranteeing financial support for the re- form benefcicaries to ir,crease their productivity an' ;------ Athug .5-Li AlU~L~ A-L.L L A. U .LA~L~a L LA.L& 4. p .IUL. .VA ) U A-%_L.iUM3 £.M.L "AAULA,LL the Masagana 99 and Masaganang Maisan programs to supply supervised pro- ductULon credit to rice ardlU corn L'armers h'dave not bUee. tieud directl.y to tihe land reform, it is likely that, in the future, there will be a need to ensure tiLat Lte reforui benefic aries receive UNIS lfrm oLf GUVeLrUeLtL sUp- port. It is not known how many tenants are actually covered by these pro- grams, bLut there are estimaLes thlLat Cabout 40 percent of thle tLenanr.ts are cultivating irrigated farms. For the LBP these types of programs may be essential to maintaining a reasonable collection rate. 39. In order to finance the transfer of holdings over 7 hectares, 1/ the LBP will be required to make initial cash payments of about P 1.2 bil- lion. Interest payments on the bonds will amount to about P 277 million a year over most of the125-year period. On the other hand, the LBP will be receiving P 1.8 billion in a capitai subscription from the Government as well as amortization payments in the amount of about P 417 million each year. With earnings ot 1U percent on its cash balance, deposits ana otner forms of borrowing, the LBP should not have difficulties financing the land transfer. 1/ See Technical Note. _ 2G4 - 40. The total asset value of the 826,000 hectares being transferred is about P 5.8 billion ('US$773 m1iOLLnf). FOrL most of thLe medium ard small- scale landlords, their land has been their only earning asset and they have no experience with investments in productive activ'ties unrelated to their land holdings. The Government is anxious to see that as much as possi- ble of the compensation paid to former landlords is channeled back into productive investments rather than being consumed. To provide financial and technical assistance to the landlords, the LBP has undertaken a program of short-term lending and project identification to channel land- lord resources into industry or other productive ventures. Tne LBP will grant loans in amounts up to 80 percent of the bond's face value for in- vestment in an approved project. Assuming that even 25 percent of tne landlords use their bonds as collateral for such loans, this would mean an additional cash requirement of about P 921 million. Tne LBP has set up a program to identify acceptable projects for investment but lacks, at the present time, the staff and network of regional offices required to carry out the program. Over a period of time, it may be possible to expand the technical and administrative capacity of the LBP to assist the landlords, but consideration should also be given to the demand which the reform bene- ficiaries may place upon the institution0 In the short run, the LBP might coordinate its efforts with the rural banks, the Development Bank of the Philippines, and other banking institutions which, over the years, have gained considerable experience in financing a wide range of projects. - 265 - TECHNICAL NOTE A. Estimating Net Income of Tenant Incomes 41. Estimates of the land reform's impact on tenant incomes were based on typical farm budgets prepared for a 1.0 hectare rainfed farm with an initial vield of 1.6 metric tons/hectare, a 2.5 hectare rainfed farm with an initial yield of 2.0 metric tons/hectare, and a 2.5 hectare irri- gated farm with an initial yield of 2.5 metric tons/hectare. The following assumptions were used to calculate the net farm income for sharecroppers, leaseholders; and amortizing nwners over a 30-vear neriod: (i) Yields were assumed to he the 8Rame for shqrerropnPers lease- holders, and amortizing owners. Production was increased by 2 percent per yvar. ropprin intensity was assumid to be 100 percent for the rainfed farms and 130 percent for the irrigated farm. (ii) '!Me irfltinrates --- were 8 p-et in 1976 and 7 percent from 1977 to 2004. (iii) The farmgate price of rice for 1975 was assumed to be n ',0OOO/metric ton.- (i v) Proluction costs were asstmed to le 30 percent of -le gross % I L ,'JJJ L LLJLL value of production. (v) The cost of hired labor was based on the maximum of 40 man-days/month andU a totaL of 480 man-days/yeatr of family labor. Water charges were assumed to be P 25 for the wet season and P 35 for the dry season in 1974. (vi) Annual payments in rentals and amortization were deducted to give net income. For the sharecropper, rental payments were assumed equal to 50 percent of net production; for the leaseholder, 25 percent of net production; and for the amortizing owners, payments were based on 2.5 times the gross production in 1975 valued at P 1,000/metric ton of paddy, and paid in 15 equal annual installments at 6 percent interest. (vii) A discount rate of 10 percent was used to calculate the present value ot the loss of income to landlords. The model farm budget for the 1.0 hectare rainfed farm was used and the land was valued at P 4,000. The initial cash payment was assumed to be 30 percent of the land value and the remaining 70 percent was paid in Land Bank bonds with a 6 percent in- terest rate and a maturity of 25 years. It was also assumed that a loan with a 10 percent interest charge was made to the lnandlords which was equivalent to 80 percent of the value of the bonds and that there was a 15 percent return on the invest- mn IC W u e widh this lo0an. B. Financing the Land Reform vsti LmUate oA UJ_ LL1 L.AIA i aUL.LJ . L'U X-Lnance L1L' LLI e sfL L 0U 2U6 V UUU hectares were based on the following assumptions: (i) Holdings of 24 hectares and above (10 percent cash and 90u perce.t buonds) were trLn,sferreU over a four-year period: Year Hectares 1975 50,000 1976 100,000 1977 200,000 1978 49,000 Holdings of 7 to 24 hectares (30 percent cash and 70 percent bonds) were transferred over a three-year period: Year Hectares 1978 151,000 1979 200,000 1980 76,000 (ii) The value of the land was set at P 7,000/hectares in 1974 prices. (iii) The Government's capital subscription to the Land Bank were assumed to be P 800 million in 1974 and it was assumed that an additional P 200 million was paid by the Government annually from 1975 to 1979. (iv) It was assumed that earnings by the LBP on the current cash balance were 10 percent. (v) The estimated collection rate of tenants' amortization payments was 70 percent. (vi) It was assumed that the bonds held by the landlords were redeemed at the end of the 25-year period. - 267 - Appendix II inE ROLE Ur FriNrGYWA1 ±I'N A rn ±L 'LrrJIIP r. Ln.JrIll 1. Imported petroleum provides more than 90 percent of the Philippines' total energy requirements. Because of thLs extreme dependence, the sharply increased costs of petrol eum crude since 1973 have had a major impact on the Philippine economy. lTne most visiDie impact nas Deen in the Daiance of payments. According t'o the trade statistics of the Central Bank of the Philippines, imports of petroleum crude and products were about 69 million barrels in 1973 and total payments for these imports were about US$187 mil- lion f.o.b., or 12 percent of the value of all imports. The volume leveled off in 1974 due to the restriction of supplies in the early part of the year and the effects of substantially higher prices for oil and oil-intensive products. Nevertheless, the value of petroleum products in 1974 rose to about US$650 million, the equivalent of 21 percent of total imports in that year. This US$460 million rise in payments accounted for 30 percent of the total increase in import payments in 1974. This increase was a major factor in the sharp deterioration of the Philippines' external trade account (from a surplus of about US$270 million in 1973 to a deficit of about US$420 million in 1974) both directly, and indirectly through its effects on the prices of imported petroleum-based chemical products. As a percentage of GNP, petroleum imports rose from 1.8 percent in 1973 to 4.5 percent in 1974. 2. The high cost of petroleum imports and the prospect of their rapid growth to meet the demand for energy has spurred the Government to reassess energy policies in the Philippines. In 1974 a new energy plan was introduced. Although petroleum exploration is being stepped up, the plan assumes that commercial quantities of oil will not be discovered in the Philippines. Thus, the main objective is to reduce the country's dependence on imported petroleum to 76 percent of total energy needs by 1985 and to 70 percent by the 1990s. These are very ambitious goals given the present dependence on petroleum products. This objective is to be accomplished by: (a) accelerating the development of nuclear, hydroelectric, and geothermal power sources and reducing the dependence on oil-fired thermal plants; and (b) achieving savings in other sectors, particularly in transportation and industry, which use 80 percent of all energy consumed, by conservation meas- ures and improvements in energy efficiency. The question is to what extent the Philippines can reduce its dependence on imported petroleum durinR the next decade or so. 3. According to an analysis of trends in energy use during the coming decade. total consumntion of energv would nrobablv grow at about 9 nereent a year if GNP increases by 7 percent a year in real terms during 1975-85. By 1980; for examph eonsumntion may be about 16 million tons of oil equivalents, and in 1985 about 28 million tons (Table II.1). The present consumptionis about 10 million tons. 4. G~4~~ive the limi.4 -ted r.atural ener,,y base of the Philippines and the . 7t long periods of time required to develop alternative energy sources, this de.ma.d for energy -ill' have to be met m.ainly w4t im..portecd petroleum, at least until the mid-1980s, even if the program for developing alternatives - 268 - Table II.1. Actual and Projected Dseetic Con supton of Energy Energy Consumption (In millions of tons of oil equivalent) Average Annu& Increase Actual ProJected (In percent) Source 1960 1965 1970 1973 1980 1985 I960-73- 1973-85 Petroleum products 2.62 4.51 8.15 9.18 14-72 23.20 10.1 8.0 (net4,v~a Hydroelectric 0.29 0.41 0.50 0.61 0.99 2.92 6.0 13.9 rnal 0n10 n007 0n01 n - nh 01m0 nO -1fAP 7*9 Geothermal ... ... ... ... 0.19 0.81 -- -^ Nuclear ... ... ... ... ... 0.4 6. -- -- Total 3.01 4.99 8.68 9.83 16.00 27.67 9.5 9.0 X, | fl . . _ _ . _ o .~~~~~~~~ I ,.1 . . . . Note: I;ne IolloWiing converuson factors were usea -. compile tfls taDle: 1 million tons of oil a 7.530 x 106 barrels of oil; 1 million tons of oil 1.430 x 106 tons of coal; 1 million tons of oil .400 x l0o gigawatt hours. The last is the estin ted conversion ratio of a modern power station. Source: Estimate based on information supnlied by-the Tptroleum Institute of the Philippines, the National Power Corporation, and the M-41.rl ^nk is fully implemented. On the whole, the substitution possibilities are very limited in the short and medium-term, or until about 1 980. W.hile greater efficiency and conservation in energy use may be feasible in some cases, this wiil be of little significance by itself, and the scope foL saving energy by curtailing its luxury uses is limited. Significant changes in the use of petroleum products are likely to occur only through incorpo- rating energy-saving technology in some sectoral investments. Such changes are unlikely to be effective prior to 1980. Consumption of petroleum prod- ucts is likely to increase by 8.5 percent a year during 1974-80, and by 1980, imports would be about 110 million barrels (including petroleum products), or 93 percent of the total energy consumed in the Philippines. Thereafter, the Government's program to accelerate the development ot hydro- electric, geothermal, and nuclear power should begin to show results. By 1985, consumption could approach 180 million barrels, or 89 percent of total energy consumption. Even if this noteworthy target is achieved, however, the Philippines' substantial dependence on petroleum as a s,ource of energy will continue for at least another decade. 5. There are reasonable prospects for discovering petroleum in the Philippines, and the Government has been promoting more oil exploration during the past few years. However, even if commercial fields were dis- covered in the near future, the Philippines would still have to import the bulk of its petroleum needs until the mid-1980s. Using the current World Bank staff projections for the price of petroleum crude, 1/ the value of petroleum imports would rise to about USS1.7 billion f.o.b. in 1980, for example. As the analyses in Chapters 8 and 11 of the main report indicate, it will require a number of years for the Philippine economy to complete a reasonably smooth transition to a point where these higher costs have been fully absorbed. Essentially, it involves increased investments in the export sector, in import-replacing indus- tries and in alternate sources of energy. Before we consider the latter program, it may be worthwile to review the past trends in energy production and consumption in the Philippines. Energy Sources and the Petroleum Sector 6. The Philippines has only limited known natural energy resources. These include hydroelectric, coal, natural gas, and geothermal energy. The hydroelectric potential is currentlv estimated in the ranea of about 4 - 7 2/ gigawatts (GW), of which 582 megawatts (MW) is being utilized and 300 MW is under construction. Coal reserves are estlmated at 44 mil1ion tnns; hiut the coal is geologically young with a low heating value. Production has been 1/ Wnrld BRank, Price Fore.asta fnr MAjor Pri-mafry romwmodItIes, Report No. 814 (Washington, July 1975). 2/ The International Atomic Energy Agency in 1973 estimated the potential of hydropower on Luzon and Mindanao to be 3.7 GW, while M. Lechuga in an article entitled "Actual and Potential Utilization of Hydroelectric Power in the Philippines" (Manila, n.d.) estimated the potential of hydropower to be 6.7 GW. - 270 - declining and is currently about 50,000 tons a year. This trend is likely to be reversed with the increased cost of petroleum, but the contribution of coal to energy supplies is expected to continue to be quite small for the foreseeable future. Reserves of natural gas are presently estimated at 250 million cubic feet. There is no commercial production at present, but plans are being made to develop this resource. Geothermal energy is estimated at about 1.3 GW and strenuous efforts are now being made to develop the Tiwi and Leyte geothermal fields. 7. inre 1960n the eonsumpt1on of energy has inrreased at an average rate of almost 10 percent a year, and in 1973, 9.8 million tons of oil equiv- _1__rm warp -oniumed (Table TT=1)- Twn apnerts of thep Vhilippine' use of energy over the past decade are worth noting: first, the extreme and growing dependencea on notroleuim w..Iith zac-cou,nteA for 87 npercnt of anergy onsumptvin in 1960 and 93 percent by 1973; second, the rapid growth of energy consump- tion elwa1tive to GNP Durin- the 1960s, when GN n r-!tersl was incre Asing at about 5 percent a year, the elasticity of energy consumption with respect tAJo GJRLD VOs about 2.2. Since 1IO6 jt fL- in 4 l Imports has slowed down appreciably because of the sluggish growth in the economy during 1970- 72, and the effects of the higher oil prices since late 1973. (The elasticity of energy consumption was only 0.7 during 1970-73, for example. 1/) In 1973, F L IG CL.t t/UL*LCt *VLJL aut,t. J I * kJV UL CG V- *LLJLJ h LL u tV.L.. jJLJUULML D in the Middle East provided 85 percent of the Philippines' crude oil re- quirements (T7able II.2). Thable TI.2: let ITMporus of Petroleum Prolucts LOUL~ LL. L. I1L LLILpLLL 'J. L L.LJ .1. L Lu L.~ Category 1960 1965 1970 1973 1974 Volume (in millions of barrels) Exports ... 2.5 8.2 0.9 0.3 imports 19.7 36.5 69.6 71.0 68.2 Crude 14.0 34.0 67.5 69.5 61.8 Other products 5.7 2.5 2.1 1.5 6.4 Net imports 19.7 34.0 61.4 69.1 67.9 Value (in millions of US dollars, c.i.f.) Exports ... 6 17 16 17 Imports 74 91 142 228 653 Crude 27 71 124 208 573 Other products 47 20 18 20 80 Net imports 74 85 125 212 636 Source: Petroleum Ir,stitute of the Philippines anld the Central Bank. .-''ULL.C* L~LLI.LUL 6L LLO L .h L 4J. LLLm C &14 OJFL LLU LL1V tILL D M~L. 1/ The elasticity calculation is sensitive to short-term fluctuations in energy consumption and output growth, but the relatively nigh average elasticity of 1.7 for 1960-73 as a whole is typical of a range of lower income countries. 9. Only very limited oil exploration activity has been undertaken in the Philippines in the past. The Oil Exploration and Development Act, decreed in 1972, introduced a service contract arrangement for local and foreign interests willing to engage in exploration. The new contract arrange- ments provide substantial incentives for investors and this has helped in- crease the interest of foreign companies in exploration in the Philippines. Twelve service contracts, covering an area of about 6.7 million hectares, have been awarded, mostly offshore in the Sulu Sea area. In addition, the Philippine National Oil Company has itself been engaged in onshore explora- tion in the Cagayan Valley. The twelve service contracts signed by the Petro- leum Board involved expenditure commitments of around US$100 million. This exceeds the total amount spent on petroleum exploration in the last twenty years. Only two wells have been drilled so far and both have been dry. At present only one offshore rig is active, but hydrocarbon tests have been encnurarine. A few small ries are also operating onshore in the Visayas. 10. The prosnects for an oil discovery in the Philinpines are believed to be good. Significant amounts of seepage have been observed in many on- shnvo sreas. Present nffqhnrp drilling activity ranoes frnm an area near the coast of Borneo along Palawan to the Calamian Group. However, even if an i4l d44covery i.s mnaAd in tho near futtre,prodctiotnn of crute in commercial quantities could not occur until the mid-1980s. 1/ In view of the probable future dmin.ance of peetroleaum as a source of energj ir the Philippines, and the apparently reasonable prospects for discovering oil, methods to acceler_ate thee rar f n-i r4 ^..i1A ), -a .~4"A r, -In~ metodsto ^-eerae te rte of explr-ation should be eaid. Currently, there appears to be a shortage of drilling equipment, but a more concerted n-.n n Ate -4 n. _nrnn,f em .Y%s1 A ran..4 w^Ad an _ r 4n *I. a,,r. n 1nA §s i - _"4 1 olI,4 1 1io r|- -1- kV-.lv^*4M^''v^o - Yr _----^O_ and risk-taking capital available in the Philippines. 11. Four refineries presently produce almost all of the refined petroleum... products .,eedLed in thLue Ph4 ilppines. T.he refir.irg and mmarketing PCL ~JL~III jJtJUI.. L LL~UU ~II LL L 11J..jJjJL1 ~ * I LL kL .L±1 ~IU MC~i L..LLLr, operations of the petroleum industry have been dominated by subsidiaries of thle maJLor in.Lernat'Iona'l oil compan'1es. In J'anuary 19714, hIowever, thLe Government, through the recently established Philippine National Oil Corporation, purchased E^^n' shares wn the Bataa --iey woeae '.m%L ~LJLLLUi~ JUL.LI~~U £.XAVLI M MI C 1LLL L.LI= X3CL.CLL1 LCI. .LLIL~L y IWLLL3M= LLL.=U capacity is 116,000 barrels a day, or 41 percent of the national total), a'Long w[ih all. of. rxxut ZS!m UILKetLig UjJoLpLLa'U1n. TIhL gives Lte oUVeUrnmUeL a substantial direct role.in petroleum refining and distribution. The total rated capacity is about 284,000 barrels a day, but in 19i/3 actual proauc- tion was about 175,000 barrels a day (excluding refinery losses and fuel). In view of the projected increase in petroleum use, the current refining capacity would only meet demand up to about 1977. The Government is there- lore confronted with someimajor decisions about expanding the domestic re- fining industry. One option is to import a larger proportion of petroleum needs in the form of refitned products and rely less on expanding domestic 1/ Tn fart nil wQq atrtirk nff PAlaw.ivn'n nnorth ahnrp in Parlv 1976h reportedly in economic quantities. - 272 - refining capacity. Another is some relatively minor expansion in existing plants, which would provide sufficient refining capacity until about 1980. A third option is a malor increase in refining capacity, perhaps coupled with large investments in the petrochemical industry. Trends in Energy Consumption 12. A breakdown of total energy use among the major consuming sectors is not available, although there is data about the consumption of petroleum products. An analysis of these data provides a good guide to the patterns of total energv consumntion, in view of the dominant position of petroleum. As Table II.3 indicates, the road transport sector is the main user of petroleum. accountine for 33 nercent of refinery outnut in 1973. The other transport modes accounted for about 8 percent in that year (almost half of whirh waS expnnrted)- The e1ertric power and indusqtrial sertnrs arcounted for about 19 percent and 29 percent, respectively. By product, about 43 percent of notpnut. waa fuel nil, primarily fnr nnper and inusatrvy 25 prt-ent was motor gasoline; and 20 percent was diesel oil for automotive and other uses . Talhe II3TT G- rnsumpntin nf Petroleum Products, 1973 (In millions of barrels) Sector Motor Gasoline Diesel Oil Fuel Oil Other Total Transportation 16.3 6.9 1.9 2.0 27.1 'D ala 1r 'I r . . ')I . 7 Roau 1 .3J 5.4 . . . . . . 2.I I Other /a ... 1.5 1.9 2.0 5.4 Electric power .. 0.4 11.4 ... 11.8 Industry ... 4.0 13.7 1.4 19.1 Others ^.. 1.4 0.9 5.0 7.3 Total /b 16.3 12.7 27.9 8.4 65.3 /a Includes sales to international carriers, bunkering, and US military sales. /b Excludes refinery fuel and losses during refining. Source: Philippine National Oil Company. 13. The subsequent analysis of trends in the transport, power, indus- try and other sectors suggests that consumption of refined petroleum prod- ucts could increase from about 65 million barrels in 1973 to about 150 or - 273 - 160 million barrels a year by 1985. After taking account of refining losses, this would imply imports of about 170-180 million barrels of petroleum crude and products. As indicated above, the proportion that is imported as crude will depend on the forthcoming Government decisions about the refining and nptrochemicals industries in the Philippines; for the pur- poses of the balance of payments exercise in Chapter 11 of the main report, imnnpor of nptrrnlpem rrude in 19R5 are assumed to be about 150 million barrels. 14. Transport Sector: The Government recognizes that the future crrowth in pet-roleum conrsumption wi1l depened heavily on the pattern of development in transportation. This, in turn, depends on pricing pol- icies in the sector and future modal development, including urban maqq transit systems. 15. There is little scope for energy substitution during the next decade with_n any transport e ex t fo a - .. i A = tiu 4 awith to 1smallr automobiles. The railway system, which is located on Luzon, is very small an.u accounts for Lesh. ss 6LLanU iS percen.t of freigh.t anA. -asseng.e- traffic. The traffic volumes are not sufficient to warrant the heavy capital costs i,-,vol-ed ir, elctifin -he railway. The- b-ul of t.h -passer.-er z-. - - - A .L L v u in =.L =%_LI.L.L.LY.LLLr, tLLV ACLA.WL±WYM. LAMU IU.Ll'. WJL L1L= O.LLU -LL4. cJ.51A traffic in the Philippines will continue to be carried by road transportation, so Llth conuIsumptLUn Uo pJetruoleumL prouucts will± Uc CLUMC.L LJCU LU LiIc 6LIUWLL in traffic volumes. The latter will be affected by changes in petroleum prices and gasoline taxat'ion, anrd by the presnIt policy of dicoUULagirg imports of large automobiles. A plausible rate of growth for the vehicle fleet may be 8-9 percent a year; assuming that possible improvements in the designed efficiency of vehicles are offset by increased congestion in urban areas, consumption of automotive fuels would probably increase by about the same rate. This would mean consumption of about 45 million barrels in 1980 and 70-75 million barrels in 1985. 16. Power Sector: The power sector currently accounts for about one-fifth of total petroleum consumption in the Philippines, and it is the main focus for the Government's efforts to reduce dependence on imported petroleum. As the more detailed analysis of the power section in Appendix III indicates, 80 percent of the current supply of electric power comes from oil-based thermal or diesel power plants. The rest is from hydropower plants. 17. Due to the large cost increases in oil-based power production, the alternatives of using hydroelectric, coal, nuclear and geothermal energy have become more attractive. The Government has, therefore, reformulated its power development program, putting more emphasis on local energy sources and nuclear power. Based on the demand considerations set out in Appendix III on the power sector,. it is estimated that some 5,270 MW of additional capacity are required during the next ten years. The extent to which the National Power Corporation (NPC) will be able to increase the nonthermal component while meeting this demand is not yet certain. It may be possible to reduce the oil-based power component to almost half by 1985. This assumes the commissioning of a 600 MW nuclear power plant, 12 geothermal units with - 274 - a combined capacity of 745 MW, and 16 hydroelectric power plants with a coimbined capacity of 2,070 ilWV . Table II.4. Actual and Projected Capacity of Generating Facilities Amount Composition (In megawatts) (In percent) Type of Power 1974 1985 1974 1985 Thermal/Diesel 2,517 4,372 80.6 52.1 Hydroelertr4c 607 2,677 19.4 31.9 PnethPrma1 ... 745 ... 8.9 Total RQ124 8,394 0n0.n 1in00 Source: 1974 based on data supplied by the National Power Corporation (NPC); 1985 is Mission nroJectinn as Adesr4hie in Appendix TTT 18. If this proram 4i achieved, there would bea savings of 29 million barrels of oil annually by 1985 compared to an all-thermal program. This wo-uld represent a foreign exchange savings of about TSO m 1 1lonn ay1arby 1985, or about 4 percent of the projected value of imports. If this program ere4..le..ened,con.sumption of petroleum. proAucts _U1A prbby goa about 10 percent a year up to 1980 and then decrease to 2 percent a year. ,rhe seclor woul 1. ^ consum,ing about 32 mlillion b-arrels in 1980r and perhaps ~. LLa L.J WIJ U U~_ -L UjL L i LJ . _J. ~ ~L.L.L.JJ LiU A. JL.A 7ii I ' UV LU i 36 million by 1985 since most of the hydroelectric, geothermal and all of the r.ucLear p'Lants -WUuXU b'e built afL ter 1I 980. 197. Industal SL~ector: The in[uUrLLl sector corsiumes directly about 29 percent of the output of the petroleum industry. But, in addition, it uses about 40 percent of the output of the power sector, so tnat pernaps as much as 35 percent of petroleum imports are, in effect, used by industry. Within manufacturing, the light consumer goods industries, including food, beverages, and textiles, account for about 35-40 percent of the fuel and electricity consumed. The intermediate goods industries, particularly the chemicals, cement, and other non-metallic minerals industries, account for much of the remainder. 20. Substitution possibilities in the industrial sector are far more rigidly constrained by technology than those in the power sector, and the progress of technological adaption is difficult to foresee. Little direct substitution Production methods can be expected apart from the use of energy-saving measures such as the use of the direct reduction process in - 275 - the proposed steel mill il place of the traditional blast furnace process, and the use of bagasse as a source of energy in sugar mills. Indirect substitution through changes in the pattern of industrial demand and output, and in the regional location of industry to areas such as Mindanao and the Visayas, where hydroelectric and geothermal energy is available, will per- haps be more important responses to the energy crisis. 21. If, in fact, output in manufacturing and mining does grow at an average of 8-10 percent a year during the next decade as described in Chap- ter 6, direct consumption of petroleum products in the industrial sector could reach 30 million barrels by 1980 and perhaps 50 million barrels by 1985. The outcome could be affected bv Government decisions on the future development of the netrochemical industry. Major investments in petrochemicals in the 1980s, for example, could mean larger imports of petroleum in place of previously imported petroleum-based chemical products. - 276 - APPENDIX III THE POWER SECTOR IN THE PHILIPPINES 1. The Philippine power sector, unlike that of most other countries in Asia, consists of more than 400 utilities, both public and private, most of which are very small. The National Power Corporation (NPC) dominates the public utilities while the Manila Electric Company (MECO) is the largest private utility. As a bulk supplier of electricity, NPC generates power and delivers it to small utilities and large industries, primarily those in rural areas. MECO serves the greater Manila area, and generates and distributes power to retail consumers; it also supplies some small utilities in bulk. In 1970 there were 335 privately owned and 121 municipally owned utilities, about half of which purchased power from NPC or MECO and distributed it to consumers. The other half, located in more isolated areas, had self-gene- rating plants and provided substandard yet very costly services. A signifi- cant amount of power is also self-generated by private industry. Power Sector Development Policy 2. In the early 1970s, the fragmented ownership of power generation and distribution facilities was becoming an increasingly important obstacle to the coordinated development of the power sector on the main islands of the Philippines. The Government, therefore, declared in Presidential Decree 40 (November, 1972) that the total electrification of the country was a national policy obiective which should be achieved by establishing island grids, integrating generating systems, and consolidating electric distri- bution franchise systems. NPC was made responsible for the construction of national grids, the development of all future generation supplying the grids, and, ultimately, for owning and operating all generating facilities. MECO, presently the largest generating as well as distributing company, will eventually become only a distributing utility: negotiations for transferring the bulk of MECO's generating and transmission plant to the Cnvernmennt hbeon in AuigOIqt 1q79- 3. The National Electrification Administration (NFA), estahlished in 1969, has initiated a vigorous program to provide electricity throughout the country by 19,94. The sftrategy isc to estabish electricity-cooperativ which will improve the supply in rural areas, integrate the small utilities, and extend serv.ices to remote areas. The Power Development Conci4 (PDC) formed in 1970, was given responsibility for coordinating the sector and promoting ilts systematic deve*loment. Presidential DT.ecree 40tru J expanded PDC's role to make it more effective in the planning and implementation of thLe electrification prograLIII andU iIn the redirection andU reorientation oUf the various sectors of the industry towards national development goals. Due to a Lack of budgetary anu LLuman resources, however, PDC only sets basic guidelines and policies and does not play a direct role in coordina- ting the programs and operations of the major public utilities. 4. Presidential Decree 40 clearly defines intrasectoral responsibili- ties, in particular those of NPC and NEA, and, if properly implemented, will lead to better coordination in the development of the sector. However, it - 277 - has imposed tremendous managerial, financial, and technical burdens on NPC; starting from only one-fifth of today's generating plant, NPC will have to develop generation capacity to cover all future demand in the country. The Government amended NPC's charter in January 1974, raising NPC's author- ized capital and the ceiling on its indebtedness; it also gave NPC more authority and independence. Continuing and timely Government support is essential if NPC is to carry out its mandat.e. 5. Concurrent with these changes in the organization of the sector, the Government decided to diversify energy sources for power generation. About 80 percent of the electric generation is presently dependent on imported oil. In view of the increased cost of petroleum and the uncertain- ties of future supply, the Government decided to accelerate the develoment of nuclear power and indigenous hydro and geothermal energy. The initial findings of geothermal explorations at Tiwi and Los Banos, Southern Luzon, are encouraging. High pressure steam sufficient to produce 40 megawatts (MW) of electric power has been found and the capacity of the fields is estimated at several hundred megawatts. NPC has entered into a contract with Philippine Geothermal, Inc., a subsidiary of Union Oil of California, for the supply of up to 500 MW of steam. Exploration of another geothermal field recently began on the island of Leyte. A feasibility study of nuclear power has been completed by Electrowatt of Zurich for the International Atomic Energv Agencyv and NPC has concluded negotiations with United States Export-Import Bank for financing the first 600 MW unit, which NPC hopes to bring into onPrtoinn in 1982. The likelv imnprt of NPC's nnwer development program to reduce dependence on imported oil is discussed below. Demand and Supply of Electric Power 6. Information about the generating capacities and energy production of NPC and MECO is readily available, but a complete analysis of past trends in the Philippine power sector is hampered by a lack of data about the capa- cities and nroduction of the small utilities and privately ownpd plants. The Missionestimated the capacity of the utilities and the consumption of electricity for each region in 1974. (Tahle TTT 1). The rsults s.howed that the total installed capacity in the Philippines was about 3,100 MW, of which 490 percent was ow,ned by Mr-CO, 21 percent by NPC, about 20l percent by pivate industries, and the remaining 10 percent by NEA and small utilities. Energy consumpt. ion was estimated at about 112,000 gigawat- hJours I. ul. I 7. -le lack of comprehensive data on -past trenitd pari ularLy private generation by industries, hinders to-some extent a discussion of the Philip- pi1es' Luture power requirements. 'nowever, tlhe Mission hL'as estLmatedU probaLle future trends in demand for each region (Table III.1). 8. The Luzon Grid: About 90 percent of the power supplied in Luzon is provided by NPC and MECO. In October, 1975, the installed capacity in Luzon for NPC and MECO was about 2,330 MW, with an energy capability of about 10,600 GWh. There was an excess capacity of energy (2,000 GWh in 1975), and peaking capacity was slightly more than adequate, with a reserve of 30 percent in 1975. - 97P - 9. The power consumption in Luzon grew rapidlv in the 1960s. averaging about 13 percent per annum, but slowed to about 8 percent in the early 1970s. Demand forecasts prepared by 1973 by the International Engineering Company and by MECO forecast a growth rate of 9.5 percent per annum for the rest of the decade for the NPC/MECO grid. However, the oil crisis and the sub- squent economic recession had a stagnating effect on electricity demand, and. althotigh NPC's nrovincial demand showed a moderate increase, nower consumption in the Manila area in 1974 experienced an unprecedented decline. The lat-est- detmand fnrercst prepnared by NPC and MECO nrpdirtA that consnmption will increase at an average rate of 8.2 percent per year during 1974-75; nroninrinl demand is- estimated to rise 14 nprrpnt ner annlhm- whilp demand in the Manila area is expected to grow 6 percent annually. These forecasts are based or nl anndi indue]tria l develonrqppment ouittsi dei of the Tmetroponl i tan nrea the historical growth pattern, the future economic outlook, and the planned epanscion nf fhe transmission gridsc Tho ectimaft in genernl anpaerc to be reasonable, although the forecast for the Manila area might be on the conser- Tabhle TTT.! Estimated Tnstalled Elc~tric Capacity and Consumption, 1974 I nstalled Capaciy Energy Con.sumpti.on Region and Owner (In megawatts) (In gigawatt hours) T .' ,. 0 01.0 Luzon 2,246 0,047 National Power Corporation 501 1,979 Manila Electric Company 1,517 5,969 Other /a 228 900 Visayas 387 1,405 National Power Corporation 2 5 Other /a 385 1,400 Mindanao 487 1,671 National Power Corporation 152 421 Other /a 335 1,250 Philippines 3,120 11,924 National Power Corporation 655 2,405 Manila Electric Company 1,517 5,969 Other 948 3,550 /a Includes small utilities and self-generation by private industries. Utilities are estimated to represent about 30 percent and industries 70 percent. Source: National Power Corporation and Mission estimates. - 279 - 10. NPC has proposed a very ambitious program for the next 10 years in order to satisfy the estimated demand. Its program, together witn MECO's ongoing projects, would increase by three times the installed capacity in Luzon--raising it from 2,246 MW in 1974 to 6,286 MW in 1985. Tne program clearly reflects the Government's policy of rapidly reducing the dependence on imported oil. it includes two 600 MW nuclear power proJects (to be com- missioned in 1982 and 1985) as well as ten geothermal units of 55 MW each. 11. If implemented on schedule, such a program would provide more than sufficient capacity to meet the projected demand, with an excess of about 40 percent above the adequate reserve level, and would enable NPC to retire more than 1,300 MW of oil-fired thermal plants by 1985. This program, how- ever, is very costly as well as quite optimistic in estimating construction schedules, particularly for geothermal and nuclear plants. The Mission has revised this program to more closely reflect NPC's projected demand; this smaller program would require P 6.6 billion in 1975 prices (or 23 percent) less than NPC's program for the period 1975-1985. Even assuming that the higher fuel cost of P 150 million per year associated with the Mission's program would continue to accrue until 1995, the NPC program would be more costly than that of theMissionby P 4.6 billion at 1975 prices, 1/ including capital, fuel, and operating cost (Annex A). This is mainly due to the high capital cost of the nuclear projects and the overplanting pro- posed in the NPC program. Careful consideration will need to be given to the relative cost and benefits of pursuing the nuclear program of the country in the future. 12. The Mindanao Grid: The existing generating capacity in Mindanao is relatively small; NPC has an installed capacity of only 152 MW. Data on the capacities of other utilities and self-generation capacity of private industries is incomplete, but the information that is available indicates that consumption of electric power from all sources, with an installed capacity of about 490 MW, was about 1,670 GWh in 1974 (Table II1.1). 13. NPC has forecast its own demand to increase by an average of 28 percent per annum during the next ten years; the forecast is based on trans- mission expansion programs to connect small utilities to the grids and on information obtained from the Board of Investments (BOI) on prospective industrial development (Annex B). The forecast assumes that NPC would ab- sorb the load of existing utilities and industries and, in effect, phase out a large part of their generation plant. This demand forecast appears to be reasonable in view of the potential industrial developments of an energy-intensive nature in Mindanao. 2/ NPC intends to meet this rapid growth 1/ A present value of P 3.7 billion at a 10 percent discount rate. 2/ These industrial developments include the following proposed projects: the Kawasaki iron ore sintering plant (1977), a ferro-silicon plant (1977), an integrated steel mill at Cagayan de Oro (1979), the expan- sion of the Iligan steel mill, four activated carbon proje--cts, cement plant, a pulp and paper plant, an expansion of the wood pro- cessing industry, znd a --auxit proces-sig plan-. - 280 - in demand by first installing 144 MW of diesel plants before 1980; second, completing major installations on the Agus River and a base-load thermal plant between 1979 and 1984; and, later, by developing the Pulangui River and potential geothermal fields. A large installation of diesel power is required to stabilize the supply provided by the exclusively hydroelectric generation of the present system and to meet a rapid demand increase in the near future before other sources of generation became available. The program envisages an increase in NPC's installed capacity in Mindanao from 152 MW in 1975 to 1,366 MW in 1985, or ninefold in 10 years (Annex B). 14. The Visayas Grid: The present power supply in the Visayas depends almost entirely on private utilities and on self-generating industries, which have an aggregate installed capacity of about 390 MW. Demand is constrained by supply and daily blackouts are common. This situation will continue for some time and growth in energy consumption will be largely determined by the rate of capacity increase. NPC has launched a maior generation develop- ment program, starting with diesel plants and proceeding to thermal and geothermal plants; the program would add 943 MW during the next 10 years (Annex C). Until 1980, however, almost 90 percent of the 418 MW planned new capacity would be diesel power, which is intended to serve the large loads of the mining sector in Cebu and Negros. The program is considered very ambitious since NPC has virtually no existing Dlant in the Visavas. However, even if the program were successfully implemented, the result would be a growth in total capacity of only about 13 percent a year. and this includes a moderate growth of 4 percent per annum in the capacity of private utilities and industries, 15= The Total Program: Presidential DTerrpe li40 declared thnt all manor development of future power generation will be carried out by NPC as dis- picuQssd ahuov- thp ineff ficient nla nts nrprent- I uwnoted hb csmal I ilt- i ities ann industries will rapidly phase out as NPC's grids are expanded. However, NEA and some industries will continue to install their own generating facilities in areas where power from NPC will not be available in the near future or where utilization of process heat of s^meindustries makes self=generation attractive. Generation by small utilities and industries, therefore, will still represer.t a fair portion of total generatlion at ite er.d of Lilt fore cast period. Assuming that generation by such small utilities and self- generating industries will Uecrease Jrom the present level Uo 30 percent to 15 percent in 1985, the overall growth in the consumption of electricity will ncrease by 10.7 percent per annun during 1974-85. Est1imates of the sector's growth by region and by utility are shown in Table III.2. The hign growtn rates expecteu in Mindanao and hne visayas are aue to tne pre- sent low rate of electrification and to the Government's policy of disper- sing industries. Per capita consumption of electricity in 1985 would reach 700 kilowatt hours (KWh) in Luzon, 580 KWh inn Mindanao, and 560 KWh in the Visayas. - 281 - Table III.2 Actual and Proiected GeneratinB Capacity and Energy Productin, 1974 and 1985 Average Annual Region and Utility Actual Projected Growth Rate 1974 1985 1974-75 Energy Production (in gigawatt hnours) Philippines (total 11,924 56,27 10=7 Luzon 8,848 21,048 8.2 Visayas 1,405 6,980 15.7 Mindanao 1,671 8,499 13.3 Installed Capacity By Region Philippines (total) 3,120 8,516 9.5 Lruzon /a ) 1 2,250 5, 097 7. 7 LIU LL1 f 12d ~v1 - I *I Visayas 387 1,537 13.3 Mindanao 48____107 1 008 13.1 nI.LniUaLLLcL to/ ±UOUL IJ By Utility Philippines (total) 3,120 8,516 9.5 NPC 65J 6 ,632 4. 24 MECO /b 1,517 425 -- Other /c 948 1,459 4.U /a Projections for Luzon are based on the development program worked out by the Mission and assume the retirement of 157 MW of old thermal plants. /b MECO's major generating plants will be transferred to NPC. /c Generating capacity oE small utilities and industries has been assumed to increase at a rate of 4.0 percent per annum in each region. Source: National Power Corporation and Mission estimates. 16. An overall growth rate of 10.7 percent would give an electricity of power consumption to GNP o!f about 1.5, assuming GNP growth rates of 7.0-7.5 percent. Countries at a stage of development similar to that of the Philip- pines normally have elasticities of between 1.5 and 2.0. Korea, for instance, uses an elasticity of 1.6 to project its electric power demand. The project growth rate of about 11 percent for the Philippines, although acceptable for system planning purposes, mav be somewhat low. Some Implications of the Program 17. The impact of the programs proposed in each of the three major areas of the Philippines are significant. Production of electricity would increase by about 11 percent per annum; installed capacity would almost triple, reaching about 8,500 MW in 1985. Besides the large increase in capacity, there would simultaneously be notable changes in the composition and sources of supply of electric power. If the program were implemented as proposed, the thermal/diesel component of installed capacity would fall from 81 percent of the total in 1974 to 53 percent by 1985 (Table III.3). This reduction would be compensated for by increases in power from hydro- electric, geothermal, and nuclear sources. However, there are financial and technical uncertainties in developing capital-intensive hydroelectric and nuclear sources and, particularly, in securing sufficient steam for planned geothermal installations. If any of these are delayed, the dif- ference in power supply would have to be made up by oil-fired thermal plants if requirements are to be met. 18. The proposed program would also dramatically change the distri- bution of electricity production among suppliers. In agreement with Govern- ment policy, all major generating facilities would be constructed and owned by NPC except for the Malaya 2 project, which is currently being built by MECO but will be transferred to NPC after completion. Assuming only marginal increases in generating capacity by small utilities and self-generating industries, NPC's share of installed capacity would increase from one-fifth in 1974 to more than three-quarters by 1985 (Table III.2). The physical and financial implications of the program for NPC are discussed below. Table IIT.3. Actual and Proiected Sources of Electric Power, 1974 and 1985 (In megawatts) Percentage Share Source 1974 1985 1974 1985 Thermal/Diesel 2,513 4,494 80.6 52.8 HXydropower 60 r7 2) ,67 7 19.4A 31 .5 '.13. tJjJIJ WCL '-'Us~~%J ~ 11~ I _J Geothermal ... 745 ... 8.7 IT C _..... :n s -7 re 1.fuclear ... ~~~~ vUv ... t S 0d .1 ** I0 *U TotaL 3,120 8,1 1 00JU.0 100.0 Source: National Power Corporation and Mission estimates. 19. Implementation Capacity. The development program discussed above is a very ambitious target for NPC. Since its inception in 1936, NPC has built only six power plants. In order to meet the above projections, it will have to implement more than seventy power projects in the next ten years, including nuclear and geothermal ones. Because its construction activities in the past were sporadic! NPC relied heavily on temporary staff, even for highly professional positions such as senior engineers, in order to avoid high administrative costs during slack periods. This policy, although prudent in the past, has resulted in managerial and supervisory capability being too thinly spread over diversified activities. 20. NPC rprngnizes the teehnieal and managerfal burden that will be imposed by this much larger program and it has taken a number of steps to improve its implementation ecapacity- Rpeional nffices havp hben PetAhliLhpd in Luzon, Mindanao, and the Visayas; salary scales and merit systems have been improved to make NPr more competitive with private industry; arrange- ments have been made to transfer engineers from other Government agencies to NPC, particularly for the newly organized Nuclear and Geothermal Division; qualified engineering consultants have been employed to meet the immediate needs fo-r pr-iority nrn4-t1 andA scholnarsoin ande traninjng nrrams havn boon undertaken for NPC staff, although in an unorganized manner. These measures a.ve proveA effective in securing young -nginrs and s1,4i1eA -orc, and should allow NPC to meet technical and managerial requirements from its own resources. L---V eUAone CL VA. at An X D L L fU a proj c t- executing entity to a well organized operating utility. The division of authority andU responsibi.Lit-Les bLetween th Lie hLeau office andU regional off emphasizes project execution, with little consideration given to planning or operatLion. LN4PC personnel, whiL Ue Cep te ritenUe d LULL n LorUcLLULI WUoks, L Lac experience in investment programming and in financial and organizational matters; in fact, experience is most lacking in the crucial managerial skills associated with sound public utility administration. The Bank has suggested, anu NPCu hias agreeU, thILaL LLthe ULVLLLLUL1 or LanC zaioU UoLLhLL toi e L rvieWeU, authority and responsibility of each work unit be redefined, and a comprehen- sive training program be established. Since eUucated and skilled manpower is available in the country, measures to improve NPC's capability as dis- cussed above should help NPC meet tne requirements for the power sector. In the short term, however, there will be a shortage of qualified managerial staff. Financial Implications 21. The Mission estimates that the modified NPC program outlined above would require investment outlays for generating and transmission facilities, including the acquisition of MECO plants, of about US$6.1 bil- lion (P 48.9 billion) in current prices (Annex D). In 1975 prices, the proposed program would require outlays of about US$4.2 billion (P 31.6 bil- lion), compared to actual expenditures by NPC of about P 1.5 billion in 1975 prices during 1967-75. - 284 - 21. The financial implications of such an investment program are con- siderable. NPC currently has the largest corporate asset base in the Philippines, P 2.7 billion at current prices at the end of 1975; by the end of 1985, the asset base will be P 53.9 billion at current prices, or P 24.9 in 1975 prices (Annex G). Because of its large size, the high foreign exchange component, and the limited funds available domestically, the major portion of the funds required for this program will have to be borrowed abroad. It is estimated that 64 percent will be borrowed, correspondingly roughly to the estimated foreiRn cost. NPC will require a significant increase in its equity in order to obtain such financing. A minimum equity contribution in addition to internal cash generation would be about P 11.5 billion in current prices, (including P 2.3 billion to finance NPC's acquisition of MECO's plants) or about one-quarter of the total cost of the program during the period. NPC's debt/equity ratio would then be about 58/42 (excluiding revaluation reserve) and debt-service coverage would become adequate provided that finance for the second and subsequent nuclear units could be obtained on better terms than those for the first. 22. If tariffs are set at a level that would earn NPG an 8 nprrent rate of return on currently valued net fixed assets in operation, net cash gepnpration would nrobhhlv hp ahlp to contriblite bouiit 14 nprrpnt- of t-hp construction costs, including interest during construction. The financing nln n hbasd on thp.R cqqlimntinsc wniol d hp q fnllw Table TTT.4 Financing Plan: FY 1976-85 /a Billions Billion of Percent Category of Pesos UJS DJollars of totalC Internal cash generation 19.1 2.5 39.0 Less: Debt serv-e and workling capital requirements 13.0 1.7 26.6 Internal funds available for investment 6.1 0.8 12.4 Borrowings 31.3 4.2 64.1 Equity 11.5 1.5 23.5 Construction expenditure 48.9 6.5 100.0 /a Annex E shows a detailed funds flow statement and annexes F and G show forecasted income statements and balance sheets. nQ r' - LUp - 23. An equity contribution of P 11.5 billion would have to be provided by -JoverrIUCent. In aduUiL±Uo, Iat Las estl±mated to require XI 1.2 bllion Ln' S million) through 1980, excluding any operating subsidies which may be required to keep cooperatives viable until break-even is achieved. This would put a significant financial burden on the Government. However, if the revenue projections shown in Chapter 10 are realized, an equity contribution oi this magnitude would be possible. Additional funds-may be able to be raised from the sector by changing Eariffs and tariff structures. An increase in the rate of return of next fixed assets in operation from 8 percent to 10 percent would yield additional cash generation of P 3 billion; the additional tariff increase required would average about 6 percent on currently forecast tariffs. Another P 2.8 million could be generatea if hne rarifis on Minaanao were raised to the levels on Luzon through the 10-year forecast period; the Bank has suggested that a taritf study be made to expiore this possibiiity. Better control of receivables could yield about an additional P 1 billion over the 10-year period. 24. About P 31 billion (US$4.2 billion), or 64 percent of the total capital requirement at current prices, would have to be borrowed, primarily from foreign sources. NPC has already arranged about P 8 billion (US$1.! billion) of foreign financing in the past year, including P 5 billion (US$0.69 billion) from the United States to finance its first nuclear pro- ject. Power Pricing Policy 25. Comprehensive tariff studies of the power sector in the Philippines have never been made, since the way in which the sector was organized in the past precluded such a study. Large disparities exist in the tariff levels among regions and suppliers. NPC, by its charter, has three different tariffs for its Luzon, Mindanao and Visayas regions. Tariffs on Mindanao are much lower than those on Luzon--3.08 centavos (4.1 US mills) compared to 9.5 cen- tavos (12.6 US mills) per KWh in 1975. Small utilities selling electricity to final users also have a wide range of operating costs depending on such factors as the size of operation, load densi-ty, and source of energy. There- fore, a residential consumer of a utility purchasing cheap power from the NPC's hydroelectric system on Mindanao would have to pay only P 0.12 per KWh, while another residential consumer of a small self-generating utility would have to pay as high as P 0.50 per KWh. However, there are no apparent cross- subsidies between different categories of consumers except that NPC and NEA benefit from tax and duty exemptions_and the lower financing costs of offi- cial aid available to them. The World Bank has suggested that a comprehen- sive study be made of the power sector's costs and tariffs on a marginal cost basis to enable the Government to make decisions on its power pricing policy with full knowledge of the conseauences of these decisions. A-ne A Sets Da tenat -resr for lan category 1975 1976 1977 1978 1979 1980 1981 1982 1983 19114 1985 Demand Forecast Peak Dend (194) 1,486 1,586 1.757 1,892 2,073 2,180 2,,352 2,550 2,767 2,998 3,253 Energy (Cob 8.609 9,236 10,394 11,202 12,322 13,001 14,078 15,266 16.564 17,1157 19,659 Development Progr NYC Forec..t Dependable Ca.pacIty (W) 1.934 1,934 2,201 Z:,609 2,672 2.724 2,978 3,750 3,802 4,682 5,304 Available EIergy (C0A) 10,615 10.615 12,350 1i,100 16,660 17,001 17,636 20,130 23,403 25,0L40 27,200 Plant Addltion- mlaya 1 (T) B atae 2 (t) !Mala- 2 (T) Ceo 3/4 Ceo. 5 allva.. 1( (87 KAlayaan2(H) Tab. (H) Abqflje L(H) AbuloR I (H) 310 Hl 150 NW 380 DW 110 41 55 MW 150 Dy 150 Nol 400 DW 21J0 1 200 DW Pteb tRAbn n CH) !4. 2 Geo 6 Ceo 7/8 Ait1(H) mac/10 ! an l_ 100 NW 55Dy 35 W 110 NY 300 Dy 110 5 600 W cGo I Macl"r I., SS 24 600 Hi World Bank l oreceat Dep-ndable Capacity (W) 1,934 2.077 2,147 2,218 2,617 2,669 2,,969 3,123 3,477 3,6117 4,029 AvaIlable Energy (hmh) 10,615 11,115 11,908 13,248 16.247 16,590 16,470 17,156 18,502 21,222 22!358 Plavt Addic-Lone Ihelna I (T) Det-ec 2 (t) PattbanRan (H) C;o I malava 2 (T) Cao 4 lelaacn 1/2 (H) Ceo 5/7 Tb. (H) t...l, I AbuleR I (H) 310 MW 100 M. 55 DW 330 14 35 NW 300 NW 165 mW 40D DW Mo 1 200 NW Coo 2/1 Co- C a-9 9 1101 4 55 w 55 W ('n killion a pe-os in 1975 coretant pri..a) HPC Devolonet Program W-icel Bank Dnvelonco-t Program Dia-ont c Rte CapiLtal Pocl ./W Total Fcpital Poel 012 TotaL (in percent) 0 34,.7 15 8 2 8 53 3 28.1 16.5 2.6 47.2 1D 20.1 9.9 1.7 31.7 15 8 10.2 1.6 27.1 15 15.9 8 .2 1. 3 25.4 12 .5 8.4 1.3 22.2 Notno: 1/ Coo g geoth.er-I 7 - therml } - hydroele-tric 2/ "Capcity" of ech proj-ct retfr- to Inetel.ljd capootty Soarer - 8PC acd Hiealo etla L. Annex B. System Devetlopmeit PrCram for Mindanao National Pcver Corporation 1975 1976 1977 1978 197'9 1980 19B1 1982 1983 1984 1.985 Satisfiablei Demand Forecast Energy (G"h) 570 1,057 1,090 1,545 2,070 2,874 3,318 4,350 5,321 6,081 6,570 Developuen: Proar_E Instal led Capability (O1) 152 152 234 298 588 633 733 883 1,033 1,183 1,428 Available Energy (Gwb) 1,077 1,077 1,164 1,545 3,093 3,309 3,775 4,825 5,768 6,713 7,969 Plant Addit:ions Atus VI (H) Diesel 3-6. Agus II, (El) Agus VII(H) A&S I (H) Thermal _L Anus II (H) !4" V (B) iulanauL II (91) No. 5, 50 9W 64NW 180 NW 45 N0 loci 15 150 Y50NW 150NW RiUui nI (E[) Diesel 1-2, Diesel 7-9, 4W 32 W 48 62 1W a/; Generating facilities of Davao Light Amd Power Company (DLPCO) of 62 li will be conrected to the grid in 1979. Note: H * hydroelectric Source: NPC and Mission estijmate Annex C. Syasl Devel,P.ent P oxr-m for the ViOeva- National Poer Corpor-tion 1975 1976 1977 1978 1979 1980 1981 1982 19,3 1984 1985 Sat jfioble Denund :Forecast Energy (Dah) 7 7 379 1,123 1,936 2,293 2.798 3,527 3.890 4.326 4,819 Dentl2ont Pro-rep Ineinlld Clpacity (NW) 2 2 104 309 363 420 495 67C 740 g45 945 A-nil.bl. E-ergy (GWh) 8 8 5938 1,758 2,065 2,412 2,905 3,771 3,955 4,498 5,020 P l-t AdditIon. bC-b (D) It Ce.b. ( II sinel (D) Pany (_ (D) TonRoo : (AG) C_b_ (T) _ _ (H) C_b_ _ V_le_ (G) 50 81 90 81 54 M1 7 HU 75 81 50 11 60 W 75 19 100 1N Eohol (D) Slp.l . (D) Ctb. (T) Tonon _n (IG) WUma1. f Ulot (H) 11 81 108 814 30 NW 75 NW 10 191 30 Ut 11W 7, w 50 814 fanvy (D) 30 NW4 Note: D - Di..el 1 - Tharsel H - Hydro-lentrEl G Genth-rIal So-.c: NPC and MIje n- notiote Annex D a/.. Investmnent Requirements of the National Power Coyporatiorn, F-76-85 Fmi millions of peo) - Region, ?0-CrrenJ t Priceis b/ __a_ 1975 Prices Pc7gan enisTtxon ta ac, Transmiiss ion Total luzon 31,302 3,267 .34,569 159,651. 2,92 2l,8143 Mindanao 7,831 981 8,812 4,998 91 7 5,9 L5 Visayas 422I3 1,338 5,561 2,946 914 3,860 Total 4 ;356 5.586 48.942 27,595 4! 62 8 a/ Ineluding interest during construction. b/ Assumed inflation rate of 8 percent per annumo c/ Including transmission lines associated with generating plants0 Annex E. Funds Flaw Statement of t:he National Power Corporation FYL976-85 (In millions of Pesos) 1976 1977 1978 1979 1980 1981 1982 1983 1984 1986 TOTAl, Internal sources of funds Operating income 207 352 462 638 873 1,095 L,387 1,678 2,:170 3,202 12,264 Depreciation 154 194 228 322 446 567 754 1,000 1,448 1,729 6,S42 Total 361 546 690 960 1,319 1,662 2,141 2,678 3,818 4,931 19,1045 OQRLtio al requir-*ments Inc r.ase/ decraase - working capital -9 195 83 47 191 109 298 225 '586 423 2,14i3 Interest charged - operationsl 13 38 55 152 266 474 568 729 1,:398 1,490 5,183 Debt repayments 44 56 155 594 619 723 658 622 746 8151 5,073 Total 48 289 293 193 1,076 1,306 1,524 1,576 2,730 2,774 12,409 lternal funds available for inetmont 313 257 397 167 24:3 356 617 1,102 1,D88 2,157 6,697 Capital Investment Proiposad project: 160 233 31 4 247 ... ... ... ... 954 Other constructiLon 3,1i7' 2,419 2,827 4,174-' 4,497 5,743 4,791 4,923 4,690 4,231 41,481 Int:erest ciuring construction 145 222 368 511 684 821 1,035 1,166 718 837 6,507 lotal 3,332 2,801 3,428 4,999 5,427 6,564 5,826 6,089 5,408 5,068 48,942 Balanice to be finmnced 3,019 2,544 3,031 4,832 5,184 6,208 5,209 4,987 4,320 2,911 42,245 Sources of financ:ng LoSLIs 891 1,907 2,,339 3,332 4,497 4,303 4,232 3,149 3,449 3,238 31,337 Equiity 2,156 750 692 1,442 668 1,928 1,029 1,861 892 89 11,507 Total 3,047 2,657 3,031 4,774 5,165 6,231 5,261 5,010 4,341 3,127 42,844 Cash increase/decrease 28 113 0 -58 -1'3 23 52 23 21 416 599 Cash at beginning of ye r 38 66 179 179 121 102 125 177 200 221 22;1 Cash at year's end 66 179 179 121 102 125 177 200 221 637 637 Debt service coveiLaAe 1.B 1.7 1.2 0.8 3.8 0.8 0.9 1.1 1.3 1.5 1.1 Internal cash ratLo 6.5 3.8 4.8 1.4 1.6 1.9 2.5 3.8 2.4 4.0 L2.4 Annuatl contribution to construction 9.4 9.2 11.6 3.3 4.5 5.4 10.6 18.1 20.1 42.6 L3.7 a/ Includes P1516 million in 1976 and P804 million in 1979 Eor acquisition of MECO pawer plants, both assumed to be financed by equity. Source: National Power Corporation Annex F. Income Statemnent of the Nationual Power Corporation. FY1976-85 1.976 1977 1978 1979 1980 1981 1982 1983 1984 1985 Retvenueci Sales increase (percent) -- 31.3 19.1 21.3 9.6 14.5 13.9 9.2 2.6 8.1 Energy saleei (Gwh) 7,862 10,325 12,298 14.922 16,757 18,727 21,339 23,3D9 23,911 25,857 Average price per Kwh 16.11 19.72 22.23 23.99 26.50 27.96 30.28 31.80 36.34 40.20 Energy reveznue 1,267 2,036 2,734 3,580 4,335 5,236 6,461 7,412 8,610 10,394 Other revenue ... ... ... ... ... ... Total 1,267 2,036 2,734 3,580 4,335 5,236 6.461 7,412 8,690 10,3904 Operatimg expenses Fuel 852 1,410 1,932 2,473 2,1331 3,353 4,035 4,411 4,472 4,996 Operation 54 80 112 147 185 221 285 323 4D0 4457 Depreciation 154 194 228 322 446 567 754 1,000 1,448 1,729 Total 1,060 1,684 2,272 2,942 3,462 4,]L41 5,074 5,734 6,320 7,192 Operating incime 207 352 462 638 873 1,()5 1,387 1,678 2,370 3,2102 Other incone (net) ... ... ... ... ... ........ ..... Net income before interest 207 352 462 638 B73 1,095 1,387 1,678 2,370 3,202 Interest 158 260 423 663 950 1,295 1,603 1,E95 2,116 2,327 Charged to construction 145 222 368 511 684 B21 1,035 1,166 718 837 Charged to operations 13 38 55 152 266 474 568 729 1,398 1,490 Net incomen 194 314 407 486 607 621 1319 949 972 1,712 Allocations of net income/dividends ... ... ... ... ... ... ...... ... Retained earnings 194 31L4 407 486 607 621 819 949 972 1,712 Financial indicators Rate base 2,607 4,393 5,776 7,977 10,918 13,697 17,359 20,988 29,589 39,986 Rate of return (percent) 7.9 8.0 8.0 8.0 8.0 8.0 B.0 13.0 8.0 El.0 Operating ratio (percent) 83.7 82.7 83.1 82.2 79.9 79.1 713.5 77.4 72.7 651.2 Average gross revenue - plant (percent) 33.5 35.0 36.3 35.3 31.8 30.5 2i.7 27.9 23.6 21.0 Source: National Power Corporation Annex G. Balance Sheets of the Natiopel P-nr CorPoratiso (1- millions. Of pessO) 1976 1177 197f3 979 1990 1991 1999 19il 1g IIS Assets Fixed assets Plant in service 4,839 6,809 8,255 12,042 15,251 19,050 24,450 28,766 45,000 53,903 Less: Depreciation 1,283 1,580 1,934 2,411 3,049 3,860 4,923 6,318 8,271 10,661 Op.r,ine pinln 3t556 5.229 6,321 9,631 12.202 15.190 19,527 22,448 36,729 43,242 Work is Progress 2,602 3,839 6,386 8,278 11,479 15,483 17,452 21,200 12,694 12,378 lnvscutnents 42 42 42 42 42 42 42 42 42 42 Current assets Cash 66 179 179 126 111 125 177 200 221 637 Inventories 121 171 207 301 381 476 612 720 1,126 1,348 Receivables 411 544 697 862 1,003 1,159 1,379 1,555 1,787 2.056 Subtotal 598 894 1,083 1,289 1,495 1,760 2,168 2,475 3,134 4,041 Other 64 64 64 64 64 64 64 64 64 64 Total as.ecs 6,862 10,068 13,896 i9,304 25,282 32,539 39,253 46,229 52,663 59,767 Equity end Liabilities Equity Paid in capital 3,115 3,865 4,557 5,999 6,667 8,595 9,624 11,485 12,377 12,466 Retained earningx 443 757 1,164 1,650 2,257 2,868 3,697 4,646 5.618 7,330 Revaluation reserve 1,065 1,368 1,807 2,332 3,123 4,118 5,352 6,932 8,747 11,605 Total equity 4,623 5,990 7,528 9,981 12,047 15,591 18,673 23,063 26,742 31,401 Long tern debt Debt due 1,892 3,743 5,928 8,666 12,544 16,124 19,698 22,225 24,928 27,305 Total debt 1,892 3,743 5,928 8,666 12,544 16,124 19,698 22,225 24,92B 27,305 Current liabilities Payablhe 317 305 411 623 653 795 853 912 964 1,032 bank overdraft 0 0 0 5 9 0 0 0 Total 317 305 411 628 662 795 853 912 964 1,032 Other liabilities 7 7 6 6 6 6 6 6 6 6 Cootributiocx 23 23 23 23 23 23 23 23 23 23 Total equity and liabilities 6,862 10,068 13,896 19,304 25,282 32,539 39,253 46,229 52,663 59,767 lnorasd,d It-s Average gross plant / tonsuners (in tho.usanAd s 0 0 0 0 0 0 0 0 0 Average gross plant /gwh (in thousands) 481 564 1,633 680 834 916 1,019 1,141 1,542 1,426 Increaas in gross plant (percent) 77.6 40.7 21.2 45.9 26.6 24.9 28.3 17.6 56.4 19.8 DebLtsuet pl-aL (perceoL) 53.2 71.6 93.8 90.0 102.8 106.1 100.8 99.0 67.9 63.1 Debt-debt + equity (percent) 29.0 19.2 44.0 46.5 51.0 50.8 51.3 49.1 48.2 46.5 Current ratio 1.9 2.9 2.6 2.1 2.3 2.2 2.5 2.7 3.3 3.9 hW inatalled 913 1,317 1,556 2,373 2,530 3,005 3,495 3,770 4,925 5,580 Net plant/ku (in thousands) 3,895 3,970 4,062 4,059 4,823 5,055 5,587 5,954 7,458 7,749 Debt percent of debt + equity excldixg revaluatiox 34.7 44.7 50.9 53.1 58.4 58.4 59.6 57.9 58.1 58.0 Source: aNtional Power Corporation