Cost-benefit Analysis Of Arcp Rural Infrastructure Projects

Cost-Benefit Analysis of ARCP Rural Infrastructure Projects1 By: Jay B. T. Lacsamana Chief Economist (1999-2007) Agrarian Reform Communities Project DAR-Asian Development Bank

December 2006

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Working paper submitted to Asian Development Bank Institute, December 2006, for discussion and evaluation.

ABSTRACT Cost-benefit analysis is conducted prior to the approval and implementation of ARCP rural infrastructure subprojects in the agrarian reform communities (ARCs). The summary and comparative cost-benefit analysis among ARCP subproject types indicate that potable water supply systems yield the highest benefits and returns to society and exhibit more impact on the poor households in the covered communities. This is followed communal irrigation systems, particularly those systems that are rehabilitated by increasing their irrigation efficiencies. Among the access infrastructure typologies, graveltype farm-to-market and development roads provide the most benefit to the community and the benefits derived therein have impacts that are closer and best felt by poor households. In contrast, concrete roads and the roads that service vehicular and motorized traffic provide lesser economic returns and benefits derived favor those that have access to higher-level transport assets and facilities. Full farm-to-market road improvement that fully enhances access to primary town and market centers exhibit higher returns and benefits than roads that are only partially enhanced or improved segmentally.

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I.

INTRODUCTION

This paper seeks to summarize the cost-benefit analysis (CBA) undertaken for the various rural infrastructure subprojects under the ADB-assisted Agrarian Reform Communities Project (ARCP), Loan No. PHI-1667. It aims to examine and compare the economic feasibility indicators of different access infrastructure types (i.e., farm-to-market roads and bridges), communal irrigation systems/projects (CIS/CIPs) and potable water supply (PWS) projects approved and implemented under the Rural Infrastructure (RI) component of ARCP. The exercise will provide insights on which subproject types are more beneficial to rural poverty reduction and in what socio-economic context are they most effective. The findings herein may serve as guide in future project designs of similarlysituated rural development and poverty reduction projects.

II.

BACKGROUND OF ARCP

The ARCP is an originally six-year poverty reduction and rural development project that aims to increase the quality of life of at least 33,000 agrarian reform beneficiaries in about 165 agrarian reform communities (ARCs) scattered across the 33 covered provinces of the country.2 The Project is implemented by the DAR through its FAPsO and DAR instrumentalities at the field and is being assisted by several agencies of the national government and related entities. ARCP implementation is guided by DAR’s agrarian reform community development strategy. At its inception in 1993, the ARC development strategy serves as DAR’s main approach in developing the redistributed lands and the beneficiaries of CARP.3 It aims to accelerate development of ARBs and ARB lands by focusing on support services in areas where majority of CARP lands have been transferred and development of the beneficiaries could proceed under new terms of ownership. The design of ARCP and its attendant interventions follow the major elements of the ARC development strategy, which 2

The original target coverage and scope was 28,000 households, 140 ARC in about 35 eligible provinces. The scope and coverage was approved for expansion in 2003 by the National Economic and Development Authority (NEDA)Investment Coordinating Committee (ICC). The Project was given time extension of 18 months in 2005 after almost two (2) years of operating with inadequate rural infrastructure budget.

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An ARC is a barangay or a cluster of barangays that have been subjected to land reform within which at least 50-60 percent of the households are headed by ARBs. Under Republic Act No 7905 dated 23 February 1995, an ARC is a barangay or group of barangays, within a municipality or a group of municipalities, declared as an agrarian reform community.

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in turn has been enhanced, redefined and revised to better address DAR’s mandate, as well as incorporate the priorities of the different political administrations. To carry out its objectives, the ARCP has four major project components: (1) Rural Infrastructure, (2) Development Support, (3) Land Survey and Titling, and (3) Project Management and Capability Building.

The attendant interventions under the major

components are to be implemented primarily by local government units (LGUs) who are hosting eligible ARCs together with ARB organizations (irrigator’s associations, barangay water and sanitation associations, etc.) and people’s organizations/ cooperatives. Identification of local projects are done on a demand-driven, participatory, and on a firstcome, first-serve basis. Criteria for eligibility of both ARCs and LGUs are pre-established by the ARCP project document and loan agreement. Project management implementation is guided by a logical framework detailing the goals, objectives, targets, project components inputs, outputs, effects and impacts, means of verification of key performance indicators and assumptions and risks. A copy of the logical framework is attached in Annex 1. Project Implementation Status After seven years of implementation, ARCP is at the penultimate stage of its project life. Physical phase-out is targeted by end of December 2006 and overall project phase-out is slated by end of June 2007. The project is in various stages of mainstreaming its systems and interventions to DAR, LGUs and ARB organizations. Overall physical accomplishment of the Project as of end of June 2006 is at 103.55 percent as against an elapsed local period of 107.62 percent. The table below shows the overall breakdown of performance by project component:

Table 1 Weighted Performance per Component As of end of September 2006 Actual Weighted Performance As of March 2006

As of 30 September 2006

61.50 2.40

49.13 2.21

51.49 2.28

% of component accomplishment over component weight 83.72 95.00

29.50

34.51

45.15

153.05

6.60

8.33

9.01

136.15

100.00

94.18

107.93

107.93

Component

Global Weights

Rural Infrastructure Land Survey and Titling Development Support Project Management Total

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ARCP Rural Infrastructure Component The rural infrastructure component under ARCP aims to improve the physical and social infrastructure needs of ARCs by increasing the accessibility, productivity and overall living standards of the beneficiaries. The RI component provides three (3) major modes of RI subproject types: (1) access infrastructure (farm-to-market roads, bridges, culverts, etc.), (2) communal irrigation (diversion, small water impounding, or pumping schemes), and (3) potable water supply (rehabilitation of existing wells, installation of additional wells, and development of potential spring sources). The Project has approved a total of 469 subprojects (as of end of September 2006) that are in various stages of implementation in 165 ARCs hosted by 163 local government units (LGUs). Table 2 below shows the 469 approved subprojects under ARCP having an aggregate cost of P3.98 billion with loan proceeds covering about 75 percent of total project cost or P2.96 billion. LGUs shoulder 18 percent or P725 million of total project cost principally sourced from their internal revenue allotment (IRA). In terms of number of RI subprojects approved, 77% are under access infrastructure covering a combined length of 1,230 kilometers, irrigation systems comprise 10% with a total coverage of 8,070 hectares and potable water supply systems comprise 13% or 98 units/systems servicing 15,504 households. Table 2 Cumulative Physical and Financial Summary for Approved Subprojects By Category, As of 30 September 2006 Category

Access Infrastructure Irrigation Potable Water Supply TOTAL

No. of SPs

Physical Indicator

359

1,230 kms

47 63

8,070 hectares 98 units / 15,504 households

469

Cost Breakdown (in million pesos) LP 2,639.00

GOP (taxes) 247.16

LGU Equity 560.83

Total 3,446.99

257.36 71.45

29.5 7.7

128.83 35.47

415.69 114.62

2,967.81

284.36

725.13

3,977.3

Across geographical location, most of the RI subprojects are located in ARCs in Mindanao and ARMM with a combined share of 47% in terms of number and 43% in terms of cost (Table 3). This is consistent with the project design and loan agreement that prioritizes the delivery of rural infrastructure investments in ARCs in the more impoverished areas of southern Philippines.

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Table 3 Cumulative Summary of Approved Subprojects By Geographical Location, As of 30 September 2006 Project Area

Luzon Visayas Mindanao

ARMM TOTAL

Regions Covered

No. of provinces

No. of ARCs

No. of Subprojects

I, II, III, IV and V VI and VIII X, XI, XII and CARAGA ARMM

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51

131

Percent Share to Total No. of SPs 28%

8 10

39 56

115 195

4 33

19 165

28 469

Total Cost (million P)

Percent Share to Total Cost

1,348.7

34%

25% 41%

922.5 1,372.8

23% 35%

6% 100%

333.2 3,977.2

8% 100%

Table 4 below summarizes the profile of RI subprojects across categories and geographical areas. Note that majority of access subprojects in terms of number (54%) and cost (58%) are located in Luzon and Visayas combined compared to the combined share of Mindanao and ARMM. The same is true for irrigation subprojects where the combined share of Luzon and Visayas is 68% and 60% in terms of number and cost, respectively. Mindanao and ARMM combined have the higher share for potable water supply subprojects with 67% and 74% in terms of number and cost, respectively. Table 4 Cumulative Summary of Approved Subprojects By Geographical Location and Category, As of 30 September 2006 Access Infrastructure Geographical Area Luzon Visayas Mindanao ARMM TOTAL

No. of Subprojects

100 93 141 25 359

Physical Target (kms)

336.22 300.07 495.53 98.22 1,230.04

Cost (million pesos)

1,145.09 848.94 1,135.75 317.20 3,447.00

Irrigation

Potable Water Supply

No. of Subprojects

Physical Target (in hectares)

Cost (million pesos)

No. of Subprojects

21 11 14 1 47

3,692.87 1,807.09 2,500.74 70.00 8,070.70

187.17 60.70 159.28 8.59 415.73

10 11 40 2 63

Physical Target (no. of units)

12 32 52 2 98

Cost (in million pesos)

16.47 12.92 77.85 7.41 114.65

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III.

ARCP RI Component: Design and Evaluation Parameters

Project Design The identification and implementation of ARCP rural infrastructure projects are guided by the ARC development strategy4. While the strategy has undergone several enhancements and modifications through the years, the provision of support services like rural infrastructure in land reformed areas remains a significant feature for the strategy. Investments in rural infrastructure like farm-to-market roads and bridges, communal irrigation, potable water supply, post-harvest facilities and structures, and to a limited extent, health centers and school buildings catering to ARB beneficiary households, are some of the project packages that cater to the ARCs. The overriding objective is to preserve the gains of land distribution and acquisition (LAD) by providing support services to ARBs and their communities so that the beneficiaries will be able to make the land productive for higher income and eventual deliverance from poverty. Delivery of support services and infrastructure under ARCP is consistent with the DAR’s ARC development strategy. Under ARCP, the needed investments in support services are identified through a participatory planning process undertaken by the ARB organizations. ARC development plans and investment programs are drawn up where projects addressing ARC needs are prioritized and ranked. Resource mobilization to finance the ARC plans and investment programs is undertaken particularly among CARP implementing agencies (mainly the line departments: Public Works and Highways, Agriculture, Trade and Industry, National Irrigation Administration, etc.), foreign donors (or official development assistance) and to a limited extent private sector and non-government organizations. ARCP, being a foreign-assisted project funded through a loan from ADB, finances the support services priorities of the covered ARCs under it through the provision of a matching grant to local government units

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For a backgrounder on the operating context of ARCP and the various enhancements introduced into the DAR’s ARC strategy, see attached paper “Project context: ARCP as a Poverty Reduction Project” in Annex 2. The current catchword on the ARC strategy is ARC “connectivity”, the concept of which is still under formulation as of this writing.

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(LGUs) who are hosting the covered ARCs. Thus under ARCP, it is incumbent upon the ARCs and their organizations to touch base with LGUs so that ARC development plans and investment programs form part of and/or made consistent with the LGU development plans and investment programs. Mobilization of the required local equity (in cash or in kind) to avail of the marching grant is thus realized through equity participation of the LGUs and ARB organizations. ARCP Investment Prioritization and Project Evaluation Methodologies In order to provide context to the comparative cost-benefit analysis of ARCP rural infrastructure subprojects and how they relate to poverty reduction, the following explanatory information is presented: (a) Nature of ARC socio-economic situation and their infrastructure needs; (b) Viability indicators used during ARCP inception and as implemented from 1999 to 2006; and (c) Derivation of economic costs, benefits, net present values and economic rates of return. Nature of ARC Development Challenges Agrarian communities are among the most disadvantaged areas in the Philippines. At ARCP entry, baseline studies conducted by the Institute of Agrarian Studies of the University of the Philippines Los Baños, determined that more than 70% of agrarian household members lived below the poverty line. The average income of such households was P36,000 per annum against the national poverty threshold of P68,000 established by the government. Poverty is pervasive in ARCs because most of the development constraints are barely addressed in these communities. The development needs of ARCs are numerous and varied. Most of these communities are isolated from the main market centers, making access to agricultural inputs, technology, credit, agricultural services and higher-value commercial trade, difficult and costly.

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In 1999, many ARCs were also newly created since it was immediately prior to this period where DAR’s land distribution target, particularly government lands, were distributed. Under ARCP, eligible ARCs were mostly those that were newly declared (with high land distribution record and free from land acquisition and distribution) while a minority are old ARCs whose lands were distributed under the earlier land reform programs. Land distributed could hardly be made productive due to several constraints and foremost of these are access to the market, lack or inadequate irrigation systems, potable water supply and other support facilities and infrastructure. ARCs under ARCP are mostly categorized as semi-prime and remote or “satellite” ARCs. These are found mostly in Mindanao, ARMM, Visayas and Northern Luzon areas. There are a few prime ARCs covered by ARCP and these are mostly in Central Luzon. In these areas, ARC planning processes yielded the following priority infrastructure needs: (1) farm-to-market roads, (2) potable water supply, and (3) irrigation. ARCP Economic Viability Indicators Based on the rapid rural appraisal conducted in several ARCs in 1997, ARCP RI component design revolved around addressing the three major rural infrastructure needs in the eligible ARCs. The design and investment mix is consistent with the participatory needs assessment undertaken in about 200 eligible ARCs. For access infrastructure, it was envisioned then that most of these shall be gravelling or rehabilitation with limited provision for concrete roads. For irrigation, all of these are communal systems or projects for either rehabilitation and/or new construction/installation. Potable water supply systems, as designed, were mostly level I systems (point source or artesian wells) and level II systems (spring and installation of strategic community faucets or tap stands). The economic analysis for the ARCP Project Design in 1997 was based on 24 feasibility studies done in 24 ARCs in Luzon (3 ARCs), Visayas (1), Mindanao (12) and ARMM (8). The following are the results of the study and the indicators therein became the basis for NEDA-ICC approval of the ARCP:

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Component 1. Access 2. Irrigation 3. Potable Water Supply 4. Agri-Development 5. Rural Enterprise ALL COMPONENTS

EIRR 17.8 18.6 21.4 37.2 29.3 24.0

NPV @ 12% (P’000) 469,880 109,414 44,899 1,087,134 227,734 1,939,061

Rural Infrastructure Assumptions and Parameters Below is Table 5 showing the major assumptions and parameters used in the 1997 Project Design and the actual ARCP practice. In general, the ARCP Project Evaluation Unit has adopted the methodology used in the 1997 Project Design with the following deviations: a. Discount Rate – ADB uses 12% while ARCP adopts the NEDA-ICC rate of 15%. The 24 feasibility studies done for ADB Mission Team in 1997 also used 15% as the discount rate. b. Skilled Labor – is based on prevailing wage rate usually between P250 to P400. The program of work (POW) used in the construction of access roads and bridges show that the range varies from region to region. c. Unskilled labor – is based on prevailing wage accepted by unskilled workers in the area usually ranging from P150 to P180 per day. d. Economic conversion factor for unskilled labor and imported materials – unskilled labor is 0.60 for both upland and lowland workers while foreign exchange component conversion is 1.20. e. Operation and Maintenance Cost – ARCP adopts the DPWH standard of P40,000 per kilometer per year for gravel roads and P20,000 per kilometer per year for concrete roads. These are also adjusted from financial to economic prices f. PWS targets – targets for potable water supply system varies greatly as implemented by ARCP. There are basically two categories of PWS as implemented: (i) Level 1 – deep wells/springs sited in a strategic location catering to several households, and (ii) Level 2 – spring or ground water source/s and distributed to strategically located tap stands around the service area in the community. These may be propelled by gravity or pump-operated.

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Table 5 Assumptions And Parameters Used In Evaluating Feasibility Of Rural Infrastructure Subprojects ITEM

1997 (ADB)

Discount Rate Unskilled Labor: Economic conversion factor Skilled Labor Unskilled Labor Computed Unskilled Labor to be generated in Person Years Computed Skilled Labor to be generated in Person Years

ARCP 12%

0.6 prevailing wage rate in 1997 P250 to P400 prevailing wage rate in 1997 P150 to P180 2,673

1,452*

5,346

2,823*

Foreign Exchange Conversion Factor

1.2

NEDA 15%

15%

0.6

0.6 prevailing wage rate

1.2

1.2

ACCESS (Roads & Bridges) O&M for Asphalt Roads O&M for Gravel Roads: Economic life 10 yrs O&M for Concrete Rds: Economic life 15-20 yrs O&M for Bridges: Economic life 15 to 25 yrs

P 60,000/km P 70,000/km

none P 40,000/km P 20,000/km P 2,000-2,500/lm

P 700/hectare

P 908/hectare /*

5.45 tons/hectare 4.19 tons/hectare

2.53 tons/hectare /* 2.47 tons/hectare /*

2,500 hectares 4,000 hectares

1,125 hectares /* 2,379 hectares /*

P 40,000/km P 20,000/km

IRRIGATION O&M for Irrigation: Economic life 15 yrs Incremental yields of palay New irrigation Rehabilitation Coverage of new and improved New irrigation Rehabilitation/Expansion POTABLE WATER 11% of total O&M for PWS: Economic life 15 yrs investment 9% of investment /* Construction Spring 100 units Well 840 wells Level 1 PWS (Deep Wells) 4 units /* Level 2 PWS (may either be spring source/gravity-type or ground water sourced but mechanically pumped & distributed to strategic locations) 41 units /* * Actual computed/estimated indicators from the combined ARCP subprojects as of September 2006.

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Derivation of Benefits of ARCP Rural Infrastructure Projects Cost-benefit analysis under ARCP context slightly departs from the usual costbenefit analysis undertaken for convention infrastructure, particularly those implemented in an urban context. Project viability evaluation in ARCP takes into consideration the socioeconomic context of ARCs particularly in remote rural areas where economic costs and benefits may vary in terms of valuation and opportunity cost of variables. A.

Access Infrastructure (FMRs and bridges)

Under this category are farm-to-market roads and bridges. These involve connecting and/or improving the access of ARB farms to the secondary and/or primary (major) market centers. Interventions here vary: (a) road opening to rehabilitation (gravelling), (b) combination of gravelling and segment or “spot” concreting for FMR segments that are located in steep slopes or perennially eroded and/or flooded portions, and (c) fully concrete or paved FMRs (upgrading). Bridges are mostly reinforced concrete deck guilder-type, single-lane bridges. There are generally two types of benefit derivation depending on the nature of FMR subproject. In areas where there is vehicular traffic (about 200 vehicles a day in the nearest road influence area), the traffic road approach used in deriving of the project benefits. In this methodology, benefits are derived from the improved surface and/or access primarily originating from savings in vehicular operating costs (VOCs) in a “with and without project” scenario. Traffic or VOC methodology may be seen as biased against households who do not own or use vehicles. This type of cost-benefit analysis may cause the exclusion of the “poorest of the poor” in the benefit equation of FMRs. Annex 3 provides a summary of vehicle operating cost savings per vehicle and road surface type. In areas where there is no observed vehicular traffic or where the traffic count falls below 200 vehicles a day (and the use of which may cause the subproject to be not viable), the development approach in estimating benefits is derived. This is done by estimating the cost of hauling of agricultural and non-agricultural products and the cost of commuting (may be time-based or money-based) of persons in the road influence area. Table 6 below provides a summary of the benefits assumptions of development FMRs approved and implemented in ARCP.

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Table 6 Detailed Benefit Assumptions for Development FMRs (Non-traffic Roads) AVERAGE BENEFIT ASSUMPTIONS (Average for all approved subprojects) AMOUNT Compound Population Growth Rate 1.52 Average Yield of Agricultural Produce Rice/Palay 3.4 Corn 2.57 Sugarcane 52.7 Coconut/Copra 2.39 Average Percentage Exported of Agricultural Products Rice/Palay 64 Corn 72 Sugarcane 98 Coconut/Copra 95 Average Hauling cost Savings with-without Project 0.86 Average Passenger Transport Savings with-without Project 10.54 Average percentage of commuters out of total population 26 Average Operating Days of Commuters 215 Average Operating Days of Vehicles 277

UNIT % tons/hectare tons/hectare tons/hectare tons/hectare % % % % Pesos/kilogram Pesos/Passenger % days days

FMR interventions under ARCP can also be categorized into: (a) FMRs that were only partially improved by repairing or rehabilitating selected segments; or (b) FMRs that undergone whole-network or whole-stretch improvement/rehabilitation. Partial or small road improvements normally improve segments that connect to minor markets. On the other hand, full-stretch improvement involves enhancement of the whole access (longer road networks), normally adjoining the community to the major or primary marker center. B.

Communal Irrigation

Communal irrigation subprojects may be classified according to three types: (a) gravity irrigation, (b) pump-based irrigation, and (c) shallow tube well installations. The estimates of benefits originate from the increased cropping intensities (as brought about by increased irrigation efficiency for rehabilitation projects and/or increased coverage for new construction projects) in a “with and without” project scenario. C.

Potable Water Supply Subprojects

Potable water supply subprojects are level I subprojects or deep wells shared by the community and level II systems that may either be spring-based or gravity type or pump and storage systems. Benefits estimations are derived from: (a) water revenues, (b) reduction in mortality, (c) reduction in morbidity, (d) savings in medical expenses, and (e) time savings. 13

IV.

Cost-Benefit Indicators on ARCP RI Subprojects

The following analysis compares the cost and benefits of ARCP rural infrastructure subprojects given the development context, cost and benefit parameters cited above. The set of subprojects approved as of 30 November 2006 is the basis for the cost and benefit summations. The analysis is also extended along several subproject type categories. Full cost-benefit tables are found in Annex 4 to 13. A.

Access Infrastructure 1.

All access (including bridges) Table 7 below shows the overall economic indicators of all access infrastructure subprojects. Overall economic internal rate of return is 21.66% with a net present value of P616 million. Across areas, Mindanao exhibits the greatest cost-benefit ratio with 1:1.42 followed by Luzon with 1:1.35. Table 7 Economic Viability Indicators of all ARCP Access Infrastructure Net Present Value at Economic Internal Cost-Benefit Ratio 15%

Rate of Return (EIRR)

Luzon

327,147,747

22.21%

1:1.35

Visayas

278,862,665

23.29%

1:1.36

Mindanao

324,291,705

22.81%

1:1.42

34,463,566

18.62%

1:1.21

616,668,136

21.66%

1:1.34

ARMM All Areas

2.

Gravel (includes those with concreted portions) Table 8 summarizes the economic viability indicators of all gravel roads. Overall, gravel roads exhibit an economic internal rate of return of 23.26% and an NPV of P386 million. Across areas, gravel roads in Mindanao demonstrate the best cost-benefit ratio with 1:1.41.

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Table 8 Economic Viability Indicators All gravel roads including those with spot concrete portions Net Present Value at Economic Internal Cost-Benefit Ratio 15% (Pesos)

Rate of Return (EIRR)

Luzon

158,609,629

24.57%

1:1.39

Visayas

252,547,872

23.49%

1:1.37

Mindanao

203,941,463

24.51%

1:1.41

7,169,610

19.07%

1:1.20

386,633,379

23.26%

1:1.35

ARMM All Areas

3.

Concrete Roads Concrete roads, as shown in Table 9, provide lesser viability indicators compared to gravel roads with an EIRR of 19.96% and a NPV of P268 million. Across areas, Mindanao concrete FMRs exhibit the greater economic cost-benefit with 1:1.42, followed by Luzon and Visayas with 1:1.30 and 1:1.29, respectively.

Table 9 Economic Viability Indicators Concrete roads Net Present Value at Economic Internal 15% (Pesos) Luzon Visayas Mindanao ARMM All Areas

4.

Cost-Benefit Ratio

Rate of Return (EIRR)

136,806,999

20.54%

1:1.30

23,241,692

18.92%

1:1.29

272,302,013

21.21%

1:1.42

27,293,956

18.51%

1:1.21

268,353,974

19.96%

1:1.30

Development Roads (Non-traffic) As defined earlier, development roads are those whose benefits are derived by estimating the savings in time, hauling costs and commuting costs 15

of persons (travelers) and agricultural and non-agricultural freight in the road influence area. Table 9 below shows that the overall economic viability of development roads under ARCP is EIRR 22.33% and NPV at P410 million; indicators that are close to the viability indicators of gravel roads. Across areas, the development roads located in Mindanao exhibit the highest benefits with a cost-benefit ratio of 1:1.39. Table 9 Economic Viability Indicators of Development Roads Net Present Value at Economic Internal 15% (Pesos)

Cost-Benefit Ratio

Rate of Return (EIRR)

Luzon

327,147,747

22.21%

1:1.35

Visayas

182,972,233

23.52%

1:1.34

Mindanao

193,988,551

24.33%

1:1.39

27,065,938

17.75%

1:1.21

410,649,718

22.33%

1:1.33

ARMM All Areas

5.

Traffic FMRs (Savings in Vehicle Operating Cost) Table 10 indicates the economic viabilities of traffic or VOCsbased FMRs. EIRR is 20,63% and NPV is P221 million for all the areas. Across areas, traffic FMRs in Visayas fare best in terms of cost-benefit ratio with 1:1.46, followed closely by Mindanao with 1:1.45. Table 10 Economic Viability Indicators of Traffic/VOC FMRs Net Present Value at Economic Internal 15% (Pesos)

Cost-Benefit Ratio

Rate of Return (EIRR)

Luzon

55,282,113

18.98%

1:1.30

Visayas

95,890,431

22.52%

1:1.46

129,182,865

20.93%

1:1.45

27,293,956

18.51%

1:1.21

221,349,051

20.63%

1:1.38

Mindanao ARMM All Areas

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6.

Segment improvement (Upgrading and/or rehabilitation of a portion or critical segment of an FMR) ARCP access RI where the investments were limited to improving access of only a portion or a segment of a farm-to-market road stretch record an EIRR of 21.69% and a NPV of P407 million (Table 11). There were a total of 717 kms (264 subprojects) of this nature in ARCP. Across areas, partial FMR improvement is highest in Mindanao with a cost-benefit ratio of 1:1.43. Table 11 Economic Viability Indicators of FMRs: Segment/Portion Improvement Net Present Value Economic Internal at 15% (Pesos)

Cost-Benefit Ratio

Rate of Return (EIRR)

Luzon-195 kms, 75 SPs

122,247,618

21.22%

1:1.32

Visayas-202 kms, 75 SPs

116,766,222

22.24%

1:1.34

Mindanao-268 kms, 96 SPs

143,611,789

22.16%

1:1.43

25,232,863

19.78%

1:1.29

407,858,492

21.69%

1:1.39

ARMM-52.7 kms, 18 SPs All Areas-717 kms, 264 SPs

7.

Full FMR network (Upgrading or rehabilitation of full FMR stretch) There were a total of 513 kilometers or 72 subprojects of this nature in ARCP (Table 12). This involved the full stretch or full-network improvements of the FMR and across all areas, the economic viability indicator of this type of FMR intervention are: 22% EIRR and NPV of P174 million. Across areas, Visayas fared best with a cost-benefit ratio of 1:1.40, followed by Mindanao with 1.36.

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Table 12 Economic Viability Indicators of FMRs: Whole FMR Stretch / Network Net Present Value Economic Internal at 15% (Pesos)

Cost-Benefit Ratio

Rate of Return (EIRR)

Luzon-126 kms, 18 SPs

43,457,937

20.65%

1:1.27

Visayas-90 kms, 14 SPs

31,277,133

23.74%

1:1.40

Mindanao-249 kms, 33 SPs

95,191,427

22.74%

1:1.36

7,176,451

19.95%

1:1.25

174,285,417

22.02%

1:1.33

ARMM-48 kms, 7 SPs All Areas-513 kms. 72 SPs

8.

Bridges There were a total of 25 bridges (stand alone subprojects) with a combined length of 3.1 kms nationwide. The project-wide economic viability indicators of ARCP bridges are: (a) NPV - P31.8 million, (b) EIRR of 20.42%, and (c) cost-benefit ratio of 1:1.27.

B.

Irrigation 1.

Overall (all system types) Table 13 provides the summary economic viability indicators of all communal irrigation systems and projects under ARCP. Economic internal rate of return is at 23.40% with a net present value of P104 million. Across areas, Mindanao systems have the highest cost-benefit ratio of 1:1.53 followed by Visayas and Luzon with 1:1.38 and 1.35, respectively. Luzon systems exhibit the highest EIRR with 24.54%.

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Table 13 Economic Viability Indicators, All irrigation systems Net Present Value at Economic Internal 15% (Pesos)

Cost-Benefit Ratio

Rate of Return (EIRR)

Luzon

81,045,520

24.54%

1:1.35

Visayas

20,942,000

23.55%

1:1.53

Mindanao

63,399,500

23.47%

1:1.38

2,550,000

22.05%

1:1.35

104,537,500

23.40%

1:1.40

ARMM All Areas

2.

New Irrigation System Construction Construction of new systems under ARCP covers 3,413 hectares. Table 14 indicates that this type of system has yielded an EIRR of 22.75% and NPV of P53 million. Across areas, new system construction in Luzon registers the highest cost-benefit ratio of 1:1.66, followed by Visayas with 1:1.37. Table 14 Economic Viability Indicators, New Irrigation System Construction Net Present Value at Economic Internal Cost-Benefit Ratio 15% (Pesos)

Rate of Return (EIRR)

44,583,000

27.14%

1:1.66

Visayas – 200.84 has

6,013,000

20.86%

1:1.37

Mindanao – 1,880 has

30,508,500

20.92%

1:1.27

2,550.000

22.05%

1:1.35

53,146,000

22.75%

1:1.40

Luzon – 1253 has

ARMM – 70 has All Areas – 3,413 has

3.

Rehabilitation of Existing Systems Table 15 summarizes the economic viability indicators of rehabilitation of existing irrigation systems. Overall EIRR is at 25% with a P29.4 million NPV. Visayas and Mindanao systems exhibit the higher costbenefit ratio with 1:1.59 and 1:1.54, respectively. Mindanao systems have the highest EIRR at 26.43%.

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Table 15 Economic Viability Indicators, Rehabilitation of Existing Systems Net Present Value at Economic Internal Cost-Benefit Ratio 15% (Pesos)

Rate of Return (EIRR)

Luzon – 1,159 has

14,480,000

24.30%

1:1.29

Visayas – 1,606 has

14,929,000

24.56%

1:1.59

Mindanao – 620.74 has

32,891,000

26.43%

1:1.54

ARMM

29,409,000

All Areas – 3,386.49 has

3.

-

25.09%

1:1.47

STW Installation Shallow tube wells were installed only in the Luzon area. Economic viability indicators: NVP – P21.5 million, EIRR of 23.53% and cost-benefit ratio of 1:1.14. Table 16 Economic Viability Indicators, Shallow Tube Wells Net Present Value Economic Internal at 15% (Pesos)

Rate of Return (EIRR)

21,588,670

Luzon – 1,403 has/11 SPs

Cost-Benefit Ratio

23.53%

1:1.14

Visayas

-

-

-

Mindanao

-

-

-

ARMM

-

-

-

21,588,670

All Areas

C.

23.53%

1:1.14

Potable Water Supply Systems 1.

Overall Table 17 shows the economic viability indicators of all PWS subprojects in all ARCP areas. Overall EIRR is 31% and NPV is P95.3 million. Among the project areas, ARMM and Luzon exhibits the highest cost-benefit ratio of 1:1.99 and 1:1.96, respectively. Luzon PWS remain with the higher EIRR at 44%.

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Table 17 Economic Viability Indicators, All PWS Levels Net Present Value at Economic Internal 15% (Pesos)

Cost-Benefit Ratio

Rate of Return (EIRR)

Luzon – 11 SPs

8,920,000

44%

1:1.96

Visayas – 32 SPs

6,937,000

33%

1:1.58

Mindanao – 52 SPs

43,780,000

28%

1:1.90

ARMM – 4 SPs

35,680,000

19%

1:1.99

All Areas – 101 SPs

95,317,000

31%

1:1.49

2.

Level I PWS Systems Only Visayas and Mindanao have Level I PWS systems with a combined EIRR of 31% and NPV of P1.5 million. Mindanao systems exhibit the highest cost-benefit ratio with 1:2.40 (Table 18). Table 18 Economic Viability Indicators of Level I PWS Net Present Value at Economic Internal 15% (Pesos)

Cost-Benefit Ratio

Rate of Return (EIRR)

Luzon

-

Visayas – 23 SPs

1,467,000

33%

1:1.43

Mindanao – 5 SPs

67,000

29%

1:2.40

-

ARMM

-

All Areas – 28 SPs

1,534,000

3.

-

-

31%

1.92

Level II Table 19 presents the economic viability indicators of Level II PWS systems. Overall EIRR is 31% and NPV is P93.7 million. ARMM and Luzon have the highest cost-benefit ratio with 1:1.99 and 1:1.96, respectively. Luzon has the highest EIRR at 44% with 13 SPs under Level II PWS.

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Table 19 Economic Viability Indicators of Level II PWS Net Present Value at Economic Internal 15% (Pesos)

Cost-Benefit Ratio

Rate of Return (EIRR)

Luzon – 13 SPs

8,916,000

44%

1:1.96

Visayas – 9 SPs

5,470,000

33%

1:1.63

Mindanao – 47 SPs

43,714,000

28%

1:1.89

ARMM – 4 SPs

35,680,000

19%

1:1.99

All Areas – 73 SPs

93,780,000

31%

1:1.49

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V.

Conclusion

Based on the summary of economic cost-benefit analysis of ARCP rural infrastructure (Table 20), the subproject type that yields the highest benefit to society is potable water supply systems followed by communal irrigation and lastly, farm-to market roads. PWS have direct social and health benefits to the poor households in the ARCs. On the other hand, irrigation subprojects are known to have direct benefits and impact on farm and crop productivity. Table 20 Economic Viability Indicators of all ARCP Rural Infrastructure Net Present Value at Economic Internal Cost-Benefit Ratio 15%

Rate of Return (EIRR)

FMR

616,668,136

21.66%

1:1.34

Irrigation

104,537,500

23.40%

1:1.40

95,317,000

31%

1:1.49

Potable Water Supply

Among the FMR types and categories (Table 21), gravel roads exhibit the highest benefits with a 23.26% EIRR and a cost-benefit ratio of 1:1.35. Gravel roads are followed by development FMRs with EIRR of 22.33% and a cost-benefit ratio of 1;1.33. Gravel roads and development roads are usually related and are projects whose impacts are felt more by the lower income and impoverished groups. Gravel and development roads usually do not cater to vehicular and motorized traffic and service mostly small manual-driven (animal-driven) vehicles, manual haulers, and commuters on foot. Full concrete FMRs exhibit the lowest benefits among road types (EIRR: 19.96%). These type of roads usually cater to motorized vehicles and benefits derived here are the savings in vehicle operating costs due to lesser wear and tear on vehicles like trucks, buses, jeepneys, cars and vans, and motorcycles. Full FMR networks exhibit higher benefits than small-segment FMR improvements. Full FMR networks are usually traffic roads leading to primary urban and major market centers. Segment improvements only improve certain road sections that are perennially damaged and/or are poorly maintained.

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Table 21 Economic Viability Indicators of Various FMR typologies Net Present Value at Economic Internal 15%

Cost-Benefit Ratio

Rate of Return (EIRR)

ALL FMRs

616,668,136

21.66%

1:1.34

Gravel (with Spot Concrete)

386,633,379

23.26%

1:1.35

Concrete

268,353,974

19.96%

1:1.30

Development FMRs

410,649,718

22.33%

1:1.33

Traffic FMRs

221,349,051

20.63%

1:1.38

Segment Improvement

407,858,492

21.69%

1:1.36

Full FMR Network

174,285,417

22.02%

1:1.33

31,800,000

20.42%

1:1.27

Bridges

Among the communal irrigation system typologies, rehabilitation of existing systems (EIRR: 25.09%) provide higher benefits than newly constructed ones (EIRR: 22.75%). Shallow tube wells (EIRR: 23.53%) under ARCP were only installed in Luzon since it is in Luzon areas where wide flat lands with rich water table can be found and are suitable for the STW technology. However, where feasible, STWs exhibit greater returns than new irrigation construction systems. STWs cost lesser than new construction and can easily be managed by poor and small farmer-cultivators. Potable water supply systems provide the greatest benefits and economic internal rates of return among the ARCP rural infrastructure subproject types. Between PWS Level I and PWS Level II, the latter constitutes most of the demand in ARCP. This is in contrast to the earlier projected demand in the design of ARCP in 1997 where most of the PWS demand then was for the installation of Level I systems. In fact, ARCP experience show that the actual demand in ARCs is now moving towards Level III PWS systems where household water connections are the preferred investments.

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