Orient Integrated Development Consultants, Inc. (OIDCI)

Transcription

1 Orient Integrated Development Consultants, Inc. (OIDCI)

2 Second Agrarian Reform Communities Project Loan No PHI Department of Agrarian Reform Autonomous Region in Muslim Mindanao Project Contract Completion Report Prepared by the Special Management Team October 2014

3 Project Location Map: Autonomous Region in Muslim Mindanao

4 Table of Contents Acronyms... iii Executive Summary... ES Introduction Regional Context, Project Objectives and Scope The Autonomous Region in Muslim Mindanao Project Objectives Scope of SMT Contract SMT Organization Special Management Team Structure and Relationships Accomplishments Community-Driven Development ARC Planning and Project Development ARCDP Integration into LGU Plans Support to LGU-ARC Clusters Strengthening LGU Governance through the PBGS Strengthening LGU Participation in Rural Infrastructure Agricultural Enterprise Development Improving ARC Productivity Financial Linkages for ARBOs Investment Promotion in ARCs Rural Infrastructure Project Management Systems, Skills and Knowledge Sharing with the ARMM Team Engaging Network of Support, Mobilization of Resources and Policy Development Report Preparation and Conduct of Studies/ Policy Briefs Overall Summary of Accomplishments Major Issues and Challenges Prohibitive LGU Counterpart Equity Limited Local Capacities and Resources for Project Management Inconsistency in the Subproject Review and Approval Process Inadequate Harmonization of Institutional Mechanisms Unrealistic Targets Unsuitability of SMT's Output-based Contract and Deliverables to the Conditions of the Project Recommendations On Ensuring Continued Project Implementation Post-SMT and Sustaining the Project Gains On Lightening the LGU Equity Burden and Securing Continued LGU Commitment Project Contract Completion Report i P age

5 6.3 On Strengthening the Subproject Development Process On Simplifying, Standardizing and Disseminating Subproject Monitoring Requirements and Processes On Enhancing Capacities for Project Implementation On Possible Project Extension and Capacity Development Support to ARMM Tables Table 2.1 Community-Driven Development Deliverables under the SMT Contract... 3 Table 2.2 Agri-Enterprise Development Deliverables under the SMT Contract... 4 Table 2.3 Rural Infrastructure Deliverables under the SMT Contract... 4 Table 2.4 Project Management Deliverables under the SMT Contract... 5 Table 2.5 SMT Payment Structure... 6 Table 4.1 Distribution of ARCs and LGUs Assisted in ARC Planning and Project Development Table 4.2 List of LGUs Assisted in their Agrarian Reform Community Development Plan Table 4.3 List of LGUs with Initial PBGS Documentary Submissions Table 4.4 Summary of RI Accomplishments (as of June 2014) Table 4.5 Status of Approved Subprojects (as of June 30, 2014) a Table 4.6 LP Fund Releases and Disbursement (as of 30 June 2014) Table 5.1 Total Cost and LGU Equity Contribution of Approved Subprojects by Province Figures Figure 3.1 Special Management Team Summary of Staff Deployment by Category ( )... 8 Figure 3.2 Summary of SMT Staff Deployment by Category and Office Posting (December 2012).. 9 Figure 3.3 ARCP II ARMM Implementation and Management Structure Figure 4.1 Number of Approved Rural Infrastructure Subprojects, per Semester ( ) Figure 4.2 Value of Approved Rural Infrastructure Subprojects, per Semester ( ) Annexes Annex 1 List of Approved Subprojects Annex 2 LGU Equity Requirement for Agrarian Reform Communities Project II Annex 3 Proposed PBGS Guidelines for ARMM ARCP II Annex 4 ARMM ARCP II Capacity Development Plan Annex 5 AED Capacity Development Plan Annex 6 Coffee Value Chain Study for Sulu Province Annex 7 Status of Project implementation in ARMM Annex 8 Status of Rural Infrastructure Subproject Implementation in ARMM and Recommended Strategies Annex 9 ARCP II Required Documents with Template as of February 3, 2012 Annex 10 Status of Rural Infrastructure Subproject Implementation in ARMM and Recommended Next Steps by Subproject Project Contract Completion Report ii P age

6 Acronyms ACSP - Agriculture Credit Support Program ADB - Asian Development Bank AED - Agricultural and Enterprise Development AIP - Annual Investment Plan APCP - Agricultural Production Credit Program ARBO - Agrarian Reform Beneficiaries Organization ARBs - Agrarian Reform Beneficiaries ARCCESS - Agrarian Reform Community Connectivity and Economic Support Services ARCDP - Agrarian Reform Community Development Plan ARCP - Agrarian Reform Communities Project ARCs - Agrarian Reform Communities ARG - Autonomous Regional Government ARMM - Autonomous Region in Muslim Mindanao BBL - Bangsamoro Basic Law BTA - Bangsamoro Transition Authority CAB - Comprehensive Agreement on Bangsamoro CARP - Comprehensive Agrarian Reform Project CBO - Community-Based Organization CDD - Community-Driven Development CDO - Community Development Officer COA - Commission on Audit CSF - Common service facility DAF - Department of Agriculture and Food DAP - Disbursement Acceleration Program DAR - Department of Agrarian Reform DARPO - DAR Provincial Office DBM - Department of Budget and Management DBP - Development Bank of the Philippines DENR - Department of Environment and Natural Resources DF - Development Facilitator DILG - Department of Interior and Local Government DOF - Department of Finance DSWD - Department of Social Welfare and Development FMR - Farm-to-Market Road HFI - Hineleban Foundation Inc. IDC - Iranun Development Council IQMDS - Infrastructure Quality Monitoring and Durability System JICA - Japan International Cooperation Agency JV - Joint Venture KFI - Kennemer Foods International LAED - Localized Agricultural and Enterprise Development LBP - Land Bank of the Philippines LCE - Local Chief Executive LGU - Local Government Unit LP - Loan Proceeds LPO - Local Project Office LTI - Land Tenure Improvement Project Contract Completion Report iii P age

7 MARO - Municipal Agrarian Reform Office MDFO - Municipal Development Fund Office MILF - Moro Islamic Liberation Front MNLF - Moro National Liberation Front MPB+SD - Multi-Purpose Buildings with Solar Dryers MPP - Multi-Purpose Pavements MRDP - Mindanao Rural Development Project NAPA - Notice of Advance Procurement Activities NGALGU - National Government Assistance to Local Government Units NOL - No Objection Letter NPCO - National Project Coordination Office NSAC - National Subproject Approval Committee OFID - OPEC Fund for International Development OIDCI - Orient Integrated Development Consultants, Inc. OISCA - Organization for Industrial, Spiritual and Cultural Advancement, International OPAPP - Office of the Presidential Adviser on the Peace Process OSCC - Office of the Southern Cultural Communities PBGS - Performance Based Grant System PCCR - Contract Completion Report PDAF - Philippine Development Assistance Fund PIM - Project Implementation and Management POW - Program of Work PPMS - Project Performance Monitoring System PRDP - Philippine Rural Development Project RI - Rural Infrastructure ROW - Right-of-way RPDO - Regional Planning and Development Office RPO - Regional Project Office RSAC - Regional Subproject Approval Committee SC - Supreme Court SLAM - Southern Ligwasan Association of Municipalities SMT - Special Management Team SPPP - Strategic Participatory Planning Process UN - United Nations WFP - World Food Programme Project Contract Completion Report iv P age

8 Executive Summary Project Background The Agrarian Reform Communities Project II (ARCPII) is a multi-year project financed by the Asian Development Bank (ADB) and the OPEC Fund for International Development (OFID). The goal of ARCPII is to alleviate poverty among the agrarian reform beneficiaries (ARB) and bring about sustained improvements in their incomes and quality of life. This is to be realized through an integrated and complementary package of interventions in: (i) community-driven development (CDD), (ii) agricultural and enterprise development (AED), (iii) sustainable rural infrastructure (RI) development, and (iv) project implementation and management (PIM). The project identified 150 agrarian reform communities (ARC) for support and assistance, 30 of which are targeted in ARMM. The ADB and OPEC loans financing ARCP II will be completed by end The OFID loan amounts to $30 million and is meant only for the Autonomous Region in Muslim Mindanao (ARMM). Overall project implementation for ARCP II is managed by the Department of Agrarian Reform (DAR) with the National Project Coordination Office (NPCO) as the responsible unit in-charge for its day-to-day operations. In view of delays in the implementation of ARCP II in DAR ARMM, DAR decided to create a Special Management Team (SMT) to provide the required technical assistance for the project. The contracted SMT was the joint venture of Orient Integrated Development Consultants, Inc. and Hineleban Foundation Inc. The contract of SMT was performance-based, that is, payments were tied to a set of deliverables and outputs as agreed with DAR. SMT s contract was for the period July 2011 to June The SMT was headed by a Regional Project Management Advisor with the support of a fieldbased Area Manager/Team Leader and specialists in agricultural enterprise and development, community development and rural infrastructure, and LGU-based staff. The SMT directly reported to the Regional Secretary of DAR-ARMM, who is also the Regional Project Manager. The SMT s role focused on providing direct assistance to the DAR-ARMM Regional Project Office (RPO) and five Provincial Offices (PO) as well as the partner LGUs in the area of project development, procurement and civil works monitoring. With DAR-ARMM Regional and Provincial Offices, SMT engineers and specialists conducted coaching and mentoring on the requisites for every stage of the subproject development process. With the LGUs and DARPO, SMT also worked towards capacitating the target ARBs. The SMT established its offices in Cotabato City, Zamboanga City, and Davao City. At the height of project implementation (2012), SMT had a total staff complement of 13 technical specialists and eight Community Development Officers. OIDCI and HFI staff provided administrative support to the SMT. Project Contract Completion Report ES-1 P age

9 Key Accomplishments Community-Driven Development. Of the 30 target LGUs, 26 LGUs were assisted in the formulation of ARC Development Plans (ARCDPs). The SMT innovated and developed a methodology for community participation in ARC development planning and subproject prioritization, aptly-called Strategic Participatory Planning Process. Technical guidance was provided to LGUs to ensure that the projects identified were incorporated and prioritized in LGU Annual Investment Plans, which served as basis for annual budget allocation. With the expansion of ARMM sites, SMT was provided the opportunity to engage more LGUs in planning and subproject development. At the end of the contract period, the Project had concrete engagement with 44 ARCs in 43 LGUs. Agricultural and Enterprise Development. The SMT supported DAR-ARMM in designing and preparing 14 proposals for ARMM ARBOs under DAR s ARCCESS program. Through an integrative planning process for AED, localized AED priorities and activities were identified for each of the LGUs, ARCs and ARBOs, especially those with approved RI subprojects. The AED approach had two tracks: the food security track with rice and corn farming as anchors, and the strategic agriculture and investment track. Opportunities through investment mobilization and partnership with the private sector were explored for the latter. Interested ARCs were linked with Kennemer Foods for cacao production and marketing and with the Land Bank of the Philippines for financing. Sustainable Rural Infrastructure Development. In September 2011, ARCPII in ARMM only had four LGUs participating in the RI component with six approved subprojects worth PhP56.8 million and loan proceeds of PhP22.9 million. With SMT support, performance was extensively improved. By the end of the second quarter of 2014, the number of participating LGUs with approved subprojects had risen to 43 with 132 approved subprojects worth PhP2.4 billion and loan proceeds of PhP1.1 billion. The most dominant type of support infrastructure selected by LGUs was farm-to-market road. Three rural roads subprojects in Sulu, Basilan and Tawi-Tawi amounting to PhP32.9 million have been completed. There are 109 subprojects that are in various stages of construction or procurement. The influx of subprojects was facilitated by SMT s extensive efforts to convince LGUs to pursue RI subproject development. This was enhanced by the introduction in early 2012 of the National Government Assistance to Local Government Units (NGALGU) for RI Development from the Office of the President. However, in 2013, the existing SMT sites appeared unable to support additional subprojects primarily due to equity constraints. In early 2012, SMT had proposed for inclusion into the Project of additional LGUs and ARCs. It was only in 2013 that such site expansion, through the NPCO and RPO-led Roadshow, was realized. The belated expansion of the Project areas meant that majority of the SPs were approved only in 2013 and most SPs entered the procurement stage only recently. They are expected to be issued contract awards and construction can only commence within the latter half of Project Implementation and Management. SMT instituted an internal monitoring system to track the status of subprojects from development to approval to implementation, and to account for SMT efforts on the ground for specific deliverables that could show its Project Contract Completion Report ES-2 P age

10 performance. Through such monitoring system, NPCO and DAR-ARMM management were regularly apprised and engaged in dialogue on project implementation concerns. The SMT envisioned the development of a model for multi-agency collaboration and complementation in rural development in a post-conflict context. Hence, the SMT undertook several policy, networking and partnership building initiatives for the Project, DAR-ARMM and the LGUs to further local cooperation, especially in generating financial support for project implementation. SMT s study on the rationalization of the national government-local government cost sharing supported DAR s efforts to shape its equity policy. SMT was able to obtain and formalize the commitment of UN WFP to support the project though its Food-for- Work Program. This resulted in the generation of PhP170 million in in-kind equity for 18 subprojects in 15 LGUs. SMT initiated the development of an ARMM ARCPII Capacity Development Plan, which underscored capacity building as an integral component of the project and providing funds for its operationalization. It studied the level of compliance of partner LGUs to DILG s Performance-Based Grants System (PBGS) and advocated for a PBGS that is responsive to the unique socio-cultural conditions and governance make-up of ARMM, in order to attain good governance and at the same time help ease the cash equity requirement under ARCP II. (The PBGS Technical Committee eventually ruled out any special modification for the ARMM LGUs.) By the end of June 2014, loan proceeds have been released to 25 subprojects. From the amount of loan proceeds transferred to the accounts of the local governments, the reported cumulative disbursement as of end of the second quarter of 2014 was PhP58 million (US$1.3 million). Another PhP15.8 million (US$352,061) in disbursements are in process, making the total disbursements on the loan proceeds PhP74 million (US$1.64 million). Challenges Over the course of implementing the Project, the SMT encountered difficulties related to the technical and resource limitations in project management, monitoring and supervision. There were weaknesses in rural infrastructure design and proposal packaging. The LGUs had limited experience managing contracted works as most of their infrastructure is done by the administration. They also have limited capacity to manage the procurement process as prescribed in this procurement law (Republic Act 9184). Available local expertise often struggled to adhere to the financial reporting requirements of a foreign-funded project like ARCP II. This local deficiency in financial management expertise has impinged on the timeliness, accuracy and acceptability of financial reports from the LGUs, and this became a continuing challenge for the DARPOs and RPO to facilitate. The SMT exerted efforts to mitigate the lack of expertise in these areas by providing coaching, supervision, and technical assistance sessions from the Local Project Office to the DARPOs, up to the RPO (DAR-ARMM). Another challenge to the SMT was the prohibitive LGU counterpart equity requirement for ARCPII subprojects, which constrained LGU participation in the project, especially given the availability of cheaper financing through other donor funded projects. The augmentation of the LGU equity through the NGALGU was a major factor that led to the spurt in the number of RI subprojects. DAR s decision to ease the equity sharing from 50%-50% LGU-NG to 10% in cash, 15% in-kind equity and 25% from NGALGU further increased LGU interest in ARCP II. Project Contract Completion Report ES-3 P age

11 However, the government s Disbursement Acceleration Program from where the NGALGU funds were sourced has been stopped. Even with a low 10% cash equity, there is no assurance that the LGUs will come up with the required amount given limitations on how much of the in-kind components the LGUs can generate, the extremely limited scope for applying the Performance-Based Grant System in ARMM, and the limited applicability of Food-for-Work Program of the WFP. Inconsistencies in the subproject review and approval process were noted, especially when the fast-tracked process for project approval that was initiated by the NPCO was implemented for the RI component. Deferring critical technical and financial requirements and social and environmental safeguards was successful in getting more SPs approved. While corrective measures and the necessary follow-up activities can still be undertaken to ensure project compliance, there is no guarantee that approved SPs that are the product of fasttracking processes will in fact get implemented faster. In the experience of the ARMM, there were fast-tracked SPs that are going through critical procurement delays due to lacking documentary requirements during the approval process. Inadequate harmonization of institutional mechanisms has contributed to the delay of recording disbursement transactions for the OFID funds. Despite the SMT s initial efforts to harmonize and align the reporting and coordination processes, procedures, protocol and requirements of the various agencies, there have been observable and critical breakdown in subproject development (i.e., delineation of responsibilities for the SMT, RPO, and NPCO in assisting LGUs on RI development) and procurement (i.e., ambiguity in procurement requirements between RA 9184, NPCO and ADB). The unrealistic project targets and the unsuitability of its output-based contract and deliverables to the conditions of the Project challenged the smooth operations of the SMT. Among the unrealistic targets were on Land Tenure Improvement that were hindered by the following factors: a) land titling being a function not only of DAR, but also of DENR; b) the initial mapping of land for titling is under the jurisdiction of DENR, and far from the direct influence of SMT s activities; and c) the special peace-and-order and conflict-related consideration in ARMM. Other targets for the AED component have also been challenging due to the limited Project scope and resource allocation on AED activities thus funding for training and capacity-building activities have to be sourced elsewhere, and the absence of Project-level strategy in leveraging for improved individual access to credit and savings facilities. A major challenge for the SMT and NPCO was how to make the output-based payment scheme work efficiently so project operations could proceed smoothly. While there were clear agreements on the cost and payment structure at the beginning of the contract, as early as the beginning of 2012, the SMT started to encounter difficulties in implementing its output-based contract. Notwithstanding, the SMT continued on delivering best efforts for the achievement of Project objectives as much as the situation allowed. The SMT was likewise faced with the challenging task of orienting each new set of leadership in DAR-ARMM, which had five changes in Regional Secretaries within the duration of the SMT s contract. Coupled with a new leadership and staff was the need to establish new strategies and agreements. Project Contract Completion Report ES-4 P age

12 Overall, despite the above-cited challenges and the low disbursement of the OFID loan, the SMT has made significant contribution to ARCPII. Project development efforts led to the approval of subprojects that were packaged ready for implementation. Through the technical assistance provided by SMT at the field level, LGU s have been capacitated in procurement and project management. SMT efforts to reach out to LGUs generated renewed interest and commitment to contribute their resources for the project. On the policy aspect, SMT, with DAR s support has been instrumental in sensitizing the decision makers to be open to policy adjustments. Recommendations The SMT puts forward the following recommendations: On ensuring continued project implementation post-smt and sustaining the project gains. Immediate next steps have been proposed for specific RI projects, the details of which are in Annex 10 of this report. Lightening the LGU equity burden and securing continued LGU commitment. Currently, the RPO is addressing this concern by discussing the implication of the new cost arrangement with each LGU and the absence of NGALGU support. Most of the LGUs responded positively, indicating their agreement on the revised and higher equity arrangement. In the immediate term, the Project should validate the LGU equity contribution in the LGU Annual Investment Plan and in its Annual Budget as this will ensure the full commitment of the LGU to subproject implementation. In the design of future projects, equity requirements must be aligned with those of other projects so that it can be equally attractive for LGUs as a fund source for their projects. Strengthening the subproject development process. Identified gaps in the process should be completed such as linking the subproject approval to the LGU budget process. Communities should be made to understand their roles and counterparts in the subproject implementation, by reviewing the ARCDPs and linking the subproject to existing or potential agriculture production areas. Compliance with national regulations and, social and environmental safeguards should be observed at the onset of subproject development to ensure the smooth procurement and implementation these projects. Simplifying, standardizing and disseminating subproject monitoring requirements and processes. The RPO should constantly and regularly push the LGUs in complying with the monthly reportorial requirements for on-going projects. This can be done with the presence of the regional technical staff hired to complement the regular DAR-ARMM staff designated in the project. Regular monthly subproject monitoring, scheduled and unscheduled, should be conducted as what the SMT has done particularly for the subprojects in Lanao Sur and Maguindanao. Also critical is the proper dissemination of standardized and accepted Procurement and Financial Manuals. Enhancing capacities for project implementation. Cognizant that the ARMM has special and urgent needs for capacity building along the lines of governance, agriculture and economic development, peace and security, among others, the SMT in 2012 formulated the Capacity Development Plan for Sustainable Livelihood Improvement in ARMM (CapDev Plan). It is proposed that the Project management review and validate the CapDev Plan for possible adoption of still relevant components and activities within the remaining period of the project and in future ARC projects. On possible project extension and capacity development support to ARMM. The slated ARCPII Joint Mid-Term Review involving both ADB and OFID should look into the potential for Project extension and the review of the Project design and scope based on Project Contract Completion Report ES-5 P age

13 the SMT s experience. The continued implementation of ARCPII, given an extension, would help the new Bangsamoro Government sustain the momentum for rural development. The SMT further believes that Project extension would be good because a significant amount of OFID funds remain undisbursed; expansion to other LGUs should be further explored. Project extension should also take into account the proportion of resources deployed to the various Project components (i.e., CDD, AED, RI and PM). Since it has been a well-documented and long-standing experience that LGU equity for RI subprojects is difficult to secure, a reallocation of funds to other components that have a more direct effect on rural development (e.g., AED) should be considered. Considerations on stakeholder capacities, external constraints and the sufficiency of Project resources should be made in setting realistic performance targets for the Project. It is further recommended that the Project Management consider sub-contracting the consulting and technical assistance to the RPO, PPOs and LPOs much like the set-up of the SMT. However, it is recommended that a cost-plus contract be considered under the new sub-contracting arrangement. Sub-contracting to a third party is recommended to maximize and sustain support to DAR-ARMM. This is especially relevant in light of information that, as of writing of this report, all of the Project staff hired by DAR-ARMM have already resigned. This is an unfortunate development as these individuals have already been trained and have significant experience on the workings of the Project. This depletion in institutional knowledge can be averted through the sub-contracting of a dedicated service provider. At this point, it is important to emphasize that the DAR-ARMM, and the ARMM Government as a whole, should recognize the role of ARCP II in helping to achieve peace through the implementation of much needed infrastructure projects in the Bangsamoro. Notwithstanding all the operational challenges and constraints in counterpart funding, it is indeed worthwhile for ARCP II to have an extension given the momentum that has been set for the project. Project Contract Completion Report ES-6 P age

14 1.0 Introduction In October 2008, Asian Development Bank (ADB) and the OPEC Fund for International Development (OFID) approved two loans to the Government of the Philippines to finance the Agrarian Reform Communities Project II (ARCP II). The loans were declared effective in March 2009 and are expected to be completed by 31 December The OFID loan, amounting to $30 million, was meant only for the Autonomous Region in Muslim Mindanao (ARMM). The ADB loan for $70 million covered ARMM and five other administrative regions of the country. The goal of ARCP II is to alleviate poverty among the agrarian reform beneficiaries (ARB) and bring about sustained improvements in their incomes and quality of life. The main purpose of the Project includes improved capabilities and well-being of the poor and marginalized groups in the target communities. This is to be realized through an integrated and complementary package of interventions in: (i) community-driven development (CDD), (ii) agricultural and enterprise development (AED), (iii) sustainable rural infrastructure (RI) development, and (iv) project implementation and management (PIM). Out of the 150 Agrarian Reform Communities (ARC) identified for support and assistance under ARCP II, 30 are in ARMM. Overall project implementation was managed by the Department of Agrarian Reform (DAR) with the National Project Coordination Office (NPCO) as the responsible unit in-charge for its day-to-day operations. Two years into the project, the activities have barely come off the ground in ARMM, prompting DAR to engage a service contractor to provide the required technical assistance for the project. Recognizing the delays in the implementation of the Project, particularly the absence of disbursements against the OFID-funded component meant for ARMM, a Special Management Team (SMT) was introduced for the ARMM component. The SMT was formally contracted on 1 July 2011 to joint venture (JV) partners, Orient Integrated Development Consultants, Inc. (OIDCI) and Hineleban Foundation Inc. (HFI). The SMT contract period was for 36 months, i.e., until June The contract for the SMT was performance-based, which meant that all payments to the contractor were based on specific deliverables against which the SMT could charge for its services. This was regardless of any overhead costs or cost of operations of the SMT. Despite the challenges such arrangement would warrant, OIDCI and HFI entered into the contract with DAR in good faith, with the view to exercise best efforts in delivering on the contract, and in the hope that if difficulties arise, the Joint Venture would be given the opportunity to bring these difficulties to the attention of DAR and ADB for them to consider some degree of adjustments in the contract. OIDCI/HFI immediately organized a team headed by a Regional Project Management Advisor with the support of a field-based Area Manager/Team Leader and specialists in agricultural enterprise and development, community development and rural infrastructure, and LGUbased staff. The SMT s role focused on providing direct assistance to the DAR-ARMM Regional Project Office and five Provincial Offices as well as to partner LGUs in the areas of project development, procurement and civil works monitoring. With the LGUs and DARPO, SMT worked towards capacitating the target ARBs. The SMT established its offices in the cities of Cotabato (the seat of the Autonomous Regional Government or ARG and DAR- Project Contract Completion Report 1 P age

15 ARMM), Zamboanga City (to cover the island provinces of Basilan, Sulu and Tawi-Tawi), and Davao City (capital of Mindanao with easy access to some of the locations in mainland ARMM). The detailed plan for implementing ARCP II in ARMM was laid out in the Inception Report, prepared in consultation with the Project s stakeholders and partners at the national and field level and submitted to DAR, DAR-ARMM and ADB in September The Inception Report was thoroughly discussed between DAR, NPCO, DAR ARMM, SMT and the identified participating LGUs. Consultations were conducted with stakeholders, particularly the LGUs and DAR-ARMM, in Zamboanga, Cotabato and Davao Cities to explore the appropriate mix of project implementation strategies cognizant of the socio-cultural particularities and capacities of the ARCs. Subsequently, activities of the SMT were reported in quarterly and annual reports to DAR and ADB and further elucidated upon, including the operational issues and implementation problems, in the Interim Report and the Mid-term Report submitted in November 2012 and June 2013, respectively. This Project Contract Completion Report (PCCR) discusses the milestones achieved in ARMM over the past three years as well as the issues and challenges experienced in engaging the partners and stakeholders in ARCP II implementation. Recommendations for the Project implementers are likewise outlined in this Report with the end in view of putting forward implementation options for the remaining time of ARCP II in ARMM (or if loan extension is granted given that a substantial loan amount still remains to be disbursed) and considering the resources and level of capacity of the stakeholders concerned. Project Contract Completion Report 2 P age

16 2.0 Regional Context, Project Objectives and Scope 2.1 The Autonomous Region in Muslim Mindanao The ARMM 1, comprising the mainland provinces of Maguindanao and Lanao del Sur including Marawi City, and the three island provinces of Basilan (excluding Isabela City), Sulu and Tawi- Tawi, is one of the poorest regions with all the five provinces belonging to the poorest provinces in the country. The region covers approximately 23,566 square kilometers and has a population of around four million predominantly Muslim inhabitants, most of whom identify themselves as Bangsamoro Bangsa (Nation) of Moro (Muslim) people of Mindanao. The ethnic groups in ARMM consist of 13 ethno-linguistic Bangsamoro peoples. There are four to six dominant tribes that represent the major territorial groupings within ARMM. They are the Maranao (in Lanao), the Maguindanao (in the former province of Cotabato), Tausug (in the Sulu Archipelago), the Sama (in the Archipelago of Tawi-Tawi), the Yakans (in Basilan), and the Iranun (in the former Sharif Kabunsuan Province). The Bangsamoro peoples constitute about 20% of the inhabitants of Mindanao. Unlike the other administrative regions in the country, the ARMM is governed by a different administrative set-up with the Autonomous Regional Government (ARG) at the helm. The ARG is composed of an executive department headed by a Regional Governor and the Regional Cabinet and a Regional Legislative Assembly as the embodiment of an autonomous region. In theory, the regional government is supposed to enjoy executive and legislative powers not only in local affairs but also in all devolved line agencies. In practice, however, over the many years of its existence, there is little evidence of the ARG actually being able to exercise autonomy fully. Hence, there has been a continuing struggle for the Right to Self Determination by the Bangsamoro people, demanding greater self-reliance and control over its assets, revenues and resources. It is worth noting that the divisions and loyalties within the three Liberation Fronts in the ARMM are largely identified with and tied to the three major ethno-linguistic groupings that have shaped the Bangsa identities throughout the centuries. The Moro National Liberation Front (MNLF) is identified with the Tausugs (Islanders); the MNLF Reformists associate with the Maranaos, and the Moro Islamic Liberation Front (MILF) with the Maguindanaos. On 27 March 2014, the Government of the Philippines and the MILF signed the Comprehensive Agreement on Bangsamoro (CAB), the final peace agreement that culminates the effort of President Benigno Aquino III s administration to end the long impasse on peace and development in the region. The agreement seeks to replace the ARMM, which according to the incumbent administration has been a failed experiment. With the signed CAB, it is expected that a basic law will be drafted and passed into law by both Houses of Congress. 1 ARMM was created by the Government of the Philippines (the Government) in 1989 through the enactment of RA 6734 (The Organic Act of the ARMM) in pursuance of the constitutional provision recognizing Moro autonomy which in turn represents the Government interpretation of the Tripoli Agreement signed with the Moro National Liberation Front (MNLF) in The law was later amended by RA 9054 in compliance with the provisions of the Final Peace Accord (FPA) in 1996 between the Government and the MNLF. The Philippine Constitution recognizes the autonomy and the devolution of powers given to the ARMM. Project Contract Completion Report 1 P age

17 Both parties goal is to have the Bangsamoro Transition Authority established by 2015, serving as the interim Bangsamoro government until the elections in mid-2016, which is expected to clear the way for the establishment of the new Bangsamoro government. The transition from ARMM to the new Bangsamoro government would need to be borne in mind in the event that the Project completion period is extended beyond December Project Objectives The implementation of ARCP II in ARMM with consulting and technical services from the SMT followed the same overall framework as the ARCP II in the rest of the country. ARCP II is designed to support the implementation of the Comprehensive Agrarian Reform Project (CARP). The implementation design of ARCP II involves a holistic support to CARP by facilitating the access of target ARCs to essential support services and markets in approximately 152 ARCs and 11 ARC clusters in 18 of the poorest provinces of Southern Philippines, including the ARMM. For the ARMM, the Project covered all five provinces, with the original target of 30 ARCs in 29 LGUs and 3 LGU Clusters. The Project seeks to facilitate the transformation of the target communities from subsistence producers toward agri-business development. It includes both ARBs and other segments of the rural poor in the ARCs and ARC clusters in target municipalities. Community-driven development (CDD) strategies are adopted to reach out to large segments of the rural poor in the target areas to strengthen their social capital. ARCP II s specific objectives are: a. Substantially expand the rural production base by assisting the rural poor in the target areas to break out of subsistence production, diversify their livelihood activities, and increase their marketable surplus; b. Raise production and distribution efficiency in Project areas to improve quality and competitiveness; c. Improve the position of small farmers vis-à-vis the larger markets; d. Improve employment opportunities for landless households in the target areas; and e. Promote equitable distribution of production and productivity gains among all segments of the rural poor in the target areas. The four Project components are: a. Community Driven Development (CDD) focuses on strengthening the capacities of the LGUs and ARCs in participatory, accountable and transparent ARC development planning and the overall management of the Project at the local project office level. b. Agriculture and Enterprise Development (AED) focuses on community formation and strengthening towards increased productivity, crop profitability, land tenure improvement, access to savings and credit services, and increased investments in the ARCs. c. Rural Infrastructure (RI) aims to (i) reduce transportation time and haulage costs of rural produce; (ii) reduce cost of farm inputs; (iii) increase availability of irrigation to enhance crop production; (iv) promote crop diversification; (v) increase cropping intensity and improving yields; (vi) reduce post-harvest losses and transport damage; and Project Contract Completion Report 2 P age

18 (viii) minimize whole life asset costs including the maintenance burden over the design life. d. Project Implementation and Management (PIM) comprises SMT s overall consultant advisory services related to project management, CDD, safeguard policies, fiduciary responsibility, agri-enterprise development, micro finance and rural credit promotion, quality assurance, infrastructure development, monitoring and evaluation, extension training, gender and development and environment management, among others. The deliverables under each of the components followed the performance-based contract for the SMT. For this, SMT had to come up first with a rather elaborate system of accounting for their efforts on the ground under each specific deliverable item, against which the SMT could show its performance and claim for the costs incurred and deliverables accomplished. Details of specific SMT deliverables are discussed in the section below. 2.3 Scope of SMT Contract The SMT contractual obligation called for the delivery of the following: a. Well implemented CDD. The SMT will 1) organize communities for social capital participation and participatory detailed ARC/LGU planning; 2) improve LGU capacity for better governance; 3) facilitate ARC/LGU access to grants rewards allocated by the national government for their participation in policy reform; and 4) assist them in developing their network with other co-financiers to enhance equity contribution. Specific targets under the CDD component are shown in the table below. Table 2.1 Community-Driven Development Deliverables under the SMT Contract Description Target Units ARC Planning linked to the Project 30 ARCs LGU Plans incorporated ARCs' plans linked to the Project 30 LGUs LGUs participating in performance-based grant system (PBGS) 30 LGUs LGUs get 20% refund of their equity contribution 30 LGUs LGUs participation in RI component 30 LGUs LGUs participation in AED component 30 LGUs LGU/ARC staff (40% women) trained in planning 150 persons Project Contract Completion Report 3 P age

19 b. Well established AED. The SMT will capacitate the beneficiaries of the AED in enhancing the productivity and profitability of various agricultural commodities, particularly in the areas of: 1) improving linkages between the private sector and ARC organizations to increase investments in rural areas for growth; 2) mobilizing community-based savings and lending groups; and 3) completing land tenure improvement. Physical targets for the AED component are shown in the matrix below. Table 2.2 Agri-Enterprise Development Deliverables under the SMT Contract Description Target Units ARCs participating in improving crop profitability 30 ARCs Subdivided land titles to individual ARBs 22,000 hectares ARBs/non-ARBs access to credit and savings facilities 3,000 households Total agricultural investment to ARB/non-ARBs 3 US$ million Increased profitability of agricultural products 15 % Direct beneficiaries (50% women) of AED 3,000 persons Cooperatives/AED community-based organizations (CBOs) formed and strengthened 30 CBOs Registered members (50% women) of CBOs 3,000 members c. Rural Infrastructure. The SMT will assist the government staff in managing the rehabilitation and/or construction of the following investments: 1) critically needed interbarangay or farm-to-market roads (FMR) and their associated structures; 2) small-flow communal irrigation schemes, water impounding projects, farm reservoirs, shallow tube wells, and drip irrigation schemes for high-value crops, 3) postharvest facilities, warehouses and solar driers; 4) potable water supply system; and 5) other infrastructure such as multipurpose building, school rooms, day care centers, barangay health stations, and smallscale flood protection works. Table 2.3 lists down the specific investment areas. Table 2.3 Rural Infrastructure Deliverables under the SMT Contract Description Target Units Rural Roads 823 kms Bridges 923 lms Flood Protection Works 1,767 lms Communal Irrigation Facilities 5,288 has Solar Driers 34 units Warehouses 20 units Potable Water System 214 units Public building na units Project Contract Completion Report 4 P age

20 d. Effective Project Management. The SMT will act as an additional resource to support the existing government management structure, which will be fully mainstreamed at the regional, provincial and local levels. Each SMT consultant will be assigned to work closely with a government staff as his/her direct counterpart. To the extent possible, the Team will work closely with all project implementation and management structures that have been established within existing government institutions. The Team will assist the regular staff of DAR, MDFO and other stakeholders in the overall project implementation. The key targets for project management are detailed in Table 2.4. Table 2.4 Project Management Deliverables under the SMT Contract Description Target Units Satisfactory skill and knowledge sharing to the assigned government staff to work with the ARMM team (50% women) 50 staff On time satisfactory completion of RI subprojects 100 % On time submission of quarterly and other reports 100 % Quarterly Progress Reports 16 report Annual Report 4 report Special Report 2 report Project Completion Report (PCR) 1 report Under an output-based contractual arrangement, the payment structure to SMT was based on the following cost structure to be reimbursed upon delivery of the required outputs: Project Contract Completion Report 5 P age

21 Table 2.5 SMT Payment Structure Description Target Units Reimbursable Cost per Unit Total % Cost Enhanced Implementation of Community-Driven Development 3,838, ARC Planning linked to the Project 30 ARCs 38,389 1,151, LGU Plans incorporated ARCs' plans linked to the Project 30 LGUs 38,389 1,151, LGUs participating in performance-based grant system (PBGS) 30 LGUs 12, , LGUs get 20% refund of their equity contribution 30 LGUs 12, , LGUs participation in RI component 30 LGUs 6, ,947 5 LGUs participation in AED component 30 LGUs 6, ,947 5 LGU/ARC staff (40% women) trained in planning 150 persons 2, , Improved Agriculture and Enterprise Development 17,915, ARCs participating in improving crop profitability 30 ARCs 59,717 1,791,508 5 Subdivided land titles to individual ARBs 22,000 hectares 326 7,166, ARBs/non-ARBs access to credit and savings facilities 3,000 households 896 2,687, Total agricultural investment to ARB/non-ARBs 3 US$ million 298, ,754 5 Increased profitability of agricultural products 15 % 5 Direct beneficiaries (50% women) of AED 3,000 persons 896 2,687, Cooperatives/AED community-based organizations (CBOs) formed and strengthened 30 CBOs 29, ,754 5 Registered members (50% women) of CBOs 3,000 members 59,717 1,791, Sustained Rural Infrastructure Development Rural Roads 823 kms Bridges 923 lms Flood Protection Works 1,767 lms Communal Irrigation Facilities 5,288 hectares Solar Driers 34 units Warehouses 20 units Potable Water System 214 units Public building na units 29,532,935 69,000,000 < cost = share per PhP1million SP cost > per 1 PhP million 71,400 98,532,935 50,000 Strengthened and Capacitated Project Management 7,677, Satisfactory skill and knowledge sharing to the assigned government staff to work with the ARMM team (50% 50 staff 15, , women) On time satisfactory completion of RI subprojects 100 % 767, , On time submission of quarterly and other reports 100 % 6,142, Quarterly Progress Reports 16 report 57, ,347 15% Annual Report 4 report 230, ,347 15% Special Report 2 report 1,228,463 2,456,925 40% Project Completion Report (PCR) 1 report 1,842,694 1,842,694 30% Project Contract Completion Report 6 P age

22 3.0 SMT Organization The SMT represented an additional resource to support the existing government management structure, to be fully mainstreamed at the regional, provincial, and local levels in ARMM. The overall perspective was for the SMT to support the Regional Project Office (RPO), as embodied by DAR-ARMM, in the implementation of the Project and complement its existing manpower resource. The Project s full implementation thus relied on a strong collaborative relationship between the SMT, DAR-ARMM and the LGUs concerned. As indicated in the Inception Report, the SMT would take the lead in the coordination and management of the Project, particularly as it pertained to the deliverables contained in the DAR-Joint Venture (JV) contract. Project management functions would be coordinated with DAR at both the national and regional levels; project implementation concerns would be coordinated at provincial and LGU levels. Furthermore, the SMT, with DAR-ARMM, would maintain close coordination with the Office of the Regional Governor and the Executive Secretary of ARMM since the successful implementation of the Project and sustaining its gains required the active involvement and cooperation of several regional government agencies. 3.1 Special Management Team The SMT was composed of the following: (a) Advisory and Operational Support Services for Program Management, headed by the Regional Project Management Advisor; (b) Administrative Services, headed by a Program Administration Director; (c) Team Leader/Area Manager, reporting to the Regional Advisor and ensuring coordinated efforts on the ground among the team members placed at various locations and offices of the SMT; (d) Sector Specialists in the areas of engineering, agriculture, economics, environment and social safeguards, procurement, financial management and information technology related to needs of the main Project components; (e) Community Development Officers (CDOs), acting as front liners and constantly liaising with the ARCs and LGUs; and (f) Support Staff. The Regional Project Management Advisor was nominated by the JV partners as the Managing Director reporting directly to the JV Executive Committee (Execom) on the progress of the Project, a task deemed essential given the need to closely track revenues and expenses under a challenging output-based contract, ensure contract viability and provide substantial guidance and advice on policy issues and operational matters to the entire SMT. For the duration of its contract, the SMT hired core specialists and CDOs assigned in the target LGUs and ARCs. The schedule of deployment is shown in Figure 3.1. Project Contract Completion Report 7 P age

23 Figure 3.1 Special Management Team Summary of Staff Deployment by Category, For CDD, the CDOs facilitated Project orientations as well as led in engaging the ARCs and LGUs in the formulation and/or refinement of ARC Development Plans (ARCDPs). For RI, the Project development team composed of various sector specialists and CDOs supported the LGU local project office (LPO) in developing subprojects. Meanwhile, the SMT engineers coached the LPOs in completing the pre-engineering works, including the preparation and review of the detailed engineering design and program of works required for each subproject. The CDOs facilitated the submission of certificates and other related documentary requirements. The environment and social safeguard specialists provided technical assistance in completing the environment and social safeguard compliance, including the certificate of non-coverage from the DENR s EIS system and the certificate of non-overlap of ARCs to ancestral domain claims issued by the Office of the Southern Cultural Communities (OSCC). The economist provided guidance in the economic feasibility assessment of the various subprojects. The SMT Procurement and Financial Management Specialist extended an individualized and hands-on approach to procurement and financial management training that resulted in the acceleration of procurement activities and contracting beginning in the second semester of As can be inferred from Figure 3.1, the pattern of staff deployment followed the changing needs of the SMT s key partners on the ground. For instance, in the early stages of SMT s operations where Project orientations and initial engagements at the LGU level were in full swing, the deployment of CDOs, the frontline staff of SMT, reached a maximum number of nine persons, spread across the five provinces of ARMM. These CDOs were tasked to: (1) orient the local chief executives (LCEs) and other members of the LGUs on the components, features and requirements of the Project; (2) initiate and facilitate the various ARC planning sessions; (3) facilitate the identification and development of comprehensive rural and community infrastructure subprojects for subproject approval; (4) assist in the community Project Contract Completion Report 8 P age

24 and enterprise development activities of the ARCs; and (5) constantly liaise with the various DAR and ARMM offices involved in the Project (i.e., DARPOs, DAR-ARMM, DENR-ARMM). The nine CDOs were guided and assisted by two CDD Coordinators/Specialists, one assigned to cover the mainland provinces and the other, the islands. As the maximum number of ARCs and LGUs were already engaged and participating in the Project by early 2013 and as the RI subproject development began to taper for various reasons 2, by design, the CDOs were gradually reduced while more engineers were hired, both on full-time and on output basis. This change in SMT staff deployment in mid-2013 mirrored the transition from a focus on CDD in the early stages of the Project to RI and financial coaching and monitoring as the ARCs identified and implemented subprojects. By the second half of 2013, the SMT Specialists remained as lead in the areas of financial management, procurement, agri-business development, agri-financing and investment linkages, subproject implementation and monitoring, subproject development and packaging, and were directly coordinating with the RPO, DAR Provincial Offices (DARPOs) and LGUs. The engineers assisted the LGUs in developing new RI subprojects and supported them in construction supervision and monitoring. Both the SMT engineers and economist were tasked to assist their respective counterparts at the regional, provincial and municipal LGU levels on subproject development and monitoring. The Procurement and Financial Management Specialist supported and capacitate the RPO, DARPOs and LGUs on procuring and contracting services for the completion of the subprojects, as well as on the financial documentation that was required for the implementation, monitoring and reporting of the approved subprojects. Figure 3.2 Summary of SMT Staff Deployment by Category and Office Posting (December 2012) No of Persons Cotabato City Davao City Quezon City Zamboanga City Post Management Technical/ Specialist Admin/ Finance CDOs 2 It was observed by the SMT and then DAR-ARMM Secretary Sajili that a typical ARMM LGU, given its financial limitations, could only fund one major RI subproject and a few small community infrastructure. The expansion of the Project areas to include other ARMM ARCs/LGUs was then considered as a strategy to increase RI performance. As early as mid-2012, SMT appealed to ARCP II management to allow it to include other ARCs/LGUs (i.e., Barira, Buldon, Paglat, Wao, Upi, Sultan Mastura, etc). Project Contract Completion Report 9 P age

25 The number of staff deployed in SMT offices in the key cities of Cotabato, Davao and Zamboanga was at its highest in December The most number of staff were posted in the SMT office in Zamboanga City to cover the island provinces of Basilan, Sulu and Tawi-Tawi (Basulta). This was at a time when RI subprojects from Basulta started pouring in, hence the high number of Technical Staff/Specialists (RI Engineers) posted in that office. Cotabato City had the most number of CDOs primarily because there were ten target LGUs in Maguindanao; the other four ARMM provinces had only five LGUs each. Davao City, which served as the center of operations of SMT in Mindanao, was the base of the SMT Area Manager/Team Leader and a significant number of Technical Staff/Specialists in AED, local governance, and IT. The Quezon City office served as the main liaison office to DAR and national offices and the base of the OIDCI-HFI Joint Venture, SMT Managing Director (also the Regional Project Management Advisor), Finance and Procurement Specialist, and Economist. 3.2 Structure and Relationships Central to the achievement of the SMT s deliverables and Project objectives in ARMM is the interdependent execution of activities and strong coordination between the SMT and DAR- ARMM. However, this had been particularly challenging for the SMT because DAR-ARMM, since the inception of SMT, has had five changes in Regional Secretaries. With each change of Regional Secretary, the SMT has had to orient the new leadership, as well as their respective staff on the Project and its status, and establish new Project strategies and agreements. In response to DAR-ARMM s petition and in cognizance of the emerging need to delineate the roles and responsibilities of participating agencies and offices at the project implementation level, especially nuanced into the unique governance identity of the offices in ARMM, the SMT initiated an ongoing dialogue with the national and local DAR offices. As a result, the overall Project implementation structure/framework was agreed upon between DAR-NPCO and DAR-ARMM in early 2013 as illustrated in Figure 3.3. The SMT directly reported to the Regional Secretary of DAR-ARMM, who is also the Regional Project Manager. Parallel reporting to and coordination with the Provincial Project Manager was also carried out by the SMT. Project Contract Completion Report 10 P age

26 Figure 3.3 ARCP II ARMM Implementation and Management Structure Project Contract Completion Report 11 P age

27 4.0 Accomplishments 4.1 Community-Driven Development ARC Planning and Project Development The SMT strongly adopted the ARCP II s community development approach anchored on a strong and dynamic participation of ARCs in the analysis of community priorities and in the development and implementation of subprojects. The fundamental step in ensuring community participation in ARC development was through the formulation or review of ARCDPs. SMT innovated and developed a methodology for community participation in ARC development planning and in subproject prioritizing. Utilizing the aptly-called Strategic Participatory Planning Process (SPPP) module, the SMT in tandem with the DAR s Municipal Agrarian Reform Officer (MARO) and Development Facilitators (DF) commenced ARC community work through the review and validation of community concerns, leading to the formulation of strategic priorities in the ARCDP. Due largely to the surge in the partner-arcs brought by the intensive Project expansion during the mid-2014 RPO-led Roadshow, the SMT was able to assist more than the targeted 30 ARCs. By the end of SMT s contract, the Project had concrete engagement in 44 ARCs in 43 LGUs. The distribution of ARCs and LGUs assisted per province is presented in Table 4.1. The SMT was actually able to support 59 ARCs in 56 LGUs in the review or formulation of their ARCDPs but 15 ARCs did not pursue subproject development for funding assistance from ARCP II. The LGUs covering these ARCs voluntary dropped from the list principally because of limited capability to raise the required project equity. Province Table 4.1 Distribution of ARCs and LGUs Assisted in ARC Planning and Project Development No of LGUS No of ARCS Remarks Maguindanao 6 6 Does not include the 7 ARCs in Datu Odin Sinsuat, Datu Saudi, Talayan, Gen. SK Pendatun, Sultan sa Barongis, Paglat and Pagalungan Lanao del Sur Does not include the ARC in Wao Basilan 6 6 Does not include the other ARC in Lamitan, 2 other ARCS in Sumisip and the ARC in Lantawan Sulu 8 8 Does not include the ARC in Baguingui (formerly Tongkil) Tawi-Tawi 7 8 Does not include the 2 ARCs in Panglima Sugala and Languyan Total Additional 15 ARCs (in 13 LGUs) initially engaged by SMT but did not translate into RI subprojects Project Contract Completion Report 12 P age

28 The SMT spearheaded the community-based planning exercises that enjoined the ARCs to be actively involved in crafting their respective development plans. The planning process started with the beneficiaries coming together to assess the community s problems and constraints, its resources and development potentials, and subsequently identify and prioritize the projects and interventions needed to address them. Embodied in each ARCDP were the enterprise development options that the community can participate in and the support infrastructure that will propel the achievement of the desired outcomes. The SMT provided guidance in identifying the infrastructure subprojects using the ARCP II development framework. The 24 LGUs that were provided full assistance to formulate their ARCDPs are listed in Table 4.2. In LGUs where ARCDPs had already been formulated, the SMT organized and conducted the review and validation of the plans as part of the process for project prioritization. The review and validation culminated in the preparation of the priority rural infrastructure subprojects proposed by the LGUs and ARCs. SMT did not carry out any ARCDP formulation exercises for the LGUs comprising the expansion areas engaged by DAR in Table 4.2 List of LGUs Assisted in their Agrarian Reform Community Development Plan Province Maguindanao Lanao del Sur Basilan Sulu Tawi-Tawi Datu Paglas Kabuntalan Parang Marantao Poona Bayabao Bumbaran Lamitan Sumisip Tipo-tipo Siasi Pandami Bongao Sibutu Assisted LGUs Matanog Talayan Datu Abdulah Sangki Ganassi Tagoloan Ungkaya Pukan Maluso Maimbung Panamao Languyan Panglima Sugala ARCDP Integration into LGU Plans After the completion of community-level planning, a critical activity in the CDD process was the mainstreaming of the community plans into formal LGU plans and investment programs. Technical guidance was provided to the LGU, particularly to the LPO and Local Finance committee, to ensure that the projects identified in the ARCDPs were incorporated into the LGU plans and prioritized in the Annual Investment Plans (AIP), which served as basis for LGU annual budgets. All these were carried out in close coordination with municipal planning officers and DAR, with some private sector and NGO involvement. Eventually, approved RI subprojects proposed under ARCP II were provided counterpart funds by the LGUs. Project Contract Completion Report 13 P age

29 4.1.3 Support to LGU-ARC Clusters In an effort to facilitate ARC cluster development in the ARMM, the SMT promoted an innovation in the DAR strategy by involving existing LGU alliances in the ARMM. Three LGU clusters were mobilized for this purpose the Southern Ligawasan Association of Municipalities (SLAM) and the Iranun Development Council (IDC) in Maguindanao, and the Wao-Bumbaran cluster in Lanao del Sur. At the start of the cluster development process, the SMT facilitated a workshop in the last quarter of 2012 with the concerned LGUs focusing on the role of the LGUs in ARC development. The LGU alliance approach would have served as a model for undertaking integrated community development anchored on a road project traversing the partner LGUs. By the end of the workshop, the LGU clusters agreed to pursue an integrated area development process with ARCP II as a core program, particularly in the development of rural infrastructure and agriculture. Cluster planning and prioritization activities were conducted following the consultations. Site validation of the identified access roads was undertaken. These initiatives, however, were eventually deferred because of the huge equity requirement to pursue cluster projects and considering that each of the individual LGUs were also pursuing their individual projects. Initially, it was agreed that the needed equity would be divided equally among the LGU cluster members. In the first quarter of 2014, the NPCO continued the process of cluster development with the LGUs involving the SLAM, IDC and the Unayan Cluster in Lanao del Sur. An ARC cluster development plan is currently being formulated with NPCO as facilitator Strengthening LGU Governance through the PBGS LGUs were encouraged to participate in the Performance-Based Grants System (PBGS) not only as an avenue to attain good governance but also to benefit from the fund that can ease the cash equity requirement under ARCP II. Compliance to PBGS requirements had been challenging and this was more so in ARMM. SMT conducted consultations, orientation and coaching to potential LGU participants. Subsequently, several LGU partners signified their intent to participate in PBGS and initiated the compilation of documents to support their application. Eleven LGUs submitted initial prequalification documents. But until the end of June 2014, none of the LGUs in ARMM was able to submit complete PBGS documentary requirements; hence, none was awarded PBGS support. Table 4.3 List of LGUs with Initial PBGS Documentary Submissions Province Maguindanao Lanao del Sur Basilan Sulu Tawi-Tawi LGU Datu Paglas Kabuntalan Bumbaran Ganassi Poona Bayabao Tagoloan Lamitan Maluso Sumisip Tipo-tipo Ungkaya Pukan Maimbung Pandami Panamao Bongao Project Contract Completion Report 14 P age

30 At the onset, the SMT recognized that PBGS guidelines were not responsive to the unique socio-cultural conditions and governance make-up of ARMM. Thus, upon SMT s inception, an inventory was conducted involving the 30 partner LGUs to determine their current level of compliance with existing PBGS guidelines. Initial results showed that less than 15% of the LGUs can fully comply with the enrolment requirements and the minimum conditions for capital and capacity development grants. The SMT, with support of DAR-ARMM and NPCO, then initiated a dialogue with the LGUs, the League of Municipalities and the MDFO on customizing the PBGS guidelines in the context of ARMM. 3 The proposal was for a graduated or phased-in approach for the ARMM LGUs to demonstrate improvement in accomplishing PBGS performance measures (Annex 3). The PBGS Technical Committee eventually ruled out any special modification for the ARMM LGUs. This was deemed unfortunate since the purpose of the PBGS was to provide an incentive to LGUs to improve their governance performance and the Project had bannered the PBGS as an incentive scheme to attract the participation of covered municipalities Strengthening LGU Participation in Rural Infrastructure The LGUs role in subproject development and implementation is crucial to the successful completion of the RI component. Under ARCP II, LGUs are expected to support the infrastructure support needs of ARCs from project development and procurement to implementation and final turnover. SMT s commitment was to equip the LGUs LPO with the necessary knowledge and skills to perform their assigned tasks. With the DAR-ARMM Regional and Provincial Offices, SMT engineers and specialists conducted coaching and mentoring on the requisites for every stage of the RI process: project development, procurement, implementation and monitoring. Capability building included formal training on environmental compliance, financial management and infrastructure quality monitoring and durability system (IQMDS). Follow-on one-on-one sessions were held with the municipal accountants, engineers, and other LPO members. A focus area of the technical assistance to LGUs was the procurement process and documentary compliance as these were persistent bottlenecks to completing the contracting process. In 2012, lecture-type procurement and contract management orientations were done almost quarterly with several LGUs in attendance while one-on-one on-site coaching sessions were conducted for each LGU quarterly. In 2013 and 2014, however, only three lecture-type, multiple-lgu orientations were conducted while one-on-one on-site coaching sessions were intensified and became more frequent, averaging 60 times per annum per LGU or five times per month. As a result of these efforts, the LGUs became more knowledgeable of procurement criteria and financial reporting procedures and requirements and have started complying with these. 3 Essentially hinged on three governance parameters: (1) to strengthen existing national and local (regional and provincial, city and municipal LGUs) initiatives and mechanisms for promoting local autonomy, performance management, participation, transparency and accountability; (2) to link and synchronize performance such as health, education, peace, etc.; and (3) to promote and sustain local peace initiatives and incentives to ARMM governance reform initiatives (social economic development, governance, peace and security) and to ensure convergence of rural infrastructure projects with other sectoral projects (Refer to PBGS Guidelines for ARMM). Project Contract Completion Report 15 P age

31 Also part of the effort to strengthen LGU participation in the RI component is the mobilization of equity counterpart to augment LGUs resources. A major source of counterpart particularly for mainland ARCs and LGUs is the WFP. SMT facilitated the involvement of the WFP in the project development process to efficiently maximize its counterpart in certain areas. Please refer to the section on Project Management in this report for a more detailed discussion. 4.2 Agricultural Enterprise Development The AED component was a vital element of ARCP II. Through this component, the productivity and profitability of various agricultural commodities were to be improved, market linkages established and access to rural finance provided. These are critical in ensuring that land tenure improvements will be sustainable. This component, however, had no funding to support actual agri-enterprise development. A significant part of the AED funding allocation was earmarked for the subdivision of land titles to individual ARBs, a task that was definitely outside the scope of SMT s services. Given this limitation, the SMT focused on activities that mobilized various stakeholders and third party support to help achieve AED objectives Improving ARC Productivity Support to ARCCESS The SMT supported DAR-ARMM in designing and preparing proposals for the ARBOs under the ARCCESS program of DAR. For this purpose, the SMT sponsored a training in February 2012 for ARCCESS project development participated by DAR-ARMM and NPCO. The ARCCESS project proposals were intended for implementation in each legislative district of the five ARMM provinces. These included the following: a. Lanao del Sur Taliogon ARC, Ganassi Common service facility (CSF) for corn production enhancement Bumbaran ARC, Bumbaran Mechanized rice and corn production and marketing SAKUDO ARC, Marantao - Mechanized rice and corn production and marketing OISCA ARC, Poona Bayabao - Mechanized rice and corn production and marketing b. Maguindanao Bunawan ARC, Datu Paglas CSF support for integrated rice-duck enterprise Matilak ARC, Kabuntalan CSF for rice production United Timbangan ARC, Parang CSF for rice and corn enterprise Project Contract Completion Report 16 P age

32 c. Basilan SCARBIDC, Lamitan CSF for rubber production and trucking facility MARBEDCO, Sumisip Farm tractor TIPARBECO, Ungkaya Pukan CSF for rubber production and trucking facility TARBADECO, Tipo-tipo CSF for rubber production and trucking facility d. Sulu Gulangan Farmers Association, Maimbung CSF for cassava production and marketing People s Alliance for Progress MPC, Panamao CSF for coffee production and marketing e. Tawi-Tawi Tandubanak ARC and Tongehat ARC, Sibutu Provision of support facilities for mariculture The common service facilities (CSFs) requested by the ARCs were eventually procured by DAR ARCCESS and have been distributed to the concerned ARCs as of April To prepare the respective ARBOs for the operations and management of the CSFs, the SMT provided technical and management training support to the recipient ARBOs, particularly for the formulation of operating policies and guidelines for CSF management. The SMT was also no longer involved in subsequent activities related to the implementation of ARCCESS projects in ARCP II communities in ARMM. AED Planning To ensure that the LGUs were onboard and supportive of the respective AED initiatives of ARBs, an integrative planning process for AED was conducted in March and April 2013 with the intent of identifying and initiating Localized AED (or LAED) priorities and activities for each of the LGUs, ARCs and ARBOs, especially those with approved RI subprojects. Representatives of ARCs, the DARPOs and the RPO participated in the planning activity. Inputs were provided by leading businesses and investors in Mindanao, Land Bank of the Philippines, Development Bank of the Philippines and regional agencies involved in the promotion of economic development. As a result of the planning, the SMT recommended to DAR-ARMM a two-pronged approach in the AED development for the ARCs in ARMM. The first approach is the pursuit of the food security track in AED development with rice and corn farming as anchors. This track is to be undertaken with support from the regional Department of Agriculture and Food. For this purpose, the SMT arranged several follow through meetings between the DA and RPO to rollout the strategy with specific project proposal to be initiated by DARPOs on behalf of the ARBOs. The second approach is the exploration of strategic agriculture and investment opportunities in the ARCs through investment mobilization and partnership with the private sector. This strategy yielded partnerships between the ARCs in Lamitan, Basilan and Poona Bayabao, Lanao del Sur and the Kennemer Foods Inc. (KFI) for cacao production and marketing. Other areas for investment explored by the SMT were in banana, rubber, and palm oil. Project Contract Completion Report 17 P age

33 Technical Assistance and Training As strategy to improve productivity, the SMT initiated cross-learning activities in March 2013, particularly for rice- and corn-farming ARCs from Maguindanao and Lanao del Sur to areas and institutions that promote organic agriculture technology. Nine ARBOs as well as the AED specialists and key staff from the RPO and DARPO Maguindanao and Lanao del Sur visited the Don Bosco Organic Center in Makilala. The Center introduced to the ARBOs and DAR-ARMM practices relating to organic rice production, livestock production, rubber plantation development, vegetable production and export banana production technologies. The Center is currently exporting black rice to the Middle East and Hong Kong. The ARBOs and DARPOs were also introduced and exposed to the sustainable agriculture initiatives of LGU Magsaysay in Davao del Sur. The participants were given an orientation on the approaches and strategies on local agriculture planning, particularly in organic rice production, rubber plantation and livestock development. Also introduced to the ARMM ARBOs were the importance of a partnership between the LGU and local cooperatives in achieving sustainable agriculture objectives. The ARBOs and DARPO were introduced and linked to a small but progressive community in Braulio Dujali municipality in Davao del Norte. The municipality has produced national awardees in sustainable and integrated agriculture production (rice, banana and inland fishery). The municipality highlighted how it transformed communities into productive centers despite being vulnerable to perennial flooding and other natural disasters. All the inputs and learning received by the ARBOs and the DARPOs were integrated into the list of priorities identified by the ARBOs and LGUs for implementation within the year Financial Linkages for ARBOs With the identified AED priorities, the SMT indicated in early 2013 the areas of support and resources it will provide for their implementation. On top of the list is securing support from financial institutions mandated to provide financial and credit assistance to ARCs. The SMT invited the Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) to share with the ARBOs their respective programs that can be accessed by the communities. Presented were the processes and requirements for accessing the funding and credit programs of the banks, including the priority industries. In addition, the SMT invited the Agriculture Credit Support Program (ACSP), a credit program funded by the Japan International Cooperation Agency (JICA) and implemented through LBP, to present its programs to the ARBOs. Signifying their intention to access the credit programs, the ARBOs proposed to hold community-level consultation with all their members to deliberate on who may avail of the financial services. The ARBOs requested for other modalities of financial assistance as interest-bearing credit is prohibited in Muslim communities. During the first quarter of 2014, the ARBO OISCA (Organization for Industrial, Spiritual and Cultural Advancement) in Poona Bayabao in Lanao del Sur (170 members) filed a loan application with the LBP-Agricultural Production Credit Program (APCP) for PhP125 million to fund its five-year 2,500-hectare development plan. The initial request of OISCA was for PhP25 Project Contract Completion Report 18 P age

34 million to cover 500 hectares. The LARBECO ARC in Lamitan likewise filed a loan application with LBP Zamboanga City Investment Promotion in ARCs As a strategy to strengthen the institutional linkage of the ARCs with the private and business sector to provide the necessary impetus for AED at the local level, the SMT engaged the participation of key partners, both from the public and private sectors as potential investors in the ARCs covered by ARCP II. Potential private sector partners include the Unifrutti, GrainPro, Mars, Kennemer Foods International (KFI), and Development Finance International, Inc. As a result of these consultations and linkage-building effort, three ARCs have signified their intent to partner with the KFI for cacao production. These communities are in Datu Paglas in Maguindanao with some 20 hectares of cacao plantation; Poona Bayabao in Lanao del Sur with 50 hectares; and LARBECO ARC in Lamitan, Basilan with at least 300 hectares. By the end of 2013, the ARBO in Datu Paglas had signed a production and marketing agreement with KFI for the production of cacao. The ARBO OISCA in Poona Bayabao in Lanao del Sur and LARBECO are waiting for the approval of their loan applications with LBP. Recently, the SMT also coordinated the linkage between the RPO, on behalf of the ARCs, and the Franklin Baker Oil Milling Company for coconut trading. Franklin Baker will provide both technical and financial assistance to organized communities in the trading and marketing of coconut at an agreed competitive price. It will provide ARBOs with capital funds for their coconut buy and sell business, and capacity support assistance to strengthen their business management capabilities. 4.3 Rural Infrastructure In September 2011, ARCP II in ARMM only had four LGUs participating in the RI component with six approved subprojects worth PhP56.8 million and loan proceeds of PhP22.9 million. With the support of the SMT over a three-year period, the project extensively improved its performance. By the end of the second quarter of 2014, the number of participating LGUs with approved subprojects has risen to 43 with 132 approved subprojects worth PhP2.4 billion and loan proceeds of PhP1.1 billion. The list of approved subprojects is shown in Annex 1. As designed, one of the major outputs of this Project is the construction of support infrastructure that is expected to trigger economic development in the area, trickling down to the communities and ultimately improving their wellbeing. The most dominant type of support infrastructure selected by LGUs is farm-to-market Project Contract Completion Report 19 P age

35 road (FMR). By the end of the second quarter of 2014, the Project covered 32.5% of the targeted 823 kilometers of FMRs or rural roads. The rate of accomplishment as of mid-2014 for the rest of the targeted rural infrastructure is presented in Table 4.4. Table 4.4 Summary of RI Accomplishments (as of June 2014) Key Investment Indicators Unit Targets Accomplishment (Approved Subprojects) Rural Roads Km Bridges Lm Flood Protection Works Lm 1,767 - Communal Irrigation Facilities Ha 5, Solar Dryers* unit Warehouses unit 20 8 Potable water system unit Public building unit n/a 54 *Includes multi-purpose pavements (MPPs), multi-purpose buildings with solar dryers (MPB+SD), and warehouse with solar dryers (WHSD), or combinations thereof. To date, of the total 132 approved subprojects in ARMM, three subprojects amounting to PhP32.9 million (US$733,000 4 ) have been completed in Panamao, Sulu, Tipo-tipo, Basilan and Sibutu, Tawi-Tawi (see Box 1 in page 23). The remaining 109 subprojects are in the various stages of construction or procurement (Table 4.5), including the Tamburong-Bunawan FMR which is now 60% complete (see Box 2 in page 24). The rest of the subprojects (20) are either for NSAC re-approval, confirmation for continuation by the LGUs, awaiting availability of OFID funds, or for delisting. The three subprojects marked for delisting are those that the LGU opted to be financed by other donors that require smaller equity. Status Table 4.5 Status of Approved Subprojects (as of June 30, 2014) a No. of SPS % of SPS Approved Subproject Cost/As Bid Cost Loan Proceeds LGU Equity Total Completed 3 2% 13,438, ,508, ,947, With on-going construction (50-99% physical accomplishment) 18 14% 101,357, ,002, ,359, With on-going construction (25% - 49% physical accomplishment) 4 3% 65,968, ,891, ,860, With on-going construction (less than 25% physical accomplishment) 7 5% 83,447, ,062, ,509, SPs with NOL to Award Issued-for Contracting (As Bid POW) 5 4% 2,805, ,045, ,850, On various stages of the procurement process 56 42% 404,740, ,666, ,407, For re-bidding 9 7% 153,018, ,018, ,037, With NAPA but without advertisement 10 8% 116,643, ,388, ,031, For NSAC re-approval 4 3% 52,871, ,871, ,742, For confirmation with LGU 11 8% 85,927, ,927, ,854, For delisting 3 2% 13,947, ,544, ,492, Approved but subject to availability of OFID funds 2 2% 38,324, ,324, ,649, % 1,132,489, ,297,252, ,429,742, At PhP : US$ 1.00 exchange rate Project Contract Completion Report 20 P age

36 By the end of June 2014, there were 32 subprojects with ongoing implementation. Loan proceeds have been released to 25 subprojects. From the amount of loan proceeds transferred to the accounts of the local governments, the reported cumulative disbursement as of end of the second quarter of 2014 was PhP58 million (US$1.3 million) and another PhP15.8 million (US$352,061) in disbursements are in process, making the total disbursements on the loan proceeds PhP74 million (US$1.64 million). It is noted that disbursements by the LGUs have exceeded the LP releases by 16%. Table 4.6 shows the status of LP fund releases and disbursements. Table 4.6 LP Fund Releases and Disbursement (as of 30 June 2014) Status No. of Subprojects PhP Amount Total LP Releases 25 63,804, ,418, LP Disbursement submitted to NPCO/MDFO (SORD) 11 58,144, ,292, LP Disbursement for submission to NPCO 15 15,833, , Total Disbursement as of June 30, ,978, ,644, *At PhP44.974: US$1.00 exchange rate US$* Of the US$1.64 million in actual subproject disbursements, US$135,000 (8%) has been reflected as official OFID disbursement as of 6 March The actual disbursements (US$1.64 million) of the OFID fund for rural infrastructure in ARMM stand at 5.5% of the target US$30 million. Figure 4.1 Number of Approved Rural Infrastructure Subprojects, per Semester ( ) Inception of ARCP II Expansion Sites & ARCP II Roadshow (mid-2013) 1 4 No of SPs Inception of NGALGU (Sept 2011) Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Maguindanao Lanao del Sur Basilan Sulu Tawi-Tawi Project Contract Completion Report 21 P age

37 RI subproject approvals increased upon entry of the SMT in July 2011, as illustrated in Figure 4.1 and 4.2. The pace of subproject approval gradually improved and significantly picked up in The influx of subprojects was facilitated by SMT s extensive efforts in promoting the Project and convincing LGUs to pursue RI subproject development. This was further enhanced by the introduction of the National Government Assistance to Local Government Units (NGALGU) for RI Development from the Office of the President (effective September 2011), which started implementation at the tail end of the first quarter of This revived the participation and commitment of the LGUs, which had been lukewarm in In 2013, the existing SMT sites appeared unable to support additional subprojects primarily due to equity constraints. As early as 2012, SMT had anticipated the situation and indicated this in its reports, requesting for the consideration of additional LGUs (and ARCs) for inclusion into the Project. It was only in 2013 that site expansion, through a NPCO and RPO-led Roadshow, was realized. A change in the policy on subproject cost-sharing coincided with the expansion, resulting in an upsurge in subproject proposals and the number and value of approved subprojects from new LGUs and ARCs. In mid-2013, the ARCP II to LGU equity ratio was brought down to 50:50. Before this, the LGU equity was always higher than the loan component. In fact, in the second half of 2012, the LGU share on the approved SPs from ARMM was 85% higher than the ARCP II contribution. On average, the actual cost-sharing between ARCP II and the LGU before 2013 was 31:59. The belated expansion of the Project areas meant that majority of the SPs were approved only in 2013 and most SPs entered the procurement stage only recently. They are expected to be issued contract awards and construction can only commence within the latter half of Figure 4.2 Value of Approved Rural Infrastructure Subprojects, per Semester ( ) 1,200 1,000 Inception of ARCP II Expansion Sites & ARCP II Roadshow (mid-2013) 1, Total SP Cost (PhP millions) Inception of NGALGU (Sep 2011) Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun ARCP II LGU Equity Project Contract Completion Report 22 P age

38 Time Motion Analysis from Project Development to Procurement to Implementation Moving the approved subprojects to procurement and to implementation took longer than designed. On average, it took at least six months to complete a project contract and its various support documents. Signing a contract does not signify the start of actual project implementation; LGUs still had to wait for fund transfer from Loan Proceeds and NGALGU before project contractors mobilize equipment and start construction. In most cases, fund transfer took longer than six months. A host of factors outside the control of the SMT contributed to the slow process of implementation. Foremost is the limited capacity of the LGUs to manage the procurement process prescribed in the procurement law (RA 9184) that often led to a lack in transparency in procurement-related dealings and processes. TARBADECO and TIPARBECO FMRs provide better access to rubber plantations Rubber is a major industry in the island province of Basilan and its communities. Large tracks of rubber plantation formerly owned and managed by multi-national companies have been subjected to CARP and were distributed to agrarian reform beneficiaries. The beneficiaries have organized into cooperatives for them to collectively manage and run the CARP-covered lands as plantation areas. Among the major cooperatives in the province are the TARBADECO in Tipo-Tipo and TIPARBECO in Ungkaya Pukan. These cooperatives are the major beneficiaries of the farm-to-market road constructed by the respective local government units with assistance from the ARCP II. In Tipo-Tipo municipality, the 4.7 km TARBADECO FMR network traverses four barangays namely: barangay TIpo-Tipo proper, Magkaaw, Limbu-pas and Guinanta. Total project cost is Php32 million. Now fully completed, the road provides direct access to 555 household of the ARC (population: 4,609), of which 107 households are agrarian reform beneficiaries. In Ungkaya Pukan, concreting of the 4.0 km Phil-Am Buhepahu FMR will benefit the members of TIPARBECO particularly the 154 agrarian reform beneficiaries. The road connects the ARC s rubber plantation in Barangay Cabangalan and Buhe-Pahu. The completed road amounted to P35 million. Both the Tipo-tipo and Ungkaya Pukan FMR projects allows the ARBs to haul rubber cup lumps from the rubber plantations to the processing centers in the province faster and at lesser cost. Both roads directly link the communities to the Basilan circumferential road, the main road network in the province. Project Contract Completion Report 23 P age

39 Tamburong-Bunawan farm-to-market road project: Emerging results The Bunawan Agrarian Reform Community and its surrounding communities are already benefitting from the concretized six-kilometer Tamburong-Bunawan farm-to-market road in Datu Paglas. The road project was implemented and funded by the municipal government of Datu Paglas, Maguindanao with support from ARCP II. The Tamburong-Bunawan FMR is a strategic road project for the Bunawan ARC as it connects the ARC to the Makilala-Tacurong City Highway that leads to Davao City in the west and to the cities of Tacurong, Koronadal and General Santos in the east. Apart from 282 ARBs and three barangays comprising the Bunawan ARC, the road also benefits the interior communities of Tulunan, North Cotabato and Columbio, Sultan Kudarat as it serves as an alternative road connecting these communities to Datu Paglas. Mayor Mohamad Paglas, Sr. noted increased traffic and heightened community activities even while the road concreting project was still underway. The Bunawan ARC primarily produces rice and corn in 490 hectares of farm lands, supplying 30% or 15,400 kilograms of the total annual production volume for these crops in Datu Paglas. They also produce mongo, banana, and coconut. The new FMR has reduced the cost of transporting their produce to the markets; more public transport services now ply the Bunawan road. Moreover, community access to basic social services such as education, health and social welfare has also improved with the completion of the road project. Project Contract Completion Report 24 P age

40 4.4 Project Management The SMT was organized to provide technical assistance in operationalizing the CDD, AED, and RI components. As an additional resource for the ARCP II implementation in ARMM, the SMT worked with all three levels of the Project s organizational structure NPCO, DAR-ARMM and the DARPOs Systems, Skills and Knowledge Sharing with the ARMM Team The SMT instituted an internal monitoring system to track the status of the SPs from project development to project approval. The monitoring system served as reference with which the NPCO and DAR-ARMM management were regularly apprised and engaged in dialogue on project implementation concerns. As the system provided the status of each subproject at a given time, necessary follow-through support needed from the NPCO and RPO was immediately conveyed. Apart from regular meetings and dialogue with NPCO and DAR- ARMM, the SMT had conducted regular updating and discussion with the DARPOs to update the Provincial Agrarian Reform Officers (PAROs) and resolve certain operational issues. During the first semester of the project, management systems and processes were developed and implemented by the Team. Among these were: 1. Project Finance and Administration Guidelines The guidelines covered the administrative and financial operations of the Project. It provided the rules regarding attendance and submission of timesheets, travels, cash advances and liquidation, monthly reporting, staff hiring, and performance incentives. It also included protocols and procedures for communication within and outside of the SMT. Internal meetings were held with members of the Team in Davao City, Cotabato City and Zamboanga City to clearly explain the objectives and goals of the Project and lay down the rules of engagement for the Team. 2. Project Performance Monitoring System The Project Performance Monitoring System (PPMS) is an integrated planning, monitoring and evaluation system that was adopted by the SMT to cover the processes in project planning, monitoring and reporting. The system is closely linked to the SMT performance reporting to the NPCO and ADB. The system was developed as an on-line system for easy access by all members of the team. Project specialists and CDOs fill up data capture forms periodically to record their activities and accomplishments. The PPMS was introduced to the DAR NPCO in early 2011 so it will have an appreciation of the SMT system. The possibility of linking the PPMS with the NPCO Project M&E system, Performance-based Rural Infrastructure Subproject Monitoring (PRISM) System, which in early 2012 was being developed by NPCO, was also explored. Initial exchanges between NPCO s M and E staff and SMT s IT Specialist on possible collaboration were held, such as the SMT extending advisory services in developing PRISM. The initiative unfortunately did not prosper. Project Contract Completion Report 25 P age

41 Apart from building management systems, the SMT productively engaged other key agencies and the ADB to keep them abreast of the developments in the project and to leverage resources, especially for AED and RI. Various consultation workshops and meetings were conducted with key government agency partners that included DOF, DBM, OPAPP, and DILG from 2011 to The consultations were conducted for the purpose of mobilizing resources to augment the equity requirement of the LGUs that stood at a minimum of 50% during this period. Frequent turn-over in the DAR-ARMM leadership, however, caused delays in some field activities particularly in relation to project communication and coordination, which affected implementation of Project components. The new leadership had to be oriented on the Project, the nature of the SMT s role under a performance-based contract, and its status; SMT often had to adjust and/or adopt new project management approaches to accommodate the changes in the leadership. The re-organization of the Regional Project Office (RPO) and subsequent strengthening of the Regional Subproject Approval Committee (RSAC) facilitated in providing more focus to DAR-ARMM operations. During the period April- June 2012, the RPO facilitated the meeting of the RSAC that paved the way for the approval of 16 community-level subprojects in that quarter. An additional 12 community-level subprojects were approved on October Various training sessions and mentoring activities of SMT provided the opportunity for the regional and provincial staff of DAR-ARMM and partner LGUs to acquire skills and knowledge on project implementation. Training and coaching activities were conducted on development planning, AED project proposal development, procurement, and financial management. Participants to these capacity-building interventions included planning officers, accounting and budget officers and staff, engineers and community development staff. Although the SMT contract only targeted 50 staff members, total training participants reached 532. About 39% of the participants were women, a proportion that is below the contract target of 50%. This is explained by the fact that the ARMM bureaucracy is dominated by males Engaging Network of Support, Mobilization of Resources and Policy Development To support the LGUs and the ARCs compliance with the required equity in subprojects, the SMT undertook several policy, networking and partnership building initiatives. Apart from delivering its contractual obligations, the SMT envisioned the development of a model for multi-agency collaboration and complementation in rural development in a post-conflict context. Hence, the SMT endeavoured and explored numerous possible options and partnerships for the Project, DAR-ARMM and the LGUs to further local cooperation, especially in generating financial support for the Project. The SMT, with DAR s support, has been instrumental in sensitizing the decision makers to be open to policy adjustments. Study and Policy Dialogue: Bridging the LGU Equity Gap At the start of SMT s operations, a policy paper highlighting the mismatch in the policy of requiring LGUs to put in project equity based on income class was prepared and distributed to regional and national policy makers (Annex 2 - LGU Equity Requirement for Agrarian Reform Communities Project II). Several meetings and dialogues were undertaken by the Project Contract Completion Report 26 P age

42 SMT and DAR NPCO with members of Congress (House of Representatives and Senate) for the purpose of amending the project equity policy and to generate more resources. At the regional level, SMT initiated discussions with the regional political leaders including the Regional Governor, the Vice Governor and the Regional Legislative Assembly (RLA) to discuss the policy and how the regional government could help the LGUs and ARCs implement the priority projects. Apart from technical and financial commitment, the regional government also endorsed a regional policy recommendation addressed to the DAR and NEDA for the review of the equity policy and called for the mobilization of financial resources to maximize the benefit of the OFID funds. The policy recommendation was initiated by the Regional Economic Development Policy Board (REDPB), the highest policy-making body of the regional government. All these initiatives supported the efforts of DAR in shaping project implementation policy that eventually contributed to the eventual suspension of the equity policy. In addition, SMT s study on the rationalization of the national government-local government cost sharing was used by DAR management in lobbying for national government support through access of the NGALGU, which provided for 25% national government funds from the Office of the President as counterpart to each of the approved subprojects. Customizing the Performance-Based Grants System (PBGS) for ARMM With the imprimatur of the DILG, the SMT proposed, by way of a special study, the customization of the PBGS in ARMM (Annex 3 Proposed PBGS Guidelines for ARMM ARCP II) according to the governance condition in most of the LGUs in ARMM. The proposal does not intend to lower the bar of governance standards required in the PBGS but rather to allow for lighter enrolment criteria in order to encourage more ARMM LGUs to participate in the program in the hope that the ARMM LGUs would be motivated to implement their governance performance contract and their respective subprojects as they look forward to the performance incentives. Other Resource Mobilization Initiatives Coordination and discussion with national and regional agencies were undertaken to design integrated and complementary project implementation schemes with ARCP II, particularly those in common implementation areas. Efforts of the SMT to continue dialogue with the UN WFP resulted in the formalization of its commitment to fund the unskilled labor cost of agriculture-related RI subprojects in the ARMM provinces of Maguindanao and Lanao del Sur, through its Food-for-Work Program. This has resulted in the generation of PhP170 million in in-kind equity for 18 subprojects in 15 LGUs. Among the agencies engaged to help address the equity gap for LGUs were the Mindanao Committee of the House of Representatives, particularly the members from ARMM, the Office of Senator Teofisto Guingona III, the Transition and Investment Support Program under DILG, and the Office for the Presidential Adviser on the Peace Process (OPAPP). At the regional level, discussion meetings with the Office of the Regional Governor headed by Regional Governor Mujiv Hataman, DSWD-ARMM, DILG-ARMM, Regional Planning and Development Office (RPDO), among others, were also conducted to define possible Project Contract Completion Report 27 P age

43 collaboration activities with the end-view of reducing the equity requirements of the LGUs to the subprojects. No definitive results were generated in these activities but they were part of the task of exerting best efforts to achieve the targets and objectives of the Project Report Preparation and Conduct of Studies/ Policy Briefs The SMT prepared and submitted quarterly and annual reports containing the progress of activities, implementation strategies adopted in the field, and issues and operational concerns. Support to NPCO and DAR-ARMM was also provided during the conduct of ADB Missions. Substantial assistance was extended by the SMT to Project managers during project reviews and special ADB missions, particularly during the November-December 2012 ADB Project Review Mission and the September 2013 Joint ADB-OFID Review Mission. For the former, the SMT supported the NPCO and ADB through the formulation of a comprehensive issue paper on the status of Project implementation in ARMM (Annex 7). For the latter joint review mission, SMT assistance was extended to RPO (DAR-ARMM) through the review of Status of Rural Infrastructure Subproject Implementation in ARMM and Recommended Strategies (Annex 8), as well as by the overall facilitation of mission-related consultations in ARMM. The SMT likewise developed other special reports that were aimed at enhancing overall Project implementation, which included: 1. The ARMM ARCP II Capacity Development Plan In the first quarter of 2012, the ARMM ARCP II Capacity Development Plan (Annex 4) was formulated and submitted to the NPCO for review. This initiative also underscored the importance of considering capacity building as an integral component of the project and providing funds for its operationalization. The Plan was approved in principle by the NPCO through the office of the Undersecretary Jerry Pacturan. Unfortunately, due to the limitations of SMT s contract, the Capacity Development Plan did not progress to implementation. The plan nonetheless remained as a reference for the SMT in engaging other stakeholders in ARMM, particularly in relation to capacity development and governance. 2. AED CapDev Study The AED CapDev Study/Plan (Annex 5) represented the aspirations of beneficiaries and their communities, and aligned perceptions and attitudes towards enhanced entrepreneurship as a means to maximize benefits from the lands awarded to them. The plan considered other resources provided to ARCs like the common service facilities under ARCCESS, and partnerships with relevant organizations (NGOs, CSOs, LGUs) and other development agencies. It takes off from the achievements under the CDD component and capitalizes on the organized community, strengthened ARBOs and formulated ARCDPs to further capacitate the ARCs on agri-enterprise development. Recommended approaches for AED development were put forward for DAR s consideration. Initially, the SMT spearheaded the implementation of focused intervention in cacao, coconut and industries, which were coordinated with ARMM s Department of Agriculture and Food and WFP. Project Contract Completion Report 28 P age

44 3. Value Chain Analysis of the Coffee Industry in Sulu province The Value Chain Analysis of Coffee in Sulu (Annex 6) describes the full range of activities required to bring Sulu coffee through the different phases of production, processing and delivery to proposed final consumers. It was intended to support the coffee-producing ARCs under the Project, particularly the Panamao ARC in Sulu. The study was submitted to NPCO for dissemination. 4.5 Overall Summary of Accomplishments The following table summarizes the overall SMT accomplishments under this contract. Description Target Units Enhanced Implementation of Community-Driven Development Accomplish ment Remarks ARC Planning linked to the Project 30 ARCs 26 Including 2 ARCs which participated in the initial planning activities through the SPPP LGU Plans incorporated ARCs' plans linked to the Project LGUs participating in performance-based grant system (PBGS) % Cost LGUs LGUs LGUs get 20% refund of their equity contribution 30 LGUs 0 10 LGUs participation in RI component 30 LGUs 31 5 LGUs participation in AED component 30 LGUs 21 5 LGU/ARC staff (40% women) trained in planning 150 Persons % women 10 Improved Agriculture and Enterprise Development 100 ARCs participating in improving crop profitability 30 ARCs 25 This indicator is linked to the Increased profitability of agricultural products Subdivided land titles to individual ARBs 22,000 hectares 0 40 ARBs/non-ARBs access to credit and savings facilities 3,000 households Total agricultural investment to ARB/non-ARBs 3 US$ million Increased profitability of agricultural products 15 % - 5 Direct beneficiaries (50% women) of AED 3,000 persons 3,355 Composed of unskilled labor and member beneficiaries of AED projects Cooperatives/AED community-based organizations (CBOs) formed and strengthened 30 CBOs groups organized; 7 registered/ trained Registered members (50% women) of CBOs 3,000 members 26,592 8% women Project Contract Completion Report 29 P age

45 Description Target Units Sustained Rural Infrastructure Development Accomplish ment Remarks Rural Roads 823 kms SPs approved Bridges 923 lms SPs approved Flood Protection Works 1,767 lms - Communal Irrigation Facilities 5,288 hectares 4.00 SPs approved Solar Driers 34 units 30 SPs approved Warehouses 20 units 8 SPs approved Potable Water System 214 units 4 SPs approved Public building na units 54 SPs approved < cost = share per PhP1million SP cost > per 1 PhP million % Cost 69,000,000 Strengthened and Capacitated Project Management 100 Satisfactory skill and knowledge sharing to the assigned government staff to work with the ARMM team (50% women) 50 staff 50 On time satisfactory completion of RI subprojects 100 % Monitoring of completion of RI subprojects is subsumed by the indicator On time submission of quarterly and other report On time submission of quarterly and other reports 100 % 80 Quarterly Progress Reports 16 report Annual Report 4 report 4 15 Special Report 2 40 Interim Report (Baseline Survey) 1 report 1 Baseline Study was replaced with Interim Report Impact Assessment 1 report Special Studies special studies including the Midterm Report Project Completion Report (PCR) 1 report , Project Contract Completion Report 30 P age

46 5.0 Major Issues and Challenges ARCP II Project Completion Date is currently set for December Going into the final stretch of the ARCP II implementation under the loan agreements between the Government, ADB and OFID, the Project is faced with a similar set of issues and concerns that hampered its operations from the onset. A number of key issues were addressed by DAR in 2011 that resulted in the resurgence of LGU interest in the Project. Among the measures adopted by the Project included the constitution of the SMT in July 2011 to help DAR-ARMM and the LGUs implement and manage the Project; the provision in late 2011 of considerable support from the NGALGU to lessen the burden of LGU counterpart equity requirement in 2012 and the continuous streamlining of project processes to rationalize project execution and related documentary requirements. After the Joint ADB-OFID project review mission in October 2013, the Project was opened up to other LGUs outside of the original coverage areas of LGUs and ARCs. For this, the equity policy was further relaxed at 50% LGU and 50% NG equity sharing. In an effort to further reduce the LGU equity burden and be more comparable to the equity sharing schemes of other bilateral programs in ARMM, the 50% LGU equity counterpart was further augmented by the 25% NGALGU, reducing the LGU equity requirement of 15% in-kind equity and 10% in cash. The revival of interest of the LGUs in the Project was highlighted by a huge jump in subproject approvals from a very minimal amount to PhP800 million. After the ADB-OFID joint project review mission, additional subprojects were approved, raising the total subproject cost approval to PhP1.8 billion for over 100 subprojects, of which the OFID share is PhP854 million or about 70% of the US$30-million OFID loan. However, the revival in interest of LGUs has once again been put to test with recent developments with respect to the availability of NGALGU and related concerns regarding project implementation and management. The discussion below describes pressing issues and concerns that continue to hamper implementation, probably well beyond June 2014 when the SMT exits the scene, and thus require urgent and sincere attention by the authorities both in Manila and Cotabato City. Attention to these is considered vital given the ongoing success of the peace process initiated by President Aquino III between the MILF and the Government, and the foreseen establishment of the Bangsamoro Transition Authority (BTA) by early It would be the responsibility of DAR and DAR-ARMM to hand over the Project, if any extension beyond end is in fact granted/approved by government and ADB/OFID, to the New Bangsamoro Political Entity in a functioning condition, with more clarity to the issues that have hounded it during Phase II, for the achievement of the economic benefits originally intended by the Project. Project Contract Completion Report 31 P age

47 5.1 Prohibitive LGU Counterpart Equity The spurt in project development from practically zero (that is, no project implementation since not a single project was bidded out) some three years back to its current level is attributed mainly to two factors: (i) the augmentation of LGU equity through the NGALGU; and (ii) the expansion to other LGUs outside of the original 30 LGUs targeted by the Project. This expansion to other LGUs was carried out as part of the policy recommendations made by the SMT and agreed on during the ADB-OFID Joint Project Mission in October The LGU expansion policy was further highlighted by the freezing of the Project equity sharing at 50%-50% LGU-NG, regardless of income class. The new LGU equity is clearly stipulated as follows: 10% in cash, 15% in-kind equity and 25% from NGALGU. This arrangement was accepted and applauded by the LGUs. It is generally comparable to the cost-sharing agreement of the World Bank-funded Mindanao Rural Development Project and its successor project Philippine Rural Development Project, which have a 10%-90% LGU-NG project counterpart arrangement. The afore-mentioned developments took place before the fiasco of Philippine Development Assistance Fund (PDAF) erupted. The government s Disbursement Acceleration Program (DAP) from where the NGALGU funds were sourced was questioned at the Supreme Court (SC) for its constitutionality. As of the last SC hearing, the DAP, as far as the government is concerned, no longer exists as a disbursement strategy. This development raises serious concerns in respect of the completion of the Project. It has also put the recent subproject approvals, particularly for the new/expansion LGUs/ARCs, in uncertainty given limited capacity to generate and mobilize the equity requirement. Immediately, the reaction from the NPCO was to come up with a new formula to re-compute the equity portion of subprojects that have already been approved but have yet to be allocated the NGALGU. The re-computation is based on a new formula that allows for zero NGALGU counterpart from the Government, although the LGU equity portion remains at 50%, but with only 10% cash equity. The balance of 40% is re-allocated as in-kind equity including project supervision and management. The 10% cash equity is surely an attractive offer particularly for the higher income LGUs. Other LGUs, however, would still be hard put in sourcing the 40% in-kind component of the counterpart. SMT re-computed the amount required by LGUs to fund their respective equity for 130 approved SPs (i.e., excluding two subprojects approved subject to OFID funds availability). The table below shows the indicative results of the calculation. The total cost of the 130 subprojects is PhP2.3 billion. Of this amount, the LGUs need to put up PhP1.26 billion in equity. Deducting the 25% NGALGU from the LGU equity (amounting to PhP285 million), which will now be in-kind equity, and counterpart assistance from WFP and some private donors, and the mandated pre-engineering costs (estimated at PhP311 million), the cash equity of LGUs will be a minimum of PhP660 million. There is no assurance that the LGUs will come up with the required amount since: (i) there are limitations on how much of the in-kind components allowed by DAR can possibly contribute towards LGU equity; (ii) the scope for applying the Performance-Based Grant System in ARMM is extremely limited; and (iii) the Food-for-Work Program of the WFP is not applicable for the island provinces of ARMM. Hence, not all of the LGUs may be able to Project Contract Completion Report 32 P age

48 financially support their involvement in ARCP II to meet their infrastructure needs, especially given cheaper financing being made available to them through the government and/or multilateral and bilateral sources. Nonetheless, it is recognized that DAR continues to extend efforts to close the equity gap through discussions and consultations with the LGUs and mobilization of resources, particularly for Basilan LGUs. Province Table 5.1 Total Cost and LGU Equity Contribution of Approved Subprojects by Province. No. of SPs Total Approved Project Counterparts OFID Fund Counterpart LGU Counterpart Estimated ARMM -NGALGU LGU Equity Sources Estimated LGU Cash Equity Lanao del Sur 51 1,008,273, ,751, ,522, ,804, ,476, Maguindanao ,564, ,206, ,358,201 27,398, ,024, Basilan ,181, ,665, ,516, ,524, ,919, Sulu ,668, ,138, ,530,252 30,195, ,242, Tawi-Tawi b ,745, ,574, ,170,947 12,079, ,780, Total 130 2,347,433,320 1,091,335,248 1,256,098, ,003, ,442, a Estimated LGU net equity after deducting NGALGU share (25%) and pre-engineering and counterpart assistance from WFP and private sector donors. b Excluding the two conditionally approved SPs (subject to OFID funds availability) in Tawi-Tawi 5.2 Limited Local Capacities and Resources for Project Management Administrative processes aside, the subproject implementation on the ground are affected by a host of factors, particularly the capacity of the LGUs to manage SPs given technical and resource limitations in project management, monitoring and supervision. On subproject development, there is a lack of technical expertise on rural infrastructure design and proposal packaging. This is further compounded by the limited experience of LGUs in managing contracted works as most of their infrastructure are done by administration. As was earlier discussed, LGUs have limited capacity to manage the procurement process prescribed in the procurement law (RA 9184). This insufficiency of experience and practice in going through the rigid government procurement process has left the subproject procurement process open to mishandling and failure. Capacities and local expertise on financial management, appropriate to a foreign-funded project such as ARCP II, was found to be lacking as well. This local deficiency in financial management expertise has impinged on the timeliness, accuracy and acceptability of financial reports from the LGUs, and has become a continuing challenge for the DARPOs and RPO to facilitate. As technical support team to DAR-ARMM, the SMT exerted efforts to mitigate the lack of expertise in the areas of subproject development (including engineering and economic analysis), procurement and financial management by providing coaching, supervision, and technical assistance sessions in all Project management levels from the Local Project Office to the DARPOs, up to the RPO (DAR-ARMM). Project Contract Completion Report 33 P age

49 5.3 Inconsistency in the Subproject Review and Approval Process At the beginning of SMT s engagement, the entire subproject cycle from review and approval, procurement, implementation and turn-over was laid out and the requirements made clear through a checklist of requirements for every stage within the subproject cycle (Annex 9 - ARCP II Required Documents with Template as of February 3, 2012). These requirements, identified on the principles of establishing subproject technical soundness; financial, economic and social viability; community ownership; and sustainability served as the SMT s and LGU s bases for the technical assistance and mentoring activities and support to the LGUs, DARPOs and RPO. In earlier Project Review Missions (2012), the subproject cycle was documented and reengineered by the NPCO, with the intent of improving efficiency and fast-tracking RI implementation. Subsequently, in the interest of speeding up the commitment of the remaining OFID loan amount/funds for subprojects through a "fast-tracked" approval process, fundamental subproject requirements on the following were deferred: community preparation and project ownership; completeness of subproject design; LGU commitment and certification to finance and implement the subprojects, once approved; social safeguards, especially the right-of-way (ROW) acquisition; and environmental safeguards. The amendment by NPCO of the subproject approval requirements was timed with the aforementioned NPCO and RPO-led roadshow in mid As a result, priority assistance was given to the technical processes of subproject development (i.e., preparation of engineering designs and program of work) while CDD processes were given less attention. Environmental and social compliance requirements, including the proper documentation for the critical right-of-way (ROW) acquisition were not immediately required from LGUs prior to project approval. The level of community participation, consultation and planning, which was originally carried out through the process of ARCDP formulation or review (in cases where the ARCDPs have already been formulated) was brought down as well. This is contrary to the approach that was required of and followed by the SMT since the beginning of its contract in assisting the various LGUs. While it took longer to process the SPs to approval stage, the original process developed strong ownership of the SPs by the ARCs and ensured compliance with social and environmental safeguards. Deferring critical technical and financial requirements and safeguards was successful in getting more SPs approved. While corrective measures and the necessary follow-up activities can still be undertaken to ensure project compliance, there is no guarantee that approved SPs that are the product of fast-tracking processes will in fact get implemented faster. In the experience of the ARMM, there were fast-tracked SPs that are going through critical procurement delays due to lacking documentary requirements during the approval process. Project Contract Completion Report 34 P age

50 5.4 Inadequate Harmonization of Institutional Mechanisms Given the multi-faceted and multi-stakeholder nature of the Project and implementation arrangements that involve various levels of the government (barangays, municipal local governments, provincial and regional executive offices), coordination has indeed been a challenge. Harmonization would have been the key in bringing together all actors and stakeholders in the Project. Unfortunately, initial efforts to harmonize and align the reporting and coordination processes, procedures, protocol and requirements of the various agencies, including those of the donor agencies, did not progress. There have been observable and critical breakdown in the understanding of the following areas: Subproject development: o Roles and responsibilities between SMT, RPO, and NPCO in assisting LGUs on RI SP development o Land acquisition (for ROW) requirements between DENR and LGUs o Transmittal of copies of ARCDPs from the DARPOs to the LGUs Procurement: o Procurement requirements under RA 9184, and of NPCO and ADB o Roles and responsibilities between SMT, RPO, and NPCO in assisting LGUs on SP procurement o Fund releases and liquidation o Technical and financial reporting requirements between MDFO, NPCO and ADB As a result, as of date, only 25 SPs have been contracted out and funded, amounting to US$1.2 million in OFID funds released to the LGUs account. The LGUs, meanwhile, have forwarded liquidation for around US$1.3 million with appropriate reports submitted to the NPCO. However, OFID fund release officially recorded in the MDFO and ADB disbursement records systems is only US$135,000. This is attributed to the differences in the accounting standards/requirements among the institutions involved in the Project namely, the MDFO, DAR and ADB. These differences contribute to the delay of recording disbursement transactions for the OFID funds. On subproject development and procurement, the confusion on the roles of SMT and NPCO in engaging and assisting LGUs (when ARMM-based consultants were deployed by NPCO) have resulted in the complication in attribution of efforts and output as embodied in SMT s performance-based reimbursement claims. Project Contract Completion Report 35 P age

51 5.5 Unrealistic Targets Even at the early stages of SMT s operations, it was already recognized and articulated by the Team that several Project targets given to SMT would be very difficult to achieve considering the limitations on Project resources, activities and responsibilities. Among these unrealistic targets were on Land Tenure Improvement (LTI) which were hindered by the following factors: Land titling is a function not only of DAR, but also of DENR; The initial mapping of land for titling is under the jurisdiction of DENR, and far from the direct influence of SMT s activities; and The special peace-and-order and conflict-related consideration in ARMM. In the context of ARMM and SMT s level of engagement, where it could only coordinate and follow up with the respective agencies on the status of implementation of LTI-related activities, SMT was very much hard-pressed to deliver on its LTI deliverables. This challenge was recognized by NPCO. Hence, mid-2012, discussions ensued on how to adjust the SMT LTI deliverables to be more reflective of SMT s role in the process. Unfortunately, these talks were discontinued in Other targets for the AED component have also been challenging due to the following considerations: Limited Project scope and resource allocation on AED activities thus funding for training and capacity-building activities have to be sourced elsewhere; There were barely any funds on AED that can be used to leverage other funding sources; Absence of Project-level strategy in leveraging for improved individual access to credit and savings facilities. Under the CDD component, the PBGS-related targets of SMT (LGU participation on PBGS and 20% Refund on Equity) were likewise deemed unattainable because, as often cited, the capacities of LGUs in ARMM were still far from those of LGUs in other regions. Hence, most LGUs were unqualified for PBGS. In an effort to support the LGUs and bring them closer to the possibility of qualifying in the PBGS and availing of equity refunds, SMT led discussions on customization of the PBGS requirements for a ladderized-scheme of qualification in the ARMM. Unfortunately, despite the considerable efforts of SMT, DAR-ARMM, NPCO and DILG, the proposal was not realized. To date, none of the LGUs in ARMM have completed the requirements for PBGS. Project Contract Completion Report 36 P age

52 5.6 Unsuitability of SMT's Output-based Contract and Deliverables to the Conditions of the Project With the SMT in place, ARCP II activities were rigorously pursued particularly in consulting, encouraging and prodding the target LGUs/ARCs to participate in the project, most especially in the RI component. This is clearly evidenced by the significant increase in subprojects approvals and a slow but steady improvement in the implementation and disbursement process. Under an output-based contractual arrangement, the SMT was to be reimbursed upon delivery of the required outputs. The major challenge for the SMT and NPCO was how to make the output-based reimbursement scheme work efficiently so project operations could proceed smoothly. While there were clear agreements on the cost and payment structure at the beginning of the contract, as early as the beginning of 2012, the SMT started to encounter difficulties in implementing its output-based contract and alerted the NPCO on this. There was difficulty in moving the subproject approval into actual contracts and fund requests as many of the activities and reports relied on the cooperation and accountability of the staff working in the municipal offices. Specific SMT deliverables could not be brought to fruition without having the necessary documentation or reports from the LGUs or DAR provincial offices concerned. The bottlenecks in Project implementation that affected the SMT s outputs were in the simple (but important RI subproject) requirements such as absence of bank guarantees from contractors to the absence of cash equity in the required bank account of LGUs (to fund RI subprojects). Security and governance capacity issues also continued to remain key concerns in project operations. Delays related to these affected SMT s performance on producing key project deliverables and caused financial constraints in its operations. The uncertainties under this contracting arrangements posed a major challenge to the SMT in terms of contracting and deployment of staff that would maximize the overall level of effort (LOE) of the SMT. Ultimately, SMT decided to match the output based contract with output based deployment. Notwithstanding these difficulties, the SMT has taken all these issues in stride, and have continued on delivering best efforts for the achievement of Project objectives as much as the situation allowed. The last three months of its operation were devoted to handing over the project management and ensuring smooth transition of project management to DAR-ARMM. In this regard, a transition work-plan has been discussed with the RPO and NPCO to guide operations and secure the proper exit of the SMT. Project Contract Completion Report 37 P age

53 6.0 Recommendations The following are the recommended actions to address the concerns enumerated above: 6.1 On Ensuring Continued Project Implementation Post-SMT and Sustaining the Project Gains To ensure the momentum of RI subproject procurement and implementation, immediate next steps are proposed for specific IR projects. These recommendations are discussed in detail in Annex 10 - Status of Rural Infrastructure Subproject Implementation in ARMM and Recommended Next Steps by Subproject. The summary of recommendations are as follows: Final inspection by the appropriate ARCP II Inspectorate Team, together with COA Technical Audit Specialist, of SPs with physical accomplishment of 100% (Panamao FMR, the Tipo-Tipo FMR and one Sibutu CI). Pre-final inspection by appropriate ARCP II Inspectorate Team of subprojects with physical accomplishment of 95% and above. Follow up on submission of request for extension for subprojects with expired contract. The request for extension should be supported with revised implementation schedule or catch up program (with provision for additional equipment and manpower) and performance security to cover the extension. Determine subprojects with significant negative slippage and request concerned LGUs to require submission by concerned contractors of revised construction schedule with provision for additional equipment and manpower, to catch up on delay. Note that some LGUs committed to provide equipment and labor (through World Food Programme). Provide assistance to LGUs on the conduct of procurement activities to ensure that procurement of rural infrastructure subprojects is in accordance with ADB procurement guidelines and following the procedures of RA A procurement orientation may not be enough to capacitate the local bids and awards committee (BAC) on procurement. This has to be followed with interventions such as training/workshop on the procurement process, on-the-job coaching, consultation and problem-solving sessions. With NPCO, resolve issues and concerns on non-compliance by LGUs with the requirement of RA 9184 on publication in Philgeps website and with the ADB requirement on availability of bidding documents for at least 28 calendar days. It must be understood by them that Philgeps publication is a LEGAL requirement of RA The experience of other LGUs (e.g., Buldon, Sitangkai) in resolving difficulties in accessing Philgeps website should be highlighted. Provide assistance to LGUs Poona Bayabao, Tagoloan and Bumbaran on preparation of disbursement/liquidation reports and request for second LP release. These LGUs need to be coached in preparing the required documents. Follow up with LGU Bumbaran on submission of request for variation and supporting asstake plan (resulting from pre-construction survey). Project Contract Completion Report 38 P age

54 Follow up with NPCO on NGALGU fund release for LGU Marantao subproject. Please note that NPCO issued NGALGU CAF (No ) for the subproject and a contract was finally awarded to the contractor on the basis of the NOL issued by NPCO to LGU. Contract and fund request documents for LP release, except for the document on NGALGU deposit, were submitted to NPCO on October 8, Follow up with NPCO on NSAC re-approval of LGU Sibutu FMRs. These subprojects were already issued NGALGU CAF and the LGU already received NGALGU cash for one of these subprojects. Provide assistance to LGUs on bid evaluation and post-qualification and on preparation and submission of bid evaluation report. Review BER prior to submission to NPCO. Follow up with LGUs on the procurement schedule and assist in the preparation of bidding documents and in posting of invitation to bid in Philgeps website. (e.g. Luuk, Pata, Talipao, Languyan and Lantawan) Follow up on: o o o o Submission of contract, request for LP fund releases and disbursement/liquidation reports; Submission of CAF requirements by LGUs and issuance of CAF by MDFO; Submission by LGUs of statement of receipts and disbursements (SORD) for preimplementation and construction supervision. Provide assistance to LGUs on preparation of documents; and Completion and submission of revised POW. Conduct regular monitoring of subprojects with ongoing construction. Provide advice in addressing issues and concerns. Confirm with LGUs Butig, South Ubian, Parang (for its CIS) and Kabuntalan (for its CIs) on its final decision to implement the subprojects. 6.2 On Lightening the LGU Equity Burden and Securing Continued LGU Commitment Equity remains the strategic concern of the Project. Currently, the RPO is addressing this concern by discussing the implication of the new cost arrangement with each LGU and the absence of NGALGU support. Subproject program of work (POWs) were revised and explained to the LGU for their concurrence. Most of the LGUs responded positively, indicating their agreement on the revised and higher equity arrangement. In the immediate term, the Project should validate the LGU equity contribution in the LGU Annual Investment Plan and in its Annual Budget. This will ensure that the LGU is fully committed to the equity prior to the publication of the subproject for procurement. Within the remaining project period and in future ARC projects, DAR-ARMM should continue to explore possible counterpart funding from various sources. This should include regional and provincial governments, other donor-funded projects with similar undertakings and objectives, other national programs, and existing partners such as the WFP. In the design of future projects, equity requirements must be aligned with those of other projects so that it can be equally attractive for LGUs as a fund source for their projects. Project Contract Completion Report 39 P age

55 6.3 On Strengthening the Subproject Development Process There is a need for the Project to review its project development process, particularly covering the recently-approved subprojects. The identified gaps should be completed such as linking the subproject approval to the LGU annual investment planning and budgeting process to ensure the full commitment of the LGU to subproject implementation. Communities should be made to understand their roles and counterparts in the subproject implementation, by reviewing the ARCDPs and linking the subproject to existing or potential agriculture production areas. Compliance with national regulations and, social and environmental safeguards should be observed at the onset of subproject development to ensure the smooth procurement and implementation these projects. Environmental safeguards should recognize the presence of protection and conservation areas in ARMM and of areas that are highly susceptible to landslides and flooding. 6.4 On Simplifying, Standardizing and Disseminating Subproject Monitoring Requirements and Processes The RPO should constantly and regularly push the LGUs in complying with the monthly reportorial requirements for on-going projects. This can be done with the presence of the regional technical staff hired to complement the regular DAR-ARMM staff designated in the project. Regular monthly subproject monitoring, scheduled and unscheduled, should be conducted as what the SMT has done particularly for the subprojects in Lanao Sur and Maguindanao. The monitoring visit should be instituted as part of the subproject contract management support to the LGUs. At the national level, the NPCO and MDFO should settle the differences in the accounting standards/requirements for subprojects to facilitate compliance and recording of transactions, particularly for the OFID funds. This is where the proper dissemination of a standardized and accepted (by all parties: NPCO, ADB, MDFO and COA) Procurement and Financial Manuals is critical. 6.5 On Enhancing Capacities for Project Implementation Cognizant that the ARMM has special and urgent needs for capacity building along the lines of governance, agriculture and economic development, peace and security, among others, the SMT in 2012 formulated the Capacity Development Plan for Sustainable Livelihood Improvement in ARMM (CapDev Plan). Anchored on the capacity building needs of the Project, the CapDev Plan promotes the integration and harmonization of capacity building interventions related to rural development in ARMM. It also aims to improve the capacities of the ARCs, supported by accountable and transparent local and regional governments, and a network of CSOs and NGOs to take a more proactive role in rural poverty reduction. Project Contract Completion Report 40 P age

56 Beyond training, the CapDev Plan addresses the need for capacity development by taking a longer-term perspective on competency-building and by utilizing practical and effective approaches to capacity development on: 1. Improving service delivery through meaningful community participation and greater transparency and accountability among key governance institutions; 2. Engaging the private sector and provide business development services for rural livelihood improvement; and 3. Enhancing the prospects for peace and development by promoting social development management and incorporating the perspectives of peace, gender balance and environmental sustainability. With a detailed list of sites and stakeholders, identified impact areas, description of approaches and methodologies, the CapDev Plan proposed a comprehensive list of capacity building activities and interventions on CDD, RI, AED, PM and cross-cutting themes of peace, gender balance and environmental sustainability, with an indicative budget. It is proposed that the Project management review and validate the CapDev Plan for possible adoption of still relevant components and activities within the remaining period of the project and in future ARC projects. 6.6 On Possible Project Extension and Capacity Development Support to ARMM The ARCP II Joint Mid-Term Review involving both ADB and OFID has long been overdue. Should the Mid-Term Review push through within the third quarter of 2014, the following major items should be considered and discussed: Potential for Project extension; and Review of the Project design and scope. SMT recognizes the need for Project extension in ARMM. The Project is made more relevant and fortuitous in view of what is happening in the Bangsamoro, especially so in 2015, when the Bangsamoro Basic Law (BBL) which sets the governance mechanisms of the new Bangsamoro government is expected to be passed by the Philippine Congress. The continued implementation of ARCP II, given an extension, would help the new Bangsamoro government sustain the momentum for rural development. SMT further believes that Project extension would be good because a significant amount of OFID funds remain undisbursed. This undisbursed funds, specifically intended for ARMM, should be optimized and, if possible, targeted for full disbursement under the extension period. Expansion to other LGUs should be further explored. Project extension should also take into account the proportion of resources deployed to the various Project components (i.e., CDD, AED, RI and PM). Since it has been a well-documented and long-standing experience that LGU equity for rural infrastructure subprojects is difficult to secure, a re-allocation of funds to other components that have a more direct effect on rural development (e.g., AED) should be considered. Considerations on stakeholder Project Contract Completion Report 41 P age

57 capacities, external constraints and the sufficiency of Project resources should be made in setting realistic performance targets for the Project. Should Project management decide to engage another third party partner to facilitate land titling in ARMM, it is recommended that more appropriate targets and deliverables be set that are more reflective of the level of effort and limitations of any third party nongovernment entity on the process of land titling. It is also further recommended that the Project Management consider sub-contracting the consulting and technical assistance to the RPO, PPOs and LPOs much like the set-up of SMT. However, it is recommended that a cost-plus contract be considered under the new subcontracting arrangement. Sub-contracting of the consulting and technical assistance services on project management to a third party is recommended to maximize and sustain support to DAR-ARMM. This is especially relevant in light of information that, as of writing of this report, all of the Project staff hired by DAR-ARMM have already resigned. This is an unfortunate development as these individuals have already been trained and have significant experience on the workings of the Project. This depletion in institutional knowledge can be averted through the subcontracting of a dedicated service provider. Lastly, the SMT recommends the review and consideration of the SMT-developed policy paper ARMM ARCP II Capacity Development Plan for strategies to ensure a multi-faceted comprehensive capacity development of DAR-ARMM, the DARPOs, and LGUs on the Project. Project Contract Completion Report 42 P age

58

59 Table of Contents ANNEX 1. List of Approved Subprojects... 1 ANNEX 2. LGU Equity Requirement for Agrarian Reform Communities Project II... 2 ANNEX 3. PBGS Guidelines for ARMM ARCPII... 8 ANNEX 4. ARMM ARCPII Capacity Development Plan ANNEX 5. AED Capacity Development Plan ANNEX 6. Coffee Value Chain Study for Sulu Province ANNEX 7. Status of Project Implementation in ARMM ANNEX 8. Project Implementation in ARMM and Formulation of Recommended Strategies ANNEX 9. ARCP II Required Documents with Template as of February 3, ANNEX 10. Status of Rural Infrastructure Subproject Implementation in ARMM and Recommended Next Steps by Subproject i P age

60 ANNEX 1. List of Approved Subprojects The first table is based on the report provided by RPO to NPCO. The second one is based on the worksheet provided by RPO but with updates from LGUs and SMT s review and observations. SUMMARY STATUS OF APPROVED RURAL INFRASTRUCTURE SUBPROJECTS As of June 30, 2014 Status No. of Subproject Cost % SPs LP LGU Equity Total Completed Subprojects (As Bid POW) % 12,141, ,212, ,353, B.1 (50-99% Physical Accomplishment) % 92,345, ,246, ,592, B.2 (25% - 49% Physical Accomplishment) % 58,153, ,821, ,975, B.3 (0% - 24% Physical Accomplishment) % 86,774, ,662, ,437, SPs with NOL to Award Issued-for Contracting (As Bid POW) % 17,600, ,569, ,169, SPs under Bid Evaluation % 425,250, ,176, ,427, SPs with Published ITB & RFQW Issued - Procurement of Civil Works (Bidding Period) % 71,270, ,270, ,540, SPs for Procurement of Civil Works (with NAPA) % 230,753, ,497, ,250, SPs POW for LGU concurrence (Revised POW unsigned & no NAPA) % 46,744, ,744, ,488, SPs for delisting (accdg to LGU) % 53,130, ,727, ,858, SPs NSAC Approved, subject for availability of funds % 38,324, ,324, ,649, Total % 1,132,489, ,297,252, ,429,742, Note: Subtotals and Totals were corrected SUMMARY STATUS OF APPROVED RURAL INFRASTRUCTURE SUBPROJECTS As of June 30, 2014 Status No. of Subproject Cost % SPs LP LGU Equity Total Completed % 13,438, ,508, ,947, With ongoing construction (50% %) % 101,357, ,002, ,359, With ongoing construction (25% %) % 65,968, ,891, ,860, With ongoing construction (0% %) % 83,447, ,062, ,509, with NOL % 2,805, ,045, ,850, with ongoing procurement % 404,740, ,666, ,407, for re-bidding % 153,018, ,018, ,037, with NAPA but without advertisement % 116,643, ,388, ,031, for NSAC re-approval % 52,871, ,871, ,742, for confirmation with LGU % 85,927, ,927, ,854, for delisting % 13,947, ,544, ,492, approved but subject to availability of OFID funds % 38,324, ,324, ,649, Total % 1,132,489, ,297,252, ,429,742, Note: This is based the worksheet provided by RPO. The totals in the RPO worksheet are not accurate. 1 P age

61 ANNEX 2. LGU Equity Requirement for Agrarian Reform Communities Project II - Draft Position Paper for Discussion - Matter for Consideration Since the implementation of the zero-grant policy, the number of LGUs availing of Official Development Assistance (ODA) loans over the past years to complement their traditional Internal Revenue Allotment (IRA) as the main financial resource had been declining. One major factor is the fact that LGUs are financially cash strapped to put up the required capital contribution apart from the perceived inadequate capacity to wade through the complex processes associated with accessing the funds. The LGU s equity problems have practically delayed and slowed down the implementation of several infrastructure and other development projects across the country. This scenario fortunately has been recently taken by the national government as an opportunity to revisit its cost-sharing policy. Accordingly, in response to the apparent inability of the LGUs to provide upfront the required counterpart resources for development projects, the Aquino administration has issued in September 2011 Memorandum Order 24, Series of 2011, otherwise known as the Temporary Suspension and Rationalization of the National Government-Local Government Unit Cost-Sharing Policy, which suspends ad interim the national government -LGU cost-sharing policy until the approval and issuance of a rationalized sharing scheme. A joint Technical Working Group (TWG) has been constituted to study a rationalized sharing scheme composed of a representative from National Economic Development Agency (NEDA) as chair, and representatives from the Department of Budget and Management (DBM), Department of Finance (DoF) and Department of the Interior and Local Government (DILG), as members. The Special Management Team (SMT) of ARCPII for DAR-ARMM, which has been put in place in July 2011 to assist DAR-ARMM to implement the ARCP II in ARMM, has taken the liberty of preparing this position paper with the end view, while being cognizant of the fact that the costsharing policy is under review, of providing the TWG grounded perspectives in the course of revising the guidelines on cost-sharing scheme in the context of LGU equity issue confronting the ARCPII implementation in ARMM in particular. The result of this initiative for ARCPII may also benefit other ODA funded projects under the management of DAR and other agencies by way of example of this Project. The Secretary of DAR-ARMM and some of his core officers were consulted in the preparation of this position paper and the recommendations articulated herein have their full support. 2 P age

62 Introduction The ARCPII for ARMM was designed to support the holistic implementation of the Comprehensive Agrarian Reform Program (CARP) in the region by facilitating the access of target communities to essential support services and markets in terms of substantially expanding the rural production base, raising production and distribution efficiency, improving the competitive advantage of small farmers, improving employment opportunities, and promoting equitable distribution of production and productivity gains. The achievement of these goals hinges on the effective and efficient delivery of the Project s four core components: (1) community-driven development, (2) agriculture and enterprise development, (3) rural infrastructure development, and (4) project implementation and management. Among these, rural infrastructure development is a critical component for enhancing the ability of ARCs and ARC clusters to participate in market-oriented agri-business promotion. As such, rural infrastructure captures approximately 77% or $23 million of the loan of $30 million to the national government that is funded by the OPEC Fund for International Development (OFID) and channelled through the Asian Development Bank (ADB). {The total loan amount to national government is $100 million. Of this amount, ADB part of total Project amounts to $70 million) and covers five other regions of the country}. The implementation mechanism of rural infrastructure development revolves around five building blocks: (1) participatory planning, (2) subproject preparation, (3) equity sharing, (4) contract management, and (5) strengthening funds flow arrangement. The availability of an equity contribution from the LGUs to finance subprojects is a key and critical criterion in the readiness to start subproject implementation. Depending on their income class, the LGU equity ranges from 50% to 70% of the total cost of the subprojects. It is one of the most difficult criteria for LGUs to comply with and in the experience of ARCPII so far, this is a major constraint that has slowed down project implementation and disbursements. Many of the LGUs belonging to the lower tier have indeed expressed their strong interest to implement a subproject but cannot afford to borrow the required loan amount or even put up the required equity out of their current revenues. Based on the findings of the ARCPII-ARMM inception report (prepared by the SMT in September 2011 and discussed with DAR ARMM and National, and ADB), the criteria developed for the LGUs/ARCs to qualify to take on subproject implementation elicited negative feedback from the targeted clients. It was reported by the PAROs that certain LGUs/ARCs officially selected by DAR had already withdrawn and others intend to officially withdraw from participating in the Project because of their uncertainty to comply with the pre-requisites for subproject implementation, chief of which is the cost-sharing criterion. A general sentiment from the LGUs echoes that the equity contribution appears too high and that the degree of difficulty to generate it within the annual planning and budgeting cycle poses major challenges to them. To mitigate the negative impact of the LGU s equity problem on the Project s implementation, the SMT is exploring other innovative modalities to augment fund resources of participating LGUs while at the same time tying capital grants to policy or structural reforms. One approach is to encourage LGUs to enrol in the Performance Based Grants System (PBGS) of the DAR/DOF to recover a portion of their equity contributions but more importantly to enhance governance processes relating to agrarian reform initiatives. The other one is the Performance Challenge Fund (PCF) for LGUs currently being managed by the DILG which can be rationally linked with PBGS through parallel financing. The PCF is an incentive fund for LGUs in the form of counterpart 3 P age

63 funding for high-impact capital investment projects in the Annual Investment Program (AIP) and funded out of the 20% Local Development Fund. As briefly discussed above, the two performance-based mechanisms could be important additional sources of external funds for the LGUs but they do not directly address the equity problems of the LGUs by frontloading additional funds. The PCF, for instance, is a fund matching scheme where the LGU has to allocate equal counterpart fund for the available PCF subsidy. The PBGS, on the other hand, will benefit the participating LGU upon the fulfillment of its performance contract with DAR/DOF towards the end of the project engagement. Hence, a review on the existing guidelines and a policy change to rationalize the cost-sharing formula currently applied by government entities lending to LGUs for locally funded projects is indeed compelling and that specific recommendations and actions to rectify the current situation have to be put forward as articulated in the section below on Recommendations. Situational Analysis As noted above, in the series of consultations made by SMT of ARCPII-ARMM with the LGU partners, national line agencies, CSOs and other local stakeholders in the ARCs, a major concern continuously raised and articulated to the SMT is the level of difficulty for the ARMM LGUs to provide their equity contribution to the project within the context of their budget availability and annual planning and budgeting cycles, i.e., the use of the 20% development fund. The problem is essentially deeply rooted in the fiscal management practices of ARMM LGUs particularly in the budgeting and actual fund utilization that commonly raised issues pertaining to fund adequacy, such as insufficiency of funding support for infrastructure and other development projects. The actual distribution of funds in ARMM LGUs since the creation of ARMM as a political body indicates poor efficiency and effectiveness in terms of fund use. For instance, some twothirds of the LGU funds are allocated for personnel services, which confirm that only a small amount of funds is left for operational expenses, capital outlay, and infrastructure investments. Based on the study conducted by INCITEGov (Towards Strengthening the Fiscal Capabilities of ARMM), covering the period of 2001 to 2005 only 10.40% or PhP8 billion out of the PhP76 billion provided to ARMM went to infrastructure and a measly 3% was spent in agriculture, agrarian reform and fisheries. The education sector got the biggest share of 28% and bulk of the funds went to general overhead. Given the personnel base and overhead burden, the funds intended for developmental purposes would hardly be sufficient for ARMM LGUs. It is therefore imperative for ARMM LGUs to demonstrate improvements in fund utilization capabilities to shift spending bias to development programs. This desired reform in local public financial management is still a long shot, and is unlikely to be realized within the term of ARCPII which is expected to end by In the current list of 28LGUs that will be covered by ARCPII in ARMM, approximately 30% are 1 st and 2 nd income class municipalities requiring 70% LGU counterpart out of the total project cost. These set of LGUs has an average annual IRA of about PhP90 million. Another 33% are 3 rd and 4 th class municipalities requiring 60% equity. This class of LGUs has an average annual IRA of PhP35 million. The remaining 37% of the LGU are 5 th and 6 th and are required to contribute 50% of the project cost for their identified sub projects. This lower class LGUs has average annual IRA of approximately PhP20 million. Based on initial calculations, this sharing scheme, while could bridge the financial limitations of the local governments, is not feasible and does not provide the necessary incentives for the LGUs 4 P age

64 to prioritize investments for ARCs which are normally located in the rural areas. Assuming that each LGUs will get the nominal ceiling of $1.0 million, or PhP44 million, from the ARCPII, a 5 th /6 th class LGU will therefore raise another PhPP44 million in equity in the next 3 years or roughly PhP14 million every year. This amount is way above the minimum 20% development fund required of each LGUs which is about PhP4 million for the 5 th and 6 th class LGUs. In sum, as presented in the table below, for the $30 million OFID grant, nearly $50 million in equity will have to be mobilized by the LGU, comprising both in-kind equity contribution and incash equity. Initial SMT calculations for the equity distributed based on existing sub-project requirements, in-kind equity which includes community contribution in terms of unskilled labor, LGU owned materials, and pre-engineering support could reach $ 19.3 million. But the biggest share would still be the in-cash equity which is about $30 million or $ 3 million annually in the next 3 years or about PhP440 million annually. For the ARMM LGUs, the 20% development fund leaves minimal flexibility given the tremendous diversity and extent of needs from all sectors in local governments, including assistance to internally displaced communities. Competing programs which offer lower equity, e.g., Mindanao Rural Development Program (MRDP) or no equity at all, e.g., ARMM Social Fund, makes the Project as the least priority for tapping by the LGUs. Another form of competition is the financial charges being assessed by the different lending facilities like MDFO, DBP, and LBP where the interest rates vary across these facilities. Other ODA funding sources like JICA, WB, and ADB also impose different rates apart from the hidden costs the LGUs have to deal with in terms of processing time, documentary requirements, and access to fund officers, among others. Income Class % of Total LGUs Projected OFID Available Grant, in US$ Table 1. LGU Equity Requirement for ARCPII Equity based on Current Policy Projected LGU Equity Projected Distribution of Equity Projected LGU Projected LGU Equity (In-Cash) Equity (In-Kind) Requirement, in Requirement, in US$ US$ Projected Total Project Cost, in US$ 1st & 2nd Class LGUs 30 9,000,000 70% 22,830,000 14,430,000 8,400,000 31,830,000 3rd & 4th 33 9,900,000 Class LGUs 60% 14,850,000 8,910,000 5,940,000 24,750,000 5th & 6th Class LGUs 37 11,100,000 50% 11,610,000 6,660,000 4,950,000 22,710,000 Grand Total ,000,000 49,290,000 30,000,000 19,290,000 79,290,000 The policy of zero-grant to the LGU articulates that the maximum allowable grant should not be more than 50% of the total sub-project cost particularly for the poor LGUs. This cost-sharing policy has inadvertently affected the interest and capacity of LGUs to participate and put up the required equity contribution for identified priority projects. ARCPII, in particular, is being affected by the lack of LGU equity as a major problem in project implementation. This issue certainly will be magnified at the level of ARMM LGUs on the basis that minimal resources are allocated for development projects compared to non-autonomous LGUs. To cite in particular the experience of World Bank funded project for the Mindanao Rural Development Program 2 under the Adaptable Program Loan (APL) portfolio of the World Bank, the Program Director Lealyn A. Ramos (Published in SunStar Davao- shared that the major bottleneck of the project implementation has always been the provision of the equity share of the LGUs. The cost-sharing arrangement in their Rural Infrastructure component of the project that requires the program to shoulder half of the total project cost and the other 5 P age

65 half by the proponent LGU has not been so successful given that majority of their client LGUs belong to the 4 th and 6 th income classes who cannot realistically put up the required equity. To address such pressing issue, Secretary Proceso Alcala of the Department of Agriculture (the executing agency for the project) committed to shoulder at least 40% of the LGUs equity share. Under the new scheme the LGU is only required to shoulder 10% equity contribution, which will effectively allow the LGU to fund other identified priority projects. Alternative sources of equity will be mobilized by the Project as part of the immediate solutions to the equity limitations, but this would require time and effort in leveraging locally available funds such as those as from congressional contributions, provincial and potentially regional government contributions, and support from other donor programs, among others. Sourcing out these funds, while certainly a strategic option, may potentially delay subproject preparation and therefore, slow down project disbursements and consequently its completion. Recommendations The strategic solution, therefore, is to usher in a policy change that promotes equity reduction for the LGUs/ARCs. The policy advocacy may involve the following courses of action: The policy framework for national government assistance for the financing of local government projects issued by the Investment Coordination Committee (ICC) of the NEDA Board, the body that approves all foreign-assisted projects, can identify specific grounds for national government intervention concerning equity considerations. The policy framework could articulate the cost-sharing principles that the national government intervention is warranted when the LGU is faced with tight budgetary constraints and unable to provide the basic services to its constituents. The national government assistance in this particular case can be purposively directed to supporting LGU s for closing the resource gap in order to meet the cost-sharing requirements to implement priority development projects. While the ARCPII for ARMM can significantly lead the LGUs to enrol in the performancebased schemes, such as the PCF and PBGS, to recoup future capital investments, DAR as the national implementing agency of ARCPII has to pursue the initiative of putting up a fund to frontload for LGU equity contribution, thus reducing the LGU equity share and enabling the LGU to meet cost-sharing requirements. This proposed initiative is consistent with the cost-sharing principles of the LGU grant-financing framework. The national government support to equity reduction and the capital grant subsidy in general can to be tied to major policy, administrative or structural reforms. The type of governance and economic reforms LGUs can undertake include, but are not limited to, improved policies and procedures on procurement of goods and services; strengthened financial controls and management; fiscal management reform; public administration reform of agencies or departments concerned with rural development; policies related to gender and development, and indigenous peoples; encouragement of regional cooperation and development, such as through the promotion of ARC clusters; support for enhancing the environmental sustainability of rural development projects, such as through the National Greening Program; support for augmenting agribusiness enterprise development, such as through the provision of post harvest schemes; technical and managerial aspects of rural infrastructure development and management; and public disclosure involving the provision of adequate access to information. 6 P age

66 Both the DAR National and ARMM, and the SMT should work individually and collectively for a high level advocacy for a policy change concerning LGU equity in the Project to avert possible LGU withdrawal from project implementation and delisting of subprojects. Involve the ARMM Regional Government (ARG), as a local government enabler, to support the policy changes toward a better and accountable local autonomy. Similarly, ARG can help promote the ARCP II to other ARMM agencies and departments for partnering in ARCP II and help mobilize funding for parallel activities that can provide greater synergies with the objectives of ARCP II, and thereby enabling bigger impact on the ARCs. Raise the point about the nature of the OFID funds which are allocated for the exclusive use of the ARMM project areas. It may be noted that the LGUs and the ARCs in ARMM have repeatedly pointed to the fact that the OFID funds are carry more concessional terms compared to the regular ADB loan assistance (that are meant for other regions of the country under ARCP II, and thus the ARMM component should be covered by a different set of policy for equity to allow ARMM to get the benefit from OFID funds allocated at lower interest rate. The policy change can also be positioned as a confidence building measure by the national government to facilitate putting in-place the ARMM transitional administration and as an incentive for the on-going peace talks between the national government and ARMM political factions concerned. In this context, the national government may also wish to use funds being allocated to ARMM as part of the mini marshal plan/reform program for reducing the burden of equity for ARMM LGUs, toward enhancing good governance and alleviating poverty in ARMM. 7 P age

67 ANNEX 3. PBGS Guidelines for ARMM ARCPII Introduction The Performance Based Grant System (PBGS) was formulated as the implementation mechanism of the Performance Based Incentive Policy (PBIP), an incentive framework to rationalize the National Government s intergovernmental fiscal transfers to Local Government Units (LGUs) towards improving overall LGU performance in governance. The PBGS is the first performancebased incentive mechanism being implemented in the country. The Agrarian Reform Communities Project II (ARCPII) is one of the Investment Coordination Committee (ICC) approved projects with PBGS components. By design the ARCPII does not have specific governance component, thus the national government recommended to pilot test the multi-sectoral approach of the PBGS in ARCPII including the Autonomous Region in Muslim Mindanao (ARMM) as one of the six regions covered by the project. The implementation of the system is expected to provide information about capacity development areas in dire need of improvement and the relevant incentives to reward better performance. The current PBGS guidelines, however, is not responsive to the unique conditions of ARMM as an autonomous government operating in a dynamic and diverse socio-cultural, demographic and governance make-up. The DAR-ARMM ARCPII through the Special Management Team (SMT) conducted an inventory involving 30 LGUs covered by the project to determine their level of compliance or non-compliance with the existing PBGS guidelines. The initial results showed that less than 15% of the LGUs can fully comply with the enrolment requirements and both for the corresponding minimum conditions for capital and capacity development grants. This is unfortunate since the purpose of PBGS is to provide an incentive to LGUs towards improving governance performance and that ARCP2 has bannered the PBGS as an incentive scheme to attract the participation of covered municipalities. In order to live with its mandate to provide an incentive to LGUs toward improving governance in the ARMM ARCPII areas, what is needed is to simplify the eligibility requirements to what is achievable within a short term period at the same time slowly bring the LGUs to move toward the direction of improving local governance, transparency, accountability, and peace and development. The objectives for customizing the PBGS guidelines in the context of ARMM conditions is essentially hinged on three governance parameters: (1) to strengthen existing national and local (regional and provincial, city and municipal LGUs) initiatives and mechanisms for promoting local autonomy, performance management, participation, transparency and accountability; (2) to link and synchronize performance incentives to ARMM governance reform initiatives (social economic development, governance, peace and security) and to ensure convergence of rural infrastructure projects with other sectoral projects such as health, education, peace, etc.; and (3) to promote and sustain local peace initiatives. Cognizant of the timeframe of the project and the absorptive capacity of the client LGUs to implement governance reforms within the ambit of the PBGS mandate, the DAR-ARMM ARCP2- SMT is proposing to introduce and build a graduated or phase-in approach as a mechanism for raising the bar, for the LGUs to demonstrate improvement to substantially and meaningfully accomplish the performance measures they agreed to deliver. 8 P age

68 This paper is presented in two parts. Part A is a commentary on the existing guidelines on the PBGS from the perspective of ARMM (i.e., what does or does not work in the current governance structure and capacity of the region), the underlying recommendations, and the summary of the current and the proposed ARMM PBGS guidelines in a matrix. Part B 1 is the proposed two-year Performance Contract derived from the situational analysis of the conditions peculiar to ARMM as presented in Part A. The performance contract will include the minimum conditions that must be achieved within year 1 or during subproject implementation and the performance requirements that must be attained in the second year or after subproject implementation. Part A: An Assessment of PBGS Guidelines from the Perspective of ARMM and Recommendations 1. On the Objectives of PBGS: Under the Core Objectives of PBGS, include the theme on Peace Promotion as one of the key governance reform areas. The Core Objectives of PBGS should include peace promotion as a cross-cutting theme, thus it should read: Encourage strong performance of LGUs by linking the access and size of the grants against the LGU performance in predefined functional areas. This should focus on crosscutting areas such as planning, budgeting, revenue mobilization, financial management and budget execution, procurement and resource mobilization, transparency, plus agriculture and agrarian reform sector development, and peace promotion. 2. On Who are Qualified: LGU partners of DAR under the ARCP2 who have at least one subproject approved for PBGS enrolment. 3. On Eligibility (Pre-Qualification) Requirements: Condition #1: Letter of Intent; No recommended change. Condition#2: Authorization from LGU for MDFO to access the Local Government Performance Management System (LGPMS) and Local Government Finance Monitoring System (LGFMS) through SB resolution o LGU LGPMS governance reports are already accessible for download and printing of online users. Therefore, the need for authorization from LGU for MDFO to have direct access to their LGPMS database is absolutely unnecessary. Giving out the access code to a third party user is a breach of the security feature of LGPMS. Recommendation: Completed annual on-line data entry of LGPMS (on the year of LGU subproject application) and a Confirmation Letter of the Local Chief Executive to establish and/or maintain an official LGU Webpage 1 The original PBGS performance measures include the five areas of governance, resource allocation and utilization, financial management, human resource, and agriculture and agrarian reform. The revised guidelines, however, cover only three performance measures such as governance, financial management, and agriculture and agrarian reform, which this paper correspondingly adopts for consistency purposes. 9 P age

69 Condition #3: BLGF Certified True Copy of the Statement of Receipts and Expenditures (SRE) o In ARMM, the DOF office is inexistent, thus, the SRE Reports of ARMM LGUs are submitted to the DOF Region 9 for Island LGUs (Basilan, Sulu and Tawi-Tawi) and to DOF Region 12 for Lanao del Sur and Maguindano LGUs. These SRE reports are submitted quarterly and accessible electronically to both DOF and BLGF. Recommendation: Bureau of Local Government Finance (BLGF) Certified True copy of the previous year s Statements of Receipt and Expenditures (DOF Region 9 for Basilan Sulu and Tawi-Tawi LGUs and DOF Region 12 for Lanao del Sur and Maguindanao) Condition #4: COA Audited Financial Report o No recommended change Absence of one document disqualifies the LGU as one of the beneficiaries of the PBGS Recommendation: In the case of a poor LGU but identified partner of DAR-ARCP2, who have at least one approved subproject for assistance and cannot meet one of the pre-qualification requirements, should not be outright disqualified from participating in the PBGS. It should be viewed rather as an opportunity for the National Government to enhance the governance performance of such poor LGU through relevant capability building support. Poor LGU is qualified as LGU with greater share of poor population, which does not necessarily correspond to LGU with low income classes considering that the classifications are based on LGU revenue instead of poverty indicators. It is premised that by strengthening the weakly capacitated LGUs will enable them to improve performance thereby addressing compelling poverty issues. 4. On Minimum Conditions for Capacity Development Grant (CDG) The minimum conditions for CDG have to be complied with by the LGU within the first year or during the subproject implementation. Condition #1: Sanggunian approved organizational chart and updated staffing summary This is not necessary considering that the organization and functional chart of the LGU is a given already, however, this document can be required for posting in the LGU webpage. Recommendation: An operating Webpage with the following uploaded documents: 1. Local Ordinance approving the current year s budget and all details of the approved budget compliant with budgetary requirements and general limitations including equity allocation for ARCP2 projects 2. Current year s Annual Investment Plan (AIP) approved by the Local Sanggunian 3. Organizational Chart with plantilla positions approved by the Sanggunian 4. Annual Procurement Plan 5. Previous year s Statement of Receipts and Expenditures (SREs) and detailed Expenditure of the previous year s 20% Development Fund 10 P age

70 Condition #2: Sanggunian Approved Capacity Development Agenda o The CDG, as designed, supports the organizational and institutional development of the LGU. The CapDev Agenda, on the other hand, is the larger capacity building program of the LGU which requires a set of competencies, including human resource development and institutional arrangements that should be in place within the LGU. To ensure that the LGU s absorptive capacity as well as its capacity to manage programs and projects are systematically addressed, the CapDev Plan should be framed toward addressing development priorities in the areas of sustainable agriculture, natural resource management, environmental protection, social service delivery, fiscal management and revenue generation, and participatory governance including transparency and accountability. o In line with this, the ARCPII-ARMM SMT is formulating a capacity development framework and strategy that aims to address specific improvements in governance and peace promotion that will essentially complement the reforms in the local governments that the PBGS intends to achieve. The governance reform framework of the SMT shall focus on fiscal management, procurement, sustainable rural infrastructure, environmental sustainability, and gender. o Further, the capability building program for LGUs should include support to establishing local peace building mechanism or local conflict resolution mechanisms (LCRMs) for barangays identifying members coming from the barangay council, inter-faith members and Civil Society organization and providing funds thereof. o Capacity being defined as the abilities, skills, understanding, attitude, values, relationships, behaviours, motivations, resources and conditions that enable the individuals, organizations, networks and broader social systems to carry out functions and objectives over time. Recommendation Approved Capacity Development (CAPDEV) Plan addressing development priorities in the areas of governance and peace promotion Condition #3: A duly designated focal person for human resource development (HRD) (certification from the Mayor) o The presence of a designated focal person for HRD will not address Capacity Gaps in the ARMM LGUs through LCE s certification. The governance structure of ARMM is quite different from the administrative LGUs elsewhere in the country: in ARMM devolution stops at the regional level. The service delivery functions, mechanisms, programs and personnel are not fully devolved to the LGUs (province, city or municipality) which is part of the reason for the dismal performance in the delivery of basic services to their constituents. o The appropriate approach would be to strengthen the service delivery systems, mechanisms and establish dedicated resources in the areas of (a) agriculture, natural resources and agrarian reform; (b) environmental governance; (c) local economic development; (d) health and/or education services; and (e) fiscal reform and revenue generation, to ensure better performance and service delivery of programs and services to the communities. o Highlight the dimension of peace promotion as part of the PBGS core objective in the CDG minimum conditions by ensuring that local peace building mechanisms are organized and functional. This means that the LGU proactively partners with NGOs, CSOs, POs and community organizations for the advancement of peace. Recommendation: Organized/reactivated the required Local Special Bodies (LSBs) in accordance with laws particularly the Local Development Council and the Local Peace and Development Council, as minimum 11 P age

71 Established Personnel Management Committees (Personnel Development, Grievance and Appeals, PRAISE and Promotion and Selection) o Inclusive form of leadership and Islamic governance (compose of elders, political leaders, religious and community leaders) has to be explored in light of the existing leadership style of Moro leaders that ventures toward paternalistic leadership where decisions are made by the leader on behalf of the constituents. Thus, rewards, career growth, and grievance settlement in the organization is subjective upon the leader s own assessment. Moreover, plantilla positions approved by the Sanggunian and the Civil Service Commission have to be complied with religiously. 5. Proposed Utilization of the Capacity Development Grant 1) A maximum of 30% for IT Equipment, Software, and Staff 2) A maximum of 15% for communication, publication, peace promotion, and community consultations 3) The remaining 55% for CapDev support to institutional development (governance, financial management, service delivery, peace initiatives, etc.) 6. On Governance Conditions for the Capital Grant (CG) The minimum conditions for CG have to be complied with by the LGU within the first year upon signing of the performance contract and the performance measures at the end of subproject implementation. Planning Capacity o Annual Investment Program approved by the Sangguniang Bayan (SB) (Joint Memo Circular No.1, S.2007 compliant). Included as part of the eligibility requirements. o Comprehensive Land Use Plan (CLUP) with Agrarian Reform Community Development Plan (ARCDP) approved by the SB 1. The Agrarian Reform Community Development Plan (ARCDP) should not be incorporated in the CLUP because the latter is a spatial plan or planning document of the LGU that rationalizes the allocation and proper use of land resources while the former is a master development plan of the ARC or cluster of ARCs which essentially follows the barangay development planning process that covers the five development sectors (social, economic, infrastructure, environmental management, and institutional). 2. The appropriate LGU planning document to integrate ARCDP is either in the Comprehensive Development Plan (CDP) being the multi-sectoral plan or the Executive and Legislative Agenda (ELA) - a term-based sectoral plan. The CDP and ELA both follow a bottom-up and participatory formulation process. Recommendation: Comprehensive Land Use Plan (CLUP) that has undergone local consultation or the Comprehensive Development Plan (CDP) of the Municipality developed with the participation of local civil society groups/organization incorporating agriculture, agrarian reform and peace building initiatives Comprehensive Development Plan (CDP) approved by Sangguniang Panlalawigan (SP) or Executive and Legislative Agenda (ELA) adopted and approved 12 P age

72 1. The approved CDP or ELA should incorporate the elements of ARCDP as articulated above so that when the plan is translated into local development investment (LDIP) and annual investment plan, the prioritized PPAs of ARCDP are proactively considered in the process of investment programming and budgeting. Recommendation: Approved Executive and Legislative Agenda (ELA) incorporating ARC development plan and programs Budgeting o Budget approved in compliance with budgetary requirements and general limitations 1. The LGC provides the general limitations clause on the budget that the LGU total appropriations for personal services for one fiscal year must not exceed 45% in the case of first to third class LGUs and 55% for the fourth to sixth class LGUs. In the case of ARMM LGUs, appropriations for personal services reach more than 80% of its budget. Recommendation: Budget approved with clear expense items in compliance with budgetary requirements and general limitation Financial Management Capacity o No adverse audit report in the latest available audit report Recommendation: This will be part of the Performance Contract Procurement Capacity o Bids and Awards Committee (BAC) established and functional (current year) thru certification from the Mayor>To be retained. Recommendation Annual Procurement Plan Monitoring and Evaluation o Published State of Local Governance Report (SLGR)>To be retained. Recommendation: Monitoring team for ARCPII projects through the creation of LPO Revenue Generation o Updated Local Revenue Code (within the last 5 years) 1. LGUs in ARMM do not, in most cases, update their Local Revenue Code once every five years because they are overly dependent on the national government transfers in the form of IRA. Three out of every five ARMM municipalities on the average derived less than 1% of their total income from the collection of local taxes. o o Real Property Assessment Report (Real Property Assessment Increment) Positive revenue increment(from Statement of Receipt and Expenditures) 13 P age

73 1. Does the positive increment refer to the IRA or to the increase in own-source of revenues or locally generated revenues from taxes, fees and receipts? o o Real Property Tax Accomplishment (from SRE) On Revenue Generation, in general, the LGU will be required to prepare a Revenue Collection Plan with clear targets, structure and mechanisms to increase local revenue by at least 10 percent based on previous year s revenue collection target. Equity contribution for PBGS included in the Budget> to be retained. Recommendations: Revenue Collection Plan as a minimum condition A 10 percent increase in the local revenue collection based on the implementation of the plan to be reflected in the performance contract. 7. Proposed Utilization of the 20% Capital Grant The PBGS guideline currently stipulates that the cash incentive may be used only for subsequent infra projects, whether under the ARCP II or other development programs of the LGU, after the completion of the Performance Contract Recommendation The 20% Capital Grant be given upfront for use in the first subproject of the LGU. In the event the LGU is unable to carry out the Performance Contract will mean the return or refund of the 20% Capital Grant. Failure to remit the required amounts will result in the intercept of the LGU s IRA. 8. Sub-Committees of the PBGS Technical Committee The Assessment Group o The Assessment Group tasked to gather information and evaluate LGUs on compliance with the governance conditions and performance is composed mostly of members from the National Government Agencies (DOF-MDFO-BLGF, DILG-BLGS, NEDA-RDCS, DENR, League member, etc). For ARMM, the Regional Line Agency counterpart (DILG-ARMM, RPDC, DENR- ARMM, etc) of these NGAs must constitute the members of the Assessment Group in collaboration with DOF-MDFO and DOF-BLGF. Recommendation: The Assessment Group as designed shall remain as an inter-agency mechanism but shall be composed largely by the Regional Line Agencies (RLAs) of ARMM such as the DILG-ARMM, DENR-ARMM, RPDO, and DOF-Region 9 for Island LGUs and DOF-Region 12 for mainland LGUs. The national government agencies/ bureaus such as the DILG- BLGS, NEDA-RDC, and MDFO have the option to participate in the evaluation activity based on their availability. It is recommended that DILG-ARMM should be the lead agency of the Assessment Group given its supervisory mandate over local governments. 14 P age

74 9. Annex B: List of Performance Measures Information Availability and Transparency o Database on CBMS used as input to planning, decision making, project identification - The CBMS as a poverty monitoring tool is not fully implemented in ARMM. As of 2010, reportedly only 12 ARMM LGUs (to be verified) had adopted and implemented CBMS. Of the 30 LGUs covered by ARCPII in ARMM, only three LGUs (Bongao, Panglima Sugala and Marantao) have implemented the CBMS. 10. Summary of the Current and Proposed PBGS Guidelines for ARMM ARCPII Current PBGS Guidelines Proposed PBGS Guidelines for ARMM ARCPII I. Eligibility Requirements 1) Letter of Intent 1) Letter of Intent 2) Authorization from LGU for MDFO to access the Local Government Performance Management System (LGPMS) and Local Government Finance Monitoring System (LGFMS) with SB Resolution 3) BLGF Certified True Copy of the Statement of Receipts and Expenditures 2) Completed annual on-line data entry of LGPMS and a confirmation Letter of the Local Chief Executive to establish and/or maintain an official LGU Webpage 3) Bureau of Local Government Finance (BLGF) Certified True copy of the previous year s Statements of Receipt and Expenditures (DOF Region 9 for Basilan Sulu and Tawi-Tawi LGUs and DOF Region 12 for Lanao del Sur and Maguindanao) 4) COA Audited Financial Report 4) COA Audited Financial Report II. Minimum Conditions for Capacity Development Grant Sanggunian approved organizational chart and updated staffing summary Sanggunian approved Capacity Development Agenda A duly designated focal person for human resource development (certification from the Mayor) Established Personnel Management Committees (Personnel Development, Grievance and Appeals, PRAISE and Promotion and Selection) An operating Webpage with the following uploaded documents: o Local Ordinance approving the current year s budget and all details of the approved budget compliant with budgetary requirements and general limitations including equity allocation for ARCP2 projects o Current year s Annual Investment Plan (AIP) approved by the Local Sanggunian o Organizational Chart with plantilla positions approved by the Sanngunian o Annual Procurement Plan o Previous year s Statement of Receipts and Expenditures (SREs) and detailed Expenditure of the previous year s 20% Development Fund Reactivated the mandated Local Special Bodies (LSBs) in accordance with laws particularly the Local Development Council and the Local Peace and Order Council, as minimum Approved Capacity Development (CAPDEV) Plan addressing development priorities in the areas of agriculture, service delivery, revenue generation, participatory governance & transparency 15 P age

75 Current PBGS Guidelines III. Minimum Conditions for the Capital Grant Annual Investment Program approved by the Sangguniang Bayan (SB) (Joint Memo Circular No.1S2007 compliant) Comprehensive Land Use Plan (CLUP) with Agrarian Reform Community Development Plan (ARCDP) approved by the SB Comprehensive Development Plan (CDP) approved by Sangguniang Panlalawigan (SP) or Executive and Legislative Agenda (ELA) adopted and approved Budget approved in compliance with budgetary requirements and general limitations No adverse audit report in the latest available audit report Bids and Awards Committee (BAC) established and functional (current year) thru certification from the Mayor Published State of Local Governance Report (SLGR) Updated Local Revenue Code (within the last 5 years) Real Property Assessment Report (Real Property Assessment Increment) Positive revenue increment(from Statement of Receipt and Expenditures) Real Property Tax Accomplishment (from SRE) Equity contribution for PBGS included in the budget Proposed PBGS Guidelines for ARMM ARCPII Comprehensive Land Use Plan (CLUP) that has undergone local consultation OR the Comprehensive Development Plan (CDP) of the Municipality developed with the participation of local civil society groups/organization incorporating agriculture, agrarian reform and peace building initiatives Approved Executive and Legislative Agenda (ELA) incorporating ARC development plan and programs Annual Procurement Plan Budget approved with clear expense items in compliance with budgetary requirements and general limitation Monitoring Team for ARCP2 projects or the Local Project Office through EO BAC established and functional with CSO participation Published State of Local Governance Report (SLGR) A Revenue Collection Plan Equity contribution for PBGS included in the budget 16 P age

76 Part B: Proposed Performance Measures and Contract (draft) Performance Measures Governance Planning Structures and Plans Information Availability and Transparency Legislation Performance Monitoring and Feedback Public/Community Participation Minimum Conditions (within Year1 and/or during SP implementation) Performance Indicators LDC and its sectoral committees constituted and functional Local Peace and Order Council functional CDP approved by Sanggunian with EO Capacity Development Agenda ELA approved by Sanggunian and Annual Investment Plan BAC established and functional with CSO participation (current year) through certification from the LCE Operating LGU Webpage Publication and posting on the webpage of LGU plans (CLUP, CDP, ELA, AIP, ARCDP, Procurement Plan), financial statements, and actual project status vs. plans and targets Publication of State of Local Governance Report (SLGR) Monitoring Team for ARCP2 projects and/or the Local Project Office (LPO) established Participation of NGO/POs/ARBOs members of LDC Conduct of public hearing during LGU planning and budget process Financial Accountability Budgeting of Cash Budget approved with clear expense Availability items in compliance with budgetary requirements and general limitation Internal Control COA Findings % of Disbursements with negative Performance Requirement (Year 2 or after SP implementation) CLUP approved by LGU/HLURB Local Ordinance passed by the current Sanggunian creating a local peace building mechanism (LCRMs) Cashflow Management System in place System of Internal Control and Audit in place Segregation of duties Internal audit independent from the accounting functions Production of IA reports Evidence of follow-up on IA reports/actions by the management Remarks/Grants 17 P age

77 Performance Measures Prudent Spending Audit Findings LGU Expenditure and Revenue Collection Financial Management Systems Performance Indicators Minimum Conditions (within Year1 and/or during SP implementation) COA findings % size of disbursements with negative COA findings compared to size Major Issues in the most recent COA report are being addressed in Sanggunian and in the administration A Revenue Collection Plan to increase local revenue Performance Requirement (Year 2 or after SP implementation) A 10% increase in the local revenue collection based on the implementation of the plan Computerized or manual financial management systems are in place Procurement Approved Annual Procurement Plan Manuals and procurement proceedings are documented and made available to the public (abstract of bids for civil works, procurement of goods & services, bid results, contracts awarded, etc) Publications Annual financial statements are updated and submitted on time to COA, and made available to public by posting in public places and on the LGU webpage Agriculture and Agrarian Reform Support to ARCP implementation & sustainability ARCDP formulated/updated and incorporated in the CDP/ELA/AIP Functional LPO established ATs assigned in ARC LGU investments in agriculture (budget allocated and actually used as planned) Remarks/Grants 18 P age

78 ANNEX 4. ARMM ARCPII Capacity Development Plan CAPACITY DEVELOPMENT PLAN FOR SUSTAINABLE RURALLIVELIHOOD IMPROVEMENT IN ARMM (as of 17 April 2012) A. BACKGROUND AND RATIONALE The Autonomous Region in Muslim Mindanao (ARMM) has long been seen as an area where governance, managerial and technical capacities, especially in the context of rural agriculture and livelihood development, need to be strengthened substantially. Among development professionals, there is the recognition that the ARMM has special and urgent needs for capacity building along the lines of governance, agriculture and economic development, peace and security, among others. Beyond training, this need for enhanced capacities should be addressed by taking a longer-term perspective on competency building and by utilizing practical and effective approaches to capacity development. This need is further amplified by the current political situation of the ARMM where it is undergoing a phase of transition. From January 2012 until May 30, 2013, the ARMM, under the leadership of a OIC Regional Governor, would be implementing the ARMM Transition and Investment Support Plan, which is dubbed as the governance reform program, to begin implementing reforms in key economic and social sectors, build the capacity of institutions concerned within the Regional Government, and jumpstart economic and livelihood development initiatives. The ARMM Transition and Investment Support Plan, also known as the ARMM Mini-Marshall Plan 2, aims to solve severe poverty, high rate of unemployment, poor health conditions, poor basic education and weak governance in ARMM. Given this new leadership and its direction, and drawing the good experiences of the past from initiatives undertaken by Government agencies and development partners, there is a short but critical window for engaging the OIC Regional Government and helping it to lay the foundations for capacity development. The Department of Agrarian Reform (DAR) places heavy emphasis on capacitating the communities and respective governance institutions, and aims to augment the support services to enable the communities to make optimum use of the lands being provided to them under the Comprehensive Agrarian Reform Program (CARP). Another important facet of DAR s strategy is to build the capacity of individual personnel and institutions working on the CARP -- meaning DAR and the regional line agencies (RLAs), such as the Department of Interior and Local Government (DILG), Department of Agriculture (DA), Department of Environment and Natural Resources (DENR), Department of Social Welfare and Development (DSWD), Department of Education (DepED), and the Department of Health (DOH). There are also important considerations being given to enhancing the culture of peace and for institutionalizing the peace lens approach 3 within the context of community planning and development. Hence, agencies such as the Office of the 2 The ARMM Transition and Investment Support Plan (or the ARMM Mini-Marshall Plan) is a governance reform roadmap to be implemented in ARMM from now until June 30, The components for this plan are: Improving service delivery performance; Creating an enabling environment for public-private partnerships towards equitable growth; Improving public safety and security; Reforming and strengthening governance capacities; Cleansing the electoral system; and Improving the legal framework for governance, peace and economic growth.- From the Office of the President s Official Gazette at 3 A Peace Lens Approach - looking for opportunities for building peace, peace trends, zones of conflict, early warning signs of conflict, barriers to peace, key peace actors and how peace is construed when talking about security and the potential impact of policies (Source: 19 P age

79 Presidential Adviser on the Peace Process (OPAPP) are seen as partners in the peace building and capacity development process. Furthermore, the Local Government Code (LGC) in 1991 and its adoption in ARMM through the Muslim Autonomy Act No. 25 on September 13, 1995 mandates the devolution of functions from the national government agencies to the Local Government Units (LGUs), thereby acknowledging the critical role of LGUs in local economic and social development. The LGUs are expected to encourage the participation of the poorer sectors and marginalized groups in the provision of local infrastructure and essential support services. However, capacity building efforts for LGUs to enhance their service delivery mechanism in the Agrarian Reform Communities (ARCs) especially in the ARMM are inadequate. The Agrarian Reform Communities Project, second phase (ARCPII), financed by the Asian Development Bank and the OPEC Fund for International Development, has been designed to support the implementation of the CARP essentially by capacitating the LGUs and ARCs as well as other provincial and regional stakeholders. The implementation design of the Project involves a holistic support to CARP by facilitating the access of target communities to essential support services and markets in selected ARCs and ARC clusters eventually facilitating the transformation of target communities from subsistence producers toward agribusiness development. The Project includes both agrarian reform beneficiaries (ARBs) and other segments of the rural poor in the ARCs and ARC clusters (comprising a group of ARCs) in target municipalities. ARCPII adopts community-driven development strategies to reach out to large segments of the rural poor in the target areas to strengthen their physical and social capital. The Project serves as an anchor for implementing the capacity development initiatives which in turn will also facilitate in effective implementation of the Project itself, it can be used as a vehicle to engage the state and non-state actors at various levels (local, provincial and regional), and the resources deployed for Project (through loan proceeds, technical assistance for project management, and corresponding training and development support) can also be used as a leverage to mobilize additional resources from other development partners including government departments and interested aid agencies. A systematic capacity development effort with coherent outcomes and impact will clearly require drawing up an appropriate plan that would promote the integration and harmonization of capacity building interventions that will strengthen the capacity of key stakeholders involved more generally in pursuing rural development in ARMM and those specifically engaged in the Project. It will also need close coordination with the national and regional governments, nongovernmental organizations (NGOs), civil society organizations (CSOs), aid agencies and the academe for drawing on the good lessons of the past, carrying out the necessary analytical work, and mobilizing funds. 20 P age

80 B. OBJECTIVES AND SCOPE OF WORK Objectives The overall objective of this Capacity Development for Sustainable Rural Livelihood Improvement in ARMM (CapDev Plan) is to improve the capacities of the Agrarian Reform Communities (ARCs) as supported by accountable and transparent local governments and responsive autonomous regional government, and a network of CSOs and NGOs to take a more proactive role in rural poverty reduction and to sustain improvements in income and quality of life. With ARCP II as the anchor program, this CapDev Plan shall specifically build capacities needed to: 1. Improve service delivery through meaningful community participation and greater transparency and accountability among key governance institutions; 2. Engage the private sector and provide business development services for rural livelihood improvement; and 3. Enhance the prospects for peace and development by promoting social development management and incorporating the perspectives of peace, gender balance and environmental sustainability. Levels of Engagement The CapDev Plan shall establish engagements with the Agrarian Reform Communities (ARCs) and a core of enabling institutions within the ARMM governance structures, as follows: 1. Agrarian Reform Communities Component shall focus on community organization and individual capacities for: a. Farm and enterprise management; b. Marketing management; c. Promotion and utilization of sustainable agriculture technologies; d. Rural finance management; and e. Peace. 2. Local Government Component shall focus on organizational capacities of local governments (e.g., barangay, municipal and provincial LGUs) to be able to: a. Improve service delivery performance especially in agriculture and enterprise development in the ARCs; b. Improve community participation, transparency and accountability particularly in implementing projects intended for ARCs; c. Strengthen local peace promoting initiatives and conflict resolutions especially involving agrarian communities; and d. Improve climate change adaptation in project development. 3. Regional Government Component shall focus on creating and improving regional enabling environment toward: a. Increased public-private partnership (PPP) initiatives in ARCs; b. Improved regional and local development coordination and monitoring for ARC development; c. Improved LGU oversight for governance reform; 21 P age

81 d. Reforming and strengthening governance capacities; and e. Improved policy development and linkages for agrarian reform development. This plan also aims to contribute to the reform and development agenda of the ARMM by strengthening the capacities of the various stakeholders in sustainable rural livelihood development, particularly in taking a more proactive role in rural poverty reduction and to sustain improvements in income and quality of life, good governance and peace. This would involve a social-inclusive approach to engage Agrarian Reform Beneficiaries (ARBs) and their organizations (ARBOs), ARCs, LGUs, the DAR Provincial and Regional structures and the Regional Government of ARMM. Geographic Coverage and Stakeholders The principal areas to be covered by the CapDev Plan shall are the areas covered by ARCPII. Specifically the Plan will be implemented in the following LGUs and ARCs: Table 1. List of Covered Areas by the CapDevPlan PROVINCE LGU Name of ARC No. of ARC Brgys. Name of Barangays Covered Maguindanao Kabuntalan Matilak ARC 4 Matilak, Maiting, Pened, Liong Datu Odin Sinsuat MRP 3 ARC 2 Labungan&Kibucay Parang (IRANUN Alliance) Macarimbang ARC 4 GT Biruar, Gadungan, Orandang&Samberen Matanog (IRANUN Langkong ARC 2 Langkong&BayangaNorte Alliance) Datu Saudi Salbu ARC 1 Salbu Talayan Barrio Muslim ARC 3 Tamar, Marader, Fukol DatuPaglas (SLAM Bunawan ARC 3 Bunawan, Kalumenga, Napok Alliance) Datu Abdullah Sangki Tukanalogong ARC 2 Tukanaloging& Kaya-Kaya Gen. SK Pendatun* SLAM Cluster Tbd to be finalized (SLAM Alliance) Sultan sabarongis* (SLAM Alliance) Mileb ARC 5 Mileb, Barurao, Sampao, Kulambong, Panadtaban Paglat* (SLAM Alliance) Kadayunan ARC 1 Ramcor Pagalungan* (SLAM Alliance) SLAM Cluster Tbd to be finalized Barira* (IRANUN Alliance) MRP 2 ARC 9 Tugaig, Nabalawag, Barira, Liong, Lipa, Marang, Gadung, Bualan, Ruminimbang MRP 1 ARC 4 Nuyo, Dinganen, Edcor, Batatawan Buldon* (IRANUN Alliance) Number of LGUs 14 Number of barangays in 21 ARCs Lanao del Sur Bumbaran Bumbaran 7 Sumugot, Franfort, Lambanogan, Punud, Comara, Apartfort, Mansilao Tagoloan Malinao-Cadayonan 10 Kingan, Little Marawi, Inudaran, Mimbaguiang, Cadayonan, Sigayan, TagoloanPoblacion, Malinao, Baguaingund; Kianibong Poona-bayabao Ragayan 16 Bangon, Bubong-Dimunda, Bugaran, Bualan, Cadayonan, Calilangan- Dicala, Calupaan, Dimayon, Dilausan, Dongcoan, Gadungan, Poblacion, 22 P age

82 PROVINCE LGU Name of ARC No. of ARC Brgys. Name of Barangays Covered Liangan, Lumbac, LumbacaIngud, Madanling Marantao Marantao 9 CamaligBubong, CamaligPoblacion, Bandar Ingud, Tacub, BangaPantar, CawayanLinuk, CawayanKalaw, InudaranLoway, Cawayan Ganassi Taliogon 10 Barorao, Taganonok, Barit, Panggawalupa, Taliogon Proper, SogodMadaya, Tabuan, Para-aba, Masolun, Campong a-raya Wao* Milaya ARC 6 Barangays Milaya, Amoyong, Kadilingan, Bout, and Cebuano Number of LGUS 6 Number of barangays in 58 ARCs Basilan Tipo-tipo TARBADECO 1 Tipo-Tipo Proper Ungkaya-Pukan TIPARBECO 2 Cabangalan&BohehPahuh Lamitan City SCARBIDCI 9 Sta. Clara, Tumakid, Maloong San Jose, Maloong Canal, Balagtasan, Bohenage, Baugos, Panunsulan LARBECO For validation Sumisip TARBIDCI 1 Tumahaubong CATARBEDECO For validation MARBEDCO For validation Maluso CARBADECO 1 Cahas Lantawan TARBAMC For validation Number of LGUs 6 Number of barangays in 14 Covered ARCs Sulu Maimbung Maimbung ARC 7 TubigSamin, Matatal, RatagLimbun, Kandang, Gulangan, Patao, Ipil Pandami Pandami ARC 4 ParianDakula, Lahi, Malanta, Sibaud Proper Panamao Sultan JamalulKiram ARC 3 Suuh, KanUkol, Kandayok Banguingui (formerly Calaycay ARC 3 Danao, TambonBobo, Kahikukuk Tongkil) Siasi Tulling ARC 5 to be finalized Number of LGUs 5 Number of barangays in 22 Covered ARCs Tawi-tawi Sibutu Ungusungus - Tongehat ARC 4 HadjiMoctar, Ungus-ungus, Tongehat, Tandouwak Tandubanak ARC 4 Tongsibao, Sheik Makdum, Tandubanak, Taungo Bongao Lakit-lakitMandulan ARC 3 TubigBasa, Lakit-Lakit, Mandulan PanglimaSugala Buan-Karaha ARC 2 Karaha, Boan Languyan TubigDakulah - 3 to be finalized Basnunuk-Sikullis ARC Sitangakai Sitangkai ARC For validation Number of LGUs Covered 5 Number of barangays in ARCs 16 Total LGUs covered in ARMM 36 Total ARCs: 40 Indicative number of 131 barangays covered 23 P age

83 The main targets of the CapDev plan are the households and the Agrarian Reform Beneficiary Organizations (ARBOs) within the target ARCs and ARC Clusters. However, in order to achieve the objectives of agrarian reform in general and of ARCPII in particular, the CapDev plan will also deliver a purposive capacity building support to local governments for them to be able to institute and sustain service delivery initiatives to ARCs and the regional government led by the DAR-ARMM for it to be able to provide an effective enabling environment that would support policies and program on inclusive development in agrarian communities and transparent, participative and accountable governance. Impact Areas Cognizant that the key components of ARCP II are Community-Driven Development (CDD), Agriculture and Enterprise Development (AED), Rural Infrastructure (RI) Development, and Project Implementation and Management, this CapDev Plan foresees the need for significant capacity development in the following areas: 1. Farm and enterprise management for improve productivity-as a social justice program, a major objective of agrarian reform is not only the distribution of lands but making sure that lands distributed became an instrument for farm productivity and enterprise development. This capacity development plan therefore endeavour to achieve these objectives by introducing sustainable agriculture technologies, farm productivity and value adding schemes to complement the rural infrastructure investments of the ARCPII. 2. Participatory Planningand Management Integrated in all processes of ARCP II, participatory planning is done to ensure community and LGU ownership and sustainability of every undertaking; 3. Fiscal Management Over and above compliance with fiduciary requirements of the Donor Agency and the National Government, the CapDev Plan aims to promote sound fiscal management as a driver for fiscal stability. Capacity development interventions would include bringing the principles of transparency and stewardship to budget planning, controlling spending and improving expenditure efficiency and oversight within ARBOs and LGUs; and 4. Procurement - Albeit, part of fiscal management, procurement is given emphasis as a capacity development impact area of the Plan for its significance in the realization of rural infrastructure projects. Also considered as one of the key governance areas by the National Government, for its inclusion as one of the criteria in the Performance Based Grant System (PBGS), the improved capacity of LGUs to conduct their respective procurement processes in a transparent, timely manner that adheres to the governing procurement policies of the National Government and donor agencies (if any) is aimed. Cross-Cutting Themes and Safeguards Compliance Vital to any well-managed program is its compliance with set environmental and social safeguards (ESS). ARCP II shall strictly adhere to the ESS requirements set by the Donor Agency and the National Government, especially on the areas of environmental sustainability, resettlement and protection of Indigenous Peoples (IPs). 24 P age

84 Apart from the impact areas and compliance to safeguards, sustainable rural development in ARMM also calls for cross-cutting capacities to be built in the following themes: 1. Peace this CapDev Plan gives the distinct importance of the dimension of peace in ARMM. With this, activities for this theme would include mainstreaming peace and ensuring that processes are Conflict-Sensitive and Peace Promoting (CSPP) in LGU and ARC planning, Culture of Peace Program and application of peace lens in all phases of project management; 2. Gender Balance Mainstreaming of gender lens in all activities of the plan shall be done to ensure that women s participation is strengthened in leadership and management, service delivery, participatory governance and peace building; and 3. Environmental Sustainability Not only shall this theme involve the mainstreaming of environment protection and conservation in all planning activities such as the Strategic Participatory Planning Process (SPPP), it shall also endeavour to incorporate climate change adaptation (CCA) and disaster risk reduction and management (DRRM) elements, particularly in planning and implementation of RI subprojects and AED activities. These impact areas and themes, along with the technical capacities needed to deliver the rural development targets on Rural Infrastructure (RI), Agriculture and Enterprise Development (AED), and Project Implementation and Management (PIM), comprise the core elements of the CapDevPlan for Sustainable Rural Livelihood Improvement in ARMM. C. APPROACH AND METHODOLOGY Capacity Development Approach Capacity development may be defined as the process whereby individuals, organizations, institutions and systems increase their ability to perform their functions, fulfil their mandate and achieve their goals. Aside from the transfer of technical competencies, the emphasis of this CapDev Plan is on empowering communities and the local and regional institutions to develop and implement their rural livelihood improvement initiatives themselves, thereby decreasing their dependency on external organizations and donor agencies. Critical to the empowerment of all stakeholders is a participatory approach across all processes in capacity development. Hence, at the outset, a capacity development assessment to identify the specific capacity development needs of the stakeholders shall be conducted in a consultative and participative manner. Donor agencies shall also be consulted to draw their insights and take on the competency building needs of these stakeholders as well. To facilitate this process, support to the broad stakeholdership of rural livelihood improvement in ARMM, following a systematic process of capacity development that leads to longer-term sustainability, utilizing effective delivery methodologies shall be provided. Competency building support shall be provided to other stakeholders such as NGOs, the DAR-ARMM Regional Office, and Regional Government of ARMM as well. Moreover, competencies related to cross-cutting themes (CCTs) to enhance the sustainability of project gains are infused into the CapDev Plan. 25 P age

85 Participatory Capacity Development Methodologies This CapDev Plan will use participatory methodologies in the design, development, implementation and evaluation across all capacity development activities. Adult learning and capacity development studies have shown that delivery methodologies for capacity development activities are most effective when there is an emphasis on learning-by-doing, demonstration projects, locally based hands-on training approaches, broad participation of stakeholders, built-in public communication strategies, and direct application of new skills to the local situation. As such, Participatory Learning Approach (PLA) tools and methodologies including mentoring and coaching, shadowing and learning-by-doing, replication of best practices aside from the traditional training method would be used in this Plan. Mainstreaming shall also be a key strategy to ensure that concerns related to a specific issue or theme is considered within this central decision-making arena. With the mainstreaming strategy the CapDev Plan foresees a more responsive government and better service provision taking into account special issues of the stakeholders. Phasing and Timing of Activities In the context of ARCP II, where interventions are mainly packaged around RI and agriculture and enterprise subprojects identified and formulated using a community driven development approaches, capacity development activities should be critically timed along with the progress of each of the ARCP II subprojects. Hence, in the development and conduct of capacity development activities, the following phases shall be observed: Phase 1: Consensus Building Involves agreement about the need to enhance capacity in order to improve governance and promote peace and identification of what capacities and whose capacities to develop. It is prelude to detailed ARC development planning through effective community mobilization. Communities are sensitized on the critical need to incorporate the essential cross cutting themes, and identifying priorities for rural infrastructure, agriculture and social development sub projects; Phase 2: Planning/Pre-Implementation This phase generally happens at the initial planning stage for each of the ARCs/ARC Clusters when their respective ARC Development Plans (ARCDPs) are formulated or validated. Subsequently, RI subprojects are conceptualized and prioritized. It is by far the most considerable phase in capacity development, as stakeholders individual and organizational competencies, processes, structures and systems have to be identified and strengthened in order to carry out the technical, financial and institutional requisites for subproject development, approval and implementation. Phase 3: Implementation/Application Competencies needed at this phase would involve improved implementation of processes, as well as enhance monitoring and evaluation of structures and systems to ensure good performance; and Phase 4: Completion/Institutionalization Capacity development needs for the completion and institutionalization of subprojects would include: outcomes and impact evaluation, regulatory support for new systems; culture of continuous improvement internalized; increased ability of the enabling environment to support and sustain development. 26 P age

86 Linkages, Partnerships and Leveraging ARCP II is viewed as a vehicle for capacity development and identifying opportunities for further expanding the coverage of the capacity development initiatives through the identification of complementary activities and projects from other national government and donor agencies. Academic institutions shall be tapped by the Plan as well. Indicative areas where these academic institutions could initially support and participate in include pre-implementation activities, particularly on pre-engineering works for RI subprojects. Furthermore, when available, Resource Persons for training and workshops may be drawn from DAR-ARMM, DAR national, other regional and national line agencies (i.e., OPAPP, DENR, DILG) for the conduct of the identified interventions in the Plan. The Quality Assurance Firm subcontracted by the National Program Coordinating Office (NPCO) shall also play a role as a resource for RI capacities, especially on Design Quality Review, Infrastructure Quality Monitoring and Durability System (IQMDS), and Quality Operation and Maintenance. ARCP II shall use its total fund of PhP 32 Million for the CapDev Plan to leverage support from other donor agencies and projects. Hence, it is also important to also capacitate the Project Management Staff and other stakeholders on resource mobilization. 27 P age

87 Table 2.Potential Areas of Intervention and Activities for the CapDev Plan COMPONENT / IMPACT AREA Community Driven Development Participatory Planning and Management PROGRAM PHASES Consensus Building Planning and Pre-Implementation Implementation/Application Completion/Institutionalization Community Consultations to Formulate/ Validate / Review ARC Development Plans (ARCDPs) through the Strategic Participatory Planning Process (SPPP) Strengthening of ARC Role in Local Development Planning Strengthening the Local Project Office Strategic Development Planning for ARBOs Project Monitoring and Evaluation Training for ARBOs and Barangay Agrarian Reform Committees Strengthening the Local Development Councils (LDCs) Development of a management information system at the level of ARBOs, LGUs, and DAR-ARMM Human Resource Development CapDev for ARBOs Rural Infrastructure Fiscal Management Leadership and Management CapDev ARBOs Resource Mobilization and Customizing the PBGS for ARMM LGU Orientation on the PBGS for ARMM Creation and strengthening of the ARMM PBGS technical working group Management CapDev for ARBOs Financial Management CapDev for ARBOs Networking and Alliance Building for ARBOs Fiduciary training/workshop for Internal control system capacity Municipal and DARPO support Accountants on disbursement, liquidation and reporting RI subproject costs Procurement Rural Infrastructure Project Development, Implementation and Management Development of the Harmonized ARMM ARCP II Procurement Guidelines based on the Philippines RA 9184 and ADB s Procurement Policies Strengthening and Reconstitution of LGUs Bids and Awards Committees (BAC) Procurement Capacity Support for all LGUs with subprojects Technical Assistance and Advisory Services in the preparation of Detailed Engineering Design (DED), Program of Work (POW), Site Validation Survey and Feasibility Study Preparation Monitoring of Execution of Contracts Courses on the Infrastructure Quality Assurance System Orientation on the Infrastructure Developing a Subproject Sustainability Plan Technical assistance to design and produce IEC materials, social marketing and advocacy campaigns Institutionalisation support to strengthen representation of ARBOs in the LSD or LDC Institutionalisation support to ensure regular publication of Financial Statements Evaluation of the Conduct of the Procurement Process for All Subprojects Strengthening Quality Operation and Maintenance Procedures, Policies and Subproject Evaluation/Rating System 28 P age

88 COMPONENT / IMPACT AREA PROGRAM PHASES Consensus Building Planning and Pre-Implementation Implementation/Application Completion/Institutionalization Contract Management and Supervision Development of Operation and Maintenance Plan (O&M) Quality Monitoring and Durability System (IQMDS) Participation in the formulation of the O&M Quality System by the ARCPII Quality Assurance Firm Agriculture and Enterprise Development Improving farm productivity and organizational capability for AED Project Implementation and Management Project Coordination and Monitoring and Evaluation Crosscutting Themes Peace Strengthening of anchor organizations for ARCCESS Training Needs Assessment for all Key Stakeholders Training on Design and Module Development (for Training Programs on RI, AED, PIM, Impact Areas and Cross-Cutting Themes) Strengthening the Local Project Offices (LPOs) Identification of convergence areas between ARCP II and PAMANA Orientation on AED Technical Assistance on Productivity Improvement Coordination with Micro-Finance Institutions for Rural Finance Services Technical Assistance on Business Planning Training of Trainers (TOT) for Community Development Officers, LPOs, DARPOs and selected DAR/ARMM Staff on selected component-based courses Internalizing the Conflict-Sensitive and Peace Promoting (CSPP) lens in the context of the ARCDP Planning and identification of social and physical infrastructures that will complement the PAMANA program Peace and conflict impact assessment Implementation of agriculture and enterprise development projects (ARCCESS and other modes) Facilitation of the formation of mechanisms at the LGU and ARC for knowledge sharing of best practices in agriculture and agribusiness Facilitation of donor and Investment Forum to expand market linkages Capital Formation on PPP as strategy to attract investments in agriculture Competency Building on Monitoring and Evaluation of CDOs, LPOs, DARPOs & selected DAR/ARMM Staff Monitoring and evaluation of peace initiatives through the peace and development council Evaluation of extension of agricultural and enterprise development services to ARCs Progress & Evaluation Reports Writeshops Institutionalization of a peace perspective using the peace lens tool in the project cycle and M&E 29 P age

89 COMPONENT / IMPACT AREA Gender Balance Environmental Sustainability PROGRAM PHASES Consensus Building Planning and Pre-Implementation Implementation/Application Completion/Institutionalization Integrating Gender Balance and Women s Participation Targets into SPPP Mainstreaming Environmental Sustainability Targets in ARCDPs and SPPP Orientation/Workshop on Climate Change Adaptation (CCA) and Disaster Risk Reduction and Management (DRRM) for Sustainable Rural Development Capital Formation on Gender and Development (GAD) and Strengthening Women s Participation for Sustainable Rural Development Courses on Compliance to Environmental Safeguards Orientation and Coaching on Establishing Disaster-Resilient Subprojects Monitoring of GAD and Women s Participation Targets through the peace and development council Monitoring of Environmental Safeguard Targets through the peace and development council Evaluation of Performance against GAD and Women s Participation Targets Evaluation of Performance against Environmental Safeguard Targets 30 P age

90 Table 3. List of Activities in the CapDev Plan. A. ARCs 1. Community Driven Development 1.1 Participatory Planning and Management COMPONENT / ACTIVITY Strengthening of ARC Role in Local Development Planning Strategic Development Planning for ARBOs Human Resource Development for ARBOs Development of a management information system 1.2 Project Management 2. Agriculture and Enterprise Development and Management 2.1 Fiscal Management Resource Mobilization and Management for ARBOs Financial Management for ARBOs 2.2. Networking and Alliance Building for ARBOs 2.3 Strengthening of anchor organizations for ARCCESS Orientation on AED Technical Assistance on Productivity Improvement 2.4 Micro-Finance Institutions for Rural Finance Services Coordination with Micro-Finance Institutions for Rural Finance Services 2.5 Technical Assistance on Business Planning 2.6 Implementation of agriculture and enterprise development projects (ARCCESS and other modes) 3. Project Management 3.1 Project Implementation and Management 3.2 Project Monitoring and Evaluation Training for ARBOs and Barangay Agrarian Reform Committees 3.3 Leadership and Management for ARBOs 4. Cross-Cutting Themes for ARCs 4.1 Peace Internalizing the Conflict-Sensitive and Peace Promoting (CSPP) lens in the context of the ARCDP Institutionalization of a peace perspective using the peace lens tool in the project cycle and M&E 4.2 Gender Balance Integrating Gender Balance and Women s Participation Targets into SPPP Capital Formation on Gender and Development (GAD) and Strengthening Women s Participation for Sustainable Rural Development Valuation of Performance against GAD and Women s Participation Targets 4.3 Environmental Sustainability Mainstreaming Environmental Sustainability Targets in ARCDPs and SPPP Orientation/Workshop on Climate Change Adaptation (CCA) and Disaster Risk Reduction and Management (DRRM) for Sustainable Rural Development Orientation/ Training on Compliance to Environmental Safeguards Orientation and Coaching on Establishing Disaster-Resilient Subprojects Evaluation of Performance against Environmental Safeguard Targets 31 P age

91 B. Local Government 1. Community Driven Development 1.1 Participatory Planning and Management COMPONENT / ACTIVITY Community Consultations to Formulate/ Validate / Review ARC Development Plans (ARCDPs) and Strategic Participatory Planning Process (SPPP) Strengthening the Local Development Councils (LDCs) Development of a management information system 2. Agriculture and Enterprise Development (AED) 2.1 Farm system management, enterprise development and extension services 2.2 Facilitation of the formation of mechanisms at the LGU and ARC for knowledge sharing of best practices in agriculture and agribusiness 2.3 Facilitation of donor and Investment Forum to expand market linkages 2.4 Capital Formation on PPP as strategy to attract investments in agriculture 2.5 Evaluation of extension of agricultural and enterprise development services to ARCs 3. Rural Infrastructure 3.1 Fiscal Management LGU Orientation on the PBGS for ARMM Fiduciary training/workshop for Municipal and DARPO Accountants on disbursement, liquidation and reporting RI subproject costs 3.2 Internal Control Systems Training 3.3 Regular publication of Financial Statements 3.4 Procurement Development of the Harmonized ARCP II for ARMM Procurement Guidelines using the Philippines RA 9184 and ADB s Procurement Policies Strengthening and Reconstitution of LGUs Bids and Awards Committees (BAC) Procurement Training/ Re-Orientation for all LGUs with subprojects Monitoring of Execution of Contracts Evaluation of the Conduct of the Procurement Process for All Subprojects 3.5 Project Development, Implementation and Management Technical Assistance and Advisory Services in the preparation of Detailed Engineering Design (DED), of Work (POW), Site Validation Survey and Feasibility Study Preparation Contract Management and Supervision Development of Operation and Maintenance Plan (O&M) Infrastructure Quality Assurance System Orientation on the Infrastructure Quality Monitoring and Durability System (IQMDS) Training on Quality Operation and Maintenance Procedures, Policies and Subproject Evaluation/Rating System Participation in the formulation of the O&M Quality System by the ARCPII Quality Assurance Firm 4. Project Management 4.1 Participatory Planning and Management Strengthening the Local Project Offices (LPOs) Developing a Subproject Sustainability Plan Training assistance to design and produce IEC materials, social marketing and advocacy campaigns 32 P age

92 COMPONENT / ACTIVITY Training Needs Assessment for all Key Stakeholders Training on Design and Module Development (for Training Programs on RI, AED, PIM, Impact Areas and Cross-Cutting Themes) Training of Trainers (TOT) for Community Development Officers, LPOs, DARPOs and selected DAR/ARMM Staff 4.2 Competency Building on Monitoring and Evaluation of CDOs, LPOs, DARPOs & selected DAR/ARMM Staff Progress & Evaluation Reports Writeshops 5. Cross cutting themes for the LGUS 5.1 Gender Balance Monitoring of GAD and Women s Participation Targets through the peace and development council 5.2 Environmental Sustainability Orientation/Workshop on Climate Change Adaptation (CCA) and Disaster Risk Reduction and Management (DRRM) for Sustainable Rural Development Orientation and Coaching on Establishing Disaster-Resilient Subprojects Monitoring of Environmental Safeguard Targets through the peace and development council C. Regional Government 1. Project Management and Coordination 1.1 Customizing the PBGS for ARMM 1.2 Creation and strengthening of the ARMM PBGS technical working group 1.3 Identification of convergence areas between ARCP II and PAMANA 1.4 Planning and identification of social and physical infrastructures that will complement the PAMANA program 1.5 Competency Building on Monitoring and Evaluation of CDOs, LPOs, DARPOs & selected DAR/ARMM Staff 1.6 Progress & Evaluation Reports Writeshops 2. Crosscutting Themes for the Regional Government 2.1 Peace Peace and conflict impact assessment Monitoring and evaluation of peace initiatives through the peace and development council 2.2 Environmental Sustainability Orientation/Workshop on Climate Change Adaptation (CCA) and Disaster Risk Reduction and Management (DRRM) for Sustainable Rural Development 2.3 Project coordination and monitoring and evaluation 33 P age

93 Table 4. Indicative CapDev Plan Budget per Component COMPONENT / SUB-COMPONENT Total Percentage ALLOCATION Amount (inphp) A. ARCs 65% 22,425, Community Driven Development 1.1 Participatory Planning and Management 10% 2,242, Agriculture and Enterprise Development 2.1 Fiscal Management 10% 2,242, Agriculture and Enterprise Development (AED) (demo farms, technology transfer, etc) 62% 13,903, Project Management 3.1 Project Implementation and Management 7% 1,569, Crosscutting Themes for ARCs 4.1 Peace 4% 672, Gender Balance 4% 897, Environmental Sustainability 4% 897,000 B. Local Government 25% 8,625, Community Driven Development 1.1 Participatory Planning and Management 10% 862, Agriculture and Enterprise Development 2.1 Farm system management, enterprise development and management extension support 10% 862, Rural Infrastructure 3.1 Fiscal Management 10% 862, Procurement 25% 2,156, Project Supervision & construction management 20% 1,725, Project Management 4.1 Agriculture and enterprise management 10% 862, Project Monitoring and evaluation 7% 603, Crosscutting Themes for LGUs 5.1 Gender Balance 4% 345, Environmental Sustainability 4% 345,000 C. Regional Government 10% 3,450, Project Management 1.1 Project supervision and regional coordination 50% 1,725, Planning, Monitoring and Evaluation, and Reporting 30% 1,035, Crosscutting Themes for Regional Government 2.2 Peace 10% 345, Environmental Sustainability 10% 345,000 OVERALL TOTAL 100% 34,500, P age

94 Table 5. Indicative CapDev Work Plan. CAPDEV LEVEL / COMPONENT / ACTIVITY A. Agrarian Reform Communities 1. Community Driven Development 1.1 Participatory Planning and Management 2. Agriculture and Enterprise Development 2.1 Fiscal Management 2.2 Farm management and enterprise development 3. Project Implementation and Management 3.1 Project Implementation and Management 4. Crosscutting Themes at the ARC Level 3.1 Peace 3.2 Gender Balance 3.3 Environmental Sustainability B. Local Government 1. Community Driven Development 1.1 Participatory Planning and Management 2. Agriculture and Enterprise Development 2.1 Agriculture and Enterprise Development (AED) 3. Rural Infrastructure 3.1 Fiscal Management 3.2 Procurement 4. Project Management 4.1 Participatory Planning and Management 4.2 Project Implementation and Management 5. Crosscutting Theme at the LGU Level 5.1 Gender Balance 5.2 Environmental Sustainability C. Regional Government 1. Project Management 1.1 Fiscal Management 1.2 Project coordination and Monitoring and Evaluation 2. Crosscutting Theme at the Regional Level 2.2 Peace 2.3 Environmental Sustainability SCHEDULE st Sem 2nd Sem 1st Sem 2nd Sem 1st Sem 2nd Sem 35 P age

95 ANNEX 5. AED Capacity Development Plan Operationalizing Agriculture and Enterprise Development (AED) in the Autonomous Region in Muslim Mindanao A Capacity Development Framework for Agrarian Reform Communities in ARMM Agrarian Reform Community Project II (ARCPII) Background and Rationale The Department of Agrarian Reform recognizes the importance of capacitating the Agrarian Reform Communities (ARCs) and the concerned local governance institutions to enable them optimize the use of the lands provided to the communities under the CARP. The Agrarian Reform Community Project (ARCP II) was designed to essentially build capacities of LGUs, ARCs and other local stakeholders to facilitate the access of select ARCs to essential support services and markets, which shall aid them transform from subsistence producers toward enterprise development. ARCP II adopts community-driven development strategies to reach out to large segments of the rural poor in the ARCs to strengthen their physical and social capital. The Agrarian Reform Beneficiaries in most areas covered by ARCP II have been provided with important production resources namely the - LAND, some common service facilities among others but using them to be productive and profitable still are wanting. For illustration purposes, we may consider them as top of the line automobiles. To use them efficiently, one needs to know how to drive them. The required skills to drive may vary for manual and automatic transmission. Maybe a few would be able to drive them. They should be familiar with which fuel to usediesel or gasoline. Further, knowledge on maintenance both preventive and troubleshooting should be learned for the unit. These and many more skills and knowledge could spell the life cycle of the unit and safety of the operator and riders, pedestrians and others on the road. Driving skills alone without the courtesy and knowledge of traffic rules are other concerns like when to use / engage 4 x 4 especially in off road and muddy roads. The main premise to the Agrarian Reform Beneficiaries Capacity Development Plan is the LAND (or the car or automobile in the analogy in the above box). The ARB-CapDev Plan may actually be referred to as the core objective of development interventions whether the focus is on technology transfer on agriculture / rural development, health, water and sanitation, governance and others. The CapDev Plan may involve various methods, processes and strategies that focus on individuals and organizations vis a vis their desired outcomes. The critical components are the methods comprising the appropriate assessment mechanisms to identify gaps in attaining development or 36 P age

96 the desired outcomes. The ARCP II in ARMM selected ARCs through the Special Management Team or SMT share the visions of the Program and the Department of Agrarian Reform- The Project is aimed to reduce poverty and thus improve the socio-economic status of the identified communities in selected ARCs and ARC clusters. Specifically, the Project aims to increase the income of the ARBs and other farmers in the Project areas and to contribute to improved quality of life in the ARCs in a sustainable manner. The Project is expected to achieve the following outcomes: (i) improved access to livelihood assets by the rural poor including the landless farm workers; (ii) developed sustainable livelihoods, agribusinesses and long lasting improvements in the well-being of the poor and marginalized groups in the target communities. As stated in the Project Document the outcomes desired are as follows: Outputs To achieve the outcomes of poverty reduction and sustainable livelihoods, the Project will support the following outputs: (i) CDD consisting of (a) social capital formation for community organizing and participation, (b) participatory detailed ARC planning, (c) organizational development of community organizations, and (d) improved LGU capacity for better governance. (ii) Agriculture and enterprise development including (a) transfer of technology, (b) entrepreneurship development among ARC organizations, (c) improved linkages between the private sector and ARC organizations leading to increased investments into rural areas for growth, (d) community-based savings and lending groups, and (e) land tenure improvement. (iii) Rural infrastructure development. (iv) Project implementation and management. The CapDev Plan particularly for the AED Component, relative to the Business Development Services of the SMT and DAR-ARMM for the ARBs / ARCs would embody the aspirations of beneficiaries and their communities, aligned perceptions and attitudes towards enhanced entrepreneurship as a means to maximize benefits from the fruits of their efforts and their awarded lands including other resources provided like the common service facilities under ARCCESS, establishing partnerships with relevant organizations (NGOs, CSOs, LGUs and other Development Agencies. The CapDev Plan is developed as a sequel to the milestones attained through the Community Driven Development Component that achieved community organizing, participatory ARC planning and organizational development activities with the community organizations like the ARBOs in the covered ARCs in ARMM. 37 P age

97 Objectives The overall objective of the CapDev Plan for ARCs is to develop capacities of the Agrarian Reform Beneficiaries (ARBs) and the Agrarian Reform Beneficiary Organizations (ARBOs) to develop and manage sustainable livelihoods to increase incomes and quality of life through the following impact areas: (a) Agriculture Enterprise Development (AED) for improve productivity and profitability of distributed lands through the introduction of sustainable agriculture technologies, farm productivity, and value adding activities. (b) Agrarian Reform Beneficiary Organization that adopts new technologies, techniques, systems, processes, structures, and mechanisms supportive of sustainable enterprise development. Approach and Methodology Methods: Developing capacities of the ARBs and their organizations (ARBOs) is not only about technology transfer or enterprise development. It covers a wide array of complexities and realities faced by the subjects and objects of interventions. It is a process of developing capacities to address problems and constraints perceived / experienced by the ARBs. It is important for them to enhance their respective involvements in their own concerns and those of their organizations and design common solutions that would benefit them. Prior to any intervention, it is important to generate a purposeful diagnosis to identify the desire for change, the local context and the GAPS. The method should be to the extent possible participatory as a means to ensure that the CapDev design is built on firm foundation to trigger local ownership and commitment, and develop working partnership and relationship. Further, attitudes are considered a major factor when considering which methods to employ. The method should endeavor to instill their appreciation of reciprocity between parts and whole to understand individual roles vis-à-vis their organization and their community as a whole. This method takes-off from the accomplishments made under the CDD. Strategies: Capacity development strategies are based on assumptions and gaps identified to deal with identified concerns / constraints and the means to address them. The desired outcomes of increasing incomes and the quality of life of ARBs are seen to be the general objective of their strategies. The strategies would consider the dynamics and sensitivities of individual beneficiaries, their organization and the community at large. Improved technologies to ensure productivity and profitability are only components of a broader objective for capacity development. Sociopolitical, environmental concerns are integral parts of the capacity development strategies. Discipline among the ARBs relative to identified and agreed strategies to overcome perceived problems may be used as a measure to evaluate capacities developed. 38 P age

98 Processes: Process techniques such as participatory institutional assessments, action planning workshops, conflict and dispute resolution and team building are the key of any approach to strategy implementation. Capacity development encompasses changes and innovation for the future of the ARBs, ARBOs and their communities at large to attain the desired outcomes. Emphasis on process should shape the design of interventions that must go beyond the conventional activities of training, advisory services and equipment supply. Capacity Development Planning Framework Activities will be undertaken to assist the ARBs in establishing systems (including running their farming / fishing as a sustainable enterprise), strengthening the ARB organizations, and supporting human resource development in enhancing rural economies and societies, including technical cooperation projects and or partners from the NGA, CSOs, and others. 39 P age

99 Working as an organized unit in the communities, the ARBOs can address a particular concern or constraint facing the Agrarian Reform Beneficiaries in generating economies of scale to be able to effectively and efficiently compete in the formal markets. Like in most of the successful organizations, trust should be developed and earned by the respective ARBs and their organizations to be able to attain the apex of ensuring strategic collaboration in the ARBOs and ARCs. 40 P age

100 Goal setting by the ARBOs would be clearer when relationships between and among the ARBs, ARBOs and the broader society or community are developed. The above box is an example of commodity and process flow enterprise activities on coffee where ARBs deliver their ripe coffee cherries to the ARBOs or their federation who aside from consolidating, provides other services / equipment like those from ARCCESS (with schedule of fees) and further assist them in generating higher value products from the coffee delivered by ARBs. The illustration shows the outcome desired on addressing or providing solution to the concerns on economies of scale. This would augur well with the objective of attaining better market arrangements among others. The Role of the Local Government Unit The local government unit (LGU) is at the forefront to provide the enabling mechanisms for agriculture and economic enterprise development as mandated by the local government code and the Organic Act of ARMM. In the context of agrarian reform communities (ARCs) development in the agriculture sector, the delivery of land tenure improvement must be integrated with the holistic provision of support services. The goal to achieve food security and increased incomes under the overall objective of Competitive and Sustainable Agriculture and Fisheries, which seeks to transform agrarian reform beneficiaries into viable entrepreneurs as articulated in the Philippine Development Plan (PDP) has to be localized by engaging the full power and authority of the local government units. The need for contextualizing the agricultural development in ARCs with respect to local initiatives is the more appropriate way to go forward. This will call for more effective enterprise-based agricultural development with the active involvement of stakeholders in local agricultural planning and management. Thus, the role of the LGU shifts from being facilitator to becoming an enabler through the provision of a conducive environment for the development of agriculture enterprise in ARCs. 41 P age

101 The main strategy in the provision of support services to beneficiaries is contained in the ARC Development Plan (ARCDP), which incorporates all the development requirements like land tenure improvement, capacity development, organizational strengthening, agri-enterprise, access to credit, physical infrastructures, basic services, farm productivity enhancement, and gender and development. The ARCDP will serve as the basis in the formulation of agri-enterprise development plan and implementation based on the identified industry or commodity priorities. CapDev Plan Implementation Consultations The implementation of the CapDev plan for the ARBOs rest on the assumption that most, if not all, all of them are organized. Some are registered as associations and others as cooperatives recognized by the Cooperative Development Authority (CDA). The organizational maturity of these organizations, however, widely varies along the CapDev continuum whose members are former employees and assumed to have finished college on one hand and on the other extreme, farmer members who have not finished secondary and or collegiate level education. Key to the implementation is a thorough ARB organizational consultation and communication process to impart to them the AED CapDev Plan which becomes the basis for the roadmap of interventions. The ideal construct is where possible, the LGU, NGOs and other partners including members of the broader community. Discussions would also cover their previous individual and group livelihood and or enterprises and potential sustainable enterprises including investment decisions from endogenous and exogenous sources, mobilizing also the culture of savings and other relevant aspects. The desired outcome from this phase of the activities is the acceptance and support of the leaders and members of the ARBOs and ARC to link the sense of need to a vision of the future, own and take responsibility for the change process, and demonstrate willingness to partner with other stakeholders. The activity should be participative and illustrations and discussions should be as local can be and endeavor to establish ownership of the ideas and plans. Technical Inputs When the landscape has been prepared where trust among the members shall have been addressed and gained, other component inputs shall be introduced like Appropriate Enterprise Development and Technical Inputs for desired sustainable individual or collective (to generate economies of scale among others) livelihood or business. Experts from different fields would be asked to provide a menu of potential commodities based on market demands, agro-ecological characteristic of the areas, technologies required to produce market needs, efficient consolidation mechanisms and maximize economies of scale to be competitive. It is imperative to ensure a strategic fit of factors / interventions to generate the desired outcomes. Credit / rural finance could also be tapped not necessarily through external financing but by enhancing the savings culture from within to secure equity requirements of the project and sustain its financial needs. 42 P age

102 Rural Infrastructure shall also be considered particularly to improve transport and minimize costs of bringing their produce to the markets. Other experts could also provide a menu for possible value adding potentials of their targeted commodities. Separate trainings would be implemented for the leaders who may be responsible in managing the ARBO projects, those responsible in handling the financial /accounting of the organizations basic accounting and bookkeeping, technicians with improved cropping systems / livestock husbandry. These are some of the list of trainings for enhanced AED CapDev Plan. All these combinations lead towards Agrarian Reform beneficiaries productivity and profitability. These are also seen to accomplish the desired outcomes of better incomes and quality of life of the ARBs in the DAR ARCP II covered ARCs in ARMM. Agrarian Reform Community Connectivity and Economic Support Services (ARCCESS) With the advent of probable releases soon of approved ARCCESS proposals of the SMT covered ARBOs in ARMM, it would, to some extent reflect appropriate interventions to enhance capabilities of ARBOs to establish sustainable enterprises particularly with: the provision of professional services to ARBOs, the provision of common service facilities, procurement requirements, the provision of ancillary services These interventions are not seen to establish project but are designed to support the ARBOs core projects, e.g. Tractors to improve efficiency and better land preparation operations to enhance their corn production and marketing projects. As implied, the ARBOs should be able to establish what they want and what do they need to decide and embark on the projects under ARCCESS. Also as the name reflects, it is not the core project instead used as support to agricultural productivity and profitability. 43 P age

103 ANNEX 6. Coffee Value Chain Study for Sulu Province I. Industry Situation Coffee is one beverage that is almost always present on the table every day. Almost all people have drunk at least a cup of the beverage in their lives. Coffee producing countries, on the average, consume only 20-25% of their produce. The rest are exported to industrial countries. In the world market, coffee is the second most traded product in dollar terms, next only to petroleum. In the Philippines, 80 percent of Filipinos drink coffee with a consumption rate of about five cups per day. Nestle Corporation, the biggest buyer of coffee beans in the country, correlates coffee drinking of Filipinos to income. The company observed that when Filipino farmers have good harvests, the sale of instant coffee increases. Coffee producers in the country cultivate green coffee beans, the varieties of which are Robusta, Excelsa, Liberica (Philippine Barako) and Arabica. Robusta makes up around 90% of the country s total coffee production because it is the most suitable variety in the Philippine soil and climatic conditions. Roasted/ground coffee are also produced and sold to institutional outlets like hotels, coffee shops and restaurants. Instant or soluble coffee is also manufactured in the form of either fine powder or granules using the hot air drying method. Coffee was introduced to the Philippines in 1740 by Franciscan monk who brought three gantas of Arabian coffee beans. By 1880, Philippines became the world s fourth largest exporter of coffee. Thus, coffee production is not a new industry in the Philippines. Based on the National Coffee Development Board (NCDB) report, the country s coffee consumption reached 55,000 metric tons in 2004 with domestic production for the same period placed at 27,000 metric tons only, a shortfall of almost half of the demand. Prospects for the industry are generally positive and it is the best time to rejuvenate the industry particularly in the province of Sulu. Farm gate price of dried berries has increased from P20/kg to P30/kg due to the decrease in global coffee yield and increasing consumer demand as coffee drinking has become an avenue for social gathering. The Province of Sulu has had a coffee culture for several centuries. Until today, coffee is still an important commodity in the province. Several interventions from government agencies like the Department of Agriculture, and the Provincial Government through the Provincial Agriculturist Office, separately and/or collaboratively with the private sector were implemented to support the industry. The province has around 2,000 hectares planted to coffee based on the report of Sulu Kahawa Sug Task Force. A large part of this coffee production area is concentrated in the municipal towns of Parang, Panglima Estino, Patikul and Indanan although there are also smaller areas in seven other municipalities. Current productivity in Sulu is considered low because coffee trees are mostly old and therefore already low yielding, a situation aggravated by low maintenance adopted by coffee farmers. Yield is estimated to average only about 350 kg/hectare. This is way below the production output of major exporting countries such as Brazil and Colombia pegged at more than two metric tons per hectare. Meanwhile, poor post-harvest handling methods and facilities produce low quality beans that fetch lower buying price. 44 P age

104 Technology and inputs for production are not sufficient both for organic or traditional management. Post-harvest facilities and systems are still wanting. The ready-to-brew output is still insufficient for the markets. However, Sulu coffee has a distinct flavor. It has developed its own market niche, however, supply has always been lacking and does not meet the demand. This is one market opportunity for the coffee industry in the province to take advantage of. Increasing productivity, improved post-harvest facilities and practices and better processing equipment and systems could provide even more opportunities to the coffee stakeholders. Value chain is considered as a business model to improve the existing industry situation in the province and to optimize participation of key players at each stage of the chain. It involves all key stakeholders from the production input stage of a commodity down to the transformed finished product for the consumers. A number of interrelationships among key players and reflects various linkages both horizontal and vertical. The paramount concern in the value chain is how to increase the profits of each player as they work towards the taking advantage of market opportunities to satisfy the consumers demand for with quality products, thus this study is was undertaken. II. Relevance of Coffee in Sulu Around 1,600 farmers work in Sulu s 2,000 hectares of land plated to coffee. The potentials for value adding by doing the different recommended mechanisms to transform the harvested coffee cherries could offer opportunities to Sulu coffee growers. Coffee production is largely concentrated in the four municipalities mentioned earlier with a volume of production of around 3,408 MT or 90% of the total production in the province. Production yield per hectare is low due to poor maintenance and harvesting practices, and inefficient and inadequate post-harvest handling and facilities resulting in low quality beans (Table 1). The traditional process of coffee production and marketing is still being practiced in Sulu. Farmers are not equipped to process coffee beans efficiently; sometimes it would take them a month before they can finally deliver processed coffee beans or powder to the market. Given this extended period, the coffee berries would undergo a process that compromises their quality. The traditional form of harvesting where farmers do not choose mature cherries from the immature ones has been observed. On the drying method, the farmers prefer to dry the cherries along the roads where vehicles literally run over them. The farmers prefer this because they believe that this improves the quality and taste of their coffee. 45 P age

105 LGU Area Planted (Hectares) Table 1. Coffee Production in Sulu Area Harvested Production (MT) Yield (MT/Hectare) No. of Farmers Patikul 1,570 1,570 2, Parang P.Estino Talipao Luuk Indanan K.Caluang P.Tahil Panamao Maimbung Pandami Pangutaran Lugus Siasi Tapul Pata Banguingui TOTAL 2, , , ,618 Department of Agriculture Sulu Kahawa Sug Task Force For each hectare, an average of five farm hands is employed to harvest and process the coffee cherries to beans. Thus, at least about 12,000 people are directly benefiting from the industry. The Kahawa Sug (Coffee) Task Force has highlighted poor crop maintenance and the wasteful harvesting system as the major causes of the low productivity of coffee. This situation is perpetuated by the current practice of compensating harvesters based on the volume (measured in cans). The workers would harvest as many cherries as possible including green immature cherries which, if allowed to mature, would increase the yield several folds. Surprisingly, almost every household in coffee producing farms have year round supply of homemade coffee brew. It is believed that because the green beans cannot be sold competitively, they are kept by growers for household use rather than marketing them at low prices. To save the coffee culture in the province, the Kahawa Sug Task Force, the group tasked to directly help the coffee farmers of Sulu, came up with a comprehensive program and appropriate intervention in collaboration with ODA programs of CIDA and UNDP, the business sector and local coffee producers and stakeholders. The coffee industry development plan was formulated to essentially revive the coffee industry. It is one of the priorities in the proposed Sulu Provincial Agro-Fishery Master Plan. The larger goal was to improve the socio-economic status of Sulu farmers engaged in coffee production and to specifically enable them to earn higher revenues from coffee production. Three-pronged strategies were identified so that coffee farmers can derive greater economic benefits, namely: (1) rejuvenating the productivity of coffee trees, (2) improving the quality of coffee beans produced, and (3) enhancing product marketing. A key element in improving the economic benefits from coffee farming in Sulu is the restoration and enhancement of the productivity of existing coffee trees. This would mainly entail rejuvenation coupled with improving cultural management practices, and nutrient and pest management to increase yields. Second is raising the quality of the coffee beans they produce 46 P age

106 through utilization of better post-harvest handling technologies for coffee farmers to realize higher revenues. The use of mechanical coffee hullers will reduce labor costs while increasing quality of beans derived from mature, red cherries. Lastly, coffee producers revenues will be enhanced if they are able to get better marketing terms for their crop which can be achieved through the a distinctive brand identity for Sulu coffee. The establishment of consolidation centers either solely for coffee or in combination with other focused commodities was considered to further reduce costs and other address marketing constraints of small coffee growers. III. Markets There are a number of coffee processors and institutional buyers in the country (e.g., Nestle and CFC) and a local producer in Davao City. Nestle, however, is the leading buyer of green coffee with a total market share of 90%. Seventy-five percent of this is used to produce Nescafe classic. The firm has five factories in the country, which require 75,000 kilograms of green coffee per day. Table 2 below shows the supply and distribution requirement for coffee of Nestle Philippines. Table 2. Supply and Distribution Requirements of Nestle Year Volume in Kilogram million million million Distribution of Requirements Robusta 85% Arabica 5% Excelsa and Liberica 10% Nestle has established coffee satellite buying stations but Sulu coffee farmers could hardly meet its stringent quality requirements and standards. Most, if not all, coffee outputs of Sulu are consumed locally or sold in adjacent and nearby provinces in Zamboanga peninsula through the traditional supply chain such as the collector or processor. The coffee produced in the province, however, has limited export markets although with proper technologies, it is very possible to consider niche markets. IV. Coffee Value Chain Analysis The value chain describes the full range of activities which are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final consumers, and final disposal after use. 4 Value Chain Analysis has been used by development/donor agencies to map out the qualitative and quantitative aspects aside from tracing the flow and transformation of the products and services from inputs stage to its final forms to users or consumers. 4 Kaplinsky and Morris, P age

107 Table 3 below shows a comparison between value chain and traditional business which indicates how the value chain contrasts with traditional business relationships. Relationships also include dynamics among firms, access to learning and innovation and distribution of benefits. Value chain offers a new way to view the mechanisms to enhance incomes by actors or key players while satisfying market opportunities. Table 3. Value Chain and Traditional Business Relationships Value Chain Traditional Communication Extensive Little or none Value Focus Value/Quality Cost/Price Product Differentiated product Commodity System Driver Consumer Pull Production Push Organizational Structure Interdependant Independant Business Relationships Collaborative Adversarial Source of Supply Known and Traceable Anonymous Source of Risk Relationships Market and Price Source: Value Chain Manitoba Initiative The value chain study considers the set of specific and interrelated activities as shown in Table 4 which shall be subject to further validation and consultation among the key players in Sulu. As far as the ARCP2-ARMM is concerned, the VC study is relevant to the ARC in Panamao, Sulu handled by the Peoples Alliance for Progress MPC. Table 4. Perceived Value Chain of Sulu s Coffee Industry Value Chain Product PRODUCTION Primary Product PROCESSING Primary Intermediate PROCESSING Primary Intermediate CONSUMPTION Final Product Coffee cherries (redripe) Green coffee beans Roasted Ground Coffee Blending Kahawa Sug / Royal Coffee (Brands) Coffee Powder Flavored Ground Coffee for brew and specialty coffee shops Process Coffee seeds/seedling Planting, maintenance Harvesting, post harvest Dry milling Wet milling Final Sorting Quality Control Grinding Blending Inputs Coffee seeds Planters Nutrient and Soil Ameliorants Pest and Disease control mechanisms Red-ripe coffee cherries Dry & Wet milling equipment and facilities Drying facilities Quality green coffee beans dried to 12% MC Coffee Roaster Coffee grinder Water proof and air tight packs Kahawa Sug / Royal Coffee packages in Abaca bags Major Actors Farmer Growers Financial Institutions, (formal and informal) Transport facilities Input Suppliers Technology providers Farmers Contract Processors / Workers Coffee Processors Coffee Buyers and consolidators Kahawa Sug/Royal Coffee Wholesalers and Retailers Specialty Coffee Shops Institutional Coffee Buyers (Nestle and others) Support Services Technology - DAF ARMM, PA of Sulu, Nestle, Mindanao Coffee Board, Phil Coffee Board, Academe SSC & MSU, Land Bank, other Financial Institution, LGUs DTI, DOST, TESDA, Mindanao Coffee Board, Land Bank, LGUs Coffee Processors, Coffee Shops, DTI, LGUs, DOST BFAD, DTI, Packaging Center, Abaca Weavers, FIDA, LGUs 48 P age

108 Currently, the coffee outputs are in the form of green coffee beans (GCB) done mostly using the dry process. The objective is to consider expanding the wet processed coffee since aside from the shorter time from harvest to green coffee beans, it is priced higher. The value chain would be considering a number of outputs from semi processed to fully processed coffee. Initially, focus would be made on wet processed green coffee beans which are sold in larger quantities. The study would also validate potentials for roasted coffee beans which are priced higher more than 200% than the GCB. Finally, the study would validate and consider the actors and process/product transformation to the end product ready-to-brew ground coffee. The study would endeavor to show the value adding activities by various actors involved in the commodity flow and its transformation from GCB to higher valued products like the ready-to-brew ground coffee. The study is designed to be done in Sulu, however, it is envisioned to be replicated in other ARCs that have sizable coffee plantings. Table 5. Coffee Value Chain System Harvested mature red cherries Wet processed GCB Roasted coffee Ground coffee Php100 per kilo for traditionally processed green coffee beans, the probable price for the wet processed beans could be about 15% higher Usually Php 300 per kilo at retail stores Pricing would be higher than roasted and depending on brand promotion / acceptance V. Constraints Analysis A. Production 1. Policy The coffee industry has not been managed following a policy that could provide a better direction for the industry stakeholders until recently when the Provincial Government forged an active role in the industry by organizing a task force to oversee and ensure critical supports and assistance to the industry. This intervention was made through Executive Order #03, Series of 2008, creating and organizing the Sulu Provincial Coffee Industry Development Task Force for the purpose of enhancing and facilitating the implementation of the coffee industry development plan of the Province of Sulu. The Executive Order is a manifestation of Government s appreciation on the impact of the industry to the stakeholders and the province s economy. 49 P age

109 2. Technical assistance A number of technical assistance was provided by development programs/agencies, national and regional government of ARMM through the Provincial LGU and partners which provided a stimulus fund to enhance the industry. The focus was both on (1) ensuring improved yields of the coffee farms; and (2) putting in place facilities/equipment to further process the coffee cherries and or green coffee beans into higher value outputs. 3. Pests and diseases Pest and diseases which damage the coffee berry and twig borers are being looked into by the Provincial Agriculturist Office and DAF-ARMM. These may be controlled by traditional interventions, that is, through sanitation and pruning but the most effective method of controlling them is through the application of pesticides, particularly the safer organic pesticides. B. Processing Equipment such as coffee pulpers and hullers, solar dryers (greenhouse dryer), roasters and grinders are now being procured. Depending on market needs and prices, the industry could offer quality green coffee beans, packed roasted coffee beans and ready-to-brew powdered coffee. Training needs of the farmers/growers are also being addressed. VI. Recommendation To sustain the gains of the province in its effort to revive the coffee industry, the provincial government has to tap and mobilize resources, both external and internal, to fully implement the coffee industry development plan. The master plan has to be fully supported with sufficient budget in order to meet the industry s overarching objectives of improving the socio-economic status of Sulu coffee farmers and to earn high revenues from coffee production. The Sulu Kahawa Sug Task Force mandated to develop and implement comprehensive programs and interventions to support the development of the coffee industry has to proactively coordinate and link with the national government agencies, the private sector, NGOs, POs and farmers cooperatives and organizations, in terms of securing access to production and postharvest technologies, linkages to the market, support facilities and other sectoral concerns. On the production aspect, farmer growers and other informal coffee producers groups require consistent access to quality coffee seeds and production inputs. The task force may coordinate with the Philippine Coffee Board and institutional buyers for technical support and tap its network to access appropriate technology for nursery development and rejuvenation technology for old trees to become productive again. To optimize land availability for coffee production expansion, intercropping coffee with coconut trees or vegetables for cash crops can be introduced by the government agencies. Nursery establishment in the major coffee producing municipalities of Parang, Patikul, Panglima Estino and Indanan is necessary to sustain access to quality seedlings, which will also benefit its neighboring towns. 50 P age

110 On post-harvest technology, a modified drying facility that follows the principle and effects of a green house is more appropriate. It is also portable and so it can be transported where it is most needed. These low cost, practical and mature technologies will ensure increased productivity and income for the farmers. It is a time saver and ensures better quality coffee beans. On primary processing, the task force has to continue promotion of and expand the use of a simple and practical technology that fits the condition of the coffee farmers of the island province. For instance, the use of wooden coffee depulping machine produces quality beans since the beans remain whole and undamaged while the pulp is being peeled-off. To ensure continuing support to the development of better practices and low cost technologies applicable on the ground, the task force has to forge partnership with academic institutions such as the Sulu State Polytechnic College for the establishment of demonstration farms and conduct of other relevant researches. 51 P age

111 ANNEX 7. Status of Project Implementation in ARMM Municipality Subproject LP Fund Releases and Disbursements As of June 30, 2014 Physical Accomplis hment Estimated Amount of LP Request Outstanding Total LP Releases LP Disbursement Submitted to NPCO/MDFO LP Disbursement Still with LGUs/for Completion of SORD Total Disbursement by LGUs, June 30, 2014 Under- (over-) Utilization of LP Fund Releases, June 30, 2014 Ungkaya Concreting of Phil-Am-Buhe-Pahu FMR Pukan 86.46% 2,840, ,272, ,845, ,845, (2,573,396.96) Tipo-Tipo Concreting of TARBADECO ARC Road Network % 4,815, ,827, ,835, ,835, (3,007,859.02) Sumisip Rehabilitation of 9.98km Tumahubong ARC Farm to Market Road 51.15% 6,185, ,272, ,272, (5,272,810.05) Ganassi Construction of Barit-Taliogon-Tabuan FMR 70.05% - 5,164, ,164, ,164, Poona Concreting and Rehabilitation of Bubong-Ragayan-Gadongan Bayabao FMR 22.65% - 3,721, ,721, Tagoloan Concreting of Kinggan-Tagoloan Poblacion FMR 27.77% - 4,922, ,922, Bumbaran Concreting and Rehabilitation of Sumogot FMR 38.80% - 3,695, ,695, Ganassi Concreting/Rehabilitation of Taganonok-Taliogon-Paraaba FMR 5.00% 5,764, Kabuntalan Const. of Ganta-Gambar FMR 95.00% 1,597, ,736, ,360, ,360, (1,623,923.94) Datu Paglas Concreting of Tamborong-Bunawan Road 60.24% 3,662, ,701, ,530, ,530, ,170, Matanog Concreting of Langkong-Bayanga Norte Road 35.83% - 5,379, ,287, ,287, (908,474.89) Panamao Rehabilitation of Suuh-Kandayok-Kan-Ukol Road % 1,255, , , , , Pandami Concreting of Parian-Dakula-Lahi-Malanta Farm to Market Road 41.39% 5,645, ,645, ,616, ,616, (3,971,529.77) Maimbung Concreting of Patao Junction-Ipil Farm-to-Market Road 88.24% 6,682, ,049, ,999, ,115, ,115, (2,066,051.91) Maimbung Concreting of Pantao Junction-Kandang Gulangan-Ratag Limbun FMR 80.95% 3,059, ,829, ,258, , ,829, Maimbung Concreting of Tubig Samin Junction-Tambuan FMR 63.44% 1,570, , , , , Siasi Concreting of Buan, Ratag, Siowing Sipanding and Duggo FMR 0.00% 4,438, Sibutu Construction of 3-Unit Classroom School Building (Brgy. Tandubanak) 99.55% - 362, , , (608,231.97) Sibutu Construction of 3-Unit Classroom School Building (Brgy. Ungus- Ungus) % - 363, , , (609,262.04) Sibutu Construction of 3-Unit Classroom School Building (Brgy. Taungoh) 98.45% - 362, , , (349,304.74) Sibutu Construction of 3-Unit Classroom School Building (Brgy. Tongehat) 96.04% - 363, , , (609,262.04) 52 P age

112 Municipality Subproject Physical Accomplis hment Estimated Amount of LP Request Outstanding Total LP Releases LP Disbursement Submitted to NPCO/MDFO LP Disbursement Still with LGUs/for Completion of SORD Total Disbursement by LGUs, June 30, 2014 Under- (over-) Utilization of LP Fund Releases, June 30, 2014 Sibutu Construction of 3-Unit Classroom School Building (Brgy. Ungus- Ungus) 99.24% - 362, , , (609,948.75) Sibutu Construction of 3-Unit Classroom School Building (Brgy. Tongsibalo) 96.92% - 363, , , (348,618.03) Sibutu Construction of Barangay Ungus-Ungus Health Station 96.50% - 189, , , (47,187.67) Sibutu Construction of Barangay Tongsibalo Health Station 96.19% - 189, , , (322,346.35) Sibutu Construction of Barangay Tongehat Health Station 96.04% - 189, , , (322,346.35) Sibutu Construction of Barangay Taungoh Health Station 66.58% - 260, , , (64,977.84) Sibutu Construction of Barangay Tandubanak Health Station 97.67% - 189, , , (382,991.09) Total 47,517, ,804, ,144, ,833, ,978, (10,173,624.73) 100% 91.13% 24.82% % % Municipality Subproject Physical Accomplis hment Estimated Amount of LP Request Outstanding Total LP Releases LP Disbursement Submitted to NPCO/MDFO LP Disbursement Still with LGUs/for Completion of SORD Total Disbursement by LGUs, June 30, 2014 Under- (over-) Utilization of LP Fund Releases, June 30, Subprojects with ongoing implementation 25 Total LP Releases 63,804, LP Disbursement submitted to NPCO/MDFO (SORD) 58,144, LP Disbursement for submission to NPCO 15,833, Total Disbursement as of June 30, ,978, Under(Over) utilization of LP Funds (10,173,624.73) 53 P age

113 ANNEX 8. Project Implementation in ARMM and Formulation of Recommended Strategies 54 P age

114 55 P age