Government Projects

By: Roel R. Landingin

Public-works projects are marred by irregularities. For this reason, many people think that public officials build roads, bridges, dams, and other civil works only so they could make illicit money on the side.

It seems anomalies are a standard feature of any project, whether is a simple government-funded contract to build a road such as the Diosdado Macapagal Highway or a complex build-operate-transfer (BOT) project such as the Ninoy Aquino International Airport Terminal III.

Decades ago, the completion of public works such as roads, bridges, dams and even power plants were considered feats of engineering worthy of national pride. Praise, instead of suspicion, was heaped on the successful project manager. The National Power Corp. project engineer who oversaw the construction of the country’s first three hydroelectric power plants in the early 1950s, Filemon C. Rodriguez, for example, was named “Power Man of the Year” in 1953 by the Free Press magazine.

In fact, in the early days of the Philippine Republic, public works were viewed as a developmental tool that opened up underdeveloped areas or enabled them to be more productive. The emergence of Baguio City, for example, is associated with the building of the Kennon road, which made it possible for motorists to drive up to the mountain resort. The development of Iligan City in Northern Mindanao was made possible by hydroelectric dams along the Agnus River, which provided a steady and inexpensive supply of electricity to heavy industries such as steel, fertilizers, and cement that relocated to the city.

Those seeking information on government infrastructure projects should remember that the purpose of public works is to improve the lot of the community to make life a little easier and better for everybody. Ultimately, the standard against which government projects should be measured is whether the benefits they bring outweigh their financial, social, and environmental costs.

Given the country’s lack of resources, planners are obliged to choose projects that give the highest economic and social returns to the community. Unfortunately, this consideration is set aside on many occasions as projects are prioritized based on the availability of funding support. Worthy projects that do not enjoy access to funding may not be considered at all. Approving bodies also succumb to pressure from powerful bureaucrats and politicians who lean on them to endorse so-called “prestige” but poorly conceived projects.

Corruption and anomalies in project planning and implementation are, of course, a constant concern, but they should not be the only ones. A public-works undertaking may be free of irregularity but may still be a total waste of public funds if it is badly designed and fails to address the problems it was mean to solve.

Project proponents may follow all the rules in the book but could be implementing something that damages the environment or promotes economic inequality. Graft invariably results in bad projects, but it is not the only cause of problematic projects. Poor judgment, lack of skills, and complacency also cause projects to turn bad.

Whether one is a journalist writing a story about a government project or a community leader wondering how a project will affect his or her neighborhood, it is important to understand how projects are planned, approved, funded and implemented. There are rules and procedures to be followed for each stage of the project cycle. Violations of-or deviations from – these rules are often the most obvious sign that something wrong is going on. However, it is also important to realize that not everything is all right even when the procedure are being followed.

This guide is not a manual project evaluation. It will not help readers distinguish a good project from a bad one. (A list of references is provided in the chapter for readers wishing to know more about project evaluation). It will describe the process of project evaluation and approval, the various stages projects go through, the agencies involved, and the basic laws, rules,and regulations that apply. This chapter will also provide tips on the different ways to get information about government projects.

Overview

In any given year, state entities from the national agencies to local units implement tens of thousands of capital projects, big and small, designed to increase the government’s capacity to deliver more goods and services. Investment projects usually take the form of infrastructure such as roads, bridges, school, buildings, water distribution systems and irrigation canals.

As much as a third of the national government’s 2003 obligation budget of P804 billion goes to projects. That’s around P267 billion, almost half of which has been allotted for infrastructure projects such as roads, bridges, and irrigation canals. Another 38.3 percent goes to current operations, the bulk of which is spent on the salaries of schoolteachers, soldiers, policemen, clerks. The rest (27.8 percent) is used to pay interest on the government’s local and foreign borrowings.

The entirety of public investment projects is much bigger than what is in the government budget, however. Some projects are not funded or carried out by the government but by private investors under joint-venture, BOT, and similar schemes. In 2003, private companies were implementing 15 projects worth $5 billion for various national government agencies and corporations. Since the early 1900s, more than half of all the new power plants were built and run by independent power producers. This saved the government millions of dollars but later resulted in excessively higher power rates for consumers.

Laws and Policies

A number of laws govern the approval, financing, and implementing of public-investment projects. Familiarity with these regulations should help anyone seeking information on government projects as the rules define the procedures and identify the entities involved in various aspects of project development.

Executive Order 230 (Reorganizing the National Economic and Development Authority, 22 July 1987) lays down the basis for the evaluation of major public-investment projects by the National Economic Development Authority (NEDA) and its Investment Coordinating Committee (ICC). Separate regulations earlier defined “major” projects as those costing at least P300 million for national-government projects and P200 million for local-government projects. Other projects may still need to be evaluated by the NEDA secretariat but no longer need to go through the ICC process. The rest can be approved either by the head of agency, the directors of a government corporation, or the board of a local government.

Public-investment projects, like all government purchases, are subject to state procurement laws and regulations, which were recently consolidated into Republic Act 9184, or an Act Providing for the Modernization, Standardization, and Regulation of the Procurement Activities of the Government. The law requires the government to choose suppliers of goods, services, and even civil works through competitive and transparent bidding. It details how this is to achieved through such mechanisms as the bids, awards and contracts committees, which are to be set up within each agency, Government Corporation, and local government unit.

Build-operate-transfer and similar projects financed and implemented by private investors in return for the right to collect fees from users of toll roads, irrigation canals, and water distribution systems are governed by RA 7718, also known as the BOT law. The law requires competitive bidding in the award of BOT contracts, except in exceptional cases and when a government agency or unit receives what is called an unsolicited proposal. RA 7718 also states that BOT projects proposed by a national government agency worth at least P300 million need approval of the ICC and the NEDA board.

Sources of Basic Information

Researching public investment projects can be easy or hard depending on the information being sought. There are several published or online official lists of government projects that provide basic information such as cost, proponent, tinetable, and funding source.

A basic source of information is the NEDA’s Medium Term Public Investment Program (MTPIP), which is prepared along with the Medium term Development Program (MTDP) once every five years.The public investment program is a comprehensive list of infrastructure and other projects that various government agencies want to implement over the next few years. The list provides information on the project cost, location, timetable, and proposing agency. The MTPIP covers only proposed projects. Only some will eventually be considered, approved and implemented.

Recognizing the importance of the MTPIP, the ICC and international funders require a project to be in the investment program before it is considered for funding. However, the integrity of the list is being diminished by frequent changes in the composition of projects included. Government agencies also treat the investment program as mere ‘wish list” by including more projects that they can reasonably fund from their projected budgetary allocations.

The General Appropriations Acts (GAA), the national government budget as approved by Congress, also lists public investment projects and the proposed spending for them for a specific year. The projects are listed by implementing agency and are further subdivided into those that projects listed in the appropriations law will be implemented as are locally funded and foreign assisted. There is a higher degree of probability that a funding is already available for it. When using a GAA as an information source, remember that the amount mentioned for a projec represents only expenditures for a specific year, not the entire cost.

Another budget publication, the Budget of Expenditures and Sources of Funds (BESF), lists ongoing foreign-assisted projects and the appropriation for them in a given year, as well as the implementing agency and the foreign donor or funder. Again, readers should remember that the amounts mentioned in this document refer only to a specific year and do not constitute the entire project cost.

For the status of government projects financed by concessional loans and grants from other countries and multilateral lending organizations, an important source of information is the NEDA’s annual official development assistance (ODA) portfolio review. The latest available, released in June 2003, covers ODA-funded projects as of December 31, 2002

The annexes are particularly useful because they all list the projects, including the implementing agency, funding source, loan effectivity and closing date, loan amount, loan cancellation, scheduled availment, actual availment, the availment rate, amount of backlog, disbursement target, actual disbursement, and percent attainment of target disbursement. The annexes also list projects facing various kinds of difficulties such as right of way, peace and order, change in scope and additional work, contractor’s poor performance, environmental clearance certificate, and budget-related problems. Care should be exercised in using the numbers mentioned in this report as they refer to loan amount, not the project costs, which are bigger as they include a local peso counterpart.

Information about private sector financed and managed projects under BOT and similar schemes are listed on the website of the BOT Center (www.botcenter.gov.ph), a unit under the Department of Trade and Industry tasked with promoting private investments in public infrastructure projects. The lists include only basic information such as the project name, proponent agency, project cost, investment scheme, and the private investor (if the project has been awarded ). One of the lists (List of Completed, Operational, and Awarded BOT Projects) classifies the projects by status i.e. completed, operational, under construction, bidding stage, feasibility study. It distinguishes between BOT projects that were awarded through public bidding and the so called unsolicited proposals that were awarded largely through negotiation. Another list (Projects for Investment) provides a brief description, estimated cost, and status of public investments projects being offered to private investors.

There is a lot more to projects than costs, funding source, and dates, however. Those looking for more substantial information toward making an assessment of the beneficial or adverse effects of specific government projects cannot only rely merely on lists. They need to look at the actual proposals, feasibility studies, evaluation reports, and other documents generated in the course of a project’s life cycle.

Project Idea Feasibility

One of the distinguishing features of investment projects, as opposed to other government activities is that they have a beginning and an end. Public school teachers will forever be teaching and policemen will forever be catching criminals, but building a road is expected to be finished at some point. Valuable information, usually written down in documents, is generated at various phases of a project’s life, so it is worthwhile to spend some time learning a little bit about how projects start, develop, and end.

NEDA project analysts divide a project’s life cycle into three broad phases: pre-investment, implementation, and post-investment (see components of a project cycle)

The first phase includes concept or identification, definition or preparation, feasibility study, and approval and financing. Many people think that the most important activity in the pre-investment phase is the feasibility study and thus focus their attention solely on the document. To planners, the study is critical because it establishes the workability of a project idea.

COMPONENTS OF A PROJECT CYCLE

But journalists, researchers, and other outsiders looking in should also be interested in how a project concept came about. Ideally, projects are identified based on gaps in the economy or society. Oftentimes, projects arise because of pressure from interest groups or beneficiaries, including foreign suppliers. Politicians, too, often push for pet projects even when there is no clear demand for them. An influential former senator, for example, wanted a women’s training center built beside the Technical Skills Development Authority (TESDA) Building just because she saw one in Japan. The project went through ICC and NEDA board but was fortunately turned down by the Japanese government itself.

This is not to say that outsiders should ignore the feasibility study, which provides a comprehensive account of the factors considered by the proponent in pushing for a project. No two feasibility studies are exactly alike, but according to the NEDA, the ideal study should contain the following modules: market or demand and supply, technical or engineering, manpower and administrative support, financial, economic, social, institutional, and environmental. Traditionally, cost-benefit analysis widely used in these studies covered only financial and economic variables. Increasingly, social and environmental costs are also being quantified and brought into the equation. For example, if a project damages the environment, the costs of pollution should be included in the project cost.

Evaluation and Approval

After the feasibility study come approval and financing, which involve NEDA’s investment coordinating committee and the various external funding sources.

Government projects do not go through the same evaluation and approval process. Some merely require the go signal of head of the agency or local government board concerned while others need the approval of no less than the Philippine president and key embers of the Cabinet. The most rigorous assessment is reserved for the biggest projects having the most impact on people, the community, and the economy. More often than not, these are also funded by official development assistance (ODA) or grants or low-interest long-term loans form other countries or multilateral organizations such as the World Bank and the Asian Development Bank.

The stringest review procedure is carried out by the NEDA – ICC which evaluates all public-sector capital projects if they cost P300 million or higher, are funded by a foreign loan at least $5 million, or are undertaken by then private sector seeking access to ODA financing. Public works worth at least P300 million (P200 million if sponsored by a local government unit) undertaken by investors under BOT and other similar private sector participation schemes also need ICC approval.

Full NEDA – ICC evaluation and approval goes through a four-stage process: 1.) the ICC core secretariat, staffed by NEDA analysts and sector experts; 2.) the ICC Technical Board, composed of undersecretaries of selected departments; 3.) The ICC Cabinet Committee ciomposed of secretaries of selected departments ; and 4.) the NEDA Board, chaired by the President and composed of 18 Cabinet secretaries and one representative of the central bank.

Some projects require NEDA Board approval but no longer need to go through complete ICC review. Endorsement from the ICC secretariat is enough. Examples include projects requiring less than $5 million foreign borrowing, those funded by grants or so-called programs loans incurred strictly for balance of payments and budgetary support.

In general, the following projects are also excluded from ICC review and approval: LGU-funded projects; regular maintenance and operating expenses; spare parts acquisition; relending of concessional funds to private borrowers; and technical assistance activities such as research, training, and expert services.

After a project is evaluated and approved, it is endorsed for funding. Projects meant to be funded by other countries or multilateral organizations are submitted either to their respective embassies or representative offices in the Philippines. Negotiations usually follow and an agreement results in the signing of several loan or grant documents. Sometimes changes in the project scope or scale are deemed too substantial that the project is resubmitted to the NEDA- ICC for review.

The evaluation, approval and funding activities generate documents that contain important information on the project. Any journalist or researcher wishing to study a project in-depth should strive to get hold of these papers, which include submissions by the implementing agencies and evaluation reports made by various units of the NEDA and the ICC.

Government agencies proposing a project for NEDA and ICC review fill up several project evaluation forms (PE Form 1 on general information, PE form 2 on sources of financing; PE form 3 on project cost; PE form 4 on annual operations, and maintenance costs; PE form 5 on estimate project benefits; and PE form 6 on project framework.) In addition, they submit the feasibility study, regional development council endorsement for local projects, Department of Finance review for projects proposed by government corporations, NCC review for relending programs, right of way (ROW) acquisition and resettlement action plan, project funding strategy, and the environmental impact study or environment compliance certificate.

The various units of NEDA and ICC, in turn write reports at various stages of the evaluation and approval process. As soon as it has finished reviewing a project, the ICC secretariat writes a comprehensive project evaluation report that is submitted to the ICC Technical Board. If approved, the ICC Secretariat writes another shorter report endorsing the project to the ICC Cabinet Committee. Afterwards, only a brief project summary is prepared for the NEDA Board which confirms the ICC Cabinet Committee approval.

Both the forms and other documents submitted by the implementing agency and the evaluation reports written by the various NEDA and ICC Units are public documents. Outside parties can request a copy in writing to the NEDA development information staff.

Though not as rigorous, project proposals and evaluation reports are written for projects that no longer need to go though the NEDA and ICC, and need only approval of the agency head., a government board, or a local government body. The proposals and reports are often prepared by a project development office or similar unit within the agency, state firm, or local government unit.

Implementation and Monitoring

Ideally, journalists, NGOs and government watchdogs should start to write about projects at the identification and feasibility study stage to give the affected communities the opportunity to intervene and have a say in shaping the project. In truth, many people get to learn about projects and their likely impact on communities only when implementation is well on its way.This is the time when government social workers suddenly appear in the neighborhood to convince households to resettle somewhere else because a new expressway will be built on the land they are occupying.

Even the best-designed projects could turn bad if poorly executed. A well-planned highway may turn into a killing zone if the contractor cheats and uses substandard materials to cut costs. For this reason, implementation which covers both the completion of construction activities as well as the initial operation, is considered a critical phase of the project life-cycle. Implementation is followed by post-investment evaluation, which aims to assess short-and-medium-term impact of the project and identify future projects for consideration.

Many issues in project implementation are of interest to the public. For affected communities, the No.1 question, of course is making sure that project is implemented in a way that minimizes harm to the environment and the populace. The construction of a new rail transit system is sure to ease traffic but may worsen road congestion in them meantime because of improper deployment of equipment and materials along the major thoroughfares.

The public is also keen to see that projects are completed on time and within budget. Unfortunately, government’s overall capability to implement projects effectively remains weak, leading funding agencies to complain often about the low loan utilization rates. Disbursement level in 1999 and 2000 fell to below $1 billion, while the ODA availment rate went down to 63 percent, the lowest in a long time. The slow implementation of projects that results in low levels of loan utilities also raises the costs for the government, which has to pay higher commitment fees to keep the loan active. Project delays do not just postpone potential benefits but exposes the project to the danger of cost escalation.

Graft and corruption is another issue in project implementation. Bribery, extortion, and collusion distort the competitive process essential in selecting the best company to supply goods and services for public-investment projects.

There is no officials list of graft-ridden government projects, but the NEDA’s Project Monitoring Staff (PMS) maintains a database on the statues of major projects approved by the agency. The ICC publishes on its website a list of approved projects. The NEDA also maintains an online contracts database containing summaries of its review of all government agencies, corporations, and local units on one hand, and private sector suppliers of goods and services on the other. A substantial number of the contracts involve public-investment projects. When using the database to research the status of a public investment project, one should remember that a single project may involve several contracts between government and various counterparties.

For foreign-assisted projects, the NEDA’s ODA Portfolio Performance report is an excellent source of information. A special table in the report lists is delayed or stalled projects and the problems they are encountering. Another list is a later report indicates project running longer and costing more then initially estimated.

A number of NGOs also maintain watchlists of government projects to prevent corruption and irregularity. They are an excellent source of information on why some projects are stretching beyond their budgets and timetables. Not every instance of cost or time overrun is a signal of inefficiency, irregularity, or worse, corruption. So it is important to find out why a particular project is failing.

The best source of information on the status of projects under implementation is the agency, Government Corporation, or the local government unit in charge. These organizations usually maintain an office tasked with initiating and managing projects that would have up to date information on what is happening to the government unit’s projects.

Organizations of affected communities or sectors, whether for or against a proposed projects are also a good source of information, particularly on the social, economic, and environmental impact of a project. Before the Senate Blue Ribbon Committee began investigating the BOT deal between Department of Transportation and Communication and the Philippine International Airport TerminalCo.(PIATCO),the organization of airport service companies that were likely to lose their business was just the only source of project documents including the BOT contract and its various supplements.

The private sector contractors and suppliers should not be neglected as potential sources of information as well. Materials coming from these sources tend to be self-serving. However, they could also be challenged to provide copies of contracts, agreements, environmental impact studies, and other documents. Companies entering into long-term agreements with the government through joint-venture-BOT, and similar schemes usually prepare business plans that spell out exactly how they intend to fulfill their obligations and make money at the same time. In general, they do not usually give out copies of their business plans to outside parties, but some do. The two private water concessionaires that took over the operations of Metropolitan Waterworks and Sewerage Systems submitted their business plans as part of their respective bids.

External lending and aid agencies that fund a great number of government projects also provide information on these past and present project loans on their websites. The World Bank, for example, provides not only project information briefs on the rationale, objectives, and targets of projects it is supporting but also extensive staff appraisal reports. Some documents such as the environmental impact assessment of a World Bank-funded project are also included. The Asian Development Bank also maintains information on supported projects on its website. However, bilateral lending institutions have yet to share reports and documents on projects they are supporting with loans and grants.

Source: PCIJ Guide to Government, Philippine Center for Investigative Journalism, 2003.

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