Fal September 28,2003, Philippines Proposed Laguna de Bay Institutional Strengthening and Community Participation Project Aide Memoire — Appraisal Mission I Background and Objectives 1. A World Bank team! undertook an appraisal mission between September 17 and 29, 2003, for the above titled project. The mission had extensive discussions? with Department of Environmental and Natural Resources (DENR), Department of Finance (DoF), Commission on. Audit (COA), Department of Budget and Management (DBM), Laguna Lake Development Authority (LLDA), Municipal Development Fund Office (MDFO), and National Economic Development Authority (NEDA). The mission also visited the Muntinlupa, Tanay, Pagsanjan- Lumban micro-watersheds and met with Mayors and other stakeholders in the micro-watersheds. The mission also had discussions with Mr. Jan Willem Cools, First Secretary (Forest and Environment), Embassy of the Netherlands. The mission acknowledges the cooperation and assistance provided by the Office of the Secretary, DENR, Office of Foreign Assisted Special Projects (FASPO), DENR; and Assistant General Manager, Division Chiefs and staff of LDA. 2. The objectives of the mission were to: (a) assess the readiness of the project for implementation; (b) finalize project implementation arrangements, including the staffing, of the project coordination office with DENR, LLDA and MDFO; (c) review the status of actions that LLDA has agreed to complete prior to negotiations and effectiveness; (d) finalize co-financing arrangements with the Embassy of the Netherlands; and (e) update project documentation and tentatively agree with the Government on the proposed dates for Negotiations. ‘The appraisal mission was undertaken after the project was approved by the ICC Cabinet Committee on August 28, 2003, and Decision Meeting of the Bank on September 4, 2003. 3. The mission had extensive discussions with the LLDA project team and MDFO to: (a) finalize the three-part project implementation plan ~ Operations Manual, Capacity Building Plan ‘and Monitoring and Evaluation Framework; (b) draft Terms of Reference for the priority capacity building activities of component 2; (c) modify the sub-project development cycle to incorporate comments of the Decision meeting and observations from field visits; (4) review organizational arrangements for project roll out; and (e) finalize the Letter of Institutional Development Objective. This draft aide memoire is in four parts: I - Background and Objective; II ~ Project Design Issues; III ~ State of Readiness for Implementation; and IV — Implementation Readiness Action Plan. The aide memoire was discussed at a wrap-up meeting held on September 26, 2003, chaired by the Hon. Elises G. Gozun, Secretary, DENR, and attended by Undersecretary Ignacio and Assistant Secretary Camat of DENR; General Manager Cataquiz of LLDA and Mr. Cools of the Netherlands Embassy. Secretary Gozun reiterated that this project is a priority for the DENR, and directed the LLDA to complete the remaining outstanding issues so that negotiations ‘ean be held at the end of October. The Mission also briefed Undersecretary Junaita D. Amatong of DoF on September 29, 2003. "The eam cansied of Mets /Mames. Ray Ancheta, Municipal Engineer Lodes Anduct, Program Assistant; Emo Diaz, inca! Management Specs, Pachamuth Tlangovan, Team Lester, Rene SD Manvel, Procureret Specialist, John Moro, Envitnmenal Engineer, Jose To Nicolas, Social Development Specials, Seely Tuyo, Envtonmenal Specialist, Suthana ‘Vichitanana, Pogam Aststant and Maya Villu, Environmental Speci. In dton, Mr Ail Jaime, Project Of, Royal ‘Nehrlands Erba in Mania oined the mission fo selected meetings. The mission vas also assisted by Me Frank Radsak, Instiutona Constant and MS, Cesil Come, Projet Manageret Consultan "Tistof persons mel by We mission provided in Atachment 3Final September 29,2003 4. The project objectives, components and financing plan are provided in attachment 1. The project will be financed from an IBRD loan of USS 5 million, a Government of Netherlands grant Of USS 5 million, and LLDA and LGUs counterpart contribution of USS2.4 million, HI Project Design Issues 5. Institutional Development The purpose of the Letter of Institutional Development Objective (LIDO) is to provide the policy and institutional underpinning for the project and articulate a longer-term Government strategy for institutional arrangement in the Laguna de Bay watershed. The mission discussed the draft LIDO with LDA. LLDA has confirmed that the amended letter will be sent to the Bank prior to negotiations. The draft letter clarifies the following: (a) mandate of LLDA as a planning and regulatory agency; (b) the institutionalization of the micro-watershed planning process into LGU development planning; (c) the evolution and role of river councils ; (d) the role of civil society and community organizations in partnering with LLDA to plan and implement activities; (e) the expansion of LLDA’s regulatory tools to include economic instruments and performance disclosure; (A) the development of a revenue management strategy; and (g) the development of a trunk infrastructure strategy that spells out the required institutional and financing arrangements and clarifying LLDA’s role in infrastructure development. In response to these, LDA confirmed to the mission that it will continue with its re-engineering program, and as a first step, the Board resolved (September 25, 2003) to rationalize and streamline the functions currently managed by 16 Divisions, into three offices — Water Resources Policy and Planning, Environmental Regulations and Management Services. A Board appointed Task Force headed by the Undersecretary Metin of DENR will oversee the process. A regrouping of the staff will commence during the last quarter of 2003 and the functioning of the new structure will begin in January 1, 2004, with the transition of all units, functions and systems completed by December 31, 2004. ‘These arrangements will be laid out in a transition plan. The capacity building needs for implementation of LIDO are detailed in the Project Implementation Plan (Part 2: Capacity Building Plan), 6. River Councils. 22 River Councils have been established ty LLDA in the 24 micro- watersheds of Laguna de Bay. All 22 multi-sectoral RCs are registered with the Securities and Exchange Commission (SEC), as non-profit organizations or foundations and are linked through a Federation that is likewise registered as a foundation, These RCs have varying levels of organizational maturity. A third are comparatively active and strong, a third are fledging, and the rest are relatively inactive. In terms of leadership, a third are private-sector led, while the rest are essentially LGU-driven. The mission agrees with LLDA that the RCs form the backbone for civil. society engagement for the project and would therefore be assisted to evolve into a strong, independent and sustainable body that would serve as a consultative, advisory and advocacy group for Laguna de Bay watershed. LLDA should develop an Organizational Maturity Assessment (OMA) to gauge each RC and the Federation, Based on the OMA findings, a performance based approach to capacity building for these groups will be developed. It is agreed that the assessment should be undertaken by a third party to be engaged by LLDA during the first year of project of implementation. 7. Sub-project Development The mission explored the possibility of the sub-project loan agreements being signed prior to LLDA committing significant resources 10 a. sub-project development. MDFO indicated that this is not the current practice as the findings of the feasibility study are needed by LGU to obtain a Sanggunian resolution and PGB-MDFO to approve a sub-project. In order to minimize risks of sub-project drop-out, the mission agreed. ‘with LDA and MDFO that a “drop-dead” fee (equivalent to the cost of feasibility study) wouldFinal September 28,2003, be included in the Sub-project Memorandum of Agreement (S-MoA) in the event a LGU does not proceed with a sub-project after it is found to be feasible and borrowing capacity exists. However, the S-MOA will be signed only after Sanggunian Resolution to deepen council ownership. The mission also provided comments on the Draft S-MoA and SPLA, which also need to be agreed between MDFO and LLDA prior to the signing of Institutional Memorandum of Agreement (I- MOA). 8. Information, Education and Communication (IEC) __As suggested during the review discussions of the project, the mission discussed at length with LLDA to improve the IEC strategy and content of the project. It was agreed that while the program should continue with the strengthening of LLDA’s integrated in-bouse capacity for undertaking IEC campaigns, it should likewise promote civil-society led interventions and advocacy as a parallel but autonomous ‘window for increasing public awareness and for encouraging a healthy and continued environmental discourse on Laguna Lake issues, This approach would not only help augment LLDA’s limited resources for IEC, but also enhance the effectiveness, reach and credibility of the campaign. Accordingly, it was agreed that LLDA should: (j) develop an integrated communications strategy and plan and clarify with its units their specific roles in the plan, and, ii) finalize, for further discussion with the Bank, its concept note on the creation of a civil- society managed Learning Resources Center for Laguna Lake. It was agreed at the wrap-up ‘meeting that LLDA should closely coordinate the IEC program through the River Councils and their Federation and ensure that sound institutional arrangements are put in place so that the ‘activities can be sustained beyond the life of the project. III State of Readiness for Implementation 9, Government Approval The mission notes that the ICC Cabinet Committee approved the project, the final official endorsement required for ODA-funded project, with the following conditions: * Applicable NG-LGU cost sharing to be agreed by DoF-MDFO and LLDA; * Performance-based grant between DoF, DENR and LLDA; + Obtain Sanggunian Resolution from participating LGUs before approving sub-projects. 10. NG-LGU Cost Sharing The project will follow the revised NG-LGU Cost Sharing mechanism that was adopted in January 2003. However, the project is piloting multi-LGU implementation of sub-projects at the micro-watersited level. This would require the development of new guidelines that need to be approved by the Policy Governing Board (PGB) of the MDFO. ‘The Bank has agreed, in principle, that funds from the PHRD Grant (TF026664) could be used to hire consultants needed to assist MDFO to prepare the guidelines. Given its newness, the mission agreed to a phasing approach, whereby, both single LGU and multi-LGU implementation approaches will be supported. In the meantime, LLDA will process the first batch of sub-projects proposed by single LGU micro-watersheds. Once the guidelines are adopted by PGB, the project would focus its support for sub-projects jointly implemented by multiple LGUs in a micro-watershed. In addition, the mission also recommends that this study also identify eligible LGU activities that can be counted as "in kind” equity contributionof a LGU sub- project, which is a practice followed by some Bank-financed projects (ARCDP2 and ARMM Social Fund), 11. Performance-based Grant The details of the grant are included in the IMOA. The DENR and LLDA have discussed with MDFO and DoF a draft version of MOA. They have agreed on the terms and conditions, performance targets, institutional collaboration and