Cost-Benefit Analysis of ARCP Rural

Infrastructure Projects1

By: Jay B. T. Lacsamana

Chief Economist (1999-2007)
Agrarian Reform Communities Project
DAR-Asian Development Bank

December 2006

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

Cost-benefit analysis is conducted prior to the approval and implementation of

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

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 I. INTRODUCTION

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

II. BACKGROUND OF ARCP

The ARCP is an originally six-year poverty reduction and rural development

project that aims to increase the quality of life of at least 33,000 agrarian reform
beneficiaries in about 165 agrarian reform communities (ARCs) scattered across the 33
covered provinces of the country.2 The Project is implemented by the DAR through its
FAPsO and DAR instrumentalities at the field and is being assisted by several agencies of
the national government and related entities.

ARCP implementation is guided by DAR’s agrarian reform community development

strategy. At its inception in 1993, the ARC development strategy serves as DAR’s main
approach in developing the redistributed lands and the beneficiaries of CARP.3 It aims to
accelerate development of ARBs and ARB lands by focusing on support services in areas
where majority of CARP lands have been transferred and development of the
beneficiaries could proceed under new terms of ownership. The design of ARCP and its
attendant interventions follow the major elements of the ARC development strategy, which

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

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

3
in turn has been enhanced, redefined and revised to better address DAR’s mandate, as
well as incorporate the priorities of the different political administrations.

To carry out its objectives, the ARCP has four major project components: (1) Rural
Infrastructure, (2) Development Support, (3) Land Survey and Titling, and (3) Project
Management and Capability Building. The attendant interventions under the major
components are to be implemented primarily by local government units (LGUs) who are
hosting eligible ARCs together with ARB organizations (irrigator’s associations, barangay
water and sanitation associations, etc.) and people’s organizations/ cooperatives.
Identification of local projects are done on a demand-driven, participatory, and on a first-
come, first-serve basis. Criteria for eligibility of both ARCs and LGUs are pre-established
by the ARCP project document and loan agreement. Project management implementation
is guided by a logical framework detailing the goals, objectives, targets, project
components inputs, outputs, effects and impacts, means of verification of key performance
indicators and assumptions and risks. A copy of the logical framework is attached in
Annex 1.

Project Implementation Status

After seven years of implementation, ARCP is at the penultimate stage of its

project life. Physical phase-out is targeted by end of December 2006 and overall project
phase-out is slated by end of June 2007. The project is in various stages of mainstreaming
its systems and interventions to DAR, LGUs and ARB organizations. Overall physical
accomplishment of the Project as of end of June 2006 is at 103.55 percent as against an
elapsed local period of 107.62 percent. The table below shows the overall breakdown of
performance by project component:

Table 1 Weighted Performance per Component

As of end of September 2006
Actual Weighted Performance % of component
accomplishment
Component Global Weights As of 30
As of March 2006 over component
September 2006
weight
Rural Infrastructure 61.50 49.13 51.49 83.72
Land Survey and 2.40 2.21 2.28 95.00
Titling
Development 29.50 34.51 45.15 153.05
Support
Project 6.60 8.33 9.01 136.15
Management
Total 100.00 94.18 107.93 107.93

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ARCP Rural Infrastructure Component

The rural infrastructure component under ARCP aims to improve the physical and
social infrastructure needs of ARCs by increasing the accessibility, productivity and overall
living standards of the beneficiaries. The RI component provides three (3) major modes of
RI subproject types: (1) access infrastructure (farm-to-market roads, bridges, culverts, etc.),
(2) communal irrigation (diversion, small water impounding, or pumping schemes), and (3)
potable water supply (rehabilitation of existing wells, installation of additional wells, and
development of potential spring sources).

The Project has approved a total of 469 subprojects (as of end of September
2006) that are in various stages of implementation in 165 ARCs hosted by 163 local
government units (LGUs). Table 2 below shows the 469 approved subprojects under ARCP
having an aggregate cost of P3.98 billion with loan proceeds covering about 75 percent
of total project cost or P2.96 billion. LGUs shoulder 18 percent or P725 million of total
project cost principally sourced from their internal revenue allotment (IRA). In terms of
number of RI subprojects approved, 77% are under access infrastructure covering a
combined length of 1,230 kilometers, irrigation systems comprise 10% with a total
coverage of 8,070 hectares and potable water supply systems comprise 13% or 98
units/systems servicing 15,504 households.

Table 2
Cumulative Physical and Financial Summary for Approved Subprojects
By Category, As of 30 September 2006
Category No. of Physical Indicator Cost Breakdown (in million pesos)
SPs
LP GOP (taxes) LGU Equity Total
Access 359 1,230 kms 2,639.00 247.16 560.83 3,446.99
Infrastructure
Irrigation 47 8,070 hectares 257.36 29.5 128.83 415.69
Potable Water 63 98 units / 71.45 7.7 35.47 114.62
Supply 15,504 households
TOTAL 469 2,967.81 284.36 725.13 3,977.3

Across geographical location, most of the RI subprojects are located in ARCs in

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

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 Table 3
Cumulative Summary of Approved Subprojects
By Geographical Location, As of 30 September 2006
Project Regions No. of No. of No. of Percent Total Cost Percent
Area Covered provinces ARCs Subprojects Share to (million P) Share to
Total No. Total Cost
of SPs
Luzon I, II, III, IV 11 51 131 28% 1,348.7 34%
and V
Visayas VI and VIII 8 39 115 25% 922.5 23%
Mindanao X, XI, XII 10 56 195 41% 1,372.8 35%
and
CARAGA
ARMM ARMM 4 19 28 6% 333.2 8%
TOTAL 33 165 469 100% 3,977.2 100%

Table 4 below summarizes the profile of RI subprojects across categories and

geographical areas. Note that majority of access subprojects in terms of number (54%)
and cost (58%) are located in Luzon and Visayas combined compared to the combined
share of Mindanao and ARMM. The same is true for irrigation subprojects where the
combined share of Luzon and Visayas is 68% and 60% in terms of number and cost,
respectively. Mindanao and ARMM combined have the higher share for potable water
supply subprojects with 67% and 74% in terms of number and cost, respectively.

Table 4
Cumulative Summary of Approved Subprojects
By Geographical Location and Category, As of 30 September 2006
Access Infrastructure Irrigation Potable Water Supply
Geographical No. of Physical Cost No. of Physical Cost No. of Physical Cost (in
Sub- Target (million Sub- Target (in (million Sub- Target million
Area
projects (kms) pesos) projects hectares) pesos) projects (no. of pesos)
units)
Luzon 100 336.22 1,145.09 21 3,692.87 187.17 10 12 16.47
Visayas 93 300.07 848.94 11 1,807.09 60.70 11 32 12.92
Mindanao 141 495.53 1,135.75 14 2,500.74 159.28 40 52 77.85
ARMM 25 98.22 317.20 1 70.00 8.59 2 2 7.41
TOTAL 359 1,230.04 3,447.00 47 8,070.70 415.73 63 98 114.65

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 III. ARCP RI Component: Design and Evaluation Parameters

Project Design

The identification and implementation of ARCP rural infrastructure projects are

guided by the ARC development strategy4. While the strategy has undergone several
enhancements and modifications through the years, the provision of support services like
rural infrastructure in land reformed areas remains a significant feature for the strategy.
Investments in rural infrastructure like farm-to-market roads and bridges, communal
irrigation, potable water supply, post-harvest facilities and structures, and to a limited
extent, health centers and school buildings catering to ARB beneficiary households, are
some of the project packages that cater to the ARCs. The overriding objective is to
preserve the gains of land distribution and acquisition (LAD) by providing support services
to ARBs and their communities so that the beneficiaries will be able to make the land
productive for higher income and eventual deliverance from poverty.

Delivery of support services and infrastructure under ARCP is consistent with the
DAR’s ARC development strategy. Under ARCP, the needed investments in support services
are identified through a participatory planning process undertaken by the ARB
organizations. ARC development plans and investment programs are drawn up where
projects addressing ARC needs are prioritized and ranked.

Resource mobilization to finance the ARC plans and investment programs is

undertaken particularly among CARP implementing agencies (mainly the line departments:
Public Works and Highways, Agriculture, Trade and Industry, National Irrigation
Administration, etc.), foreign donors (or official development assistance) and to a limited
extent private sector and non-government organizations. ARCP, being a foreign-assisted
project funded through a loan from ADB, finances the support services priorities of the
covered ARCs under it through the provision of a matching grant to local government units

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

7
(LGUs) who are hosting the covered ARCs. Thus under ARCP, it is incumbent upon the ARCs
and their organizations to touch base with LGUs so that ARC development plans and
investment programs form part of and/or made consistent with the LGU development
plans and investment programs. Mobilization of the required local equity (in cash or in
kind) to avail of the marching grant is thus realized through equity participation of the
LGUs and ARB organizations.

ARCP Investment Prioritization and Project Evaluation Methodologies

In order to provide context to the comparative cost-benefit analysis of ARCP rural

infrastructure subprojects and how they relate to poverty reduction, the following
explanatory information is presented:

(a) Nature of ARC socio-economic situation and their infrastructure needs;

(b) Viability indicators used during ARCP inception and as implemented from 1999
to 2006; and
(c) Derivation of economic costs, benefits, net present values and economic rates of
return.

Nature of ARC Development Challenges

Agrarian communities are among the most disadvantaged areas in the Philippines.
At ARCP entry, baseline studies conducted by the Institute of Agrarian Studies of the
University of the Philippines Los Baños, determined that more than 70% of agrarian
household members lived below the poverty line. The average income of such households
was P36,000 per annum against the national poverty threshold of P68,000 established
by the government.

Poverty is pervasive in ARCs because most of the development constraints are

barely addressed in these communities. The development needs of ARCs are numerous
and varied. Most of these communities are isolated from the main market centers, making
access to agricultural inputs, technology, credit, agricultural services and higher-value
commercial trade, difficult and costly.

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 In 1999, many ARCs were also newly created since it was immediately prior to this
period where DAR’s land distribution target, particularly government lands, were
distributed. Under ARCP, eligible ARCs were mostly those that were newly declared (with
high land distribution record and free from land acquisition and distribution) while a
minority are old ARCs whose lands were distributed under the earlier land reform
programs. Land distributed could hardly be made productive due to several constraints
and foremost of these are access to the market, lack or inadequate irrigation systems,
potable water supply and other support facilities and infrastructure.

ARCs under ARCP are mostly categorized as semi-prime and remote or “satellite”
ARCs. These are found mostly in Mindanao, ARMM, Visayas and Northern Luzon areas.
There are a few prime ARCs covered by ARCP and these are mostly in Central Luzon. In
these areas, ARC planning processes yielded the following priority infrastructure needs:
(1) farm-to-market roads, (2) potable water supply, and (3) irrigation.

ARCP Economic Viability Indicators

Based on the rapid rural appraisal conducted in several ARCs in 1997, ARCP RI
component design revolved around addressing the three major rural infrastructure needs
in the eligible ARCs. The design and investment mix is consistent with the participatory
needs assessment undertaken in about 200 eligible ARCs.

For access infrastructure, it was envisioned then that most of these shall be
gravelling or rehabilitation with limited provision for concrete roads. For irrigation, all of
these are communal systems or projects for either rehabilitation and/or new
construction/installation. Potable water supply systems, as designed, were mostly level I
systems (point source or artesian wells) and level II systems (spring and installation of
strategic community faucets or tap stands).

The economic analysis for the ARCP Project Design in 1997 was based on 24
feasibility studies done in 24 ARCs in Luzon (3 ARCs), Visayas (1), Mindanao (12) and
ARMM (8). The following are the results of the study and the indicators therein became the
basis for NEDA-ICC approval of the ARCP:

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 Component EIRR NPV @ 12% (P’000)
1. Access 17.8 469,880
2. Irrigation 18.6 109,414
3. Potable Water Supply 21.4 44,899
4. Agri-Development 37.2 1,087,134
5. Rural Enterprise 29.3 227,734
ALL COMPONENTS 24.0 1,939,061

Rural Infrastructure Assumptions and Parameters

Below is Table 5 showing the major assumptions and parameters used in the 1997
Project Design and the actual ARCP practice. In general, the ARCP Project Evaluation Unit
has adopted the methodology used in the 1997 Project Design with the following
deviations:

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

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

ITEM 1997 (ADB) ARCP NEDA

Discount Rate 12% 15% 15%
Unskilled Labor: Economic conversion factor 0.6 0.6 0.6
prevailing wage rate
Skilled Labor in 1997 P250 to P400 prevailing wage rate
prevailing wage rate
Unskilled Labor in 1997 P150 to P180
Computed Unskilled Labor to be generated in Person
Years 2,673 1,452*
Computed Skilled Labor to be generated in Person
Years 5,346 2,823*

Foreign Exchange Conversion

Factor 1.2 1.2 1.2

ACCESS (Roads & Bridges)

O&M for Asphalt Roads P 60,000/km none

O&M for Gravel Roads: Economic life 10 yrs P 70,000/km P 40,000/km P 40,000/km
O&M for Concrete Rds: Economic life 15-20 yrs P 20,000/km P 20,000/km
O&M for Bridges: Economic life 15 to 25 yrs P 2,000-2,500/lm

IRRIGATION

O&M for Irrigation: Economic life 15 yrs P 700/hectare P 908/hectare /*

Incremental yields of palay
New irrigation 5.45 tons/hectare 2.53 tons/hectare /*
Rehabilitation 4.19 tons/hectare 2.47 tons/hectare /*
Coverage of new and improved
New irrigation 2,500 hectares 1,125 hectares /*
Rehabilitation/Expansion 4,000 hectares 2,379 hectares /*

POTABLE WATER

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

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Derivation of Benefits of ARCP Rural Infrastructure Projects

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

A. Access Infrastructure (FMRs and bridges)

Under this category are farm-to-market roads and bridges. These involve
connecting and/or improving the access of ARB farms to the secondary and/or primary
(major) market centers. Interventions here vary: (a) road opening to rehabilitation
(gravelling), (b) combination of gravelling and segment or “spot” concreting for FMR
segments that are located in steep slopes or perennially eroded and/or flooded portions,
and (c) fully concrete or paved FMRs (upgrading). Bridges are mostly reinforced concrete
deck guilder-type, single-lane bridges.

There are generally two types of benefit derivation depending on the nature of
FMR subproject. In areas where there is vehicular traffic (about 200 vehicles a day in the
nearest road influence area), the traffic road approach used in deriving of the project
benefits. In this methodology, benefits are derived from the improved surface and/or
access primarily originating from savings in vehicular operating costs (VOCs) in a “with
and without project” scenario. Traffic or VOC methodology may be seen as biased
against households who do not own or use vehicles. This type of cost-benefit analysis may
cause the exclusion of the “poorest of the poor” in the benefit equation of FMRs. Annex 3
provides a summary of vehicle operating cost savings per vehicle and road surface type.

In areas where there is no observed vehicular traffic or where the traffic count
falls below 200 vehicles a day (and the use of which may cause the subproject to be not
viable), the development approach in estimating benefits is derived. This is done by
estimating the cost of hauling of agricultural and non-agricultural products and the cost of
commuting (may be time-based or money-based) of persons in the road influence area.
Table 6 below provides a summary of the benefits assumptions of development FMRs
approved and implemented in ARCP.

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

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

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

C. Potable Water Supply Subprojects

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

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 IV. Cost-Benefit Indicators on ARCP RI Subprojects

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

A. Access Infrastructure

1. All access (including bridges)

Table 7 below shows the overall economic indicators of all access
infrastructure subprojects. Overall economic internal rate of return is
21.66% with a net present value of P616 million. Across areas, Mindanao
exhibits the greatest cost-benefit ratio with 1:1.42 followed by Luzon with
1:1.35.

Table 7
Economic Viability Indicators of all ARCP Access Infrastructure
Net Present Value at Economic Internal Cost-Benefit Ratio
15% Rate of Return (EIRR)
Luzon 327,147,747 22.21% 1:1.35

Visayas 278,862,665 23.29% 1:1.36

Mindanao 324,291,705 22.81% 1:1.42

ARMM 34,463,566 18.62% 1:1.21

All Areas 616,668,136 21.66% 1:1.34

2. Gravel (includes those with concreted portions)

Table 8 summarizes the economic viability indicators of all gravel

roads. Overall, gravel roads exhibit an economic internal rate of return of
23.26% and an NPV of P386 million. Across areas, gravel roads in
Mindanao demonstrate the best cost-benefit ratio with 1:1.41.

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 Table 8
Economic Viability Indicators
All gravel roads including those with spot concrete portions
Net Present Value at Economic Internal Cost-Benefit Ratio
15% (Pesos) Rate of Return (EIRR)
Luzon 158,609,629 24.57% 1:1.39

Visayas 252,547,872 23.49% 1:1.37

Mindanao 203,941,463 24.51% 1:1.41

ARMM 7,169,610 19.07% 1:1.20

All Areas 386,633,379 23.26% 1:1.35

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

Table 9
Economic Viability Indicators
Concrete roads
Net Present Value at Economic Internal Cost-Benefit Ratio
15% (Pesos) Rate of Return (EIRR)
Luzon 136,806,999 20.54% 1:1.30

Visayas 23,241,692 18.92% 1:1.29

Mindanao 272,302,013 21.21% 1:1.42

ARMM 27,293,956 18.51% 1:1.21

All Areas 268,353,974 19.96% 1:1.30

4. Development Roads (Non-traffic)

As defined earlier, development roads are those whose benefits are

derived by estimating the savings in time, hauling costs and commuting costs

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

Table 9
Economic Viability Indicators of Development Roads
Net Present Value at Economic Internal Cost-Benefit Ratio
15% (Pesos) Rate of Return (EIRR)
Luzon 327,147,747 22.21% 1:1.35

Visayas 182,972,233 23.52% 1:1.34

Mindanao 193,988,551 24.33% 1:1.39

ARMM 27,065,938 17.75% 1:1.21

All Areas 410,649,718 22.33% 1:1.33

5. Traffic FMRs (Savings in Vehicle Operating Cost)

Table 10 indicates the economic viabilities of traffic or VOCs-

based FMRs. EIRR is 20,63% and NPV is P221 million for all the areas.
Across areas, traffic FMRs in Visayas fare best in terms of cost-benefit ratio
with 1:1.46, followed closely by Mindanao with 1:1.45.

Table 10
Economic Viability Indicators of Traffic/VOC FMRs
Net Present Value at Economic Internal Cost-Benefit Ratio
15% (Pesos) Rate of Return (EIRR)
Luzon 55,282,113 18.98% 1:1.30

Visayas 95,890,431 22.52% 1:1.46

Mindanao 129,182,865 20.93% 1:1.45

ARMM 27,293,956 18.51% 1:1.21

All Areas 221,349,051 20.63% 1:1.38

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 6. Segment improvement (Upgrading and/or rehabilitation of a portion or
critical segment of an FMR)

ARCP access RI where the investments were limited to improving

access of only a portion or a segment of a farm-to-market road stretch
record an EIRR of 21.69% and a NPV of P407 million (Table 11). There
were a total of 717 kms (264 subprojects) of this nature in ARCP. Across
areas, partial FMR improvement is highest in Mindanao with a cost-benefit
ratio of 1:1.43.

Table 11
Economic Viability Indicators of FMRs:
Segment/Portion Improvement
Net Present Value Economic Internal Cost-Benefit Ratio
at 15% (Pesos) Rate of Return (EIRR)
Luzon-195 kms, 75 SPs 122,247,618 21.22% 1:1.32

Visayas-202 kms, 75 SPs 116,766,222 22.24% 1:1.34

Mindanao-268 kms, 96 SPs 143,611,789 22.16% 1:1.43

ARMM-52.7 kms, 18 SPs 25,232,863 19.78% 1:1.29

All Areas-717 kms, 264 SPs 407,858,492 21.69% 1:1.39

7. Full FMR network (Upgrading or rehabilitation of full FMR stretch)

There were a total of 513 kilometers or 72 subprojects of this

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

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 Table 12
Economic Viability Indicators of FMRs:
Whole FMR Stretch / Network
Net Present Value Economic Internal Cost-Benefit Ratio
at 15% (Pesos) Rate of Return (EIRR)
Luzon-126 kms, 18 SPs 43,457,937 20.65% 1:1.27

Visayas-90 kms, 14 SPs 31,277,133 23.74% 1:1.40

Mindanao-249 kms, 33 SPs 95,191,427 22.74% 1:1.36

ARMM-48 kms, 7 SPs 7,176,451 19.95% 1:1.25

All Areas-513 kms. 72 SPs 174,285,417 22.02% 1:1.33

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

B. Irrigation

1. Overall (all system types)

Table 13 provides the summary economic viability indicators of all

communal irrigation systems and projects under ARCP. Economic internal
rate of return is at 23.40% with a net present value of P104 million. Across
areas, Mindanao systems have the highest cost-benefit ratio of 1:1.53
followed by Visayas and Luzon with 1:1.38 and 1.35, respectively. Luzon
systems exhibit the highest EIRR with 24.54%.

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 Table 13
Economic Viability Indicators, All irrigation systems
Net Present Value at Economic Internal Cost-Benefit Ratio
15% (Pesos) Rate of Return (EIRR)
Luzon 81,045,520 24.54% 1:1.35

Visayas 20,942,000 23.55% 1:1.53

Mindanao 63,399,500 23.47% 1:1.38

ARMM 2,550,000 22.05% 1:1.35

All Areas 104,537,500 23.40% 1:1.40

2. New Irrigation System Construction

Construction of new systems under ARCP covers 3,413 hectares.

Table 14 indicates that this type of system has yielded an EIRR of 22.75%
and NPV of P53 million. Across areas, new system construction in Luzon
registers the highest cost-benefit ratio of 1:1.66, followed by Visayas with
1:1.37.

Table 14
Economic Viability Indicators, New Irrigation System Construction
Net Present Value at Economic Internal Cost-Benefit Ratio
15% (Pesos) Rate of Return (EIRR)
Luzon – 1253 has 44,583,000 27.14% 1:1.66

Visayas – 200.84 has 6,013,000 20.86% 1:1.37

Mindanao – 1,880 has 30,508,500 20.92% 1:1.27

ARMM – 70 has 2,550.000 22.05% 1:1.35

All Areas – 3,413 has 53,146,000 22.75% 1:1.40

3. Rehabilitation of Existing Systems

Table 15 summarizes the economic viability indicators of

rehabilitation of existing irrigation systems. Overall EIRR is at 25% with a
P29.4 million NPV. Visayas and Mindanao systems exhibit the higher cost-
benefit ratio with 1:1.59 and 1:1.54, respectively. Mindanao systems have
the highest EIRR at 26.43%.

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 Table 15
Economic Viability Indicators, Rehabilitation of Existing Systems
Net Present Value at Economic Internal Cost-Benefit Ratio
15% (Pesos) Rate of Return (EIRR)
Luzon – 1,159 has 14,480,000 24.30% 1:1.29

Visayas – 1,606 has 14,929,000 24.56% 1:1.59

Mindanao – 620.74 has 32,891,000 26.43% 1:1.54

ARMM - - -
All Areas – 3,386.49 has 29,409,000 25.09% 1:1.47

3. STW Installation
Shallow tube wells were installed only in the Luzon area. Economic
viability indicators: NVP – P21.5 million, EIRR of 23.53% and cost-benefit
ratio of 1:1.14.

Table 16
Economic Viability Indicators, Shallow Tube Wells
Net Present Value Economic Internal Cost-Benefit Ratio
at 15% (Pesos) Rate of Return (EIRR)
Luzon – 1,403 has/11 SPs 21,588,670 23.53% 1:1.14

Visayas - - -
Mindanao - - -
ARMM - - -
All Areas 21,588,670 23.53% 1:1.14

C. Potable Water Supply Systems

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

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 Table 17
Economic Viability Indicators, All PWS Levels
Net Present Value at Economic Internal Cost-Benefit Ratio
15% (Pesos) Rate of Return (EIRR)
Luzon – 11 SPs 8,920,000 44% 1:1.96

Visayas – 32 SPs 6,937,000 33% 1:1.58

Mindanao – 52 SPs 43,780,000 28% 1:1.90

ARMM – 4 SPs 35,680,000 19% 1:1.99

All Areas – 101 SPs 95,317,000 31% 1:1.49

2. Level I PWS Systems

Only Visayas and Mindanao have Level I PWS systems with a
combined EIRR of 31% and NPV of P1.5 million. Mindanao systems exhibit
the highest cost-benefit ratio with 1:2.40 (Table 18).

Table 18
Economic Viability Indicators of Level I PWS
Net Present Value at Economic Internal Cost-Benefit Ratio
15% (Pesos) Rate of Return (EIRR)
Luzon - - -
Visayas – 23 SPs 1,467,000 33% 1:1.43

Mindanao – 5 SPs 67,000 29% 1:2.40

ARMM - - -
All Areas – 28 SPs 1,534,000 31% 1.92

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

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 Table 19
Economic Viability Indicators of Level II PWS
Net Present Value at Economic Internal Cost-Benefit Ratio
15% (Pesos) Rate of Return (EIRR)
Luzon – 13 SPs 8,916,000 44% 1:1.96

Visayas – 9 SPs 5,470,000 33% 1:1.63

Mindanao – 47 SPs 43,714,000 28% 1:1.89

ARMM – 4 SPs 35,680,000 19% 1:1.99

All Areas – 73 SPs 93,780,000 31% 1:1.49

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 V. Conclusion

Based on the summary of economic cost-benefit analysis of ARCP rural

infrastructure (Table 20), the subproject type that yields the highest benefit to society is
potable water supply systems followed by communal irrigation and lastly, farm-to market
roads. PWS have direct social and health benefits to the poor households in the ARCs. On
the other hand, irrigation subprojects are known to have direct benefits and impact on
farm and crop productivity.

Table 20
Economic Viability Indicators of all ARCP Rural Infrastructure
Net Present Value at Economic Internal Cost-Benefit Ratio
15% Rate of Return (EIRR)
FMR 616,668,136 21.66% 1:1.34

Irrigation 104,537,500 23.40% 1:1.40

Potable Water Supply 95,317,000 31% 1:1.49

Among the FMR types and categories (Table 21), gravel roads exhibit the highest
benefits with a 23.26% EIRR and a cost-benefit ratio of 1:1.35. Gravel roads are
followed by development FMRs with EIRR of 22.33% and a cost-benefit ratio of 1;1.33.
Gravel roads and development roads are usually related and are projects whose impacts
are felt more by the lower income and impoverished groups. Gravel and development
roads usually do not cater to vehicular and motorized traffic and service mostly small
manual-driven (animal-driven) vehicles, manual haulers, and commuters on foot.

Full concrete FMRs exhibit the lowest benefits among road types (EIRR: 19.96%).
These type of roads usually cater to motorized vehicles and benefits derived here are the
savings in vehicle operating costs due to lesser wear and tear on vehicles like trucks, buses,
jeepneys, cars and vans, and motorcycles. Full FMR networks exhibit higher benefits than
small-segment FMR improvements. Full FMR networks are usually traffic roads leading to
primary urban and major market centers. Segment improvements only improve certain
road sections that are perennially damaged and/or are poorly maintained.

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 Table 21
Economic Viability Indicators of Various FMR typologies
Net Present Value at Economic Internal Cost-Benefit Ratio
15% Rate of Return
(EIRR)
ALL FMRs 616,668,136 21.66% 1:1.34
Gravel (with Spot Concrete) 386,633,379 23.26% 1:1.35
Concrete 268,353,974 19.96% 1:1.30
Development FMRs 410,649,718 22.33% 1:1.33
Traffic FMRs 221,349,051 20.63% 1:1.38
Segment Improvement 407,858,492 21.69% 1:1.36
Full FMR Network 174,285,417 22.02% 1:1.33
Bridges 31,800,000 20.42% 1:1.27

Among the communal irrigation system typologies, rehabilitation of existing

systems (EIRR: 25.09%) provide higher benefits than newly constructed ones (EIRR:
22.75%). Shallow tube wells (EIRR: 23.53%) under ARCP were only installed in Luzon since
it is in Luzon areas where wide flat lands with rich water table can be found and are
suitable for the STW technology. However, where feasible, STWs exhibit greater returns
than new irrigation construction systems. STWs cost lesser than new construction and can
easily be managed by poor and small farmer-cultivators.

Potable water supply systems provide the greatest benefits and economic internal
rates of return among the ARCP rural infrastructure subproject types. Between PWS Level I
and PWS Level II, the latter constitutes most of the demand in ARCP. This is in contrast to
the earlier projected demand in the design of ARCP in 1997 where most of the PWS
demand then was for the installation of Level I systems. In fact, ARCP experience show that
the actual demand in ARCs is now moving towards Level III PWS systems where household
water connections are the preferred investments.

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