The World Bank Philippine Water Supply and Sanitation Project(P504257) @#&OPS~Doctype~OPS^blank@pidconcoverpage#doctemplate Project Information Document (PID) Concept Stage | Date Prepared/Updated: 26-May-2024 | Report No: PIDDC00506 The World Bank Philippine Water Supply and Sanitation Project(P504257) @#&OPS~Doctype~OPS^dynamics@pidbasicinformation#doctemplate BASIC INFORMATION A. Basic Project Data Project Beneficiary(ies) Operation ID Operation Name Philippines P504257 Philippine Water Supply and Sanitation Project Region Estimated Appraisal Date Estimated Approval Date Practice Area (Lead) EAST ASIA AND PACIFIC 17-Mar-2025 27-Jun-2025 Water Financing Instrument Borrower(s) Implementing Agency Investment Project Department of Finance Department of Public Financing (IPF) Works and Highways, Department of Interior and Local Government Proposed Development Objective(s) To increase access to and improve the quality and efficiency of water supply, sanitation, and hygiene services in priority areas of the Philippines @#&OPS~Doctype~OPS^dynamics@pidprojectfinancing#doctemplate PROJECT FINANCING DATA (US$, Millions) Maximizing Finance for Development Is this an MFD-Enabling Project (MFD-EP)? Yes Is this project Private Capital Enabling (PCE)? Yes SUMMARY Total Operation Cost 275.62 Total Financing 275.62 of which IBRD/IDA 250.00 Financing Gap 0.00 DETAILS World Bank Group Financing International Bank for Reconstruction and Development (IBRD) 250.00 Non-World Bank Group Financing Page 1 The World Bank Philippine Water Supply and Sanitation Project(P504257) Counterpart Funding 25.62 National Government 25.62 @#&OPS~Doctype~OPS^dynamics@envsocriskclassification#doctemplate Environmental and Social Risk Classification Concept Review Decision Substantial The review did authorize the preparation to continue Other Decision (as needed) B. Introduction and Context Country Context 1. The economy of the Philippines has been growing steadily for decades and is expected to remain one of the fastest growing economies in Southeast Asia. The Philippines, with a population of around 109 million, has been a lower-middle income country since 1987. Between 2012 and 2019, the Philippines’ economy grew rapidly, averaging 6.6 percent per year; however, in 2020, the country experienced one of the sharpest growth contractions in the region due to the COVID- 19 pandemic. The economy, which grew by 5.6 percent in 2023, is now showing signs of a sustained recovery. The country’s gross national income (GNI) per capita increased by 11.3 percent, from $3,550 in 2021 to $3,950 in 2022.1 Domestic demand is expected to drive a modest increase in growth, to an average of 5.8 percent, from 2024 to 2025. The country’s ambition is to become an upper middle-income country by 2025. 2. The economy’s growth and the consequent job generation has improved household welfare, but high-income inequality persists. The country’s Gini index has declined from 46.5 percent in 2012 to 40.7 percent in 2021 but remains among the highest in East Asia. The top one percent of earners capture 17 percent of the national income, and the bottom 10 percent only capture 14 percent.2 Using the World Bank poverty line for lower-middle-income countries of $3.65/day, 2017 Purchasing Power Parity (PPP), poverty incidence decreased from 17.8 percent in 2021 to 13.7 percent in 2023. Poverty rates are expected to decrease to 10.7 percent in 2025 but could be tempered by elevated inflation and extreme weather events due to climate change that affect the poor. 3. The Government’s economic agenda is focused on post-COVID economic recovery and the fundamental transformation of sectors to help accelerate job creation and poverty reduction. It has outlined its medium-term economic transformation agenda in the 2023-2028 Philippine Development Plan (PDP). The PDP’s overall goal is to reinvigorate job creation and support poverty reduction initiatives in the medium-term. Key challenges to growth include managing inflation and establishing transparent and more efficient government processes. The PDP’s economic goals are: (i) maintaining high levels of growth in the medium-term, from around 6.0 percent in 2023 to 6.5 to 8.0 percent from 2024 to 2028; (ii) transforming the production sectors toward generating more and better-quality jobs; and (iii) enabling the competitiveness of enterprises in domestic and international markets. 1 World Bank, https://data.worldbank.org/indicator/NY.GNP.PCAP.CD?locations=PH 2 World Bank 2022. Overcoming Poverty and Inequality in the Philippines. https://documents1.worldbank.org/curated/en/099325011232224571/pdf/P17486101e29310810abaf0e8e336aed85a.pdf Page 2 The World Bank Philippine Water Supply and Sanitation Project(P504257) 4. The impacts of climate change, however, threaten the country’s economic development and the progress of its people. The Philippines is ranked as one of the countries most affected by extreme climate events due to its geography. Climate change impacts include: (i) an increase in temperatures by about one to two degrees Celsius by the end of the 21st century, contributing to the risk of water shortages, droughts and decline in water quality; (ii) increased variability and intensity of rainfall, contributing to flooding, among others; and (iii) more frequent and extreme climate events. Climate change impacts have increased the intensity and frequency of destructive typhoons. Without action, estimates from the Philippines Climate Change and Development Report (CCDR) show that economic damages could reach up to 7.6 percent and 13.6 percent of the country’s GDP by 2030 and 2040, respectively. The poor are the most vulnerable to climate change as they have lower coping capacity, live in riskier areas, have fewer safety nets, and depend on disaster-vulnerable livelihoods. Sectoral and Institutional Context 5. Water security is a socio-economic priority in the Philippines as it is crucial to sustained economic development and to the livelihoods of Filipinos. Roughly 42 percent of jobs, 36 percent of agriculture gross-value added, 20 percent of exports, and seven percent of electricity generation depend on adequate water supply.3 Water ensures that growing tourism sector reaches its full economic potential.4 Water security is indispensable for sustaining urban areas with 47 percent of the population. Huge cities such as Metro Manila and Metro Cebu, however, have significant water supply gaps.5 Islands such as Bohol and Siargao lack sufficient water sources to support domestic needs, overuse groundwater, and experience water quality problems due to salinity intrusion and inadequate sanitation. Most islands are struggling to meet the water demands of the tourism sector. Water-related risks also threaten agricultural production and food security.6 These will result in an estimated average annual economic decline of 0.7 percent in GDP in the years leading up to 2050.7 6. Access to climate proof WSS and hygiene services is essential to domestic, industrial, and commercial users and to the healthy, sustainable development of urban and rural areas. Inadequate WSS and hygiene services contribute to the occurrence of preventable diseases.8 Poor sanitation impacts the environment, including the quality and availability of water resources to promote human capital and economic development, and quality of life. It also increases the potential impact of floods and droughts.9 Poor water sanitation and hygiene (WASH) is prevalent in the country’s poorest areas. One in every four children under five years old in the Philippines is shorter than the global average for their age.10 Increasing the poor’s access to WASH, including inclusive11 WASH facilities in public schools and health facilities, is pivotal to improving health, addressing gender gaps, and promoting more equitable economic development. 3 World Bank, Country Climate and Development Report, 2023.4 The tourism industry boosted the country’s employment with a 12.9 percent share to GDP, employing 5.7 million people in 2019; tourism employment is expected to be at 6.3 million by 2028. 4 The tourism industry boosted the country’s employment with a 12.9 percent share to GDP, employing 5.7 million people in 20 19; tourism employment is expected to be at 6.3 million by 2028. 5 World Bank ASA report 2022. “Strengthening Philippines Water Supply and Sanitation Services�. In Metro Manila, the total water demand exceeded the supply by more than 600 million liters per day (mld) in 2020. In Metro Cebu, the demand-supply gap has worsened to more than 300 mld in the same year. 6 Irrigation coverage remains low at around 65 percent of all irrigable areas. National Irrigation Master Plan 7 World Bank 2023. Philippines Economic Update. https://www.worldbank.org/en/events/2023/12/07/philippines-economic-update-development-dialogues-safe- water-and-sanitation-for-all 8 Amoebiasis has been reported by some LGUs based on the survey undertaken under World Bank ASA report 2023. “Ensuring Sustainable Water Supply and Sanitation Services and Building Climate Resiliency�. 9 Floodwaters can carry sewage and fecal matter into rivers, lakes, and groundwater, contaminating drinking water sources and increasing the risk of waterborne diseases. In addition, floods and droughts can damage sanitation infrastructure (wastewater treatment plants, sewerage systems, pit latrines, etc.) This can affect sanitation services and the safe disposal of human waste, leading to increased environmental (water) pollution and public health risks for the affected populations. 10 World Bank 2023. Philippines Economic Update. https://www.worldbank.org/en/events/2023/12/07/philippines-economic-update-development-dialogues-safe- water-and-sanitation-for-all. 11 Design is inclusive for use of all gender types, persons with disabilities, etc. Page 3 The World Bank Philippine Water Supply and Sanitation Project(P504257) 7. The Government of the Philippines (GoP) aims to achieve 100 percent safe WSS coverage by 2030, as per the 2022 Philippine Water Supply and Sanitation Master Plan (PWSSMP). However, there is a need to address the fragmentation and decentralization of the water sector to deliver these service targets. As of 2022, overall coverage of safely managed water supply stands at 48 percent,12 while safely managed sanitation coverage is around 62 percent.13 The PWSSMP highlights key strategies that the GoP needs to implement to meet its 2030 universal WSS coverage targets. One strategy calls for harmonizing fragmented government initiatives at the national level. The water sector has over 30 water-related agencies with overlapping mandates and functions. The fragmentation of policy making at the sector level has prevented the coordinated planning, allocation, and management of water resources. The responsibility to provide WSS services ultimately rests with the LGUs as per the 1991 Local Government Code (LGC). But the LGUs face challenges in effectively operating and overseeing Water Service Providers (WSPs) and regulating them. They require support to address funding, technical, and operational hurdles encountered by WSPs. 8. To overcome these challenges, the GoP is supporting the creation of both the Department of Water Resources (DWR) and the Water Regulatory Commission (WRC) through the proposed National Water Resources Act. The DWR will be the primary agency responsible for the planning and policy formulation to attain universal access to safe WSS services. The WRC, on the other hand, will be an independent economic regulator for all water and sanitation service providers and unify the different regulatory regimes. The National Water Resources Act is now in the Senate for deliberation; it is included in the GoP’s priority bills in the current Congress. The water sector is transitioning to a clearer and more structured institutional set-up at the national level to address the sectoral fragmentation and enable integrated water resource management. 9. Reforms are also required at the utility level especially for LGU-run WSPs, which have low capacity and inadequate tariffs. As of March 2023, there were over 20,000 WSPs consisting of: water districts, which are autonomous legal entities; LGU-run WSPs; community-based associations; and other private operators.14 15 These WSPs provide any or a combination of the following service types: Level 3 systems or piped connections; Level 2 systems or common faucets; and Level 1 systems or point sources.16 The 563 LGU-run WSPs comprise 67 percent of WSPs in the Philippines and are the worst performers. They are regulated by their LGUs, without clear service standards and with arbitrary tariffs. These practices have led to poor services and finances and limited expansion. Additionally, the LGUs need to prioritize fecal sludge management (FSM) services for many cities and municipalities. Only around three percent of domestic wastewater is currently treated. The inadequate disposal and treatment of human excreta poses health and sanitation risks, contaminates groundwater resources, contributes to river pollution, undermines water availability, and increases the likelihood of floods. 12 From 2023-2028 PDP, page 269, can be accessed at: https://pdp.neda.gov.ph/#:~:text=The%20PDP%202023- 2028%20is%20a%20plan%20for%20deep,steering%20the%20economy%20back%20on%20a%20high-growth%20path 13 WHO/UNICEF Joint Monitoring Programme for Water Supply, Sanitation and Hygiene 14 Listahang Tubig, http://listahangtubig.cloudapp.net, last accessed on March 10, 2023. 15 Water Districts are local government-owned and controlled corporations (GOCCs) that operate and maintain water supply systems in one or more provincial centers or municipalities. They were formed initially by the LGUs and are regulated by the Local Water Utility Administration (LWUA), which has a clear tariff adjustment mechanism and service standards. LGU-run WSPs mainly serve rural areas and are operated and regulated by the LGUs. They are not separate legal entities. Community- based organizations are operated by the barangays, water associations, or cooperatives. They are regulated by the National Water Resources Board (NWRB) for tariffs and service standards. 16 A Level 3 water supply facility is composed of a source, a reservoir, a piped distribution network with adequate treatment facility and household taps. It is generally suited for densely populated urban areas. Level 2 water supply facility (communal faucet system/standposts) is composed of a source, a reservoir, a piped distribution network with adequate treatment facility and communal faucets. Level 1 water supply facility (point source) is a protected well or a developed spring with an outlet but without a distribution system, generally adaptable for rural areas where the houses are thinly scattered. Page 4 The World Bank Philippine Water Supply and Sanitation Project(P504257) 10. The GoP will require significant resources for the needed WSS service investments. There is also a need to clarify national government support to LGUs for WSS investments. The PWSSMP estimates that the total capital resources required to achieve the 2030 WSS targets are PhP1.07 trillion (US$19 billion). This translates into roughly PhP107 billion (US$2 billion) per year from 2020 to 2030 for all regions, except Metro Manila. However, it is estimated that only PhP16 billion (US$283 million) will be allocated by the national government (NG) to the sector per year (or only 15 percent of the estimated annual requirement). To meet increasing demand, a clear policy on NG funding support to LGUs is needed so that they may invest in WSS services. 11. The GoP recognizes the need for investments and sectoral reforms to achieve WSS targets and has requested World Bank (WB) financing to support this ambitious agenda. Following recommendations from the WB’s 2022 to 2023 Advisory Services and Analytics (ASA) on WSS, the GoP requested a $250 million Philippines Water Supply and Sanitation Project (the PWSSP) to be implemented by the DPWH and DILG. The proposed operation builds on the ASAs’ recommendation for the GoP to develop and implement a national WSS program to address broad-based sector and utility challenges. This project is envisaged as part of a longer-term program aimed to provide fiscal support, technical assistance, and reforms to meet the 2030 Sustainable Development Goals (SDGs). Co-financing from the Asian Infrastructure Investment Bank (AIIB), Agence Française de Développement (AFD) and other partners will be explored during preparation. Relationship to CPF 12. The proposed project is aligned with the World Bank Group’s 2019-2023 Country Partnership Framework (CPF, Report No. 143605-PH, extended until December 2024) and the WB’s goals of ending extreme poverty and promoting shared prosperity on a livable planet. The CPF aims to help overcome the core constraints to inclusive growth and poverty reduction in relation to people, competition, and key vulnerabilities. In particular, the PWSSP will contribute to the following CPF development objectives: (6) improved efficiency of infrastructure services in selected areas through the rehabilitation, upgrading, expansion, construction and more efficient WSS systems; and (10) increased resilience to natural disasters and climate change-exacerbated risks, by developing new sustainable water sources and ceasing the use of depleted groundwater sources. The PWSSP will also contribute to the CPF’s cross-cutting theme on governance, scaling up development impact across the Philippine archipelago by strengthening implementation capacity, particularly at the local level. It will strengthen the implementation capacity of selected LGUs as well as vertical and horizontal coordination across the NG and LGUs. 13. The project is Paris-aligned. The operation is consistent with the Philippines’ country climate commitments detailed in the 2021 Nationally Determined Contributions (NDC) submitted to the UNFCCC, the 2011-2028 National Climate Change Action Plan, the National Adaptation Plan (NAP), and the 2023-2028 PDP. In terms of risks related to climate mitigation, the operation is not expected to have a significant negative impact on the country’s low-Green House Gas (GHG)-emissions development pathways. Climate hazards such as flooding and drought may pose a risk to the operation and the achievement of the Project Development Objective (PDO). While these risks could potentially affect the result of increased access to sustainable and safe WASH services, the design will consider climate-resilient measures to reduce the risks from climate hazards to an acceptable level.17 C. Proposed Development Objective(s) 17 https://climatesmartwater.org/wp-content/uploads/sites/2/2021/03/Resilient-Water-Infrastructure-Design-Brief.pdf Page 5 The World Bank Philippine Water Supply and Sanitation Project(P504257) 14. The proposed Project Development Objective (PDO) is to increase access to and improve the quality and efficiency of water supply, sanitation, and hygiene services in priority areas of the Philippines. Key Results (From PCN) 15. Achievement of the PDO will be measured through the following key indicators: • Number of people provided with water, of which X percent is safely managed18 (Access/Quality) • Number of people provided with sanitation services, of which X percent is safely managed19 (Access/Quality) • Number of schools and public facilities provided with gender inclusive hygiene facilities (Access) • Number of WSPs that reduce water losses by X percentage points (Operational Efficiency) • Number of WSPs that reach operating cost recovery (Commercial Efficiency) D. Concept Description 16. The proposed operation is envisaged as an Investment Project Financing (IPF) Project comprising a US$250 million International Bank for Reconstruction and Development (IBRD) Loan and a local counterpart contribution of ten percent (or US$22 million), bringing the total amount of the Project to US$275 million. The project design has a six-year implementation period. The Project will consist of four components that will be implemented by the DPWH and the DILG. The design of the PWSSP is as follows: 17. Component 1. Increasing Access to Safe Water Supply and Sanitation Services (US$244.2 million of which US$222 IBRD). This Component will include technical assistance to strengthen the capacities of LGU-run WSPs to provide efficient services and investments for the construction and rehabilitation of facilities for safe WSS services. This Component has three subcomponents. 18. Subcomponent 1a. Strengthening the efficiency of LGU-run WSPs (US$24.2 million, of which US$22 million IBRD). This Subcomponent will finance the technical assistance to LGU-run WSPs to deliver efficient WSS services. Activities to be financed include, inter alia: (i) the setting up of autonomous local water enterprises (LWEs)20 to ringfence the WSPs’ finances and organization from the LGUs; (ii) assessing, organizing and capacitating the LWEs toward commercial approaches; (iii) assisting WSPs on developing business plans and tariffs; (iv) upskilling of the WSP staff for technical operations and for commercial operations; and (v) developing overall WSP management skills. This sub- component will be implemented by the DILG, in coordination with the beneficiary LGUs. 18 This indicator will measure the population receiving water services as a result of the project, with a qualifier to indicate those provided with safely managed services. Safely managed is defined as "drinking water from an improved water source that is accessible on premises, available when needed and free from fecal and priority chemical contamination.� This is also defined as a Level III water supply facility/ service or “a water supply facility with a source, a reservoir, a piped distribution network with adequate treatment facility, and household tap.� 19 This indicator will measure the population receiving sanitation services as a result of the project, with a qualifier to indicate those provided with safely managed services. Safely managed sanitation is defined as “the use of improved facilities t hat are not shared with other households and where excreta are safely disposed of in situ or removed and treated offsite.� 20An operationally autonomous LWE means a ring-fenced, municipal enterprise primarily responsible for the provision of WSS services within the municipality; it is legally constituted, organized, adequately staffed and budgeted. Economic enterprises can maintain separate accounts and dedicated personnel. The establishment of LWEs for WSS services by LGUs will support utilities to become efficient in their operations and ultimately achieve universal access to safe WSS services. Page 6 The World Bank Philippine Water Supply and Sanitation Project(P504257) 19. Subcomponent 1b. Infrastructure investments for Safe Water Supply Services (US$165 million, of which US$150 million IBRD). This subcomponent aims to increase access to safe water supply services through infrastructure projects that cover the construction and/or rehabilitation of water supply systems. Specifically, this subcomponent will support the rehabilitation, upgrading, expansion, and construction of climate proof water systems. The water sources may include surface water or groundwater. The design will include climate-resilient features to protect facilities from flooding, droughts, saltwater intrusion, and other climate risk. Priority will be given to poor areas with high exposure to climate risks, low access to water supply services, high incidence of water-borne diseases and/or projects with significant inter- jurisdictional externalities based on available feasibility studies. An initial list of potential project areas based on these prioritization criteria is presented in Annex 1. Component 1b will be implemented by the DPWH. 20. Subcomponent 1c. Infrastructure investments for Safe Sanitation Services (US$55 million, of which US$50 million IBRD). This subcomponent will support, among others, the construction/upgrading of household toilets and/or septic tanks and septage treatment plants and provide desludging tankers. The priority areas will be the same as those identified in Component 1b. This will provide WSS services that cover the whole water cycle, from water source to wastewater treatment and disposal, in the targeted areas. Component 1c will be implemented by the DPWH. 21. Component 2. Increasing Access to Safe WASH Services (US$8.8 million, of which US$8 million IBRD). This sub- component will provide inclusive handwashing stations and sanitary/safely managed toilets in public schools, health centers and other public places. In addition, the sub-component will include information education campaigns (IEC) and WASH activities. The DPWH, in coordination with the Department of Health (DOH), will serve as the implementing agency. 22. Component 3. Project Management and Supervision and Sector Studies (US$22 million, of which US$ 20 million IBRD). This component will consist of capacity building and systems strengthening for the DPWH and the DILG to achieve the project objectives. The component will include: (i) project management and operating costs of the PIUs; (ii) technical assistance and consulting services for the design of sub-projects and related studies; and (iii) the preparation of engineering, social, and environmental technical studies for subsequent WSS investments. 23. Component 4. Contingent Emergency Response Component (US$0 million). This zero-cost component will allow the GoP to quickly access project funds in response to an eligible disaster, emergency, or crisis. It will allow rapid re- allocation of uncommitted project funds to address urgent needs in the event of a natural disaster or crisis. A declaration of a state of calamity by a qualified national or subnational authority could serve as a possible trigger to activate this component. 24. The project will also help narrow the gender gap. The PWSSP will demonstrate the implementation of a pending policy reform under the Energy Transition and Climate Resilience DPL,21 which will require women in leadership positions at the WSPs and a minimum percentage of female staff. Evidence demonstrates a clear linkage between the involvement of women in utilities and increased customer satisfaction since female participation in the design, operation, and maintenance of water supply systems often results in more user-friendly services that respond to household needs.22 21 The DPL is expected to reach Board approval in December 2024 and is linked to the PWSSP. Some of the policy reforms proposed in the DPL will be implemented in the PWWSP. 22 https://openknowledge.worldbank.org/server/api/core/bitstreams/61ce4696-1ea1-52f7-90b5-2a9e4f0548c5/content Page 7 The World Bank Philippine Water Supply and Sanitation Project(P504257) Furthermore, improved access to WASH services can also help reduce gender disparities in health, nutrition, and economic opportunities.23 25. The project design will incorporate an active citizen engagement approach. Throughout project implementation, the DPWH and DILG will hold continuous dialogues with key stakeholders to inform the project design and identify risks and mitigation strategies. During the implementation stage, citizens will help monitor progress and identify issues with the civil works. The project may use the Geo-Enabling Initiative for Monitoring and Supervision approach for this aspect of engagement. Communication campaigns will raise awareness on the relevance of citizen engagement in both the design and maintenance stages. Community-based and school-based IEC campaigns that promote WASH activities will also be undertaken. IEC activities will also include sustainability initiatives. 26. The project is expected to contribute to climate resilience and adaptation. Some examples include: (i) the shift from groundwater to surface water sources, where feasible, will help preserve vital groundwater sources and reduce the risk of land subsidence and saltwater intrusion; (ii) storage capacities for treated water will help maintain water services throughout variable precipitation patterns and extreme weather events; (iii) installing energy-efficient pumps will lead to lower carbon emissions; (iv) reductions in water losses will reduce the amount of water that needs to be extracted and treated; and (iv) septage management projects will help reduce or mitigate GHG emissions and prevent the contamination of water bodies. @#&OPS~Doctype~OPS^dynamics@legalpolicyandscreeningrisk#doctemplate Legal Operational Policies Triggered? Last approved Current Projects on International Waterways OP 7.50 No Projects in Disputed Area OP 7.60 No Summary of Screening of Environmental and Social Risks and Impacts The overall risk rating of the project is Substantial. The main risks and mitigation measures are described below. 27. The Political and Governance risk is Substantial. While the interventions supported by this project are expected to remain a priority, its implementation may be affected by the May 2025 local elections. The elections may result in leadership changes at the provincial and municipal levels immediately before project implementation. The Project Steering Committee (PSC) that will be established as part of the project will enhance cooperation and collaboration between the national agencies and LGUs. The WB team will maintain dialogue with the LGUs to address the consequences of possible changes as they arise. 23https://www.researchgate.net/publication/370375253_Water_Scarcity_and_Women_Ots_Impact_to_the_Way_of_Living_of_Female_Residents_in_Barangay_Sim andagit_Bongao_Tawi-Tawi_Philippines Page 8 The World Bank Philippine Water Supply and Sanitation Project(P504257) 28. The Sector Strategies and Policies risk is Substantial. The current developments in the water sector are promising, with the GoP showing its leadership in organizing national agencies for water resource management and WSS service expansion. Inter-agency coordination is expected to be further strengthened with the creation of the DWR and WRC. But the bill for the creation of the DWR and WRC is still pending Senate deliberation. At the same time, LGUs have very strong autonomy and powers granted to them under the LGC. The project will be implemented within six years, covering two election periods. The policy reforms to be implemented with LGUs will require conditional incentives and a programmed campaign. 29. The Institutional Capacity for Implementation and Sustainability risk is Substantial. The main risk pertains to the low capacity of LGU-run WSPs and the need for a strong coordination between the DPWH and the DILG to provide capacity- building support aligned and timed with the project’s investments. LGU-run WSPs will need significant support to ensure that they will be able to sustain the O&M of the facilities to be turned over to them by the DPWH. The FSs will look into this risk and will provide options for sustainable O&M. The DPWH and the DILG will each create a Project Implementation Unit (PIU), which will be supported by Project Management Units (PMUs). The PMUs, which will be responsible for overall implementation, including for FM and procurement, will coordinate with the PIUs. 30. The Fiduciary risk is Substantial. While the DPWH has considerable experience in implementing WB-projects, the DILG has very limited experience and is not familiar with the Bank’s fiduciary requirements. The absorptive capacity24 of the DPWH and DILG’s limited experience with the Bank’s fiduciary requirements may cause bottlenecks in project implementation. A thorough fiduciary assessment will be undertaken as part of project preparation to determine the capacity of the DPWH’s and the DILG’s FM and procurement systems. 31. The Environmental and Social (E&S) risk rating is Substantial given the nature of the project, which involves provision of water supply, civil works, equity issues and site-specific contextual risks (e.g., political economy and conflict). Key E&S risks include: (i) land acquisition, temporary displacement and right of way issues; (ii) community health and safety, including traffic and public roads safety; (iii) biodiversity and pollution management; (iv) potential Indigenous Peoples (IP) ancestral domains; and (v) exclusion of marginalized and vulnerable groups. Community health issues form part of the fundamental risk of this project as increasing access to water supply also increases wastewater. There is no envisioned labor influx in the communities since the civil works will only require the hiring of 40 to 60 laborers per site. Labor management procedures will be integrated in the project’s Operations Manual. Land acquisition is envisioned to be undertaken by the LGUs for road right of way and sites for water supply facilities. The project also presents the risks of restrictions to key ecosystem services. 32. The risks could be effectively mitigated by conducting a thorough E&S assessment, including stakeholder consultations across all levels. It is also important to develop and apply the different applicable E&S tools, including the Environmental and Social Management Framework (ESMF), the Environmental and Social Commitment Plan (ESCP), the Stakeholder Engagement Plan (SEP), and the Resettlement Action Plan, among others. The project will establish Grievance Redress Mechanisms (GRMs) to address social risks. The GRM will also consider cultural sensitivity especially for IP areas which will be regularly monitored. When necessary, this project will also use the Mindanao Peace Lens25 to guide its approach and strategies for conflict-affected areas in Mindanao. Universal Access design and principles shall be integrated when technically and financially feasible for the public WASH facilities financed by the project. 24 The DPWH is currently implementing two WB projects and preparing another two. Its ability to implement all these projects at the same time may test its absorptive capacity. 25 The World Bank Group continues to explore ways to contribute to the peace process in conflict areas in Mindanao through investment in infrastructure and human development. Otherwise, the conflict will continue to scare off investments, hamper economic development, and economic opportunities and worsen living condition in Mindanao. Page 9 The World Bank Philippine Water Supply and Sanitation Project(P504257) 33. The DPWH, the lead implementing agency, has substantial knowledge of the World Bank’s Environmental and Social Framework (ESF) through the Metro Manila Flood Management Project and the Philippines Seismic Risk Reduction and Resilience Project, which was prepared using the ESF. Currently, the DPWH is also preparing the Mindanao Transport Connectivity Improvement Project and the Infrastructure for Safer and Resilient Schools Project. The DPWH has demonstrated its expertise and capability to manage site-specific risks and impacts, as evidenced by the establishment of the Environment and Social Safeguards Department (ESSD). The ESSD ensures compliance with safeguards requirements. It operates in accordance with a comprehensive Social and Environment Management System (SEMS), which provides a basis for understanding and applying safeguards principles and executing the ESMF. But the DILG has no previous experience on preparation and implementation of Bank Safeguards/ESF requirements and needs to be trained. 34. The Stakeholders risk is Substantial. The risks pertain to the multiplicity of stakeholders across all levels and the need for strong coordination to ensure the achievement of the project’s objectives. For field-level stakeholders, the provincial and municipal dynamics and political economy interests may influence the identification of beneficiaries. The project will mitigate this risk by engaging stakeholders in project preparation and creating adequate forums to consider in project design. @#&OPS~Doctype~OPS^dynamics@contactpoint#doctemplate CONTACT POINT World Bank Ma Fiorella Delos Reyes Fabella Senior Water Supply and Sanitation Specialist Georges Comair Senior Water Specialist Borrower/Client/Recipient Department of Finance Joven Balbosa Undersecretary for the International Finance Group jzbalbosa@dof.gov.ph Implementing Agencies Department of Public Works and Highways Emil Sadain Senior Undersecretary for Unified Project Management Office sadainekmail@yahoo.com Department of Interior and Local Government Marlo III Iringan Undersecretary for Local Government mliringan@dilg.gov.ph Page 10 The World Bank Philippine Water Supply and Sanitation Project(P504257) FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects @#&OPS~Doctype~OPS^dynamics@approval#doctemplate APPROVAL Task Team Leader(s): Ma Fiorella Delos Reyes Fabella, Georges Comair Approved By Practice Manager/Manager: Maria Angelica Sotomayor Araujo 07-May-2024 Country Director: Ndiame Diop 26-May-2024 Page 11