Republic ofthe Philippines

DEPARTMENT OF AGRICULTURE
PHILIPPINE RURAL DEVELOPMENT PROJECT
National Project Coordination Office
4th Floor, DA Building, Elliptical Road, Diliman
Quezon City llOO, Philippines

」uiY l, 2019

MEMORANDUM
MemoNo. 3千9 -2019

TO OIC-RED CRISPULO G. BAUTISTA, JR

DA-RFO =I/PSO LUZON A PR○○ECT DiRECTOR

REDARNELV. DE MESA
RFO lV-A/PSO SOUTHしUZON PRO」ECT DIRECTOR

RED REMEしYN R. RECO丁ER

DA-RFO VI/PSO ViSAYAS PROJECT DiRECTOR

ENGR, RiCARDO M. O向ATE, 」R.

DA-RFU Xi/PSO MiNDANAO PRO」ECT DiRECTOR

PRDP NATIONAL PRO」ECT DIRECTOR

ADOPTION OF 8% WEIGHTED AVERAGE COST OF CAPITAし(WACC) AS

HURDLE RATE IN THE FiNANCIAしANALYSIS OF PROPOSED i-REAP
SUBPRO」ECTS PiPEしINED FOR RPAB APPROVAし

In compliance with the NEDA - 1nvestment Coordinating Committee (ICC) updated guideIines Iowering
the sociaI discount rate for pubIic investment projects from 15% to lO%, the PRDP has adopted the lO%
hurdle rate for the economic viabiIity of proposed l-BUILD sub-PrOjects sta面ng in CY 2018. However,

for i-REAP subprojects, the Project is st川currently using a 15% hurdle rate.

FoiIowingthe ICCguidelines′ PRDP shalI aIso adopt a lower hurdIe rate for l-REAP enterprise sub-PrOjects

Which undergo financiai anaIysis to determine its profitab冊y. SpecificaIly, the Project sha= use the

Weighted Average Cost of CapitaI (WACC) as the financiaI discount rate or the hurdie rate which the
Financia=nternaI Rate of Retum (FIRR) ofa proposed sub-PrOject must equaI orexceed to be considered
as a financiaiiy viabIe investment. This proposal was discussed during the recently concluded 8th worId
Bank lmplementation Support Mission.

The Project shall henceforth adopt an 8 percent WACC as hurdle rate for proposed l-REAP subprojects
PipeIined forapprovaI by the RegionaI ProjectAdvisory Boards (RPAB) sta巾ng on 」uly l, 2019. The 8%
WACC rate was derived based on the foIIowing parameters:

Sourceof %ShareoftheTotaI CostofCapitaIorinterestRate

Financing/CapitaI Sub-PrOjectCost Rate(%) Basis/Remarks
WBLoanProceeds, 80% 7.与%per 5葛yearTreasurvB川Rateat5.5%

GOPCounterpartand annum PIus2%duetotheagriculturaI

LGUEquitY natureoftheenterprise(Source:
BangkoSentralngPilipinas)
ProponentGroup 20% 10%perannum Assumedaveragereturnonequity
(PG〉Equity Offarmerscoops/associations
 Republic ofthe Philippines
DEPARTMENT OF AGRICULTURE
PHILIPPINE RURAL DEVELOPMENT PROJECT
Na債onal Project Coordination O鮒ce
4th FIoor, DA Building, Elliptical Road, Diliman
Quezon City llOO, Philippines

The Project’s po=cy for I-REAP subproject proposaIs to quaiify for NOL l issuance remain unchanged:

i.e・′ forsmaIi and medium enterprises′ the proposaI must remain financiaIiyviabie underthe fo=owing

SenSitivity analysis scenarios‥ 10% increase in cost and lO% decrease in revenue; While for

microenterprises, the proposai must pass the base case as fo=ows: Net PresentValue (NPV) is greater
than O, Financia=ntemaI Rate ofRetum 〈FiRR) is at least8%, and Benefits-Cost Ratio (BCR)2 1.

For your guidanc and compiiance.

ENGR. ARiEし . CAYANAN

Undersecr 両Or Operations