Report and Recommendation of the President

to the Board of Directors

Project Number: 46362-004

Loan Number: 3377-PHI
May 2020

Proposed Loan for Additional Financing

Metropolitan Waterworks and Sewerage System
Angat Water Transmission Improvement Project
(Guaranteed by the Republic of the Philippines)

Distribution of this document is restricted until it has been approved by the Board of Directors.
Following such approval, ADB will disclose the document to the public in accordance with ADB's
Access to Information Policy.
 CURRENCY EQUIVALENTS
(as of 30 April 2020)

Currency unit – peso/s (₱)

₱1.00 = $0.0198
$1.00 = ₱50.90

ABBREVIATIONS

ADB – Asian Development Bank

AQ7 – Aqueduct no. 7
COVID-19 – coronavirus disease
km – kilometer
m – meter
m3/sec – cubic meters per second
MWSS – Metropolitan Waterworks and Sewerage System
O&M – operation and maintenance
PAM – project administration manual
ROW – right of way
T4 – Tunnel no. 4
WUS – water and other urban infrastructure and services

NOTE

In this report, “$” refers to United States dollars.

Vice-President Ahmed M. Saeed, Operations 2

Director General Ramesh Subramaniam, Southeast Asia Department (SERD)
Directors Kelly Bird, Country Director, Philippines Country Office (PHCO), SERD
Vijay Padmanabhan, Director, Urban Development and Water Division
(SEUW), SERD

Team leader Siti Hasanah, Urban Development Specialist, SEUW, SERD

Team members Ruby Alvarez, Senior Project Officer, PHCO, SERD
Yukiko Ito, Senior Social Development Specialist, Social Development
Thematic Group, Sustainable Development and Climate Change
Department
Shinsuke Kawazu, Principal Counsel, Office of the General Counsel
(OGC)
Baurzhan Konysbayev, Principal Counsel, OGC
Michael John Lacambacal, Senior Operations Assistant, SEUW, SERD
Lila Mallory, Senior Procurement Specialist, Procurement Division 2,
Procurement, Portfolio and Financial Management Department
Sunil Mitra, Lead Portfolio Management Specialist, SEUW, SERD
Alain Morel, Principal Country Specialist, PHCO, SERD
Aimee Orbe, Associate Project Analyst, SEUW, SERD
Michiko Suga, Senior Social Development Specialist, Transport and
Communication Division, SERD
Peer reviewer Jingmin Huang, Director, Urban Development, Water Supply and
Sanitation Division, Pacific Department
In preparing any country program or strategy, financing any project, or by making any designation
of or reference to a particular territory or geographic area in this document, the Asian
Development Bank does not intend to make any judgments as to the legal or other status of any
territory or area.
 CONTENTS

Page
PROJECT AT A GLANCE
MAP
I. THE PROPOSAL 1
II. THE PROJECT 1
A. Rationale 1
B. Impact and Outcome 5
C. Outputs 5
D. Investment and Financing Plans 5
E. Implementation Arrangements 7
III. DUE DILIGENCE 7
A. Technical 7
B. Economic and Financial 8
C. Governance 9
D. Poverty and Social 9
E. Safeguards 10
F. Risks and Mitigating Measures 10
IV. ASSURANCES 11
V. RECOMMENDATION 11

APPENDIXES
1. Revised Design and Monitoring Framework 12
2. List of Linked Documents 15
 Project Classification Information Status: Complete

PROJECT AT A GLANCE

1. Basic Data Project Number: 46362-004

Project Name Angat Water Transmission Improvement Department/Division SERD/SEUW
Project (Additional Financing)
Country Philippines Executing Agency Metropolitan Waterworks
Borrower Metropolitan Waterworks and Sewerage and Sewerage System
System

Country Economic https://www.adb.org/Documents/LinkedDocs/

Indicators ?id=46362-004-CEI
Portfolio at a Glance https://www.adb.org/Documents/LinkedDocs/
?id=46362-004-PortAtaGlance

2. Sector Subsector(s) ADB Financing ($ million)

Water and other urban Urban water supply 126.02
infrastructure and services
Total 126.02
3. Operational Priorities Climate Change Information
Addressing remaining poverty and reducing inequalities Climate Change impact on the Low
Accelerating progress in gender equality Project
Tackling climate change, building climate and disaster resilience, and
enhancing environmental sustainability ADB Financing
Making cities more livable Adaptation ($ million) 4.00
Strengthening governance and institutional capacity
Sustainable Development Goals Gender Equity and Mainstreaming
SDG 6.1, 6.4 Some gender elements (SGE)
SDG 13.a
Poverty Targeting
General Intervention on Poverty
4. Risk Categorization: Low
.

5. Safeguard Categorization Environment: B Involuntary Resettlement: B Indigenous Peoples: C

.

6. Financing
Modality and Sources Amount ($ million)
ADB 126.02
Sovereign Project (Regular Loan): Ordinary capital resources 126.02
Cofinancing 0.00
None 0.00
Counterpart 29.80
Project Sponsor 29.80
Total 155.82

Currency of ADB Financing: US Dollar

Source: Asian Development Bank

This document must only be generated in eOps. 05052020172536469005 Generated Date: 05-May-2020 17:25:47 PM
 San Rafael

PHILIPPINES
Angat Water Transmission Improvement Project
Baliuag
Angat Dam
additional financing
Angat
Reservoir

Doña Remedios Trinidad MANILA

Bustos
Pulilan

Ipo Dam
Reservoir Norzagaray
Pandi BULACAN Bigte
Plaridel
Basins
Angat Water Transmission
Guiguinto Improvement Project
Angat Santa
Water Transmission
Maria
Malolos
Balagtas Improvement Project
additional financing San Jose del Monte

Rodriguez

Bocaue

Bulacan Marilao General Nakar

Meycauayan Novaliches QUEZON

North Portal
Caloocan

Obando

La Mesa Dam San Mateo

Valenzuela
Reservoir
RIZAL
Navotas
Malabon
Quezon City
South
Caloocan Marikina Antipolo
METRO
MANILA

Manila San Juan

Cainta
Tanay

Manila Bay Mandaluyong

Taytay Teresa
Pasig

Makati Pateros Angono Baras

Pasay
Morong

Taguig
Santa Maria
Cavite Parañaque
Pililla
Binangonan

Cardona
LAGUNA
Kawit
Bacoor Las Piñas

Noveleta Sin
Mabitac

Laguna de Bay
CAVITE Muntinlupa
Pangil
Rosario Imus
Jala-Jala Pakil

Tanza San Pedro

General Trias
Maynilad Water Services Inc. Maynilad Service Area
Dasmariñas General Mariano
Manila Water Company Inc. Manila Water Service Area
Alvarez
Shared Maynilad and Manila Water Service Areas
Biñan N
River Lu
Trece Martires Carmona
This map was produced by the cartography unit of the Asian Development Bank. The boundaries, 5 5
colors, denominations, and any other information shown on this map do not imply, on the partRosa
Santa of
the Asian Development Bank, any judgment on the legal status of any territory, or any
endorsement or acceptance of such boundaries, colors, denominations, or information. Kilometers
Cabuyao
190721B ABV
Pila Pagsanja
Santa Cruz

Silang
 I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to
Metropolitan Waterworks and Sewerage System (MWSS), to be guaranteed by the Republic of
the Philippines, for the additional financing of the Angat Water Transmission Improvement
Project.1

2. The original loan for the ongoing project, approved by the Asian Development Bank (ADB)
in 2016, supports MWSS in improving its water transmission system, by constructing a new
upstream tunnel from the Ipo Dam to the Bigte Basins, and reinforcing water security. The
proposed additional financing will allow MWSS to expand the rehabilitation of the water
transmission system, reduce water losses and increase the viability of the ongoing project by
constructing a new aqueduct from the Bigte Basins to the Novaliches Portal to convey water to
the downstream treatment plants that supply water to Metro Manila. The proposed additional
financing will (i) increase the capacity of the Angat transmission system to meet increasing
demands and (ii) mitigate the risk of a total loss of water supply to Metro Manila by building
resilience.2 While this project had been planned since 2018 well before the coronavirus disease
(COVID-19) pandemic, it will have significant benefits by improving overall health and hygiene of
the population (para.5).

II. THE PROJECT

A. Rationale

3. Overview. While water resources are plentiful in the Philippines, they are unevenly
distributed across the country due to rainfall variability and other geographic features of each
region. The changing climatic conditions are exacerbating the situation. Growing population and
migration to urban areas are further increasing the demand for clean water beyond the available
supply. In many areas, groundwater resources have been over abstracted and are contaminated
due to improper human waste management. Nationwide, urban population with access to safe
water supply was 99% in 2017, but only 47% through a piped water supply system.3 Outside of
Metro Manila, water infrastructure condition is generally poor with water losses typically at 25%–
50%, and service provision is inadequate requiring significant investment across the country.

4. Metro Manila city profile. Metro Manila comprises 17 cities and municipalities. It spans
an area of 620 square kilometers and has 12.9 million inhabitants, about 12% of the country’s
total population.4 Metro Manila’s population is increasing by 6.1% annually, a much faster pace
than the national annual growth rate of 1.5%.5 As the commercial, financial and industrial center
of the Philippines, Metro Manila accounts for 37% of the country’s gross domestic product.
Sustainable delivery of basic urban services has a direct impact on Metro Manila’s economy and
is critical for the region’s development.

1 Asian Development Bank (ADB). 2016. Report and Recommendation of the President to the Board of Directors:
Proposed Loan to the Republic of the Philippines for the Angat Water Transmission Improvement Project. Manila
(Loan 3377-PHI). https://www.adb.org/projects/46362-002/main.
2 ADB provided technical assistance to help prepare the additional financing (ADB. 2014. Technical Assistance to the

Republic of the Philippines for the Metro Manila Water and Sanitation Development. Manila [TA 8769-PHI]).
3 Joint Monitoring Program. 2017. Progress on household drinking water, sanitation and hygiene 2000-2017. New York.
4 Philippine Statistics Authority. 2015 Census of Population. http://www.psa.gov.ph/content/highlights-philippine-

population-2015-census-population (accessed on 15 September 2019).

5 United Nations Secretariat. 2017 Revision of World Population Prospects. https://population.un.org/wpp/ (accessed

on 15 September 2019).
2

5. Institutional arrangements for water supply. MWSS, a government-owned corporation,

is mandated to provide potable water and sanitation services to Metro Manila and the adjacent
provinces of Rizal and Cavite. In 1997, MWSS awarded two concession contracts to two separate
private corporations for water treatment and distribution and wastewater management,6 while
retaining the responsibility for raw water supply. The private corporations significantly improved
water supply services—the serviced population doubled since 1997 and more than 90% of the
region’s inhabitants have 24-hour access to potable water. Nonrevenue water decreased from
45%–70% in 1997 to 12%–29% in 2018.

6. Water scarcity and impacts on personal hygiene during the pandemic. The
seriousness of water insecurity in the city became apparent when a prolonged dry season led to
a water supply crisis in 2019 (from March to May). During rationing, the worst hit neighborhoods
had no water for several days and only a few hours of water for weeks. MWSS had assured raw
water supply to the concessionaires and planned a series of projects to ensure bulk water was
provided to meet the rapidly growing water demand in Metro Manila. Given the strong water-
sanitation-hygiene linkage, any water shortage or deterioration in water quality will adversely
impact the personal hygiene of Metro Manila’s communities, which could hamper efforts to battle
the ongoing COVID-19 pandemic. Consequently, MWSS’s plan to enhance water security and
water quality to Metro Manila is a practical response aligned with measures to arrest devastating
health, social, and economic impacts of diseases including the current COVID-19 pandemic.

7. Sources of water. The Umiray–Angat–Ipo system (or the Angat water transmission
system) serves as the source of more than 90% of Metro Manila’s water requirement. Water from
the Angat Dam is discharged and stored at the Ipo Dam about 5 kilometers (km) downstream of
the Angat Dam. Water from the Ipo Dam is then transmitted to the Bigte Basins through three
parallel tunnels (the Angat upstream system) and on to the Novaliches Portal through six parallel
aqueducts (the Angat downstream system),7 from where the two concessionaries treat and supply
water to Metro Manila.8

8. The Angat upstream system and the scope of the ongoing project. The ongoing
project comprises the construction of the urgently needed Tunnel no. 4 (T4) to supplement water
transmission from the Ipo Dam to the Bigte Basins. This will enable the rehabilitation or
decommissioning of the other tunnels (T1, T2, and T3). T4 will increase the Angat upstream
system’s design capacity from 52.7 cubic meters per second (m3/sec) to 71.7 m3/sec. The civil
works contract for T4 (the only works contract of the ongoing project) comprising construction of
a 4-meter (m) finished internal diameter and 6.3 km long tunnel is substantially complete and is
expected to be commissioned in June 2020, 3 months prior to its scheduled completion date.

9. Change in the original loan amount. In October 2019, ADB agreed to MWSS’s request
to cancel $55.97 million of the original loan amount of $123.30 million, for a revised loan amount
of $67.33 million. MWSS’s request for partial cancellation of the original loan amount was made
in view of the substantial completion of the T4 civil works under the ongoing project and to reduce
the financing charges that MWSS would accrue on the undisbursed loan savings, considering
that all identified works were substantially complete. The cancelled portion of the original loan

6 Maynilad Water Services, Inc. (Maynilad) serves Metro Manila’s West Zone, and Manila Water Company, Inc. (Manila
Water) serves Metro Manila’s East Zone.
7 Aqueducts (AQs) 1–6 were constructed between 1939 and 2012. AQ1 (built in 1939) and AQ2 (built in 1945) are the
oldest, and AQ6 (built in 2012) is the latest. AQ1 and AQ2 can be deemed as one aqueduct because AQ2 branches
serve only as parallel reinforcements of some segments of AQ1.
8 A Schematic Diagram of the Angat Water Transmission System (accessible from the list of linked documents in
Appendix 2).
 3

comprised savings from (i) unused allocations to civil works and consulting contracts ($30.37
million), (ii) unused contingency allocation ($22.00 million), and (iii) partial allocation to the
financing charges during construction ($3.60 million).9

10. Ongoing project’s performance. The ongoing project is performing well; and all loan
covenants, including the fiduciary and safeguard requirements, have been complied with.10 It is
rated on track as per the project performance rating.11 As of 30 April 2020, physical progress
stood at 99% for an elapsed loan period of 66%. The cumulative disbursement was $59.6 million,
or 88.5% of the revised loan amount.

11. The Angat downstream system and water delivery. To ensure water from the Angat
upstream system delivers continuous water to Metro Manila, the Angat downstream system must
be in good condition. However, several aqueducts in the Angat downstream system are in a poor
state. Of the existing six aqueducts, (i) structural assessments of AQ1 and AQ2 suggest they
have deteriorated significantly and fittings are unserviceable resulting in water loss, and (ii)
seismic assessments suggest that AQ3, AQ4, and the downstream part of AQ5 are weak and not
earthquake resilient. Under the current condition, the Angat downstream system is expected to
require operational interruptions or a total stoppage when leaks are being rectified. Rectification
is expected every 5 years, and the supply-disrupting repairs are estimated to take about 60 days.

12. Construction of a new aqueduct and service continuity. The construction of a new
aqueduct—aqueduct no. 7 (AQ7)— will add flexibility to the Angat downstream system and enable
MWSS to rehabilitate the existing aqueducts without disrupting water supply. After the completion
of AQ7, MWSS will decommission AQ1 and AQ2, and rehabilitate the following aqueducts during
the specified periods: AQ4 (2025–2027), AQ3 (2028–2030), and part of AQ5 (2031–2032). Once
the rehabilitation is complete, the risk of a system breakdown every 5 years will have been
eliminated. The new aqueduct is a water security measure for Metro Manila and will match
capacities of the Angat downstream and upstream systems to meet future water demands.12

13. Proposed change in scope and additional financing. To ensure service continuity,
MWSS requested an expansion of the scope of the ongoing project to finance AQ7. The proposed
additional financing for AQ7 will cover construction costs, construction supervision, and capacity

9 At the appraisal stage, the T4 works were estimated at $88.1 million (excluding taxes) while the actual contract
awarded was for $60.1 million. The significantly lower contract amount was the result of a change in the tunneling
method. The bidding document and cost estimates had been prepared based on the drill-and-blast method; however,
the bidder proposed the use of a tunnel-boring machine, which proved to be cheaper and faster. The higher initial
estimates were also based on the following considerations: (i) the absence of recent similar works in the country to
serve as comparators; (ii) the remote project site, anticipated to result in higher mobilization costs; and
(iii) unmanaged political risks that may have caused implementation delays and cost escalation. Further, the
consulting services contract is about $2.4 million lower than the estimate because late consultant mobilization
reduced the amount of required consulting inputs. The consultant team was mobilized in 2018, about 2 years later
than scheduled. Since construction had started in 2016, MWSS had recruited consultants financed from its own
resources to supervise the works. The contingency allocation was cancelled because the construction progress had
reached 93% (when the cancellation was approved in October 2019); technically critical works had been completed;
and no significant cost increases were anticipated until the targeted completion date in June 2020.
10 The review of the project performance is in accordance with the criteria specified in Table 1 of ADB. 2018. Staff

Instruction on Business Process for Additional Financing (Sovereign Operations). Manila.

11 More details on the performance of the ongoing project are provided in the Summary of Project Performance

(accessible from the list of linked documents in Appendix 2).

12 MWSS’s current water right is 46 m3/sec. In 2020, MWSS will be entitled to obtain 54.6 m3/sec (subject to the approval

by the National Water Resources Board). If the new water right is fully used, and with the additional supply of
5.8 m3/sec from the Laguna de Bay system, the Angat water transmission system will be able to meet Metro Manila’s
water demand until 2025, which is estimated at 59.8 m3/sec. Starting in 2023, the Kaliwa Dam system is expected to
provide additional water to meet Metro Manila’s demand until 2031.
4

development. The proposal meets the eligibility criteria for additional financing 13 because the
overall project (i) remains technically feasible, economically viable, and financially sound; (ii) is
considered a high priority by the government; (iii) is consistent with the ongoing project’s development
objectives; and (iv) is consistent with ADB’s country partnership strategy, 2018–2023 for the
Philippines.14

14. Additional financing is the suitable modality also because (i) T4 and AQ7 are integral parts
of a unified system, and (ii) AQ7 will help the ongoing project achieve its outcome by strengthening
the downstream water transmission capacity, which will ensure that the overall Angat
transmission system keeps delivering adequate and reliable amounts of water to Metro Manila.
Ultimately, this will further improve water supply services and meet growing demand.

15. The overall project will enhance Metro Manila’s water security and the benefits will be
achieved for all residents. This was a fundamental requirement before the emergence of COVID-
19. Now, the overall project has an elevated importance and urgency as an essential part of the
response to the COVID-19 pandemic (and other future health emergencies).

16. Strategic alignment. The proposed additional financing will further strengthen the
ongoing project’s contribution to the achievement of the government target of 100% water supply
coverage by 2025, as indicated in the Philippine Water Supply Sector Roadmap.15 The country
partnership strategy lists water and other urban infrastructure and services (WUS) as one of five
priority sectors for extended support in the Philippines. The overall project is also in line with ADB’s
Strategy 2030 and its operational priorities 3 (building disaster-resilient infrastructure investments)
and 4 (making cities more livable);16 and with the Water Operational Plan (2011–2020), which
discusses ways for ADB to help fill the gap between water demand and supply.17

17. Development coordination. Key development partners in the Philippines’ WUS sector
are ADB, the Japan International Cooperation Agency, and the World Bank. ADB has reengaged
with the government on WUS in 2016, supporting water supply improvements in Metro Manila
and provincial cities. After the new government was formed in 2016, Sulong Pilipinas replaced
the Philippine Development Forum, which used to organize regular meetings with development
partners. An annual consultative conference is organized under Sulong Pilipinas, bringing
together business communities, development partners, and respective government agencies to
exchange information and coordinate activities.18

18. Lessons learned. Major implementation issues of the ongoing project resulted from (i)
delays in recruiting the construction supervision consultant and (ii) the retirement of a substantial
number of experienced MWSS staff. To address these issues, the proposed additional financing
will (i) assist MWSS in meeting its consulting needs by using the consultant engaged under the
Southeast Asia Urban Services Facility; 19 (ii) strengthen project implementation support for
procurement, disbursement, and environmental and social safeguard compliance; and (iii) train
MWSS staff in operation and maintenance (O&M) and financial management.

13 ADB. 2018. Additional Financing. Operations Manual. OM H5. Manila.

14 ADB. 2018. Country Partnership Strategy: Philippines, 2018–2023—High and Inclusive Growth. Manila.
15 Government of the Philippines, National Economic and Development Authority. 2010. Philippine Water Supply Sector

Roadmap, 2nd Edition. Pasig City.

16 ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific.

Manila.
17 ADB. 2011. Water Operational Plan 2011–2020. Manila.
18 Development Coordination (accessible from the list of linked documents in Appendix 2).
19 ADB. 2018. Technical Assistance for the Southeast Asia Urban Services Facility. Manila (TA 9554-REG).
 5

19. ADB’s value addition. Seismic and structural assessments supported by ADB informed
the preliminary designs as well as the technical specifications in the bidding document for T4. The
additional financing activities will follow a similar approach to the AQ7 technical assessments and
in overseeing the bidding and management of the complex design–build contract. The proposed
additional financing will help limit the adverse impact of natural hazards and environmental
degradation and ensure the sustainability of the project through capacity building. The
construction of T4 and AQ7 will support implementation of the water security road map for Metro
Manila and address the growing water demand in the region.

20. ADB is a trusted partner for the Philippines in its efforts to engage with communities during
implementation of public works projects. A well-prepared program of community engagement,
with prominent partnership with groups led by women, will deliver support on the need for robust
water, sanitation, and hygiene (or WASH), with a focus on ‘poor’ areas bearing a high burden of
the COVID-19 pandemic.

B. Impact and Outcome

21. The project is aligned with the following impact: universal access to safe, adequate, and
sustainable water supply by 2025. It will have the following outcome: adequate and reliable
amounts of water supplied in Metro Manila.20 The aggregate impact and outcome of the overall
project are unchanged, but new outcome indicators were added to reflect the performance
measurement of a new output.

C. Outputs

22. Output 1: New tunnel constructed. Output 1 is unchanged.

23. Output 2: Capacity-building support provided. Output 2, while unchanged in essence,

will include new activities under the proposed additional financing to (i) strengthen gender and
development programs being implemented under the ongoing project; (ii) train MWSS staff on
O&M of the tunnels and aqueducts; and (iii) expand the awareness programs on water
conservation, hygiene promotion, and health-related risks.

24. Output 3: New aqueduct constructed. Output 3, a new output, includes the construction
of a new aqueduct (AQ7), which will have a finished internal diameter of 3.6 m and a total length
of about 15 km. Works will also include (i) three segments of tunneling works for a combined
length of about 3.5 km, (ii) aqueduct crossings, (iii) a new receiving basin at the Novaliches
Junction, (iv) two interconnections at the Bigte Basins and one interconnection at the Novaliches
Portal, and (v) two blank flange ends for future connections to Bulacan areas.

D. Investment and Financing Plans

25. MWSS requested a regular loan of $126.0 million from ADB’s ordinary capital resources
for the proposed additional financing. The loan, to be guaranteed by the Republic of the
Philippines, will have a 25-year term, including a grace period of 6.5 years; an annual interest rate
determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending
facility; a commitment charge of 0.15% per year; and such other terms and conditions set forth in
the draft loan and guarantee agreements. Based on the straight-line repayment method, the

20 The design and monitoring framework is in Appendix 1.

6

average maturity is 16 years, and the maturity premium payable to ADB is 0.10% per year. The
COVID-19 pandemic’s impact on the project cost is estimated to be negligible. The overall project
is estimated to cost $231.0 million (Table 1).

Table 1: Project Investment Plan

($ million)
Original Additional
Item Amounta Financingb Total
A. Base Costc
1. New tunnel constructed 67.4 0.0 67.4
2. Capacity-building support provided 3.6 10.0 13.6
3. New aqueduct constructed 0.0 121.2 121.2
Subtotal (A) 71.0 131.2 202.2
B. Contingenciesd 0.0 19.7 19.7
C. Financing Charges During Implementatione 4.2 4.9 9.1
Total (A+B+C) 75.2 155.8 231.0
a
The ongoing project cost of $75.2 million is financed by (i) $67.3 million from ADB loan proceeds (after the partial cancellation); and
(ii) $7.9 million in counterpart funding from the government and MWSS for taxes and duties (cash), and financing charges during
construction.
b
Includes $16.5 million for taxes and duties (cash), $0.2 million to finance resettlement compensations, and $8.2 million for price
contingencies, which will be financed by MWSS.
c
In mid-2019 prices as of 15 September 2019.
d
Consists of physical contingencies, computed at 10% for civil works, consulting services, and capacity-building activities; price
contingencies computed at 1.5% on foreign exchange costs and 3.0% on local currency costs; provision for potential exchange rate
fluctuation under the assumption of a purchasing power parity exchange rate. The original loan’s contingencies of $22 million were
cancelled in October 2019. The estimated contingency is currently sufficient to cover possible cost increases due to the COVID-19
pandemic.
e
Includes interest and commitment charges. Interest during construction for the regular OCR loan has been computed at the 5-year
United States dollar fixed swap rate plus effective contractual spread of 0.50% and 0.10% maturity premium. Commitment charges
for a regular OCR loan are 0.15% per year to be charged on the undisbursed loan amount.
Source: Asian Development Bank estimates.

26. ADB will finance the expenditures in relation to civil works, consulting services, and
capacity development. MWSS will provide $29.8 million, i.e., $16.5 million for taxes and duties,
$0.2 million for resettlement costs, $8.2 million for price contingencies, and $4.9 million for interest
during construction and commitment charges. The climate change adaptation is estimated to cost
$4.0 million and will be 100% financed by ADB.21 A summary of the financing plan is in Table 2
and detailed financing plans are in the project administration manual (PAM).22

Table 2: Financing Plan

Originala Additional Financing Total
Amount Share of Amount Share of Amount Share of
Source ($ million) Total (%) ($ million) Total (%) ($ million) Total (%)
ADB
OCR (regular loan) 67.3 89.5 126.0 80.9 193.3 83.7
MWSS 7.9 10.5 29.8 19.1 37.7 16.3
Total 75.2 100.0 155.8 100.0 231.0 100.0
ADB = Asian Development Bank, MWSS = Metropolitan Waterworks and Sewerage System, OCR = ordinary capital resources.
a
Refers to the original loan amount after the partial cancellation of loan proceeds.
Source: Asian Development Bank estimates.

21 Climate Change Assessment (accessible from the list of linked documents in Appendix 2).
22 Project Administration Manual (accessible from the list of linked documents in Appendix 2).
 7

E. Implementation Arrangements

27. The implementation arrangements are summarized in Table 3 and described in detail in
the PAM.

Table 3: Implementation Arrangements

Aspects
Implementation period
Estimated completion date
Estimated loan closing date
Management
(i) Oversight body
(ii) Executing agency
(iii) Implementing agency
(iv) Implementation unit
Procurement
Consulting services
Advance contracting
Disbursement
ADB = Asian Development Bank, MWSS = Metropolitan Waterworks and Sewerage System, QCBS = quality- and cost- based selection.
Source: Asian Development Bank.
Arrangements
July 2020–July 2023
31 July 2023
31 January 2024
Department of Finance, National Economic and Development Authority, and
Governance Commission for Government Owned or Controlled Corporations
MWSS
Deputy administrator for engineering and operation, MWSS
Project Management Office, MWSS
International open competitive 1 contract $105.7 million
bidding
QCBS (90:10) 1 contract 275 person-months $8.8 million
Bidding documents for the design–build contract were prepared during
project preparation.
The loan proceeds will be disbursed in accordance with ADB's Loan
Disbursement Handbook (2017, as amended from time to time).

28. Project readiness. Technical bids for the sole civil works package have been evaluated
and the financial bids of qualified bidders will be opened once the enhanced community
quarantine is lifted. Contract award is expected at the time of loan effectiveness.

III. DUE DILIGENCE

A. Technical

29. Aqueduct alignment. All six existing aqueducts are contained within the 60 m wide right
of way (ROW) of MWSS, and AQ7 will also be laid within this ROW. Trial routes revealed that the
spaces between the aqueducts are very narrow, which carries a risk that the AQ7 construction
works might damage adjacent aqueducts. Therefore, the most logical solution for AQ7 is to follow
the current alignment of AQ1 and AQ2 (which will be decommissioned and removed because of
their age and poor condition) from the Bigte Basins to the Novaliches Portal. This will significantly
reduce the risk of damaging other aqueducts during the construction of AQ7.

30. Consideration of technical options. Detailed hydraulic analysis was carried out for AQ7
using various scenarios experienced by the existing aqueducts, such as failure, repair, and
rehabilitation. With AQ7 following the current alignment of AQ1 and AQ2, six technical options
were considered for managing the water flow from T4, including different pipe configurations and
construction of a common basin at the Bigte Basins compound. The evaluation criteria included
(i) system flexibility, (ii) flow capacities, (iii) ease of construction, (iv) least disruption to services,
(v) capital and operational costs, and (vi) operational flexibility at the basins. Based on these
criteria, the selected option will have T4 supply AQ7 through a T4 transition basin, and AQ5 and
AQ6 through a T4 interconnection basin.

31. Optimum aqueduct size. The optimum size for AQ7 is a diameter of 3.6 m, calculated to
carry an ultimate capacity of 17.4 m3/sec to match the tunnel capacity (after the completion of T4
8

under the ongoing project). Further, the following two extreme failure scenarios were analyzed:
(i) a powerful earthquake destroying AQ3 and AQ4, the weakest among the existing aqueducts
(once AQ1 and AQ2 are removed); and (ii) a powerful earthquake destroying all of the Angat
water transmission system except T4 and AQ7. The analysis indicates that a smaller aqueduct
size (3.3 m) will not be able to deliver the potential flow from T4, while a larger size (4.0 m) will be
impractical since its excess capacity would not be used.

32. Safe working under the COVID-19 conditions. The impact of the disease is evolving,
and project implementation will be responsive and flexible in meeting emerging needs and new
guidance. The project will strictly follow government guidance on safe working in COVID-19
conditions, adhering to the most robust medical and scientific advice. The project parties will be
required to assimilate emerging international construction best practice on distancing (where
practical for works of this nature), implementation methodologies, effective use of forced air
ventilation systems and personal protective equipment. This is vital for works in deep trench and
other confined spaces, where person-to-person transmission of COVID-19 disease is a high risk.

33. Operation and maintenance. Because the Angat water transmission system will be
operated using gravity, no pumping or power is required. Being a raw water bulk transmission
system, it will not involve any chemicals. Treatment will be undertaken downstream of the system
by the concessionaires. As AQ7 will replace the existing AQ1 and AQ2, no additional staff will be
needed to operate the system. In accordance with the concessionaire agreements, MWSS will
own the assets, but the two concessionaires (Maynilad and Manila Water) will be responsible for
O&M. Lessons learned from the project under COVID-19 conditions will be collated in an O&M
manual to document best practices and synthesize approaches for future health emergencies.

B. Economic and Financial

34. Economic analysis. The economic assessment was carried out in accordance with
ADB’s Guidelines for the Economic Analysis of Projects.23 The calculation of project benefits
considered the non-incremental benefit from savings in the cost of purchasing alternative water
supply. The “failure rate” approach was used to assess the benefit.24 The economic net present
value of the project is $48.0 million, and the economic internal rate of return is estimated at 14.8%,
higher than the threshold rate of 9.0%. According to the sensitivity analysis, the project remains
economically viable with an economic internal rate of return of 9.0% even under the worst-case
scenario of three downside risks occurring at the same time: (i) 20% increase in construction
costs, (ii) 20% increase in O&M costs, and (iii) 20% decrease in benefits.

35. Financial analysis. Since MWSS is not expected to generate income from the completion
of AQ7, the financial assessment considered the financial sustainability based on proper system
O&M. The two concessionaires will cover the incremental O&M cost. MWSS also has sufficient
cash reserves to manage the O&M cost if the concessionaires fail to cover it. The financial
sustainability of the project is satisfactory because MWSS is assured of recovering the full cost of
debt service and the O&M cost, under the terms of the concession agreements with Maynilad and
Manila Water.25

23 ADB. 2017. Guidelines for the Economic Analysis of Projects. Manila.

24 The failure rate assessment was based on experts’ opinion, estimating a system failure once every 5 years, which
would reduce the water flow by one-third of the system’s full capacity and require 60 days to restore full capacity.
Economic Analysis (accessible from the list of linked documents in Appendix 2).
25 Financial Analysis (accessible from the list of linked documents in Appendix 2).
 9

C. Governance

36. Financial management assessments. MWSS’s financial management risk is moderate.

Although the agency has demonstrated adequate capacity to manage projects financed by
development partners such as ADB, Export-Import Bank of China, the Japan International
Cooperation Agency, and the World Bank, the potential risk is that regular staff currently involved
in ongoing projects will avail of MWSS’s early retirement program. The measures to mitigate this
risk involve (i) training, including on-the-job-training, for new MWSS staff on ADB’s disbursement
procedures and international best practices; and (ii) improvements to project budgeting and
accounting systems, including the computerization of the accounting system.

37. Procurement capacity assessments. MWSS’s procurement risk is rated moderate. Its
Bids and Awards Committee is responsible for all its procurement activities, and its staff receive
regular training on the government’s procurement policies, regulations, and guidelines. However,
it has limited experience in managing large procurement packages through international open
competitive bidding, particularly those with design–build contract forms. To mitigate procurement
risks, (i) the number of contracts was reduced to a minimum and (ii) ample training and support
on ADB’s procurement policies and regulations will be provided. The procurement of works and
the recruitment of consulting services will be conducted in accordance with ADB’s Procurement
Policy (2017, as amended from time to time) and Procurement Regulations for ADB Borrowers
(2017, as amended from time to time).

38. Anticorruption. ADB’s Anticorruption Policy (1998, as amended to date) was explained
to and discussed with the government and MWSS. The specific policy requirements and
supplementary measures are described in the PAM. An integrity due diligence was undertaken.
No significant integrity risks were identified.

D. Poverty and Social

39. The project is classified as a general intervention since it will indirectly target poverty
reduction among water end-users in Metro Manila and the communities residing near the project
sites. A socioeconomic survey, carried out as part of project preparation, indicates that more than
30% of residents of the communities residing near the project sites are poor and that some
households are unable to connect to the water supply system because of the high connection
fees. The survey also revealed gender inequality because traditional gender roles still prevail.

40. The two concessionaires, Maynilad and Manila Water, have programs to ensure that their
services are accessible to the poor communities of Metro Manila.26 The project’s poverty and
socially inclusive design features include (i) prioritizing communities residing near the project sites
for construction-related employment especially for unskilled labor; (ii) referring poor households
to the livelihood and skills programs in the project area; (iii) implementing proper traffic route
planning and management to mitigate road safety risks during construction; and (iv) implementing
information, education, and communication campaigns to promote awareness of social and health
risks. These approaches will be strategically aligned with Metro Manila’s emerging responses to
the COVID-19 pandemic and will help to ease the burden on heavily stressed healthcare systems.

41. The communities affected by the project’s construction work will receive support in building
greater grassroots awareness and practical understanding of the principles of WASH, and how
this can help in curtailing the spread of COVID-19 and other diseases. The community outreach

26 Maynilad’s Samahang Tubig Maynilad and Manila Water’s Tubig Para Sa Barangay.
10

program will recognize that WASH is a key element of public health and a central part of the
United Nation’s Sustainable Development Goal 6. Targeted outreach to people deemed
vulnerable to COVID-19, including the aged and those with medical conditions will be supported
by the full engagement of local government units, barangays, community groups, and
nongovernmental organizations. It will draw on guidance from the Departments of Health, Public
Works and Housing, and Education, and best international practice, including from neighboring
countries.

42. Gender. The project is classified as some gender elements. It will strengthen the gender
and social development programs being implemented under the ongoing project. Proactive
gender features of the project design include (i) integrating the needs of women, children, and the
elderly in traffic route management and road safety programs; and (ii) providing public awareness
and training to communities residing near the project sites on social and health risks (gender-
based violence, sexually transmitted diseases and HIV/AIDS, COVID-19, gambling, and drug and
alcohol abuse).

E. Safeguards

43. In compliance with ADB’s Safeguard Policy Statement (2009), the safeguard categories
of the project are as follows:

44. Environment (category B). The project is not expected to cause irreversible adverse
environmental impacts. An initial environmental examination report was prepared in accordance
with ADB’s Safeguard Policy Statement (2009). Most environmental impacts are expected during
construction and arise from the removal of trees and other vegetation types, modification of
terrain, potential siltation of nearby waterways, noise and dust, increased site traffic, and greater
risks to occupational and public health and safety. These impacts will be limited within the
designated 25 m wide construction area and within MWSS’s existing ROW.27

45. Involuntary resettlement (category B) and indigenous peoples (category C). No land
acquisition is needed, but 11 informal structures inside the designated 25 m wide construction
area and MWSS’s existing ROW will be permanently affected (demolished prior to construction).
Six households will be affected, five of which will have to relocate. Losses of residential and
commercial structures and crops will be compensated at replacement costs.28 No indigenous
peoples and ancestral domain areas will be affected by the proposed additional financing.

F. Risks and Mitigating Measures

46. Major risks and mitigating measures are summarized in Table 4 and described in detail in
the risk assessment and risk management plan.29

27 Public consultations were carried out during the preparation of the initial environmental examination report consistent
with the requirements of ADB’s Safeguard Policy Statement (2009). The grievance redress mechanism set up under
the ongoing project will continue to help address any grievance from project-related environmental impacts. Initial
Environmental Examination (accessible from the list of linked documents in Appendix 2). Measures to mitigate the
impacts are included in the environmental management plan, which have been incorporated in the bidding
documents for civil works.
28 A resettlement plan was prepared in accordance with ADB’s Safeguard Policy Statement (2009) and the Philippines

national law and posted on the ADB website. Resettlement Plan (accessible from the list of linked documents in
Appendix 2). The affected households and structure owners will also be provided with compensations related to the
transfer of movable properties and will be eligible for business or wage loss allowances.
29 Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).
 11

Table 4: Summary of Risks and Mitigating Measures

Risks
MWSS’s financial system is partially
computerized, and the project management
office staff use MS Excel for recording and
accounting. This is prone to errors and may
ultimately lead to inaccurate financial
statements.
MWSS’s Internal Audit Department is weak
because of limited human resources and
inadequate job descriptions.
Parts of the as-built drawings of the existing
aqueducts are missing and information on the
conditions of the aqueducts is limited, which
make construction planning highly uncertain,
and could lead to a longer-than-anticipated
construction period.
MWSS’s 2018 financial statement was given
a qualified opinion by the auditor because of
MWSS’s inability to reconcile its fixed assets.
COVID-19 impacts adversely on the
contractor’s workforce, subcontractors,
suppliers, consultants, government and ADB
staff, and general public (particularly
vulnerable people).
COVID-19 = coronavirus disease, MWSS = Metropolitan Water Works and Sewerage System.
Source: Asian Development Bank.
Mitigation Measures
The project consultant will support MWSS in developing Strategic
Information Systems Planning. An information technology-based
working environment will be established, especially in the
Financial Department, by hiring more information technology staff
and equipping them with access to computerized systems or tools
and exposure to training.
The Internal Audit Department will be strengthened with the
recruitment of four new staff. The capacity development program
will include training on audits to strengthen staff capacity.
A competent contractor with expertise in hydraulic and tunnel
design and construction will be procured. Proper surveys will be
carried out during the detailed design phase to confirm the quality
of the existing aqueducts and to inform construction planning.
MWSS will improve its fixed assets validation system in
accordance with the Philippines Public Sector Accounting
Standards.
The contractor will maintain vigilance in the management of
COVID-19 health risks in all siteworks to allow for a safe working
environment, including in adjacent areas used by the general
public. Health and safety protocols will be enforced for working in
trenches and other confined spaces.

IV. ASSURANCES

47. The government and MWSS have assured ADB that implementation of the project shall
conform to all applicable ADB policies, including those concerning anticorruption measures,
safeguards, gender, procurement, consulting services, and disbursement as described in detail
in the PAM and loan documents. The government and MWSS have agreed with ADB on certain
covenants for the project, which are set forth in the loan and guarantee agreements.

V. RECOMMENDATION

48. I am satisfied that the proposed loan would comply with the Articles of Agreement of the
Asian Development Bank (ADB) and recommend that the Board approve the loan of
$126,020,000 to Metropolitan Waterworks and Sewerage System, to be guaranteed by the
Republic of the Philippines, for the additional financing of the Angat Water Transmission
Improvement Project, from ADB’s ordinary capital resources, in regular terms, with interest to be
determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending
facility; for a term of 25 years, including a grace period of 6.5 years; and such other terms and
conditions as are substantially in accordance with those set forth in the draft loan and guarantee
agreements presented to the Board.

Masatsugu Asakawa
President
22 May 2020
12 Appendix 1

REVISED DESIGN AND MONITORING FRAMEWORK

Impact the Project is Aligned with

Ongoing project
Universal access to safe, adequate, and sustainable water supply by 2025 (Philippine Water Supply Sector
Roadmap, 2nd Edition)a
Overall project
Unchanged
Performance Indicators with Data Sources and
Results Chain Targets and Baselines Reporting Mechanisms Risks
Outcome
Ongoing project Ongoing project Time and/or
Adequate and By 2023: cost overruns
a. Final completion
reliable amounts a. Tunnel system provides at least 46 because of the
report, flow and level
of water supplied m3/sec of raw water with any one of occurrence of
measurements, and
in Metro Manila the four tunnels decommissioned natural
hydraulic calculations
(2016 baseline: not applicable) hazards
done by contractor and
verified by the PMO
Overall project Overall project
Unchanged a. Unchanged a. Unchanged

b. By 2025: Raw water supplied by b–c. Final completion

Angat system increased to at least report, flow and level
66 m3/sec (2019 baseline: 50 m3/sec) measurements, and
hydraulic calculations
c. By 2025: Raw water supplied by done by contractor and
Angat system increased to at least 53 verified by the PMO
m3/sec with any one of the existing
aqueducts closed (2019 baseline: not
applicable)
Outputs
Output 1
Ongoing project Ongoing project
New tunnel 1a. By 2022: Civil works completed for 1a. Monthly progress PMO staff
constructed (i) intake structure at Ipo Dam; (ii) reports filed by contractor have limited
tunnel works of 6.3 km in length and and verified by the PMO experience in
Overall project with a finished internal span of 4 m; (iii) procuring large
Unchanged new transition basin at Bigte, civil work
connection of the new transition basin contracts
to the existing transition basin no. 3 at
Bigte; and (iv) necessary modifications
to transition basin no. 3 at Bigte
(2016 baseline: no civil works)

1b. By 2021: 50% of unskilled laborers 1b. Contractor’s record

hired by the contractor are people from
the source communities and
indigenous people, with equal pay and
job conditions (2016 baseline: not
applicable)
 Appendix 1 13

Performance Indicators with Data Sources and

Results Chain Targets and Baselines Reporting Mechanisms Risks
Overall project
1a. Unchanged 1a. Unchanged

1b. Unchanged 1b. Unchanged

Output 2
Ongoing project Ongoing project
Capacity-building 2a. By 2022: 10 PMO staff with 2a. Annual report on Longer
support provided improved skills in contract MWSS’s Strategic construction
management (2016 baseline: not Performance period required
Overall project applicable) Management System because of
Unchanged limited
2b. By 2018: 2 gender-awareness 2b.–2c. Quarterly information on
promotion and training sessions for progress reports and the conditions
MWSS staff completed and attended attendance sheets of the existing
by 30 people each (2016 baseline: not aqueducts and
applicable) their
alignments
2c. By 2018: 200 local people trained
on water conservation, hygiene
promotion, livelihood opportunities,
and awareness of health-related risks
(with 50% women meaningfully
participating) (2016 baseline: not
applicable)

Overall project
2a. Unchanged 2a. Unchanged

2b. Unchanged 2b. Unchanged

2c. Unchanged 2c. Unchanged

2d. By 2024: (i) Gender awareness 2d.–2f. Program

orientation, and (ii) training on gender materials, attendance
mainstreaming and on establishing sheets, and end-of-
and monitoring a sex-disaggregated training survey conducted
database, for at least 30 MWSS staff by the PMO
completed (with at least 40% female
participants)
(2019 baseline: 0)

2e. By 2024: Training on contract

and/or project management, operation,
and maintenance of the tunnels and
aqueducts for at least 30 MWSS staff
conducted (with at least 40% female
participants) (2019 baseline: none)

2f. By 2024: Awareness programs on

water conservation, hygiene and
WASH promotion, and health-related
risks (including for COVID-19) for at
least 100 persons conducted (with at
 14 Appendix 1

Performance Indicators with Data Sources and

Results Chain Targets and Baselines Reporting Mechanisms Risks
least 40% female participants) (2019
baseline: none)
Output 3
Ongoing project Ongoing project
None None
Overall project
Overall project 3a. Monthly progress
3a. By 2024: Civil works completed for
New aqueduct reports by contractor,
water conveyance of 15 km in length
constructed verified by the PMO
with a finished internal diameter of 3.6
m, which includes above-ground and
tunnel segments, crossings,
interconnections, a receiving basin,
and blank flange ends (2019 baseline:
none)
Key Activities with Milestones
1. New tunnel constructed
1.1 Approve the bidding document (completed in 2015)
1.2 Award the civil works contract (completed in 2018)
1.3 Complete civil works (unchanged, by 2020)
2. Capacity-building support provided
2.1 Award contracts for the consulting service package (added, overall project by 2020)
2.2 Implement gender-awareness training (completed in 2017)
2.3 Implement community consultation and training (completed in 2018)
2.4 Review the existing gender development program and develop activities to support them (added,
by 2020), and implement these activities (added, by 2024)
2.5 Assess the needs to raise awareness on water conservation, hygiene promotion, and health-
related risks (added, by 2020); develop awareness programs (added, by 2021); and conduct
awareness programs (added, by 2024)
3. New aqueduct constructed
3.1 Approve the biding document and issue the invitation for bids (added, by 2019)
3.2 Award the design–build civil works contract (added, by 2020)
3.3 Complete the detailed engineering design (added, by 2021)
3.4 Complete civil works (by 2024)
Project Management Activities
Conduct needs assessment for specific skills and knowledge areas (added, by 2020)
Deliver and evaluate training on disbursement, procurement, safeguard, and project management (added,
by 2024)
Inputs

ADB MWSS
$67,330,000 (original) $7,900,000 (original)
$126,020,000 (additional) $29,800,000 (additional)
$193,350,000 (overall) $37,700,000 (overall)
Assumptions for Partner Financing
Not applicable.
ADB = Asian Development Bank, COVID-19 = coronavirus disease, km = kilometer, m = meter, m3/sec = cubic meters per
second, MWSS = Metropolitan Waterworks and Sewerage System, PMO = project management office, WASH = Water,
Sanitation and Hygiene.
a Government of the Philippines, National Economic and Development Authority. 2010. Philippine Water Supply Sector

Roadmap, 2nd Edition. Pasig City.

Source: Asian Development Bank.
 Appendix 2 15

LIST OF LINKED DOCUMENTS

http://www.adb.org/Documents/RRPs/?id=46362-004-3

1. Loan Agreement
2. Guarantee Agreement
3. Sector Assessment (Summary): Water and Other Urban Infrastructure and
Services
4. Project Administration Manual
5. Summary of Project Performance
6. Contribution to the ADB Results Framework
7. Development Coordination
8. Economic Analysis
9. Financial Analysis
10. Country Economic Indicators
11. Summary Poverty Reduction and Social Strategy
12. Climate Change Assessment
13. Initial Environmental Examination
14. Resettlement Plan
15. Risk Assessment and Risk Management Plan

Supplementary Documents

16. A Schematic Diagram of the Angat Water Transmission System

17. Financial Management Assessment