JBIC ODA Loan Project Mid-Term Review 2007

Evaluator: Mitsubishi UFJ Research & Consulting (Yoichi Hara, Hajime Onishi)
Time of Mid-Term Review Field Survey: August 2007
Project Title: The Republic of the Philippines “Domestic Shipping Modernization Program (II)” (L/A No. PH-P189)[Loan Outline]
Loan Amount / Disbursed Amount: 19,990 million yen / 19,383 million yen
Loan Agreement: Entered: September 1998
Loan Expiry Date: January 2007 (9 years following the coming into force of the L/A, including the 2-year extension period)
Executing Agency: Development Bank of the Philippines
Operation and Maintenance Agency: Development Bank of the Philippines[Project Objective]
The objective of this project is to promote modernization of vessels for domestic shipping, shipyards and ports and harbors (including cargo handling and terminal facilities)
by providing medium- to long-term low-interest loans, through policy financing, to private ship owners, private shipyard companies, private port cargo handling companies
and private companies and local governments that own ports and harbors, as well as to private maritime education and training institutions; thereby improving the safety,
convenience and comfort of marine transport, promoting competition based on market principles, streamlining domestic shipping, and promoting regional development
thorough marine transportation.
Consultant: Overseas Shipbuilding Cooperation Center (Japan), Norwegian Shipping Development Company - Shipdeco AS (Norway)
Contractor: None
[Mid-Term Review Result]
Item
Relevance

Ex-ante evaluation(at the time of appraisal, September 1998)(1) National policy level
・ Since the 1998 publication of the “Recommendations on Inter
Island Shipping” by a panel under the direct supervision of the
President, the Philippine government had been under pressure
1

Result of mid-term review and ex-post evaluation results
as estimated at the time of the mid-term review(1) National policy level・ “Regional development through development of transportation networks”
is included in the “10-Point Agenda” President Arroyo announced in June
2004. To this end, the government formulated the concept of a “Strongto promote competition in providing services by eliminating
unnecessary regulations. In response, the government
implemented the Domestic Shipping Modernization Program(I), and thereby provided funds to the relevant sector throughthe Development Bank of the Philippines (DBP).

(2) Policy level・ Regarding the marine transportation sector’s development
goals, in the Medium-Term Philippine Development Plan
(1993–1998), it is clearly stated that “promotion of investmentin the marine transportation business (i) promotes movement ofpeople and distribution of commodities between regions, cities
and localities; and (ii) improves the efficiency and safety of the2

Republic Nautical Highway” (SRNH), an integrated network of highways
and vehicular ferry routes. Based on the SRNH concept, construction ofan effective land-sea highway capitalizing on domestic shipping toconnect the various islands making up the Philippines is currently
underway to eliminate the distribution bottleneck hampering the growthof the country. (In April 2003, some segments of SRNH were open to
traffic.)
・ The Domestic Shipment Development Act was enacted in 2004 to provide
a legal framework to the SRNH concept, after which a national policy was
adopted, among other things, to provide incentives for development of acompetitive investment environment and continuous growth of domestic
shipping with the view to forming a strong, competitive domestic fleet.
・ In 2003, the Act to Promote Modernization of Marine Transportation(Roll-on Roll-off Terminal System [EO170]) was established tomodernize the harbor terminal facilities (in particular, the development of
the Ro-Ro terminal).
・ As noted above, from the time of the ex-ante evaluation to the present,
despite the change in government, on the national policy level, thePhilippine government has consistently given high priority to (i)streamlining inter island traffic through modernization of domestic
shipping, (ii) improving the Philippines’s competitiveness, and (iii)
developing the surrounding environment including the ports and harbors.
Thus, on the national policy level, the relevance of this project is judged
to be extremely high.
(2) Policy level
・ The direction taken in the policy described on the left was further
emphasized in the Medium-Term Philippine Development Plan
(1999–2004), and regarding the development of the transportation sector,
the plan states: “The government will ensure that the private sector will
provide a number of options regarding passenger and cargo transport that

transport service as a way of coping with the population
increase and responding to changing market demands.”(3) Planning level・ Phase I of the project was implemented with a view to
updating, repairing and improving vessels and developing
cargo handling capacity in ports and harbors. As a result, many
improvements were made: (a) Decrepit vessels were updated;(b) technical guidance was provided by consultants on thepremise that a designated classification of vessels would beacquired, resulting in the elimination of ships that had been
converted without consideration for safety, and in theheightened awareness of the importance of observing safety
standards for the entire domestic shipping sector; (c) most of
the newly built vessels were built at Philippine shipyards (45out of 46), which helped rejuvenate Philippines’ declining
shipbuilding industry; and (d) fast, safe and comfortable marinetransportation services have been launched on sailing routes
that received financing under this project; thereby significantly
changing the image of domestic shipping in the Philippines.
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are price competitive, safe, reliable and ecologically friendly, and,moreover, provide services to support the government’s efforts to reach its
social and economic goals.”・ Furthermore, in the current Medium-Term Philippine Development Plan
(2004–2010), development of SRNH utilizing Ro-Ro vessels is given toppriority in the infrastructure field.
・ Hence the importance of marine transportation sector development isclearly stated in a series of Medium-Term Philippine Development Plans
spanning over three consecutive terms, and the strategy and plan forrealizing it are clearly stated. Consequently, on the policy level, theproject is highly relevant.
(3) Planning level・ This project was implemented after the completion of the Domestic
Shipping Modernization Program (I). It assumed the role of supporting
the promotion of efforts directed toward vessels for domestic shipping (inparticular Ro-Ro vessels), shipyards and ports and harbors (includingcargo handling and terminal facilities) as well as education and training.
・ Due to a number of factors (which will be taken up later in this mid-term
review), loans were disbursed at a slower pace than was envisioned at thetime of the ex-ante evaluation. The delay however, was not caused by any
decline in the need for capital to finance the modernization of domestic
shipping. The overwhelming shortage of funds indicated at the time of theex-ante evaluation has remained unchanged.
・ After the ex-ante evaluation of 1998, JICA implemented two studies one
after another: “Study on the Master Plan for Strategic Development of a
National Network of Ports and Harbors” (2002–2005) and “Study on
Domestic Shipping Promotion Plan” (2004–2005). 1 Both studies

In the first study, a total of 54 ports and harbors (Ro-Ro ports and harbors for mobility enhancement) is designated as marine transportation bases that support local communities, and an initial five-year
development plan is stipulated for completion in 2009 as a development plan for constructing 28 of the 54 ports and harbors that need to be built as early as possible. In the second study, a domestic shipping
promotion plan is formulated for completion by 2015, in which are contained the following four proposals: (i) strategies on the policy and institutional fronts (review of regulations and incentives for improving
marine transportation business); (ii) development of a domestic shipping system (introduction of cold chains, etc.); (iii) promotion of the modernization of marine business (improvement of shipbuilding3

・ From the perspective of fund demand, phase I of the project
met a certain degree of demand. However, the fund demand fordevelopment of domestic shipping infrastructure remains
urgent (In phase I, more than 90% of sub loans were approved
within two years after the project’s launch, and the amount ofdemand for vessel updating funds estimated by DBP wasaround 200 billion yen at the time of appraisal). Consequently,
the project was faced with an overwhelming fund supply
shortage.
・ Furthermore, private financial institutions (PFIs) were besetwith a number of problems: (i) PFIs do not have sufficientmedium- to long-term funds to meet the fund demands; (ii)
PFIs have little experience extending loans to vessels and thelike, and so have not accumulated knowhow in such areas as
screening and supporting end users; (iii) the situation loomed in
the aftermath of the Asian credit crisis of 1997 when interest
rates remained high.
・ Thus, public financial institutions were strongly urged tocontinue providing technical assistance to end users andtransferring skills and knowhow to PFIs while meeting thedemand for medium- to long-term funds by implementing
Phase II of the project after Phase I.

Effectiveness (Impact)(1) Operation and effect indicators(i) Quantitative effects
Nonedemonstrate the importance of and the need for domestic shipping
infrastructure development, as well as the fact that the Philippine
government continues to designate development of the domestic shipping
infrastructure as a high priority area.
・ DBP, the project’s executing agency, has been implementing the
Sustainable Logistics Development Program (SLDP), which is derived
from the project’s consulting services, since 2002, and it has disbursed a
total of 12 billion pesos for 212 subprojects (in addition to domestic
shipping, these subprojects focus on facilities that contribute to thepromotion of the overall distribution of goods including grain processing
facilities, RO-RO ports, and physical distributions bases). This is also
believed to be proof that the need to modernize the domestic shipping
sector remains unchanged.
・ A certain degree of success was achieved in transferring skills to PFIs,
and under the guidance of DBP and the consultants, the expertise forscreening and supporting the end users is being transferred without fail.
However, from the perspective of the scale of fund demand and credit
risk, at this point in time, it is difficult for PFIs alone to meet the needs ofthe domestic shipping sector. Thus, there is a strong need for publicfinancial institutions, including DBP, to continue to assume the leadingroles in this matter.
・ For the foregoing reasons, on the planning level, the relevance of the
project is judged to have remained consistently high from the time of theex-ante evaluation to the present.
(1) Operation and effect indicators(i) Quantitative effects
Breakdown by use for which sub loan funds were injected(Amount unit: million pesos)

capacity, modernization of marine transport management); and (iv) enhancement of maritime financing (revision of a public maritime financing scheme based on the review of the Domestic Shipping
Modernization Program (I) and (II). Moreover, regarding the initial five-year development plan related to the 28 Ro-Ro ports and harbors, JICA is currently conducting an F/S titled “Feasibility Study on RRTS
Development for Improving the Maneuverability of the Philippines”. This study is scheduled to be completed in November 2007.

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(ii) Qualitative effects
・ Modernization and expansion of the marine transportationindustry・ Modernization and expansion of the shipbuilding industry
・ Expansion of physical distribution through port and harbordevelopment
・ Enhancement of maritime education
・ Nurturing PFIs that participate in maritime financing

Use

No. ofcases

AmountVessels and facilities (new construction)
Vessels and facilities (expansion)
Vessels and facilities (updating)
Total

6
40
0
46

578
7,721
0
8,299

Percentageof theamount6.96%
93.04%
100%(ii) Qualitative effects
・ Modernization and expansion of the marine transportation industry
In this project, funds totaling 3,692.58 million pesos were invested tomodernize vessels in a total of 21 cases. From 1999 to 2002, the number ofdomestic shipping companies authorized by the Maritime Industry Authority(MARINA) increased (1999: 327 → 2002: 560). Additionally, the domestic
maritime passenger transportation volume increased on average by 3.0% from1999 to 2003 (1998: approx. 28 million → 2003: approx. 33 million).
・ Modernization and expansion of the shipbuilding industry
Under this project, one shipyard received assistance totaling 70 million pesos.
From 1999 to 2003, the number of shipyards authorized by MARINA
increased slightly (1999: 100 → 2003: 106). The number of small-scale
shipyards increased from 73 in 1999 to 84 in 2003.
・ Expansion of physical distribution through port and harbor development
In this project, funds totaling 4,064.84 million pesos were provided to support
the development of port and harbor facilities in a total of 14 cases. Domestic
maritime cargo volume increased slightly during the project period, i.e., from1998 to 2003 (1998: approx. 44 million tons → 2003: approx. 48 million
tons).
・ Enhancement of maritime education

5

Funds totaling 193.63 million pesos were provided for maritime training
schools in 8 cases.
・ Nurturing PFIs that participate in maritime financing
In this project, there were altogether 19 cases of sub loans that were advanced
through PFIs. DBP and consultants hired with ODA loans have provided PFIs
with technical assistance for financing shipping vessels. From the perspectiveof nurturing PFIs, this project can be judged to have achieved a certain degreeof success.
・ Creation of a financial scheme related to marine transportation
In order to promote the shift from collateral-centered financing to financing
centered on the leasing of vessels that does not require any collateral, in
March 2005, DBP planned and supported the establishment of the Maritime
Equity Corporation (MEC) under the National Development Company(NDC).
(2) Factors which may influence the effectiveness and impact(2) Factors which may influence the effectiveness and impact
・ Given that the disbursement under this project was completed in January
2007, at this point in time, the project’s effectiveness and impact are stillin the process of being manifested.
・ Given that repayment for the sub loans will continue going forward, withregard to manifestation of the project’s effectiveness on the subprojectlevel by the end users, it is important that DBP monitor retail financing
and each PFI monitor wholesale financing, including the repayment
situation and the financial standing of end users.
(3) Factors which may influence the sustainability(3) Factors which may influence the sustainability
・ There are no problems related to the management of the revolving funds
and the percentage of delinquency in the repayment of the sub loans.

Information for6reference
Efficiency(1) Outputs(1) Outputs
Items

Amount (million yen)(i) Sub loan(ii) Consulting services
Total

Items

19,532458
19,990・ Regarding sub loans, the project set neither numerical goals nor
goals for loan allocation by sector, etc.

Amount (million yen)(i) Sub loan

18,973(ii) Consulting services

410

Total

19,383Sub loans: actual loans advanced by sector

Targeted sector

No. of sub
loans
8
3
8
1
1
21
14
8

Loan amount(million pesos)
1,387.75
256.38
1,998.45
3.00
47.00
3,692.58
4,064.84
193.63

Percentage ofloan amount16.72%
3.09%
24.08%
0.04%
0.57%
44.50%
48.98%
2.33%

Tankers
Cargo ships in general
Cargo-passenger ships
Passenger ferries
Pilot vessels(vessel subtotal)
Port and harbor facilities
Maritime training
schools
Cold chain facilities
3278.003.35%
Shipyards
1
70.00
0.84%
(Total)47 (Note)
8,299.05
100.00%Note: Although the total number of borrowers was 46, since there was one
company that received two sub loans, in terms of the number ofsubprojects, there were 47 cases.
Sub loans: breakdown by scale of end users’ assets
Amount of assets of borrowers 1
7

No. ofLoan amount

Percentage

Large-scale (over 100 million
pesos)
Medium-scale (over 15 million
and less than 100 million pesos)
Small-scale (less than 15 million
pesos)
Total

sub
loans
28

(million
pesos)
7,956

of loanamount95.86%

17

334

4.03%

1

9

0.11%

46

8,299

100.00%Sub loans: Breakdown by scale of amount of loan
Amount of sub loans
Large-scale (over 60 million
pesos)
Medium-scale (over 15 million
and less than 60 million pesos)
Small-scale (less than 15 million
pesos)
Total

No. of
sub
loans
21

Loan amount(million
pesos)
7,680

Percentage
of loanamount92.55%

15

551

6.63%

10

68

0.82%

46

8,299

100.00%Sub loan: Breakdown by length of loan period
Sub loan period
Long-term (over 3 and less than
15 years)
Medium-term (over 1 year andless than 3 year)
8

No. of
sub
loans
44
2

Loan amount(million
pesos)
8,286

Percentage
of loanamount99.84%

13

0.16%

Short-term (less than 1 year)
Total

0
46

8,299

100.00%・ From the foregoing data, it can be seen that more than 90% of the total
amount of sub loans went to big clients. On this point, criticisms havebeen voiced by MARINA and ship-owners’ associations, and theDepartment of Transportation and Communications (DOTC) is aware of
the need in the future to examine the criticism that small andmedium-sized companies find it difficult to receive DBP financing.
・ In terms of loan amounts, more than 99% of the loans are long-term loans
over 3 years, and so the project is playing an important role asinstitutional financing in compensating for the shortage of medium- tolong-term funds available in the market.
(2) Project period(2) Project period
September 1998 – May 2003 (57 months)

September 1998 – January 2007 (101 months)
Factors responsible for the extension of the loan expiry date and the comments(at this point in time) of the evaluating team・ The loan disbursement did not advance at the same pace as was planned at
the time of ex-ante evaluation, so the loan expiry date had to be extended.
The reason is as follows: Accompanying the depreciation of the peso, thecost of purchasing vessels abroad with domestic currency rose so sharply
that it became impossible to procure used vessels within budget andpursuant to the age and class regulations. Consequently, shipping
companies began to postpone vessel purchases. In addition, even whenshipping companies applied to purchase vessels, ships that met DBP
9stipulations (consistent with international classification of vessels) could
not be found in the used ship market.
・ Since the strict mortgage collateral requirement imposed by DBP had
already been incorporated into the project at the time of appraisal, fromthe perspective of managing a commercial bank, it was a necessary step totake. Furthermore, in light of the fact that DBP itself is a universal bankthat, according to the General Banking Law, is subject to strict control andsupervision by the central bank, the view that the loan terms should berelaxed and loans should be extended even to small and medium-sizedcompanies that are not creditworthy is not necessarily sound.
・ On the other hand, to extend assistance to Philippines’ small andmedium-sized shipping carriers that need long-term financing at preferredinterest rates is the responsibility of DBP as the country’s policy financeinstitution. The “responsibility of a bank to ensure sound banking” and the“responsibility of a government financial institution to provide support for
projects that are not very profitable or for small and medium-sizedcompanies that are not creditworthy” are mutually exclusive. Thus, thethrust of this project is to strike a balance between these two approaches.
・ From this perspective, it is clear that not enough consideration was given
at the time of the ex-ante evaluation to determine how small andmedium-sized shipping carriers that in themselves are not bankable could
be supplied with funds, or how might they be helped in ways other thanby supplying them funds. From around 2002, DBP began adopting a
policy of attaching importance to cash flow that did not require mortgage
collateral, and hammered out measures such as supporting NDC-MEC,
which were established in 2005. However, the loan expiry date came
before these measures could take effect, forcing DBP to rely on advancing
10big loans.
・ When it was determined that the requirement to acquire internationalclassification was inhibiting the promotion of disbursement, DBP urged
the Philippines’ classification association to have Norway’s Det Norske
Veeritas (DNV) adopt special measures for Philippine shipping carriers.
This action taken by the executing agency is highly evaluated.
・ It is also acknowledged that it was inevitable that the loan expiry dateshould be delayed by other external factors including currency exchange,
trends in the used ship market, etc.
・ The criticism that the loans were advanced so disproportionately tolarge-scale companies that small and medium-sized companies were left
without financing runs deep especially in MARINA and among shipowners’ associations. This point needs to be studied in the next programand other policy tools including causal analysis and the need formeasures.
・ DOTC has expressed misgivings concerning this point, and takes the
stance that what support should be provided for the modernization ofdomestic shipping by small and medium-sized companies is a questionthat should be addressed in the future (although DOTC gives positive
evaluation to the role the Domestic Shipping Modernization Program has
played in meeting the modernization needs of domestic shipping).
Lessons learned andrecommendations(1) Lessons learned
・ There are strong doubts whether the Policy Board (participated by DOTC and MARINA, which are relevant organizations outside the program),
which was envisaged at the time of appraisal, adequately demonstrated its abilities in coming up with and deliberating on solutions in the face ofsuch troubles as delays in disbursement and non-deliverance of funds to small and medium-sized companies. This is believed to be the remotecause of the criticisms lodged by MARINA and ship-owners’ associations. In projects that incorporate a government-wide implementation
structure, special attention should be paid to make sure that such implementation structure functions smoothly under close communication.
(2) Recommendations
・ The need for modernization of domestic shipping and the demand for funds are expected to expand in the future. Thus, it is important to further
11consider putting in place a new support scheme that does not rely solely on loans but involves active participation of NDC-MEC and the like.
Indicators set for use at
the time of the ex-post
evaluation

Indicators set for use at the time of the ex-post evaluation
None

1
Definition of small and medium enterprises: At the time this project was launched, in the Philippines, small and medium enterprises were defined thus: (i) micro enterprises: those with assets of less than 1.5
million pesos: (ii) small enterprises: those with assets of more than 1.5 million pesos and less than 15 million pesos; (iii) medium enterprises: those with assets of more than 15 million pesos and less than 60
million pesos (asset value does not include the value of the land on which the relevant company’s offices, plants and equipment are located). These definitions were revised in the SME Development Plan
2004–2010 (January 2003) as follows; with the upper limit for medium enterprises being raised from 60 million pesos to 100 million pesos: (i) micro enterprises: those with assets of less than 3 million pesos(excluding land capital), or those with 1–9 employees; (ii) small enterprises: those with assets of more than 3 million pesos and less than 15 million pesos, or those with 10–99 employees; and (iii) medium
enterprises: those with assets of more than 15 million pesos and less than 100 million pesos, or those with 100–199 employees. However, since the number of employees was included in the ILO’s definition,
basically, the foregoing breakdown of small and medium enterprises is based on total assets of companies excluding land capital.

(EISCP2)
This data was verified by environmental specialists hired as part of the consulting services provided under this project in the process of loan screening and monitoring conducted by DBP and PFIs. Thus, thedata is evaluated to be relevant.
(ISSEP2)
This project aims to provide support mainly to small and medium-sized companies in manufacturing and related industries, but it is also designed to meet the financial needs of companies with total pre-loanassets of up to 200 million pesos.

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