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October 02, 1997

The Commission of the European Communities, hereinafter refe+-rred to as "The Commission":, acting for and on behalf of the European Community, hereinafter referred to as THE COMMUNITY"

of the one part, and

the Government of the Republic of the Philippines, hereafter referred to as "THE RECIPIENT"

of the other part,

HAVE AGREED AS FOLLOWS:

Further to the recommendations of a review mission and without changing the content of the Financing Agreement for the above project , the 'specific objectives' have been focused and the funds concerning the EC grant have been adapted to the introduction of more specific objectives. Since there are many minor changes both parties have decided to revise the Technical and Administrative Provisions (TAP) in a way that these changes are incorporated in the new TAP as per in annex A.

Signatures

Annex A: Technical and Administrative Provisions
Annex B: Logical Framework Matrix

ANNEX A

TECHNICAL AND ADMINISTRATIVE PROVISIONS

Recipient	:	The Republic of the Philippines
Project Title	:	Catanduanes Agricultural Support Programme (CatAg)
Executing Agency	:	Department of Agriculture (DA)
Project Number	:	ALA / PHI / 9238

CHAPTER 1
PROJECT DETAILS

1.1 Overall objectives and location

The overall project objective is to assist rural communities in the province of Catanduanes to initiate and sustain increases in output from farming and fishing, thereby enabling such communities to raise their subsistence incomes and to generate cash surpluses. The programme will help to alleviate poverty, generate employment, promote growth with equity, and develop environmentally sustainable economic activity.

This will be achieved through a rural development programme, serving rural communities throughout the province. The programme shall emphasize a community-based, bottom-up sustainable development strategy, linked to the development of viable market-led economic opportunities. The programme is aimed in particular at:

the improvement of rural production and productivity in the agricultural development (incorporating crops, livestock, fisheries, environment and marketing ) and

the community organization strengthening for sustained development, through establishment of savings and loans systems

The project will be implemented under the responsibility of the Department of Agriculture (DA) as executing agency, and will work closely with local fanners' and fishermen's organizations and LGUs.

The project will serve rural communities in the province of Catanduanes, in the southern part of Luzon (Region V). It will be implemented through a Project Office to be established in Virac, the provincial capital. To assist in field operations, four small zone offices shall be established, under the Project Office, in appropriate locations throughout the island.

1.2 Specific objectives

The general objectives summarized above shall be achieved through the implementation of a programme of financial and technical assistance aimed at:

the strengthening of agricultural production and the improvement of agricultural subsistence and agricultural incomes, through a coordinated programme of micro-businesses in the fields of:

— agriculture, including the intensification and diversification of agricultural production, the introduction of sustainable agricultural practices, the improvement of irrigation facilities, and the strengthening of agricultural extension and training services and farmers' associations;

— livestock, including the spreading and intensification of livestock production, the improvement of livestock-related infrastructure and the strengthening of agricultural extension and training services and farmers' associations;

— fisheries (both capture and culture), including the enhancement of fish stocks (through a community resource management approach), the improvement of marine fisheries production, the development of small-scale aqua-culture production, the reduction of post-harvest losses, the development of small-scale processing operations, and the strengthening of extension and training services and of fishermen's associations;

— the development of viable marketing opportunities for rural producers, through an integrated marketing programme including the execution of market studies and pilot project, the improvement of market infrastructure, the establishment of simple processing activities, the promotion of market-related small enterprises, the strengthening of extension and training services related to marketing and enterprise-development, and the establishment of financing systems;

— the establishment of the developmental capabilities of local institutions, guarantee groups and savings and loans systems to be actively participated in by the rural women and agrarian reform beneficiaries;

— the assurance of environmental sustainability, in terms of arresting environmental degradation and promoting sustainable resource management, through the preparation of a sustainable environmental developmental plan for the province, the implementation of specific environmental protection and enhancement measures in marine, coastal and upland areas.

To support these programme objectives, assistance will also be given for the establishment and operation of the Project Office, which will carry out the overall implementation and planning of the project, and the preparation and implementation of individual project actions.

1.3 Costs and financing

The total cost of the project, over a 5-year period, is estimated at 11,200,000 Ecu. Of this, the EU grant will cover 10,000,000 Ecu, while the Government of the Philippines will cover the remaining costs of the project from its national budget.

CHAPTER II
PROJECT COMPOSITION

2.1 Project components

Individual project components will include the following:

2.1.1 The strengthening of agricultural production and the improvement of agricultural subsistence and agricultural incomes, through a coordinated programme of micro-businesses in the fields of:

Productive Activities

— the rehabilitation of abaca production

— the upgrading and intensification of rice production (including irrigation dams and canals)

— the promotion of crop diversification, including vegetables, legumes, rootcrops and non-traditional crops as appropriate

— the promotion of fruit tree production

— the promotion of nursery tree production including the utilization of environmentally-sound upland agricultural technology and community-based agro-forestry production

— the expansion of swine production

— the promotion of chicken and duck production

— the promotion of increased capture-fisheries production

— the promotion of increased culture-fisheries production

— the promotion of fish (fingerling) culture (on/off-shore)

Processing Activities

— the upgrading of abaca processing activities

— the upgrading of rice post-harvest facilities

— the promotion of improved coconut processing activities

— the promotion of processing of vegetables, fruits and other potential crops

— the expansion of lasa processing

— the promotion and upgrading of meat processing

— the promotion and upgrading of fish processing

Marketing and Distribution Activities

— the establishment of farm-input and market stalls

— the improvement of transport facilities

— the execution of market studies and pilot marketing activities

2.1.2 The community organization strengthening and training

provision of practical training for guarantee groups and savings and loans systems

provision of technology promotion, extension services and other technical assistance for farmers and fishermen

provision of GG/SLS Manual/Charts and Technology tips

promotion of micro-businesses ideas and guides

2.1.3 The provision of the necessary facilities for project planning, operation and management. In addition to providing for the investment and operating of the necessary facilities and equipment, and for the personnel and recurrent costs of the Project Office, provision is also made for a substantial technical assistance input, which will be fully associated with the national project staff through a joint responsibility arrangement.

2.2 Project inputs

Project inputs will include the following;

land, buildings and facilities for the Project Office in Virac, and for small field offices in each of the 4 zones to be served by the project. This will include office buildings, staff housing and other project facilities (workshops, training and demonstration facilities, nurseries etc.);

transport facilities, including approximately 12 4WD station-wagon or pick-ups, as well as an appropriate number of motorcycles for extension staff;

other equipment as necessary, including office equipment and furniture, communications equipment; microcomputers, survey equipment, agricultural and fisheries equipment, small items of construction equipment, workshop equipment and tools;

micro-business funding for start-up or for pump-priming of the savings and loan systems of farmers and fishermen;

micro-business studies and promotion chargeable against the component, shall be undertaken by the Project Office together with the users;

grant funds for promotion, extension and other technical support services;

grant funds for community organization strengthening and training;

personnel and recurrent costs, including fuel and materials, spare parts, staff salaries and allowance, and operating costs for the project as a whole;

technical assistance, amounting to some 255 man/months of expatriate technical assistance inputs, together with an appropriate input of local technical staff services as necessary, and an appropriate modest provision for consulting services to assist with project monitoring on behalf of the Commission.

2.3 Time schedule

The project will be implemented over a period of 5 years, calculated from the date of signature of the technical assistance contract. It is foreseen that the first 12 months of the 5-year implementation period will largely be concerned with inception activities.

2.4 Financial and other contributions

2.4.1 The EU grant will cover the entire costs of works, buildings, equipment, materials, micro-business operations, credit, training and communications, research and studies, and technical assistance, as well as a proportion of personnel and recurrent costs. This contribution to personnel and recurrent costs will be progressively reduced starting from the third year of project implementation.

2.4.2 The Philippine Government contribution will cover the entire cost of the land required for the project (including any compensation for rights of way), as well as personnel and recurrent costs. The Government's budgetary contribution will start from the third year of project implementation and increase progressively thereafter. In addition, the Government will make an in-kind contribution to cover the office facilities to be provided for the project, and the normal salary costs of permanent government personnel assigned to the project. The specific coverage and annual scheduling of the Government contribution, in line with the requirements of this Financing Memorandum, will be set out in the first detailed workplan. .

2.4.3 In addition to the contributions to be made by the EU and by the Government of the Philippines, it is expected that the project beneficiaries will also make a significant contribution to the costs of the programme. This contribution has not been specifically costed, since it will generally be made on an in-kind basis (labour or materials, for micro-projects to the benefit of the particular community concerned). However, it is expected that this beneficiary equity will not normally be less than 20% of micro-business costs (though this figure may fall to 5% in the case of agro-forestry projects).

2.5 Cost Estimates

2.5.1 EU Grant

	ECU
Productive activities & micro-business	3,000,000
Equipment	500,000
Staff	1,800,000
Operation expenses	1,000,000
Technical Assistance	3,100.000
Sub-total	9.400,000
Contingencies_______________________________________________	____600,000
TOTAL	10,000,000

2.5.2 Philippine Government contribution

Project Office:

Personnel & recurrent costs: 1,200,000 Ecu

This Philippine Government contribution shall be made from the budgetary resources of the national government. The figure shown above does not include the in-kind contribution to be made by the government to cover the costs of existing office facilities to be provided to the project, nor the normal salary costs of permanent government personnel assigned to the project, nor the cost of land and rights-of-way, which will also be covered in full by the government.

2.6 Implementation authorities

2.6.1 General

The project will be executed by the Department of Agriculture (DA), through a Project Office (PO) to be established for this purpose in Virac. Catanduanes; this Office will be responsible for overall project planning and implementation, coordination, management and monitoring. A small liaison facility will be established in Manila to handle routine coordination tasks. This liaison facility shall be under the responsibility of the PO, but in association with the liaison operations of other EU-funded projects for which DA is the executing agency.

2.6.2 Project Office

This Office shall be headed jointly by a National Co-Director and a European Co-Director. The two Directors shall be jointly responsible to the Executive Steering Committee (ESC) referred to in Article 2.6.3 below, for the implementation of the project and for the management of project funds, within the framework of the project workplan as agreed by the ESC and the Commission.

For administrative purposes, the Project Office shall be established as an administrative unit within the Office of the Secretary of Agriculture. However, the Project Office shall from the beginning operate in an autonomous fashion, in accordance with Article 3.1, within the framework of the approved workplan.

2.6.3 Project Committees

2.6.3.1 The government shall establish an Executive Steering Committee (ESC), chaired by the Secretary of Agriculture, and including representatives of the Provincial Government, of concerned national government agencies, of the local government units of the respective island, of concerned NGOs, and of such other public or private-sector bodies as may be appropriate. The National Co-Director shall act as secretary of the ESC.

Technical consultation and coordination with governmental and non-governmental agencies at the national or regional and provincial levels will be handled through a Technical Consultative Committee (TCC), comprising representatives of the various agencies concerned, together with such other public or private sector representatives as may be appropriate. This Committee shall be chaired by an Under-Secretary of DA, with the National Co-Director as secretary, and shall meet either in Legaspi or in Virac as appropriate.

2.6.3.2 In addition, a Review Committee shall be established, within the Project Office and chaired by the National Co-Director, to be responsible for the review and approval of all SLS Plans (before release of any funding support) following the procedures set out in Article 2.8.2 below.

2.6.3.3 Within the framework of project autonomy, as set out in Article 3.1 below, every effort shall be made to closely associate the field units of local and national government with the operations of the project, with a particular view to enhancing the sustainability of project activities and achievements.

In reflection of this, it is expected that the Provincial Governor, the Regional Director of DA and the Provincial Agricultural Officer will play an active role in the TCC. Similarly, it is expected that the Provincial Development Officer, and the concerned officers of other government agencies (Trade & Industry, Environment, Agrarian Reform, etc.) will participate actively in the TCC.

2.6.4 Project Directors

The National Co-Director and the European Co-Director shall carry out their duties jointly, and shall be jointly responsible to the ESC for the preparation of the annual workplan and for the implementation of the project in accordance with the agreed workplan. To this end, the two Directors shall work in the closest collaboration at all times.

The National Co-Director shall be a full member of the ESC and the TCC, and shall act as secretary to these two committees, The European Co-Director shall be a full member of the TCC and a non-voting member of the ESC.

The European Co-Director shall also be responsible on behalf of the Commission, for carrying out certain local procurement tasks, as specified in Article 2.9.3.4 below.

2.7 Community consultation and information

2.7.1 Detailed consultation with local community representatives relating to the identification, prioritization, preparation and implementation of specific project activities shall be the responsibility of the Project Office.

The detailed arrangements for such consultation, as proposed by the EU Support mission to CatAg shall include specific provisions for community participation in the general planning and prioritization of project activities to be carried out in a particular area, for regular informal consultation at each stage in the preparation and implementation of a particular activity, and for a specific approval by the local community concerned prior to the commencement of a particular activity, coupled with a review after its completion.

2.7.2 The Project Office shall also be responsible for developing and implementing an appropriate development communications and information programme, and for providing local communities- as well as other concerned persons or bodies, with all appropriate information regarding the objectives, strategies and procedures of the programme, the activities being planned or undertaken, and the achievements of the programme. The National Co-Director, in close collaboration with the European Co-Director, shall have particular responsibility for coordinating this information activity, as well as being available on request to all interested parties .

2.8 Planning and approval of individual project actions (micro-business)

2.8.1 Within the framework of the agreed workplan, and as required for the proper planning and integration of project activities within a particular zone, zone-specific action programmes (ZAPs) shall be prepared by the Project Office in consultation with the local communities concerned and with the relevant local agencies . These programmes, indicating overall needs and objectives as well as priority fields of action within the district concerned, shall be kept updated on a regular basis, in line with the progress of project activities in that zoneand the further requirements identified by the communities concerned.

2.8.2 Within the framework of the agreed workplan and these action programmes, all specific individual project actions (micro-businesses) shall be prepared by the GG/SLS and appraised by the Project Office and in line with the appraisal and selection criteria referred to in Article 3.3 below.

For each SLS plan (consolidation of micro-business plans), the Project Office shall prepare a short project abstract, describing succinctly the objectives, means of implementation and time schedule, inputs and costs estimates, financial and other contributions from all parties concerned, operation and maintenance arrangements (where appropriate) and expected outputs and justification, and indicating also the results of the consultation with the local community concerned.

On the basis of these abstracts, each proposed micro-business shall be reviewed by and internal committee to be established within the Project Office. This Review Committee shall be chaired by the national Co-Director, and shall have as members the European Co-Director plus two other senior project staff (one national and one expatriate).

Copies of each abstract, recording the decision of the Review Committee, shall be provided on a quarterly basis, for information, to the Chairman of the ESC and the Commission.

2.9 Implementation and procurement

2.9.1 General

2.9.1.1 DA shall appoint a National Co-Director, at an appropriate senior level to take charge of the Project Office and to be jointly responsible with the European Co-Director for the implementation of the project. This appointment shall be subject to the concurrence of the Commission on the basis of the candidate's technical skills and experience.

The Commission shall appoint a European Co-Director, at an appropriate senior level, to be jointly responsible with the national Co-Director for the implementation of the project. This appointment shall be subject to the concurrence of DA on the basis of the candidate's technical skills and experience.

2.9.1.2 The two Directors shall be jointly responsible for the

preparation of the detailed workplan, with cost estimates, procurement procedures and schedules, cash flows and staffing patterns, for the approval of the ESC and the Commission;

the implementation of the project in line with the agreed workplan;

the preparation of tender documents, obtaining tenders and quotations, and placing orders after tender evaluation;

certifying the acceptance of works, supplies and services and certifying payment orders;

the timely annual revision of the workplan, for ESC and Commission approval;

the preparation of 6-monthly reports on project progress and annual reports on project achievements (a draft annual report shall be submitted together with the revised workplan).

2.9.1.3 The first annual workplan shall be submitted in two sections:

not later than two months after signature of the present Financing Memorandum, DA shall present for Commission agreement an inception workplan, covering those actions and expenditures necessary for initial project start-up activities during the first year of implementation;

not later than two months after the European Co-Director takes up his duties, the two Directors shall jointly present for the agreement of the ESC and the Commission the detailed workplan covering all project activities.

2.9.1.4 Any reallocation of the funding provided for individual components under Article 2.5 above which might become necessary in the light of progress, shall be proposed for the agreement of the ESC and the Commission in the annual revision of the project workplan.

2.9.2 Financial

2.9.2.1 For those expenditures funded under the EU grant and involving direct payments in currencies other than Pesos, payment shall be made directly by the Commission using its own procedures.

2.9.2.2 For those expenditures funded under the EU grant and involving local expenditures in Pesos, payment shall be made as follows:

the project shall establish appropriate bank accounts in the Philippines (one in Ecu and one in Pesos) for this sole purpose. These accounts shall be operated with the joint signatures of the two Directors;

the Commission shall on the basis of the agreed workplan and estimates and at the request of the two Directors through DA, make an initial advance of up to 100% of the estimated expenditure during the first year of implementation;

disbursement from the project accounts shall be made jointly by the two Directors, in line with project requirements and the agreed plan on implementation and estimates;

transfers from the Ecu account to the Peso account shall be made in line with the monthly requirements of the project. The balance in the Peso account shall not normally exceed two months' estimated expenditure, nor fall below one month's estimated expenditure. The exchange rate applied to transfers from the Ecu account to the Peso account shall be the regular market exchange rate applicable on which day on which the transfer is made;

monthly reports of expenditure from the project accounts shall be prepared by the two Directors and submitted for inspection to a qualified firm of auditors to be hired by the project for this purpose. Once certified by the auditors as being in conformity with project progress and the agreed workplan estimates, these monthly returns shall be the basis of requests by the two Directors through DA to the Commission for the transfer of additional funds; such requests shall normally be made quarterly;

in case of urgency, duly justified by the two Directors through DA, the Commission may be requested to make a temporary partial reimbursement on the basis of an unaudited request. Any such temporary reimbursement will be recovered from subsequent audited requests;

for the second and subsequent years of project implementation, the outstanding advance of the preceding year shall be adjusted to reflect the agreed estimates of expenditure for the current year. This adjustment will be effected by providing a supplementary advance, or by decreasing subsequent payment installments made in respect of the reimbursement request during that current year.

all funds in the project accounts, including any interest generated thereon, shall remain the property of the Commission. Any unusual balances remaining available on the termination of the project shall revert to the Commission.

2.9.2.3 For those expenditures funded by the Government of the Philippines from its own budgetary resources, expenditures and the accounting for expenditures shall be made by the National Co-Director in accordance with normal government procedures. A summary of such expenditures, annual and cumulative, shall however be included in the project's annual reports.

2.9.2.4 For recording purposes, the Project Office shall inform the Department of Budget Management (DBM), on a quarterly basis, of the value of all goods and services received by the project in reflection of expenditures funded under the EU grant, distinguishing between:

direct payments made by the Commission in currencies other than pesos (Article 2.9.2.1)

local expenditures made from the project account in Pesos (Article 2.9.2.2)

These statements shall be the basis for DBM to issue the necessary Advice of Allotment (AA) and Non-Cash Availment Authority (NCAA) required for recording disbursements under a grant-in-kind procedure.

2.9.3 Procurement

2.9.3.1 Procurement of the services, works and supplies under the EU grant shall be carried out through international or local tendering, international or local calls for quotation, or mutual agreement. The choice of procedure for particular categorized or sizes of procurement (other than those covered by 2.9.3.2 below) shall be established in the annual workplans for agreement of the Commission.

2.9.3.2 Technical assistance services shall be procured by the Commission under its own procedures; the Consultant who will provide these services will be selected by the Commission, following terms of reference to be agreed between the Commission and the DA, and will be appointed by the Commission, after the concurrence of DA on the selected Consultant has been obtained.

2.9.3.3 The General Conditions of Contract prepared by the Commission shall be used for internationally-procured services, works or supplies financed by the EU grant.

2.9.3.4 If appropriate, the Commission may provide certain categories of supplies in kind, and may delegate all or part of such procurement tasks to the Consultants, who would act on the commission's behalf in this respect, in accordance with the agreed workplan and the terms of their contract.

CHAPTER III
SPECIAL CONDITIONS

3.1 Project autonomy: The Commission and the Government recognize that a proper autonomy of the Project Office is an essential condition for the successful operation of the project. Given this, the government will take all necessary steps, immediately on commencement of project implementation to ensure that the two Directors have all the necessary functional autonomy (financial, technical and administrative) required to effectively implement the agreed workplan. In particular, the Government shall ensure that the National Co-Director is given the necessary administrative authority to operate the project accounts jointly with the European Co-Director.

3.2 Establishment of Project Office and Project Committees: Within three months from signature of the present Financing Memorandum, the Government shall take all necessary legal and administrative steps to establish the Project Office as a administrative unit attached directly to the Office of the Secretary of Agriculture (Special Concerns Office), to appoint the National Co-Director and other senior staff, to provide the National Co-Director with the necessary administrative and financial authority as called for in Article 3.1 above, to establish the various Project Committees, and to issue the necessary Joint Circular and Memorandum of Agreement required for the proper implementation of the project in full conformity with the provisions of the present Financing Memorandum.

3.3 Procedural recommendations: During the first year of project implementation, the two Directors shall prepare for the agreement of the ESC and the Commission detailed recommendations for the procedures and criteria to be followed regarding:

project appraisal and selection;

management reporting systems;

overall project monitoring and evaluation.

Wherever appropriate, these recommendations shall take due account of similar procedures and criteria being applied in the case of other EU-funded projects in the Philippines.

3.4 Component Recommendations: Also during the first year of implementation, the two Directors shall prepare for the agreement of the ESC and the Commission detailed recommendations for the manner in which certain specific components and activities shall be implemented, including in particular:

the training and institutional-strengthening component.

Such recommendations shall likewise take the amount. Whatever appropriate of the experience gained with other EU-funded projects in the Philippines.

3.5 Evaluation and sustainability: The Government and the Commission shall during the third year of implementation undertake a joint review of project progress and achievements. A similar review shall be undertaken during the fifth year of implementation.

The first of these reviews shall in particular consider the appropriateness of the systems and operations developed by the project, and the effectiveness of project activities to date. The second review shall in particular review the steps necessary to ensure the long-term sustainability, after project completion of the activities initiated by the project.

Following this second review, the Government shall inform the Commission of the steps that it will take, in coordination with the concerned LGUs. to establish this long-term sustainablility.

3.6 Philippine Government contribution: The Philippine Government will make a contribution to the costs of the project, booth in kind and from the national budget as specified in Article 2.4.2 and 2.5.2 above. The budgetary contribution to be made by the Government shall commence not later than the third year of project implementation, and increase progressively thereafter. It is expected that approximately 20% of the budgetary contribution sated in Article 2.5.2 will be made available in the third year of implementation, 35% in the fourth year, and 45% in the fifth year.

3.7 Disputes: Disputes arising during the performance of a contract between the Government and a contractor, consultant or supplier who is not a Philippine national shall be settled definitely in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce.

ANNEX B

LOGICAL FRAMEWORK MATRIX

This revised log-frame matrix was finalized in December 1995, and was the basis on which the Global Workplan was finalized.

It is intended only to provide guidance in interpreting the Technical and Administrative Provisions (Annex A), and in the case of any conflict, these Technical and Administrative Provisions shall prevail. This matrix shall serve as a basis for the ongoing monitoring of the project, and shall be revised and updated regularly as the project progresses.