'OPTIMISTIC BIAS'
“There is a systemic and optimistic bias in the economic evaluation of irrigation projects that can be explained primarily in terms of the incentives facing project analysts,” Berkoff concluded. “Poor economic analysis has contributed to wasteful irrigation investment and in many developing countries there is now too much irrigation.”

	Table 4: Changes in EIRR Estimates for ODA Projects During Appraisal and After Completion   DURING APPRAISAL AFTER COMPLETION Number of Projects with EIRR Estimates 62 87 No. of Projects with EIRR Below 15% 7 29 No. of Projects with EIRR Equal to or Above 15% 55 58 % of Projects with EIRR Below 15% 11% 33% % of Projects with EIRR Equal to or Above 15% 89% 67% No. of Projects Where Change in EIRR After Completion is Indicated   71 No. of Projects With Lower EIRR at Completion   52 No. of Projects With Same or Higher EIRR at Completion   19 % Lower   73% % Same or Higher   27%

He traced the optimistic bias during evaluation to “political dynamics.”

“The self-interest of beneficiary farmers who do not have to pay is obvious. So are those of an Irrigation Department with otherwise little to do, the irrigation staff in lending agencies, contractors, and consultants,” Berkoff observed. “Programming and Finance Ministries that serve a broader national interest may restrain irrigation expansion but are seldom able to fully prevent it.”

The observation could well be a commentary on the NEDA staff’s futile attempts in 2007 to check massive costs increase in the JBIC-funded Bohol Irrigation Project Phase 2 (BHIP-2) that was launched six years ago.

The NEDA staff was overruled by the NEDA Cabinet group, which approved the increases even though the implementing agency, the National Irrigation Administration (NIA), failed to seek prior approval from the NEDA Investment Coordinating Committee.

Alonzo, who uses Berkoff’s paper in his classes, says road projects fare somewhat better and tend to yield higher economic returns than initially estimated because of spillover effects. The EIRR on farm-to-market roads in the small sample of projects examined by PCIJ were generally higher after completion compared to appraisal.

But there are many exceptions, and one that easily comes to mind is the majestic but costly San Juanico Bridge that links Samar to former First Lady Imelda Marcos’s native Leyte island.

NO CARS, JUST CARABAOS
“San Juanico was constructed several decades too soon,” says Alonzo who used to bring his students to the bridge for the annual field trip years after it was built with Japanese ODA loans in the early 1970s. “We’re in the bridge for several hours already but we don’t see any cars or jeepneys, only carabaos.”

Public works engineers, he adds, used to joke among themselves that average daily traffic (ADT) was not measured in terms of vehicles but carabaos.

	The Masinloc coal-fired plant in Zambales, along with a similar project in Sual, Pangasinan, is the single biggest loan exposure of the World Bank in the Philippines today. Its total cost: $203 million. [photo courtesy of National Power Corp.]

According to the project completion reports reviewed by PCIJ, lower-than-expected returns of completed projects stem from a variety of reasons, including extended delays in completing the project, hefty cost increases, or weak demand.

Various risks — economic, political and even security — could hobble a project, dragging performance well below expectations or even minimum standards. This is apparent from even a cursory look at the three lenders’ biggest project loans.

One of JBIC’s largest project loans in the Philippines was a 32-billion-yen package signed in 1982 to finance the construction of extra-high voltage transmission lines that would bring power from the geothermal power plants in Bicol and Leyte to Manila and Central Luzon.

Yet, after erecting more than 560 steel towers and stringing up almost 250 kilometers of transmission lines in May 1987, a year and a half behind schedule, the borrower, National Power Corp. (Napocor), left the facilities unused for over a decade.

Communist guerrilla attacks and pilferage, which downed 11 towers, hampered the project. A more serious problem was the unexpected cancellation or postponement of plans to build several geothermal plants in Southern Luzon and the Visayas.

“The original project design has become less relevant in conjunction with overall power development plan,” JBIC said in a project completion report prepared in October 2002. It did not bother to recalculate the project’s financial return, which was likely to be very low or negative because of the delay in using the project.

Similarly, the World Bank’s single biggest project loan was a $203-million funding support in 1996 that went mostly to building transmission lines connecting the newly-built coal-fired power plants in Masinloc, Zambales, and Sual, Pangasinan, to the rest of the Luzon power grid.

According to the Bank itself, the economic rate of return for the project after completion in 2003 was likely negative compared to original estimates of at least 20 percent because of low power rates, the slump in demand for electricity in the wake of the Asian financial crisis, and excessive power capacity because of overcontracting with the independent power producers (IPPs).