Document of The World Bank
Public Disclosure Authorized FOR OFFICIAL USE ONLY
Report No: 43281
PROJECT APPRAISAL DOCUMENT
Public Disclosure Authorized ON A
PROPOSED LOAN
IN THE AMOUNT OF US$20.8 MILLION
TO THE
STATE OF SERGIPE
WITH A GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL
Public Disclosure Authorized FOR A
SERGIPE STATE INTEGRATED PROJECT: RURAL POVERTY
August 25,2008 Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS
(Exchange Rate Effective May 14,2008)
Currency Unit = Real (R$) R$1.00 = US$0.6017 US$l.OO = R$1.6620
FISCAL YEAR January 1 - December31
ABBREVIATIONS AND ACRONYMS
ADEMA Agencia Estadual de Meio Ambiente (State Secretariat of Environment) CA Community Association CDD Community-Driven Development CECMA Environmental Protection Council CEF Caixa EconGmica Federal CEHOP State Company for Housing and Public Works CHESF S8o Francisco River Hydro-Electric Company COFIEX ComissCo de Financiamentos Externos (External Financing Commission) CONDEM Conselho de Desenvolvimento Municipal (Municipal Council) COOPIR Coordination for Promotion of Policies for Racial Equality CPS Country Partnership Strategy DES0 Sergipe Sanitation Company EMBRAPA Brazilian Agricultural Research Company FECAMP Federal University of Campinas (Sa0 Paulo) FETASE Sergipe State Federation of Rural Labor Unions FMR Financial Management Reports FUNAI National Indian Foundation FUNASA National Water and Sanitation Foundation HDI-M Municipal Human Development Index IBAMA Brazilian Environmental Institute ICMS Sales Tax on Goods and Services ICR Implementation Completion Report IEG World Bank Independent Evaluation Group IFR Interim Un-audited Financial Reports INCRA National Land Reform Institute ISDS Integrated Safeguards Data Sheet MC Municipal Council (CONDEM) MDA Ministry of Agrarian Development FOR OFFICIAL USE ONLY
MIS Management Information System NCB Nacional Competitive Bidding NRDP Northeast Rural Development Program NTGA Technical Unit for Environmental Guarantees (in PRONESE) O&M Operation and Maintenance PDO Project Development Objective POA Project Annual Operating Plan PPA State Multi-annual Investment Program PRONAF National Program for Support to Family Agriculture PRONESE Sustainable Development Company of Sergipe RPAP Rural Poverty Alleviation Program RPRP Rural Poverty Reduction Program SEAGRI State Secretariat of Agriculture SECAD Secretariat of Continuing Education, Literacy and Diversity SEDETEC Secretariat of Economic Development, Science and Technology SEIDES State Secretariat for Inclusion, Assistance and Social Development SEINFRA State Infrastructure Secretariat SEPLAN State Secretariat of Planning SEPPIR Secretariat for Promotion of Racial Equality SIL Specific Investment Loan SISAP State of Sergipe Audit Tribunal
Vice President: Pamela Cox Country Director: John Briscoe Sector Director: Laura Tuck Sector Manager: Ethel Sennhauser Task Team Leader: Jorge A. Muiioz
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.
BRAZIL Sergipe State Integrated Project: Rural Poverty CONTENTS
Page
I. STRATEGIC CONTEXT AND RATIONALE ...... 11 A . Country and sector issues ...... 11 B. Rationale for Bank involvement ...... 12 C . Higher level objectives to which the project contributes ...... 13
I1. PROJECT DESCRIPTION ...... 13 A . Lending instrument ...... 13 B. Program Objective and Phases ...... 13 C . Project development objective and key indicators ...... 14 D. Project components ...... 14 E. Lessons learned and reflected in the project design ...... 21 F. Alternatives considered and reasons for rejection ...... 23
I11. IMPLEMENTATION ...... 23 A . Partnership arrangements (if applicable) ...... 23 B. Institutional and implementation arrangements., ...... 23 C . Monitoring and evaluation of outcomeshesults ...... 26 D. Sustainability ...... 26 E. Critical risks and possible controversial aspects...... 27 F. Loadcredit conditions and covenants ...... 28
IV. APPRAISAL SUMMARY ...... 28 A . Economic and financial analyses ...... 28 B. Technical ...... 31 C . Fiduciary ...... 31 D. Social ...... 31 E. Environment., ...... 34 F. Safeguard policies ...... 35 G. Policy Exceptions and Readiness ...... 36
Annex 1: Country and Program Background...... 37 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 44
Annex 3: Results Framework and Monitoring...... 45
Annex 4: Detailed Project Description...... 49
Annex 5: Productive Subprojects ...... 58
Annex 6: Project Costs ...... 64
Annex 7: Implementation Arrangements ...... 65
Annex 8: Financial Management and Disbursement Arrangements...... 76
Annex 9: Procurement Arrangements ...... 82
Annex 10: Economic and Financial Analysis ...... 88
Annex 11: Safeguard Policy Issues ...... 95
Annex 12: Project Preparation and Supervision ...... 115
Annex 13: Documents in the Project File ...... 116
Annex 14: Statement of Loans and Credits ...... 117
Annex 15: Country at a Glance ...... 121
Annex 16: Map No. 36236 ...... 122 BRAZIL
SERGIPE STATE INTEGRATED PROJECT: RURAL POVERTY
PROJECT APPRAISAL DOCUMENT
LATIN AMERICA AND CARIBBEAN
LCSAR
Date: August 25,2008 Team Leader: Jorge A. Munoz Country Director: John Briscoe Sectors: General agriculture, fishing and Sector Director: Laura Tuck forestry sector (70%); Power (1 0%); Water Sector Manager: Ethel Sennhauser supply (10%); Sub-national government administration (1 0%) Themes: Rural services and infrastructure (P);Participation and civic engagement (P);Rural non-farm income generation (P);Rural policies and institutions (S) Project ID: P110614 Environmental screening category: Partial Assessment Lending Instrument: Specific Investment Loan
[XI Loan [ 3 Credit [ ]Grant [ ]Guarantee [ 3 Other:
For Loans/Credits/Others: Total Bank financing (US$m.): 20.80 proposedProposed terms:L FSLFell
Borrower 2.77 1.06 3.83 International Bank for Reconstruction and 17.93 2.87 20.80 Development Local Communities 2.42 0.00 2.42 Total: 23.12 3.93 27.05
Borrower: State of Sergipe Sergipe Brazil
Responsible Agency: Secretariat of Planning / PRONESE Rua Vila Cristina, 105 1 4racaju Sergipe Brazil Tel: 55-79-3179 5091 Fax: 55 79 321 1 8878 sobral apronese. com.br
I
Annual 2.00 6.00 8.00 4.80 Cumulative 2.00 8-00 16.00 20.80
Expected closing date: December 30,201 1 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Ref: PAD I.C. Does the project require any exceptions from Bank policies? Re$ PAD IKG. [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [XINO Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [XIYes [ ]No Re$ PAD III.E. Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Re$ PAD IKG. Project development objective Re$ PAD II.C., Technical Annex 3 The project is an integral part ofthe Government of Sergipe’s rural development with inclusion strategy. The project will (i)improve the rural poor’s access to basic socioeconomic infrastructure, (ii)raise incomes and capital assets through investments in productive activities and increased linkages between small producers and markets, and (iii)strengthen the cross- sectoral integration of investments in rural areas through improved participatory planning and monitoring at the local, municipal and State levels.
Project description [one-sentence summary of each component] Re$ PAD II.D., Technical Annex 4 Component 1 - Community Subprojects: matching grants to community associations to finance implementation of about 1,000 subprojects for socioeconomic infrastructure and services, and productive, market-oriented investments.
Component 2 - Institutional Development: supporting technical assistance, training and capacity-building for Community Associations, project Municipal Councils and the State Technical Unit.
Component 3 - Project Administration, Supervision, Monitoring and Evaluation: financing the operational costs (excluding salaries) ofproject administration, supervision, monitoring, and impact evaluation.
Which safeguard policies are triggered, if any? Re$ PAD IKF., Technical Annex 10 Environmental Assessment (OP/BP/GP 4.0 1) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Cultural Property (OPN 11.03, being revised as OP 4.1 1) Indigenous Peoples (OD 4.20, being revised as OP 4.10)
Significant, non-standard conditions, if any, for: Ref: PAD III.F. Board presentation: None.
Loadcredit effectiveness: Adoption of an updated Operational Manual, satisfactory to the Bank is a condition of Loan Effectiveness.
Covenants applicable to project implementation: A Technical Cooperation Agreement to be executed on behalf of the Borrower, through its Secretariat of Planning, and PRONESE in form and substance satisfactory to the Bank.
I. STRATEGIC CONTEXT AND RATIONALE
A. Country and sector issues
1. Poverty and Inequality in Brazil. Since the early 1990s, Brazil has experienced sustained reductions in poverty and inequality, driven largely by a combination of sound macroeconomic policies and several bold and innovative, pro-poor investment initiatives. On the macro-economic management front, the poor have benefited directly from lower inflation levels and indirectly from economic growth, trade liberalization and associated job creation. Targeted pro-poor initiatives have included the national Bolsa Familia cash transfer program, social security transfers, significant investments in education at all levels, and large-scale rural community-driven development programs throughout the Northeast region. The share of Brazilians living in poverty has decreased from 36% at the start of the 1990s, to around 28- 30% at the present time, and improvements in consumption and income indicators have been accompanied by important advances across a range of non-income measures of well-being (access to health, education, clean water, sanitation, electrification). With regard to inequality, Brazil’s Gini coefficient has decreased from just under 0.62 to about 0.58, and the incidence of extreme poverty has dropped about twice as fast as overall poverty.
2. The Northeast Region. These advances notwithstanding, Brazil still faces major challenges in tackling poverty, vulnerability and social exclusion issues, and this is nowhere more striking than in the Northeast region generally and its rural areas in particular. Throughout Brazil, poverty remains more deeply entrenched in rural areas (53%) than in large metropolitan cities (20%) and smaller urban centers (26%). In terms of broad geographic distribution, some 52% of all Brazil’s poor reside in the Northeast region and the majority of these are inhabitants of rural areas, villages and small towns, where economic activity revolves largely around agriculture and associated services. Growth in the Northeast has equaled or surpassed national rates over the past decade; but the starting point with respect to incomes and well- being was considerably lower than the national average and thus sustained investment and reform efforts are needed to close the gap.
3. The World Bank has maintained a long-term partnership with the Brazilian Federal government and State governments to address development issues in the Northeast. In particular, a series of Bank- financed rural, community-driven development (CDD) projects under the Northeast Rural Poverty Reduction Program (RPRP) have benefited some 11 million people in the region and are collectively responsible for much of the improvement which has taken place in access to rural basic services in the Northeast over the past 15 years. They have also helped to strengthen citizen participation and improve transparency and accountability for use of public resources intended to benefit the rural poor, are helping to harmonize policies, targeting and delivery arrangements for a growing range of other Federal and State programs, and over the past five years have been increasing efforts to link small farmers to regional, national and international markets.] Going forward, the RPRP will be a critical instrument for meeting the Northeast states’ rural poverty reduction objectives.
4. State of Sergipe: With a total population of 1.93 million and geographic area of only 22,000 sq. km, Sergipe is Brazil’s smallest state. Sergipe ranks 23‘d among all states in Brazil in terms of its Human Development Index and 54% of the total population is still considered poor. Rural poverty is particularly
1 The RPRP (known in Brazil as the Programa de Combate a Pobreza Rural, PCPR,) disbursed US$952 million in Bank loans between 1993 and 2005. Presently, the program is composed of seven State projects (MaranhBo, Piaui, Cearfi, Rio Grande do Norte, Pernambuco, Bahia and Minas Gerais) with current commitments amounting to US$231.85 million (US$] 14.41 million disbursed) and another three projects under preparation with expected approval over the next 3 to 6 months, including this project in Sergipe, Paraiba and an Additional Financing for Bahia, totaling US$71.7 million.
11 severe, with 50% of rural households depending on monthly incomes of less than one minimum salary, and 61% on less than two minimum salariese2Major strides have been made in recent years in improving the coverage of basic services. The proportion of rural households without electricity was reduced from 23% in 2003 to 12% in 2006. A similar improvement was registered in access to sanitation with families lacking services declining from 22% to 13% in the same period. About one-third of the reduction in each sector was the direct result of the first phase of the Rural Poverty Reduction Project (RPRP-1). Nevertheless, considerable challenges remain to reduce rural poverty in Sergipe with, inter alia, some 46% of rural households still lacking piped water. More importantly, the focus of public interventions has now shifted to the major challenge of increasing employment and raising incomes.
5. The new State Government of Sergipe (in office since January 2007) has prepared a comprehensive Strategic Plan for 2007-2010, which led to its Multi-annual Development Plan (PPA) for 2008-20 1 1 (“Development with Inclusion through Rights and through Incomes”), approved by the Federal Treasury in December 2007. The plan has eight strategic pillars: (a) access to health; (b) access to education; (c) security; (d) social inclusion (with emphasis on the most vulnerable and minorities); (e) modernization, democratization and transparency in public administration; (f) repair and expansion of the state’s road network; (g) environmental protection of water resources; and (h) sustainable and participatory territorial planning. The proposed Sergipe State Integrated Project: Rural Poverty is the second phase of the Rural Poverty Reduction Project which closed on June 30, 2006. The proposed project is considered a strategic priority by the state as it directly supports six of the eight pillars (only security and roads are not addressed by RPRP-2). In particular, the project will be a major instrument to support local participatory planning, increase employment and incomes (through productive subprojects) and integrate cross-sector policies. The 2008 budget, approved by the State Legislative Assembly on December 19, 2007, allocates R$52.7 million (about US$30 million) for investments by PRONESE (the state enterprise/technical unit responsible for implementation of RPRP-2)’ a significant portion of which is destined for this project.
B. Rationale for Bank involvement
6. The World Bank is well-placed to support the RPRP-2 project. First, the Bank has maintained a continuous, long-term partnership over many years with the Federal Government and Northeast state governments to address rural poverty under the NRDP, RPAP and RPRP programs, and these programs/projects (including RPRP- 1 in Sergipe) have achieved impressive results on the ground and therefore, strong Borrower owner~hip.~This process has given the Bank credibility among Northeast community associations, municipal councils, and state and federal agencies which recognize the catalytic effects of the RPRP and are increasingly using its institutional arrangements for decision-making and delivery of other public programs directed to the rural poor. This partnership has been enriched by a series of Bank-supported sector investment projects in the Northeast (education, health, land reform, micro-finance, larger-scale water and other infrastructure investments), and the Bank has invested heavily in analytical and advisory work directly relevant to rural poverty issues in the Northeast regi~n.~Second, through its rural development work elsewhere in Latin America and other continents, the Bank has accumulated considerable cross-country knowledge which it has been able to transfer to Brazil. This is very much a two-way exchange, in which the Bank has also helped to export knowledge developed in
* One minimum salary is R$415/month or about US$236 at current rate of exchange. The proposed project is known in Brazil as Projeto de Combate a Pobreza Rural no Estado de Sergipe “PCPR II- 2a Fuse”, translated as Rural Poverty Reduction Project-Phase 2, referred to in this document as RPRP-2. NRDP (Northeast Rural Development Program - 1985- 1993); R-NRDP (Reformulated Northeast Rural Development program, 1993-1995); RPAP (Rural Poverty Alleviation program, 1995-2000); Rural Poverty Reduction Program, 2000-present). Bolsa Familia; Programa Nacional de DST e AIDS 111; Projeto de Vigilincia e Controle de Doenqas (VIGISUS 11); Programa de Saude de Familia; PROAGUA semi-arido; Programa de ModernizaqBo do Setor de Saneamento 11; Projeto de Transporte Rodovihrio; and, Programa de Apoio 51 Reforma Previdencifuia dos Municipios - PREVMunicipios.
12 Brazil to other parts of the world, inter alia on community-driven development, land reform, natural resource management and the “how to” of linking small farmers with larger markets.
7. The 2004 Brazil Country Assistance Evaluation by IEG (then OED) gave this program/portfolio a positive overall assessment for its role in expanding the provision of basic infrastructure to the rural poor of the Northeast, and for its use of project-financedMunicipal Councils to strengthen social capital, thus paving the way for a wider range of poverty reduction activities.
8. The RPRP-2 would be the second of a planned two-phase program of support to Sergipe approved by the Federal ComissGo de Financiamentos Externos (COFIEX) on October 26, 2000. In its approval, COFIEX divided the operation into two loans of US$20.8 million each and established three conditions that would trigger preparation of the second phase: (i)satisfactory implementation of the first phase; (ii)disbursement of 50% of first-phase loan proceeds; and (iii) commitment of an additional 25% of first-phase loan proceeds. Bank supervision missions and the Implementation Completion Report (ICR) of January 3 1, 2007 (Report No. ICR233) of the RPRP-lconfirmed that these conditions were met or exceeded and the ICR rated the project Satisfactory overallO6’
C. Higher level objectives to which the project contributes
9. The Brazil Country Partnership Strategy (CPS) for the FY08-11 period describes how the Bank’s engagement will focus on addressing higher value-added “paradigmatic challenges.” In describing one of these challenges, the CPS explicitly highlights how in the past few years the RPRP program in the Northeast region built social capital and enabled poor communities to gain access to basic services such as water and electricity. The challenge now is how to respond to the overwhelming demand from the communities (and the state governors) for economic inclusion. The focus of Bank engagement in the Northeast in this next CPS period is thus on strengthening community-level productive activities and their integration into national and international markets. The proposed RPRP-2 for Sergipe is consistent with and an integral part of this strategy. In addition and at the same time, the RPRP-2 will continue to finance basic socioeconomic infrastructure for poor rural communities including special and traditional groups Which have not yet benefited, thereby contributing to the State Government’s rural poverty reduction goals as reflected in its PPA 2008-201 1 “development with inclusion” strategy. See Annex 1,
11. PROJECT DESCRIPTION
A. Lending instrument
10. Total project cost is estimated at US$27.0 million. A Specific Investment Loan (SIL) of US$20.8 million is recommended.
B. Program Objective and Phases Not applicable.
6 IEG’s Review (May 10, 2007) of the ICR for the Sergipe RPRP Iconfirmed the overall project outcome rating of Satisfactory. 7 The RPRP-2 was already prepared and ready to negotiate in mid-2005. The Bank issued an invitation to the State of Sergipe to negotiate on July 11, 2005. However, the State was unable to negotiate the project due to unsettled accounts by the other branches of Government. On October 4, 2007, the Bank suspended the invitation to negotiate until the State resolved its pending issues with the Federal Government. On Nov. 26, 2007 the Bank learned from the Federal Government that the State of Sergipe was now able to contract new borrowing. Therefore, in January and February, 2008, the task team re-appraised the project, revising this PAD to account for the changes in Sergipe since mid-2005, particularly with regard to the new State Government’s Strategic Plan 2007-20 10, and the new Bank loan conditions (e.g., procurement guidelines, updated loan conditions, etc.).
13 C. Project development objective and key indicators
1 1. The project is an integral part of the Government of Sergipe’s rural development with inclusion strategy. The project will (i)improve the rural poor’s access to basic socioeconomic infrastructure, (ii) raise incomes and capital assets through investments in productive activities and increased linkages between small producers and markets, and (iii)strengthen the cross-sectoral integration of investments in rural areas through improved participatory planning and monitoring at the local, municipal and State levels.
12. Key Project Outcome Indicators:
70% of project financing for socioeconomic infrastructure subprojects goes to the 41 poorest rural communities (Area 1) Household incomes of project beneficiaries increase by 3 0%, including special populations’ Value of household assets of project beneficiaries increases by 20% 70% of associations with productive investment subprojects have contracts with commercial buyers 30% improvement in a social capital index by the end of the project, as reported by project beneficiaries At least 35% of all productive investment subprojects are led by women Project leverages at least $5 in additional resources from other programs for every $1 in project investment funds.
D. Project components
13. Comuonent 1: Communitv Suburoiects (about 90% of total project cost) will support, through matching grants to CA, the implementation of about 1,000 subprojects for small-scale socioeconomic infrastructure (e.g., investments in water supply, electricity, sanitation, housing improvement, environmental and cultural activities, school improvement and health posts, and information technology training); and productive and market-oriented investments with technical assistance (agro-processing, small-scale livestock, fish farming, honey production, small-scale non-agricultural endeavors). These investments are intended to improve the livelihoods and wellbeing of an estimated 100,000 people in about 670 communities. As under RPRP-I, the communities themselves, through their associations and participatory Municipal Councils (known in Sergipe as Municipal Development Councils or CONDEM), will identify, prioritize and execute investments, guided by an information campaign to build understanding of project objectives and rules and to increase community understanding of the HDI-M and its components, and by an Operational Manual. Some 70% of subproject investment resources will be focused on the 41 poorest municipalities, Le., Area I,with Municipal Human Development Index (HDI- M) of <0.623.’ The remaining 30 municipalities - Area I1 - will receive an estimated 30% of funds for subproject investments. For detailed information on productive subprojects and a strategy for linking small producers to markets, see Annex 5,
8 Women, quilombola and/or indigenous groups 9 The 71 participating municipalities will be divided into two areas: (a) Area A will cover the poorest 41 municipalities with HDI-M ranging from 0.545 to 0.622; and (b) Area B will cover the remaining 30 municipalities with HDI-M ranging from 0.623 to 0.684.
14 14. Component 2: Institutional Development (about 5% of total project cost), executed by the Sustainable Development Company of the State of Sergipe (PRONESE), would include: (a) technical assistance and training to support mobilization and strengthening of CA to identify, prepare, operate and maintain subproject investments; (b) capacity-building for MC to manage responsibilities defined in the Project Operational Manual, including assessment and supervision of CA, participatory planning, financial management of community subprojects, and environmental management of small community subprojects; and (c) workshops and seminars for MC and CA to exchange experiences with project implementation and to explain and facilitate integration of/with other federal and state poverty reduction programs.
15. Component 3: Horizontal Integration (about 3% of total project cost) to provide technical assistance, consultancies, software acquisition, and systems installation to the State Secretariat of Planning (SEPLAN) to strengthen its results-based management capacity to improve planning, integration, monitoring and evaluation of public policies and investments for poverty reduction; to improve the alignment of public expenditures with the State’s development priorities, as outlined in the State PPA (2008-201 1); and to support modernizationof state public administration.
16. Component 4: Proiect Administration, Supervision, Monitorinp and Evaluation (about 2% of total project cost) will finance the operational costs of project administratiodcoordination, supervision, monitoring, and impact evaluation. See cost by component in table below and further details, Annex 6.
2. Institutional Development I 1.4 I 5.0 I 1.4 I 100.0 I I I I I 3. Horizontal Integration 0.9 3.0 0.9 100.0
4. Administration, Supervision, 0.6 2.0 0.4 67.0 Monitoring and Evaluation Total Project Cost: 27.1 100.0 20.8 77.0
The Strategy for Productive Subprojects
17. Under the previous Project, a higher percentage of communities opted for infrastructure and social sub-projects. In many cases, investment in basic infrastructure is a prerequisite for undertaking income-generating sub-projects. Although community demands for infrastructure and social sub-projects will continue, especially in the municipalities with the lowest HDI, there is a growing demand for investment in productive sub-projects and this is likely to intensify under RPRP-11”.
loSome states already have significant experience with productive subprojects, e.g., Rio Grande do Norte, where already 39% of all subprojects are productive. Pernambuco, Paraiba and Piaui also have considerable experience, while others are just starting. Some of the most interesting experiences include cashew production and papaya exports in Rio Grande do Norte, honey production in Piaui, quality textile handicrafts (rendas) in Paraiba and organic produce for supermarket chains in Pemambuco.
15 Lessons: Positive and negative lessons from these experiences include the following:
There is significant scope to market small, family farm-produced agricultural and non-agricultural products, provided the supply is organized. With proper support, rural communities in Northeast Brazil can meet the quality, organizational and delivery requirements of sophisticated global markets. The Northeast Rural Poverty Reduction projects can play a pivotal role in organizing and aggregating associations of suppliers, facilitating access to technical assistance, and financing the investments needed to meet market demands and standards. Productive subprojects are inherently more complex, more costly to prepare and evaluate, more risky to implement, and require considerably more (and often highly specialized) technical and commercial assistance than traditional infrastructure subprojects. Productive subprojects usually involve a smaller number of beneficiaries (thereby increasing the per-beneficiary cost), often a subset of a CA. Failure of productive subprojects is often the result of lack of rigor in prior analyses of the technical, economic, and financial viability of the proposed investments. But, many types of productive endeavors are low risk due to their simple nature and forms of operation (e.g., manioc flour mills, small grain-processing, agricultural mechanization, honey and cashew production). One key success feature seems to be the fairly simple management skills required for collective processing or marketing activities that can be accomplished using a fee- for-service modality. Mixed projects (production activities done by individual families, marketing done collectively) tend to work better than purely collective subprojects. Initially, the CDD projects should provide seed money (through matching grants) to poor families that show potential for taking on productive endeavors and, established contacts with purchasers should show commercial viability of the proposed investments. Once the first ventures succeed in a given area, families and CA can continue on their own and gain access to micro-credit and other mainstream financial services. Grouping of associations can be extremely important to reach the scale necessary to ensure quantity and quality of output and level the playing field in negotiations with purchasers in larger markets ,
Strategy for linking small-scale producers to markets: The strategy has four key steps:
(a) Meeting the market (e.g. contacting national and international representatives of potential buyers) to better understand their product demands/requirements. Demand for products originating in the small farm sector of developing countries has been growing at a rate of 25% pea.in the European Union over the last 10 years. At the same time, there has been a growing tendency in Brazil for exporting firms and supermarket chains to be interested in the products of family agriculture, including organic products and those with favorable impact on the environment. The most important niche is known as 'Fair Trade', formed by an international network of stores specialized in selling the products of small farmers in low-income countries or poorer regions in middle income countries (like Northeast Brazil)."
Step 1 of the Project strategy is to invite representatives of these organizations to visit the projects, explore the kinds of products in which they have an interest, define the volumes they would potentially be willing to acquire, and determine the type of investments needed in terms of
I' The European participants in this network alone include around 2,700 stores in 18 countries, with annual sales of about US$900 million. Representatives of the network also exist in Australia, Canada, the United States and Japan, among others.
16 production, processing and packaging, to reach the level of quality required by the market. This is already happening in some Northeast states.
(b) Facilitating contacts between potential buyers and producer groups / Community Associations (CA) with existing or potential capacity to comply with market requirements. An important advantage (identified by both national and international buyers) of the Northeast Rural Poverty Reduction Program in Brazil, vis-a-vis programs in other countries, is its scale. The PCPR is working with about 3 8,000 organized communities, creating a large potential pool of suppliers from CA producing particular products which can ensure quantity, quality and continuity of supply, advantages which buyers consider difficult to match.
Step 2 of the Project strategy would therefore use the project Management Information System (MIS) to pre-identify communitieshegions engaged in productive activities in which buyers have expressed a general interest and to facilitate contacts between buyers and producer groups. This includes engaging both individual associations at the grass roots level and, where appropriate, forging strategic alliances and integrating groups of associations in the same region producing the same products to achieve larger scale and production regularity.
(c) Engaging technical support from the private sector; strengthening partnerships with public technical assistance organizations such as SEBRAE, as well as with national and international NGOs.
0 Step 3 of the Project strategy addresses three sets of capacity building needs of CAS in the process of linking to markets or with such linkages already established: (a) Technical: in consultation with the buyers, professionals have been identified who could provide technical support to communities on market requirements in quality and design. This process has been case by case to date, but going forward, a more systematic inventory of professionals will be developed; (b) Small business management: the Northeast program has partnered with SEBRAE, an arrangement that is being expanded; and (c) Program partnerships: national and international NGOs (e.g., World Vision, National Confederation of Agricultural Workers (CONTAG) through its links with international NGOs) are also helping communities understand and navigate Brazilian export procedures, and import procedures in Europe and elsewhere. Communities just starting the process of trading internationally find such support critical; some communities with more experience are now retaining professionals who do this type of work for commercial exporting companies.
(d) Developing stronger partnerships links with micro-financing entities, such as Banco do Brasil and Banco do Nordeste. Both these national banks have local branches throughout the Northeast. Their representatives participate in regular meetings of the project participatory MCs, identifying CAS already financed by the RPRP for an initial productive sub-project, with an established track record of operating as a group, and with potential for economically viable expansion. While RPRP-benefited producers were not on the radar screens of these banks as individuals, they now become visible and attractive to the credit institutions as organized groups. PRONAF is also using the participatory MCs to allocate credit to family agriculture.
0 Step 4 of the Project strategy involves building on these relationships and seeking opportunities for scaling up and developing new partnerships.'*
''For example, a more sophisticated approach is now being developed with the Vice Presidency for Social Responsibility of the Banco do Brasil through its strategy of Desenvolvimento Regional Sustentavel (DE, Sustainable Regional Development) and
17 20. Rules of the game: Finally, the Project strategy requires the adoption of key ‘rules of the game’ for screening and approval of productive sub-projects. Some features being used in the PCPR program for linking small producers to markets, including the basic rules for screeninglapproval of productive sub- projects, have also been tested successfully in other countries, e.g., projects in Colombia, Bolivia, India and Sri Lanka13. The Project Operational Manual contains screening and approval procedures for productive sub-projects, calibrated to meet the needs of the two different categories of producers: (a) CAS producing for their own consumption and/or local markets follow screening and approval rules similar to other types of subprojects, with the inclusion of IRR calculations; and (b) CAShaving their first experience with more sophisticated national and international markets must meet criteria for their proposals including a business plan and evidence of buyer commitment, robust organizational arrangements, compliance with financial, economic, environmental and managerial feasibility standardshules, and prioritization through the participatory MCs.14 Communities in (b) which have already proven themselves and are scaling up market linkages, follow the same ste s but need to also meet the criteria of micro-financiers with whom the project helps them establish links.ps
2 1. Integration of RPRP-2 and Other Programs. RPRP- 1 developed activities integrated with other government programs including Cre‘dito Fundiurio (Federally-financed, Bank-supported and community- based land reform program, Loan 703 7-BR), the Citriculture Revitalization Program (State-financed orange-grove rehabilitation), Luz para Todos (EletrobraslMinistry of Mines and Energy, universal access to electricity) and the Projeto de Inclusilo Digital (State Secretariat of Education, information technology training for youth). Integration activities involved about one-third of all existing Municipal Councils in decisions affecting an aggregate US$45.0 million of additional resources complementing the Bank’s contribution of US$10.5 million, a ratio of 1:4.
22. The State Government and PRONESE sought opportunities to mesh RPRP-1 with state sector policies and decision-making, Subproject proposals needed to be consistent with the PPA 2004-2007. Training for the MCs shifted towards greater emphasis on building their understanding of the types of investments consistent with this approach; such training will receive greater attention under RPRP-2. Continuing to focus on the rural space, the RPRP-2 would intensify integration activities initiated under RPRP-1, linking the project closely to other Bank-supported operations in Sergipe (e.g., Credito Fundiario and Pro-Agua Semi-Arido) and with State- and Federally-funded programs with similar goals, among them Luz Para Todos (universal access to electricity) and the National Program to Strengthen Family Agriculture (PRONAF). These programs combined are expected to generate parallel funding of at least US$5 for each US$1 of Bank loan resources, for project beneficiaries. Table 1 summarizes how Bank assistance and selected state and federal programs would contribute to meeting the objectives of Sergipe’s PPA 2008-20 1 1.
also the FundupTo Bunco do Brad, to review and finance jointly, proposals for matching grantkredit for groups of CASlinked to the markets.
l3In Colombia the Government is providing incentives for the creation of Productive Partnerships between associations of small and medium size producers with the commercial private sector. In Bolivia, a project with similar characteristics and rules is also being implemented, creating rural alliances between associations of small producers and the private sector. In India and Sri Lanka, federations (or groups of associations, as in Brazil) are being created and used to establish a critical mass of small producers to ensure enough quantity and continuity of supply and to increase their negotiating leverage. These federations have been successful in accessing the micro-finance markets, which poor producers as individuals were unable to do. 14 For these sub-projects, the Project will provide matching grants for the initial investment, technical assistance and training. Is For these sub-projects, most of the activities are financed by the banks, but some activities like technical assistance, training and complementary infrastructure may be supported by the Project.
18 Table 2: Selected Strategic Themes, Costs and Benefits / Estimated Beneficiaries
Universal Access to Basic Sanitation ProAgua Semi- 40.5 1.2 41.7 3.0 5,700 families Services* Arido (Works)
Socially-Targeted 123.7 7.1 130.8 5.4 18,640families Housing ** I 1 1 1 1 Vida Nova
I I I I I I
Irrigated 84.3 4.4 88.7 5.0 1,700 families Agriculture* Projet' 1 I I 1 1 * * Dionizio
Family Credit0 11.9 0.0 11.9 0.0 2,400 families Agriculture** * Fundiilrio
Family PRONAF 8.8 0.7 9.4 7.4 3,000 families Agriculture* * *
Universal Access to 400 families / and Usage of Luz para 8.9 0.2 9.1 2.6 residential Electric Energy* * * Todos connections
- * Strategic Directive 1: Universal Access to Health ** Strategic Directive 4: Social Protection and Inclusion, with Emphasis on Most Vulnerable Populations and Minorities ** * Strategic Directive 8: Sustainable, Participatory Territorial Development
23. The RPRP-2 will integrate with other programs and projects already underway with resources provided/guaranteed by the Federal and State Governments, Types of actions selected reflect key themes ofthe State's PPA (2008-201 1) with the emphasis on universal access to health, the social protection and inclusion of vulnerable populations (female-headed households) and minorities (quilombolu and indigenous communities), and sustainable, participatory territorial development. Integration activities will be decided and made operational via the same participatory mechanisms as RPRP-2 that is, through community demand, prioritized and approved by the Municipal Councils (CONDEM). The programs/projects selected for integration are summarized below with details in Annex 4:
0 Universal Access to Basic Sanitation Services: Under the responsibility of the Superintendence for Water Resources (SWSEMARH) and the Sergipe Sanitation Company (DESO), development of the Pro-Agua Semi-Arido Program (Agreement 3 14/2004/SRH/MI - Improvement, Expansion and
19 Automation of the Integrated Water Conveyance Systems of the Alto Sertilo and Sertaneja) will extend their water supply coverage to the entire region surrounding the aqueducts by mid-2009. Preliminary estimates of rural water investments total US41.7 million of which 4% or US$1.23 million would be financed by the RPRP-2 with household connection systems in small rural communities. An estimated 5,700 families would benefit.
0 New House, New Life (Casu Nova, Vida Nova): This program seeks to promote social objectives through the supply of socially-motivated housing improvement as a way of stabilizing family units. The program is coordinated by SEPLAN and executed in partnership with Caixa Econamica Federal (CEF), the State Secretariat for Inclusion, Assistance and Social Development (SEIDES), the Sergipe State Company for Housing and Public Works (CEHOPBE) and PRONESE. This collaboration is expected to benefit a little over 18,000 families.
Program for the Sustainable Development of the Semi-Arid Region of Sergipe (Projeto Nova Califbrnia - Manoel Dionizio): This proposed IDB-financed program of about US$88.0 million will be executed in five municipalities adjacent to the California Irrigation Perimeter. RPRP-2 activities will be complementary, since these municipalities belong to its area of action mainly through the implementation of productive subprojects. The RPRP-2 will contribute about 5% of estimated total cost. Spontaneous demand could also emerge for infrastructure and social subprojects, within the conditions of the RPRP-2, through linkages of community associations in land settlement areas or colonies in process of formation, with the Municipal Council (CONDEM) of that municipality.
National CrCdito Fundiario (CF) Program: This program (Federally-financed and Bank- supported) is consistent with and implements the state’s agrarian policy which seeks the democratization and best use of state land. The program is coordinated by the Federal Ministry of Agrarian Development (MDA), and is executed in Sergipe by PRONESE. Notably, once a settlement is created by the CF, a new rural community is established and as such, is eligible to seek benefits from the RPRP, not only for subprojects but also for training, environmental education, marketing and other services.
National Program to Strengthen Family Agriculture (PRONAF): The Federally-funded PRONAF finances poor and small-scale farm producers under various differentiated lines of credit to strengthen their engagement in agribusiness activities to add value to and increase their production, generate employment and income, upgrade professional farm skills and increase property values through the modernization of productive systems. PRONAF activities in recent years in Sergipe have concentrated on grant financing for poorerhmaller groups A and B, generating some R$3-4 million per year. Integration of PRONAF with RPRP-2 is likely to occur through the productive subprojects under the Local Productive Arrangements (LPA) where primary production is family-based and other activities in the production chain such as processing are handled collectively.
Light for All (Luzpara Todos): This program seeks universal access to electricity, is coordinated by the Federal Ministry of Mines and Energy and executed with support from the Sergipe State Government through its state-level energy companies: Sergipe Energy Company (Energipe) and the Southern Sergipe Electricity Company (Sulgipe). The program is contemplated within the PPA (2008-2011) at around US$8.9 million for a program which involves - besides this amount - additional, non-budget resources of over US$77.6 million. The RPRP-2 contribution will be in the installation of small, low tension lines and potential demands for household connections which will emerge once high tension systems are installed.
20 E. Lessons learned and reflected in project design
24. RPRP-1 (now closed) was approved by the Bank’s Board of Directors on January 29, 2002. It financed some 1,03 0 small-scale community investments in socioeconomic infrastructure, productive facilities and social subprojects benefiting about 137,000 people organized in 660 CAS across 70 municipalities. Project MCs are now active in all 71 project-eligible municipalities, with a key role in setting investment priorities, targeting beneficiaries and social auditing associated with the targeting, allocation and use of project resources. They are also increasingly capable of providing a forum for decisions about the allocation ofresources from and priority ofother state and federal poverty programs.
25. Surveys across the Northeast participating states indicate strong community support for this method of service delivery. In Sergipe, as a result of RPRP-1, some 25,000 poor rural people enjoy the multiple benefits of 266 investments in rural electrification. The positive welfare impact and cost- effectiveness of rural electrification investments for rural communities are described in a recent study by IEG.I6Another 6,600 poor rural residents have better access to safe, regular water through 37 investments in water supply systems. Around 35,000 people are increasing or have enhanced potential to increase family income via investments in productive facilities/activities (tractors/equipment, orange grove renovation, sheep-raising, community sewing facilities and irrigated agriculture) or have acquired the basic infrastructure (water and electricity) to launch such activities in the future. Some 19,000 people accessed social investments including better housing (casus populares) and sanitation.
26. Positive results were obtained in Sergipe by Hydros (2004) and field surveys for the Borrower Completion Report (2006). These studies found:
0 high levels of beneficiary satisfaction with their investments and benefits tended to remain in the communities. Some 89% of subprojects were judged to be fully achieving their objectives, rising to 100% for certain types, e.g., housing improvements, tractors/equipment, electricity, domestic sanitation and water cisterns; 0 sustainability highly probable in 100% ofall investments in tractors/equipment, electricity, irrigation subprojects with hydrometer, multi-use community centers, small-scale clothes-making endeavors and information technology ventures, with high rates for other types of investments. In 92% of cases surveyed beneficiaries had assumed responsibility for operation and maintenance (O&M) through user fees and/or dedicated funds;‘7 and, e strong evidence of social capital formation in communities’ capacity to leverage their experiences and knowledge to access other programs and opportunities including alternative financial resources/credit. See further details in Annex 1,
27. From the implementation of RPRP-1 and the Northeast CDD program more generally, the following lessons are relevant to the proposed RPRP-2:
l6 The Welfare Impact of Rural Electrification: A Reassessment of the Costs and Benefits, IEG, 2008. The study found inter diu, that willingness to pay for electricity is high - even among very poor beneficiaries - exceeding the long-run marginal cost of supply; and, that project benefits are greater under grid-extension systems (as utilized under the Northeast CDD projects) for reaching the poor and those least able to connect. 17 In remaining cases, such as electricity installations and bridges, with safety and engineering issues, energy concession firms and local authorities had assumed responsibility for O&M.
21 Self-selection of beneficiaries into the RPRP results in effective targeting: the ex-ante socio- economic profile of project beneficiaries region-wide indicates that 40% overall are illiterate, 50% have insecure access to basic food and a majority has income below the poverty line. Overall, about three fourths of project beneficiaries have initial incomes equivalent to less than US$1 per day. In Sergipe, RPRP-1 financed just 38% ofthe total registered demand for subprojects, indicative of continuing high levels of deprivation in poor rural areas and potential demand for investments under the proposed RPRP-2.
CDD mechanisms can improve the quality and targeting of non-project resources while leveraging additional and/or complementary funding and intensyying poverty reduction efforts: Early indications are region-wide that channelinglintegrating federal and state programs through the participatory, representative MCs can intensify and accelerate poverty reduction efforts. The RPRP-1 expanded the role and responsibilities ofabout one-third ofall MCs to include debate, decision-making and resource allocation for other federal and state programs resulting in the “leveraging” of an aggregate US$45 .O million of additional resources for about US$10.5 million of project resources, a ratio of 1:4. As implied, not all MCs were equally capable of executing this broader role. Sergipe therefore wishes to scale up the use ofproject MCs to achieve local-level integration of poverty programs to eradicate illiteracy, reach 100% of households with electricity and clean water, and expand opportunities for income-generation. MCs and associations will continue to be trained to manage this process.
CDD motivates and builds social capital Demand-driven project design improves local governance, promotes accountability and empowers traditionally poor and vulnerable rural people using participatory methods for decision-making, execution and O&M. Under RPRP- 1, 7 1% of communities surveyed attributed their subproject to collective action, while 85% felt that their direct involvement assisted subproject construction, monitored/controlled the use of funds and purchase ofmaterials, built understanding about resource use and facilitated their fight for additional investments in their community.’* RPRP-2 will expand and consolidate positive experiences under its predecessor to provide diverse opportunities for local people to convert collective action into concrete gains, working through their CAS and MCs. See Annex 1.
CDD can be an effective mechanism for productive investments which link small-scale producers to markets: As noted in para. 18 above, experiences in the production of honey, dairy products, fruits, specialized crafts, cashew and other products demonstrate that organized clusters of small-scale producers with common productive interests/goals as well as appropriate and continuous technical and commercial support, can successfully serve more sophisticated markets. Many such communities/clusters are already exporting to the EU and selling products to national and international supermarket chains. Issues inherent to the gestation, desigdpreparation, technical/financial analysis and operational phases of small- scale productive investments demonstrate that such subprojects may require specialized support over extended periods (more details in Annex 5).
’’ FECAMP (2003) showed that the change in structural social capital occurs more intensively in communities which have implemented subprojects. The attainment of immediate, concrete benefits is indispensable to maintaining the organizational goals of the community association beyond subproject completion. Similarly, Costa and Rizvi (2003) found that when compared with community associations without subprojects, associations benefited by RPRP are more capable of (i) responding to communal demands; (ii) resolving internal conflicts; (iii) effectively advocating for their members; (iv) mobilizing financial and human resources; and (v) solving local problems for the community.
22 (e) CDD can effectively target and empower poor rural women and is an appropriate methodology for indigenous peoples and ethnic groups: Experience in Sergipe under the RPRP Ishows that demand-driven institutional mechanisms not only enable women to access the benefits of community investments, but also provide leadership/learningopportunities for women through their associations and Municipal Councils. In Sergipe and region-wide, women have demonstrated entrepreneurial potential and managerial capacity in a range of productive endeavors financed by the RPRP. Further, participatory mechanisms are consistent with the inclusion of traditional communities (indigenous and African slave- descendent groups) who have demonstrated their capacity to present proposals, get support within the MCs for their approval, successfully administer resources received from the project and execute their subprojects. Under RPRP- 1, traditional communities received 46 subprojects totaling some US$1.3 million and benefiting 5,160 families. Their effective management of the subproject cycle and active role in the MCs signal their expanded involvement under the proposed RPRP-2.
F. Alternatives considered and reasons for rejection
28. More centralized, traditional, integrated development model: Experience with integrated rural development projects in Northeast Brazil during the 1970s and 1980s demonstrated conclusively that centralized approaches to the planning and implementation of infrastructure and service delivery through public institutions are not effective in dispersed rural areas. This is due, inter alia, to high overhead costs, coordination difficulties, investments unresponsive to genuine community needs, and poor sustainability of investments. The proposed operation will build on a CDD model already established and successful across the Northeast states including the State of Sergipe, recognized by State Governments for its effectiveness in delivering rural infrastructure cost-effectively, allocating resources transparently, and building rural social capital. Rather than top-down integration, the program/project promotes local-level integration, with project MCs working with municipal governments to more effectively link rural policies and programs to reduce rural poverty and improve quality of life, and contributing to improving state and municipal HDI.
111. IMPLEMENTATION
A. Partnership arrangements (if applicable)
29. The proposed project does not envisage partnership arrangements with other international financing agencies. However, it is designed to bring about stronger partnership between the project and a series of federal and state programs and projects with coverage/operations in Sergipe, both to leverage complementary technical and other expertise to support project implementation, and to facilitate planned integration activities resulting in additional resources for project communities and more intensive poverty impact. See Annex 4.
B. Institutional and implementation arrangements
Implementation period: 4 years.
Executing Entities:
30. Community Associations (CAS) are groups of poor rural people with common interests who organize into legally-constituted associations. They identify, prepare, implement, supervise, operate and maintain their subprojects, assisted both by technical specialists whom they contract directly and by
23 technical assistance and training made available by MC and the project STU throughout the project cycle. Once subprojects are approved for financing, CA can access a percentage share of subproject cost (up to 8% depending on type of investment) for technical assistance required during the design and implementation stages.
3 1. Municipal Councils (MCs) include representatives of beneficiaries and civil society with majority representation and voting power, and of local government. This is an important distinction vis-a- vis “municipal councils” in many development programs elsewhere: municipal governments participate in, but do not exercise majority control over, the MCs. The key organization for targeting benefits and allocating project resources, MCs also provide a bridge between poor rural communities and local government and have the potential to engage in other, non-project activities. The MCs’ role is fundamental in mobilizing communities and promoting their participation in local decision-making. They receive, prioritize and approve subproject proposals from the CASduring regularly-scheduled and widely- publioized meetings, submit investment plans to the STU and assist/monitor subproject implementation. Municipal Councils are increasingly discussing issues of broader interest to rural people, promoting the integration of the Bank-supportedproject with other state and federal programs.
32. The Sustainable Development Company of the State of Sergipe (PRONESE), a public enterprise with considerable autonomy and its own permanent staff, is linked to the Secretariat of Planning (SEPLAN). PRONESE performed the functions of a State Technical Unit (STU) under the previous project and will continue this role under RPRP-2, maintaining responsibility for overall project co~rdination.’~PRONESE also intends to increasingly delegate supervision of the CAS to MCs and concentrate on oversight of the MCs themselves, as well as general project coordination and promotion. The latter duties include: continuous project information campaigns; project reporting; project monitoring and impact evaluation; subproject technical and environmental analysis and Safeguards compliance; financial and procurement management; final subproject approval/financing; MIS managementhpdating; and the design and provision of tailored training modules for MCs and CASon key issues.
Subproject Cycle:
State-wide information campaigns through diverse media increase public awareness of project goals and rules. CAS determine their local investment priorities and choices and prepare subproject proposals for financing. Community subproject proposals are submitted to their MCs, discussed, ranked by priority and approved, based on each MC’s annual indicative budget allocation (and whether Area A or B). PRONESE technically evaluates an approved subproject and confirms/othenvise, its compliance with Bank Safeguards and with subproject technical, social and environmental guidelines established in the Operational Manual, before releasing funds. Subproject agreements are signed between PRONESE and CAS, spelling out the terms and conditions for the funding, execution, ownership, O&M of the approved subprojects. Resources for implementation are transferred directly from the project to the CA’s bank account. CAScontract goods, works and technical assistance, and may request technical assistance to develop O&M arrangements for subprojects.
Project Oversight: The Sergipe State Secretariat of Planning, Science and Technology (SEPLAN) would be responsible for project oversight. SEPLAN delegates day-to-day project coordination to PRONESE.
19 PRONESE also coordinates the Federally-funded and Bank-supported Crkdito Fundidrio project in Sergipe.
24 3 5. Project Coordination: PRONESE coordinates project activities. Its specific duties include the following: (a) mobilization and organization of potential beneficiary communities (frequently supported by civil society organizations, NGOs); (b) review of community proposals for compliance with project guidelines, Bank Safeguards and eligibility criteria in the Operational Manual; (c) technical/legal oversight and final approval and financing of subproject proposals; (d) supervision and monitoring of projectlsubproject implementation; (e) planning, administration and financial management; (f) project reporting, studies and impact evaluation; (g) MIS management and updating; (h) monitoring performance through the MIS and periodic progress reporting; (i)preparation of annual implementation and physical performance reviews; and, (j) design and provisiodexecution of specialized training modules for MCs and CASon key project issues. The STU contracts specialized consultants to support these activities when appropriate. It is established practice for the STU to provide standardized designs and cost indicators for common types of subprojects to ensure reasonable quality and cost. Departures from standard designs/costs need to be justified in the subproject proposal.
36. Finally, PRONESE will conduct a statewide information campaign to continuously disseminate information about the project and its guidelines to all potential beneficiary communities, thereby increasing awareness, transparency and participation in the project. Such communications will be prepared and disseminated in culturally-appropriate forms for special/traditional communities.
3 7. Project Operational Procedures: The proposed project would be implemented according to detailed procedures defined in the Operational Manual, based on the one used by RPRP-1 and revisedhpdated to reflect design advances under the RPRP-2 phase and details on procedures for applying Bank Safeguards to individual and aggregated subprojects. A synthesis of the Operational Manual will be provided to MCs and CAS.Adoption by the State of an updated Operational Manual, in a form satisfactory to the Bank, would be a condition of Loan Effectiveness.
3 8. Accounting and Financial Reporting Arrangements: Periodic supervision of RPRP- 1 by Bank Financial Management Specialists confirmed the satisfactory performance of the financial management systems. A Financial Management Assessment conducted in January / February 2008 concluded that the FM arrangements in place meet the Bank’s requirements and are Satisfactory overall. The system provides reliable and relevant financial information in a timely manner to support the project management, control, planning, implementation and monitoring. Some operational adjustments were recommended and are being implemented. Although judged capable of producing IFRs (Interim Un- audited Financial Reports - formerly referred to as FMRs) for report-based disbursements, the state will use traditional, transaction-based disbursement mechanisms (i.e,, disbursing on the basis of SOEs). The installed system complies with OP/BP 10.02 and the Guidelines for Assessment of Financial Management Arrangements. The Guidelines for Fiduciary Management of Community Driven Development projects (CDD Guidelines) have also been taken into consideration, where applicable. The overall financial management risk is rated Low. See Annex 8.
39. Audit Arrangements: Auditing arrangements will continue as under the RPRP-1. According to arrangements for Bank-financed projects in Brazil, the annual audit of project accounts for the period January 1 to December 31 will be performed by an Independent Auditor based on Terms of Reference acceptable to the Bank. The year-end Financial Report (IFR) will serve as the Financial Statement of the Project, on which the independent auditors will express their opinion. The annual audit will also include a review of the eligibility of expenditures disbursed on the basis of Statements of Expenditure (SOE), as well as on the Designated Account, compliance with all financial covenants and a Management Letter on internal controls and recommendations. Community subproject investments will be included within the scope of the audit exercise. The 2006 Audit Report was analyzed by the Bank and found satisfactory.
25 Auditors expressed unqualified opinions for Project Accounts, Statements of Expenditure and the Designated Account.
C. Monitoring and evaluation of outcomes/results
40. Management Information System (MIS): Analysis of implementation will rely on a database of subproject information from the established project Management Information System (MIS), operated and maintained by PRONESE. The MIS used under RPRP- 1 will continue to serve RPRP-2, with appropriate upgrades. The project Management Information System (MIS) meets all requirements for sound monitoring of projecthubproject implementation, including financial management (as noted above), and meets Bank standards for the issuance of quarterly Financial Reports in FMR format directly from the MIS database (Annex 7). The Bank project team will - as under the first phase project - continue to monitor project performance indicators through the MIS and, with inputs from the State, review monthly disbursement summaries and supervise implementation progress on a sample basis from the field.
41. Evaluation: The RPRP-2 project would implement evaluation studies to assess the impact of subproject investments and provide feedback to improve project operations. These studies would include: (a) annual physical performance reviews to assess the quality and sustainability of common types of financed subprojects, including reviews of community-based procurement; (b) case studies to assess the project’s economic impact; (c) a Physical Performance Study at mid-term based on beneficiary consultations regarding the quality and sustainability of subprojects; (d) an implementation review at mid- term, based on beneficiary consultations regarding project performance and results; and (e) a comprehensive impact evaluation during implementationand subsequent to completion. See Annex 7.
42. Design of the impact evaluation is advanced. Terms of reference have been agreed with the STU for studies which would use a quasi-experimental methodology with control groups of non-beneficiary households. The primary emphasis will be on evaluating the cost benefit and poverty impact of productive subprojects and on integration activities, impact on household welfare, and cost-effectiveness of infrastructure investments compared with traditional delivery mechanisms. In addition, community and municipal leaders will be surveyed for an analysis of project impact on community social capital and municipal governance.
D. Sustainability
43. Institutional Sustainability: Over a decade of CDD implementation, continuing through RPRP- 1, demonstrates that, by delegating greater responsibility and influence to local-level organizations and involving municipal authorities and entities, the RPRP-2 project can further improve decentralized resource allocation and social capital creation in rural Sergipe. Sustainability is key part of the rationale for increasing focus on the integration function described earlier, Le., using the participatory MCs as a transparent forum for garnering additional resources from other, complementary state and federal poverty programs, both to intensify and accelerate poverty impact and to enhance the sustainability of the Councils themselves as evolving forums for stimulating local development. PRONESE’s sustainability is also embedded in the experience its leadership and core technical team bring to rural development activities and its wider involvement with other Federal and State programs. These include Luzpara Todos (universal access to electricity) and the Bank-supported Cre‘dito Fundidrio Project in Sergipe which uses a similar, participatory methodology.
44. Financial Sustainability: Financial analysis and field investigation confirm the sustainability of the investment subprojects funded by the CDD mechanism. A recent study (Hydros, 2004) showed that, in a sample of completed subprojects, 85% of infrastructure and 100% of productive subprojects showed
26 positive indicators for sustainability. Further, a benefit-cost analysis of five types of subprojects representing collectively about 70% of all investments under the RPRP-1 project showed Internal rates of Return (IRR) exceeding 10% in all cases (except housing rehabilitation) and higher than the discount rate normally utilized in Brazil (see analysis, Annex 10).
45, Physical Sustainability: Beneficiary participation at all stages of the subproject cycle, together with significant levels of community counterpart contribution, motivate good subproject maintenance practices. Further, the democratic process intrinsic to the project participatory MCs ensures better selection and prioritization of subprojects by beneficiaries, enhancing longer-term sustainability. Use of standard subproject designs and cost parameters for the most common types of investments, along with frequent oversight of subproject execution by the required community monitoring committees and STU technicians, also promote quality. Community-funded O&M plans are a required component of subproject proposals for approval and are monitored by the MCs and the STU in the operational phase. Performance incentives for proper O&M are included in project design and, training on O&M is provided routinely to all beneficiary associations. O&M results/practices under RPRP- 1 were positive.20
E. Critical risks and possible controversial aspects
46. Given that the proposed project represents the continuation of a long-term engagement with the State of Sergipe on community-driven rural development, the overall risk is perceived as Moderate. See table below.
rable 3: Project Risks Rating of Risk Factors Risk Mitigation Residual Risk Politicization of MCs Monitor/enforcemajority representation on MCs of beneficiary representatives with voting rights and civil society. Sustain transparent decision-making L procedures. Train MCs and provide performance incentives for proper targeting, accompanied by regular STU oversight. CASand MCs unable to Programmed and executed training/TA to CASand implement and manage quality subprojects
Lack of experience in designing and executing productive, income- generating investments
*' The ICR (Report ICR: 0000233) found, in regard to sustainability: (a) strong indicators of sound O&M practices and arrangements; (b) 100% of subprojects decided, approved and financed by established Councils, most of which had the experience and social capital resulting from participation in two previous rounds of the CDD program; (c) planned expansion and deepening through RPRP 11, of investment coverage in the 35 poorest municipalities assisted under RPRP I;and (d) planned intensification of efforts under the proposed RPRP I1 to train MCs and CASand develop technical assistance services in rural areas.
27 stakeholder seminars (state technical teams, other Brazilian partners, IFC and other Bank teams). Include TA resources within financing of productive facilities. Inadequate or untimely Shared counterpart funding responsibilities by State flow of counterpart Government and beneficiaries reduces this risk. Work M funds to reduce transaction costs affecting timely flow of funds. Project funds diversion Apply Bank’s anti-corruption policy and sanctions or misuse regime. Well-establishedmanagement information M system (MIS). Regular project monitoring and supervision. Annual, independent audit. Beneficiary CDD Fiduciary Management Guidelines taken into communities unable to account by FM Assessment (01/08) in its analysis of manage financial community capacity. Risk judged as Moderate. M responsibilities under Training program for CASincludes subproject FM. the project. Project continues existing FM arrangements with appropriate/approved updates. Communities unable to FM Supervision pre-Closing (05/06) found Bank adhere to/understand procurement guidelines had been followed, and Bank procurement satisfactory institutional performance/capacity. FM guidelines assessment in February 2008 gave an overall low risk rating. Audit reports and Bank supervision checked M random samples of contracts, finding no deviation from Bank rules. Latest audits gave unqualified opinions. Communities are/will be trained in Bank rules for simple procurement - three proposals/lowest bid or Local Shopping. Although Procurement Assessement from February 2008 gave a high risk rating, an Action Plan to address concerns has been agreed to. The Procurement Plan has been updated and approved by Bank. Summary Rating I
F. Loankredit conditions and covenants
47. Adoption of an updated Operational Manual, satisfactory to the Bank is a condition of Loan Effectiveness and the Technical Cooperation Agreement has been executed on behalf of the Borrower, through its Secretariat of Planning, and PRONESE in form and substance satisfactory to the Bank. A draft revised Manual has been submitted to the Bank and is under review.
IV. APPRAISAL SUMMARY
A. Economic and financial analyses
48. Specific investments under the proposed project will be selected and executed by communities during implementation. It is thus not possible to know apriori precisely how resources will be allocated, or to determine their cost-effectiveness, rate of return and fiscal impact. However, many subprojects are likely to be similar to those financed under previous and ongoing community-based rural development projects in Sergipe and other participating Northeast states. Based on the accumulated experience from these projects, the following aspects of subproject investments were assessed: (a) cost-effectiveness; (b)
28 financial viability of productive subprojects; (c) fiscal impact ofthe project; and (d) aggregate economic impact.
49. Cost-effectiveness: Several aspects of project design help to ensure that subproject investments represent the least-cost, best alternative. First, demand-driven subproject selection tends to ensure that resources flow to genuine priorities and that chosen subprojects are the best alternatives for communities. Second, the use ofstandard technical designs (projetus padr8u) and cost parameters for the most common types of infrastructure and social subprojects ensures that CAS employ least-cost models for subproject implementation and decreases associated search and information costs. Third, delegation of subproject implementation directly to CASgenerates cost savings compared to similar quality works implemented by public sector agencies. The contracting procedures in the Project Operational Manual will allow direct contracting by CAS, requiring that they solicit three bids for the subproject. Based on the analysis of a random sample of subprojects (including ten categories which collectively represent some 80 % of the types of subprojects financed under the R-NRDP and RPAP), it was found that, for infrastructure and social subprojects, costs were 30-50 % less than for projects ofsimilar quality implemented by the state.
50. Internal rates of return were estimated for the most common types of productive subprojects. They averaged about 25 percent. Analyses assumed constant benefits over a ten-year subproject life cycle. In addition to these positive impacts, benefits were found to be largely concentrated in the communities acquiring the subprojects. Sensitivity analysis performed on these illustrative subprojects showed that they tended to be reasonably robust vis-a-vis decreases in output and prices and increases in production costs.
5 1. Benefit-cost ratios are high (about 2.0) for the main productive subprojects analyzed. Analysis of these subprojects also suggests that investments are financially sustainable. Although beneficiary associations do receive a one-time matching grant, the investments tend to be sustainable because cost recovery through user fees by the average beneficiary association is normally adequate to cover both O&M and replacement of original investments before the end of their useful economic life. Examples of this include use oftractors or manioc flour mills, where management and maintenance ofthe mills is paid for by a percentage of sale receipts.
52. In the case of the previous, RPRP-1 project, benefit-cost analysis yields similar, positive results. The most common investments were rural electrification (26%), community housing (20.2%), tractors/equipment (9.3%), orange-grove recuperation (6%), cattle-raising (4.6%) and water supply (3.7%), totaling some 70% of all investments.2’ The methodology applied to calculating economic benefits was the traditional estimation of the investment and benefit net present value, from which the benefithost ratio was calculated. Internal Rates of Return were also calculated, along with the number of years needed to recover the investments. The cost data were obtained directly from the Project MIS, on an annual basis and converted to US$. Benefits were identified for each type of subproject and datdinformation collected by field visits and some from previous studies and expert validation. Very conservative (i.e. lower) estimates were used instead of those obtained from the field interviews. Even after using the lower estimates, a sensitivity analysis was done, assuming that actual costs were 10% higher and, simultaneously, benefits were 10% lower.
53. The IRR, with the exception of housing rehabilitation, exceeds IO%, higher than the discount rate normally utilized in Brazil, meaning that the subprojects are financially sustainable. Even under more restrictive conditions where costs increase 10% and benefits decline IO%, the IRRs remain above 10% except in the cases of rural electrification and. housing rehabilitation where: (a) spillover effects from energy installation are comparatively minor compared to other participating Northeast states in terms of
~ 21 Cattle-raising was omitted from the benefit-cost analysis due to inadequate quality ofthe questionnaire.
29 inducing other productive investments; and (b) the social impacts of improved housing are huge but difficult to measure and thus data shown almost certainly under-estimate the benefits of such investments. Productive subprojects (tractors and orange grove recuperation) are promising in terms of sustainability and economic returns. Water supply subprojects despite their relatively small incidence, show quite high IRRs. All benefitkost ratios exceed 1 .O except for housing rehabilitation. The number of years to recover the investment ranges from 4-9.7 years with most requiring less than 8 years, Le., largely within the period of the investments’ normal useful life. See Annex 10.
54. There are two possible assumptions for estimating the directfiscal impact of the project on the budget of the State Government of Sergipe. One assumption is that, in the absence of the project, the State Government would not carry out the type of investments financed by RPRP, devoting those resources to other uses. An alternative assumption is that without RPRP, government would carry out the investments using a different targeting and disbursement mechanism. The latter is the most plausible assumption, particularly for the infrastructure and social investments, in view of their absolute priority, the social and political pressure from the rural population and municipal authorities in favor of these investments, and the sustained interest shown by the State Government under the RPRP-1 project. The focus here is therefore on this second hypothesis. It is worth noting, however, that if the investments were not carried out, the resources saved by the State Government would not significantly alter its overall fiscal position. The average annual cost of the RPRP-I to the State of Sergipe over the period 2002-2006 has been about 0.5% of its total annual budgetary expenditures and about 0.57 % of the State’s total annual current expenditures.
55. Under the second assumption, the direct impact of RPRP on government earnings derives both from savings in government costs and from the generation of incremental government revenue. There are tangible government savings associated with the community driven design of the program. Thus, as mentioned above, evaluations have shown that the cost of investments implemented by communities (either directly or contracted) were 30-50 % lower than prices paid by public authorities for similar works. There are also budgetary savings associated with the decreased need for state and local governments to provide certain essential services for which need is reduced by project investments. This is for instance the case with government costs for water distribution using water trucks (carros pipa) to communities without drinking water in critical periods. In Sergipe, it is estimated that savings on expenses for carros pipa associated with RPAP investments totaled about R$900,000 during a year of ‘normal’ rainfall. In years of severe drought, savings were at least double that figure. Provision of better quality, more reliable water also has less quantifiable but nonetheless significant impacts on health, reducing public health costs of Municipal Governments. The project also reduces municipal dependence on central and state government transfers by strengthening the capacity of local governments and communities to take responsibility for local economic and social development. Subproject O&M costs are typically paid by beneficiary communities, reducing the fiscal burden on municipalities and states (with few exceptions, e.g., electricity, some types of water supply, commonly maintained by state agencies and operated in return for a user fee).
56. With respect to revenue generation, direct impacts are likely to be small but indirect impacts could be significant. The incremental revenue on the sales tax (ICMS) will be small because much of the incremental production of subprojects is either home-consumed, not liable to taxation or circulates in informal markets where tax is rarely paid. Infrastructure subprojects, however, can have big, one-time, indirect benefits. Experience for instance, shows that there was a significant increase in the purchase and use of domestic appliances when electricity became available. The incremental ICMS revenue from the most common appliances (e.g., TV sets, refrigerators, stereos, irons, antennas) is estimated to have been about R$1.5 million. Incremental ICMS revenue from electrical equipment is also associated with the purchase of items such as agricultural machinery and irrigation pumps.
30 B. Technical
57. The technical viability of the proposed project has been demonstrated by well over a decade of successful CDD activity in Sergipe. Cost estimates for typical investment subprojects, physical contingencies, prices and estimates of inputs and outputs are based on actual historical data under the CDD projects in Sergipe, and thus are considered reliable. Technical standards of specific subprojects will be ensured through standardized designs (including engineering aspects, technical, financial and economic feasibility, operation and maintenance (O&M) arrangements, environmental guidelines and cost parameters) that cover a high percentage of subproject types normally demanded by the communities. Field evidence demonstrates that these simple, practical standards have enhanced subproject quality, sustainability and cost-effectiveness.Al1subprojects will be screened by qualified STU staff; communities can contract technical assistance (up to a total of 8% of subproject value) to assist in subproject design and implementation. Training programs will also develop community capacity to prepare, implement, operate and maintain subprojects, as well as familiarize them with existing environmental regulations at the state and federal levels.
C. Fiduciary
58. Financial management under RPRP- 1 was periodically evaluated by a Bank Financial Management Specialist for compliance with OP/BP 10.02 and the new Guidelines for Assessment of Financial Management Arrangements. The Guidelines for Fiduciary Management of Community-Driven Development Projects (CDD Guidelines) were also taken into consideration, where applicable. Based on these reviews as well as further improvements introduced during preparation of the proposed RPRP-2, an FM assessment conducted in January / February 2008 concluded that the financial management system and other arrangements satisfy the Bank's financial management requirements and have the capacity installed to disburse through report based methodology (FMR). The overall financial management risk is considered low.
59. In addition to these formal fiduciary tools, the social auditing which occurs under this type of program by virtue of community participation at all stages of the subproject cycle represents a powerful additional check on the proper use of project resources.
60. Procurement will be monitored and supervised by PRONESE, which performed well under the previous project and whose procurement specialists are well-versed in Bank procurement policies and procedures. With the exception of some technical assistance for beneficiaries and acquisitions under the Institutional Development and Administration components - which will be procured by PRONESE - it is anticipated that all Project-financed procurement for subprojects would be done by the CAS, with appropriate training and oversight. Project beneficiaries demonstrated satisfactory capacity to prepare subproject proposals and conduct simple procurement processes-either solicitation or consideration of three bids and selection of lowest, or Direct Shopping-under the previous project. The STU would continue to evaluate this capacity at the time of subproject submission and would exercise overall quality control of subproject procurement. A procurement assessment mission in JanuaryRebruary 2008 concluded that the overall procurement risk is high, although most procurement under the project is small. Remedial actions have been identified in an Action Plan and these are under implementation.
D. Social
61, The decentralized, inclusive and participatory nature of the CDD approach tested for well over a decade in the Northeast region, including Sergipe, seeks to ensure that the poorest communities and traditionally marginalized groups have unfettered access to project benefits. It also seeks to ensure female
31 participation in community and municipal decision-making processes. A state-wide information campaign builds awareness of project objectives, operating guidelines and how communities can participate. Poverty targeting is simple, verifiable and based on objective criteria. The identification and implementation of investments are facilitated through the mobilization and organization of CASand their representation in project MCs which, among their evolving responsibilities/functions, provide a forum for the associations, with other stakeholders (NGOs, local authorities, service providers, churches), to discuss needs, rank priorities and garner additional resources. 62. All subprojects are identified, prepared, implemented (including procurement/contracting of works), supervised, operated and maintained by CAS, which contribute a minimum 10 % of subproject costs (in cash, labor or materials). Funds are disbursed directly to the CA’s bank account. Intermediary NGOs, private firms and other civil groups may provide technical assistance, facilitate information dissemination to CAS and assist in mobilizing and organizing communities. Local government participates in meetings of MCs and directly supports their work. In Sergipe, MCs are created by Municipal Laws and Municipal Funds are available to assist their work. 63. PRONESE offers capacity-building and training to CAS and MCs to foster and enhance social capital, as well as to increase the participation of traditionally-marginalized groups (e.g., indigenous, Afro-descendent Quilombos and women). PRONESE also forges links with federal, state and municipal agencies, NGOs and church-based organizations to leverage mobilization, training and specialized skills to support project activities. Training, capacity-building and horizontal integration with other agencies will be emphasized under RPRP-2. The project intends to strengthen CAS’ capacity to represent their communities, expand MCs’ capacity to bring in diverse groups and increase their autonomy in regard to political elites and local authorities. 64. Apart from meeting basic community investment needs, the program has successfully promoted the growth and expansion of social capital, the accumulation of which has increased as the project MCs proliferated. By affording rural communities the opportunity to address their needs through participatory decision-making and oversight, the MCs have: (a) reduced clientelism and political interference; (b) strengthened the capacity of both communities and municipal governments to select, prioritize and implement investments; (iii)created partnerships between communities, MCs and municipal governments and more generally, increased communities’ voice in the use of public resources; and (iv) fostered communities’ independence through a burgeoning awareness of their capacity to act, and the social responsibilities of citizens, their representatives and public authorities. Women have become a major force in the CASand MCs.
65. The project MIS includes indicators to track the physical and financial performance of all beneficiary communities. It also includes socio-economic profile and other data to support impact evaluation studies, and will be upgraded to include socio-economic profile and other data to support impact evaluation studies. Annual physical performance reviews over the course of the project will assess, inter alia, the participatory approach pursued under the project, making recommendations where needed. Overall project impact evaluation will assess the poverty targeting of project benefits, household welfare gains, gender mainstreaming, social capital formation and income/employment effects.
66. Gender: Some 42% of households in Sergipe have women as their reference persodhead, the highest rate among all the Northeast states and one of the highest in the country. The proportion of female-headed households (FHH) has increased faster in this state than any other over the last seven years. Households headed by women are more frequent in urban (45%) than in rural (32%), but this difference has been reduced in recent years, meaning that the proportion of rural FHH has increased more than urban. Female-headed households are also over-represented among the households with monthly income at or below one minimum wage in both rural and urban settings. Some 51% of FHH in Sergipe
32 (46% urban and 74% rural) earned one minimum wage or less in 2000 (last year for which data are available). Hence, FHH in Sergipe are among the poorest in the state.
67. Overall, the RPRP has demonstrated the capacity of its CDD methodology to both include and empower women. The Sergipe RPRP-1 further validated the capacity of the Northeast CDD model to both include and empower women. Priority was given to subprojects with significant numbers of female- headed households, which constituted 40% of all families benefited. Some 40% of the 27,000 RPRP-1 beneficiary families were headed by women (an average 10 FHH per subproject). Women benefited directly from the gamut of subproject investments, while their participation is higher in social types, they still comprised 39% of infrastructure and 30% of all beneficiaries in productive endeavors. Project empowerment potential was also validated with women becoming a major force in the CAS and MCs, assuming leadership roles in both institutions, exerting a strong influence on the trajectory of community/local development and benefiting from the participatory governance promoted by the methodology. Women presided over 28% of CAS, and these associations received 29% of all subprojects accounting for 27% of all beneficiary families and 34% of all FHH benefited by the project.22 Women’s leadership is not restricted to mothers’ groups or similar but includes mainstream, multi-purpose associations. The performance of female-led MCs and CASwas judged excellent by the project Mid-term Review, Hydros (2004) and the Borrower’s Completion Report (SEPLAN, 2006).
68. The proposed RPRP-2 will (a) ensure that women’s representation among total beneficiaries is not reduced; (b) give priority to subprojects with significant numbers of FHH; (c) ensure women’s participation in training opportunities and that technical assistance is delivered to female-headed subprojects; and (d) ensure that evaluation studies track and describe the project’s impact on women. See also Annex 1 1.
69. Indigenous and Ethnic Groups: Lessons of experience from states - including Sergipe - with indigenous and ethnic populations, demonstrate that they are clearly capable of expressing needs, defining priorities and administering resources received under the CDD program. For inherent cultural reasons, they respond well to the collective, participatory project methodology, organizing effectively, participating in the MCs and operating/maintaining their investments communally. 70. Indigenous groups: Sergipe has just one indigenous ethnic group - the Xokd people located on S2io Pedro Island in the S2io Francisco River, municipality of Port0 da Folha. They number about 360 people who no longer speak their original language and today communicate in Portuguese. Their land totalling 4,220 ha was legally established in 1979. Subsistence agriculture, fishery and handicrafts are their main economic activities. Under the Rural Poverty Alleviation Project (RPAP), the Xokd identified and executed one subproject through their Associaqiio Zndigena Povoado Xokd, financing agricultural mechanization and benefiting 68 families, but a second, approved subproject (manioc mill) was not funded due to lack of resources remaining under that project. While the Xokd did not participate in the follow-up RPRP-1 operation, they understand the RPRP and its objectives and methodology, and are clearly capable of expressing needs, defining priorities and administering resources received under the CDD program. 7 1. Quilombola (Afiican slave-descenden0 Communities: There are 15 quilombola communities certified by the Fundaciio Cultural Palmares and 19 others claiming quilombola identity. These communities are mostly rural, among the poorest in the state (about 80% of the families have a monthly
22 Conselhos Gestores: Instrumentos de ConstruqEo de Nova Esfera Pliblica? Urn estudo corn Conselhos de Desenvolvimento Municipal de Sergipe, Magaly Gois, 2003, Dissertation, Federal University of Sergipe, S8o Cristov8o (SE), 2004. The independent Physical Performance Study (Hydros, 2004) confirmed similar findings. Of 41 MCs surveyed, about 22% and 21% respectively, had female presidents and/or female office-holders. At Closing (June 2006), 3 1% of all CASwere female-headed.
33 income equal to/lower than one minimum wage, i.e., well below US$l/day) and their inhabitants survive mostly on subsistence-level agriculture and fishing. The exceptions are Maloca (municipality of Aracaju) which is urban, and Mussuca which shows urban characteristics (most of its population work in industry or urban services) even though located in a rural setting. The RPAP financed 41 community subprojects for 26 quilombola communities, benefiting over 5,000 families. Electrification (34%) and housing (32%) were the community subprojects more frequently financed in quilombola cornmunitie~.~~ 72. The RPRP-2 will emphasize support for diverse groups and ethnicities by: (a) expanding its sphere of action to cover regions, indigenous and ethnic communities not already reached; (b) helping ethnic communities that have not been reached to organize in community or ethnic associations, to present proposals and to represent their interests in the MCs; and (c) intensifying the focus on indigenous/ethnic communities which have already benefited under RPRP- 1, through actions linked to other projects/programs both public and non-governmental, with capacity and resources to benefit them. Building on techniques developed and lessons learned in other Northeast states, RPRP-2 will promote social inclusion while respecting cultural identity and taking into account institutional and legal situations and previous experiences. This will be complemented by training and capacity-building developed in collaboration with a range of agenciedentities - including FUNAI, FUNASA, MDA, COOPlR, NEDIC/SEED.24
73. The Project Operational Manual defines the guidelines and specific procedures for engaging traditional communities (indigenous and quilombola groups) in project activities. The framework will be implemented by PRONESE, working in partnership with indigenous and quilombola representatives in the municipalities. FUNAI will support mobilization campaigns, ensuring that indigenous communities understand the goals/rules of the project. Implementation of the strategy for participation of traditional communities will be monitored through the established MIS, as described above. In compliance with OD 4.20, the state prepared, in 2005, an Indigenous People’s Participation Plan (IPPP), benefiting from the experience under the RPRP-1, discussions with indigenous interest groups and STU technician^.^^ In early 2008, and in compliance with OD 4.10, the IPPP was reviewed and expanded, including consultation, information and guidelines for also working with quilombola communities. It is summarized in Annex 9, and has been made available to the public in PRONESE’s office and on its website (www.pronese.se.gov.br) and in the Bank’s Infoshop. See Annex 11 on quilombola and indigenous groups.
E. Environment
74. The Environmental Management Plan (EMP) from RPRP-I was updated in early 2008 by PRONESE with inputs from the principal state environmental agencies. The EMP describes the legal, institutional and operational context, requirements and procedures for ensuring that environmental issues are addressed systematically throughout project implementation. These represent a continuation of procedures contained in the Operational Manual and applied routinely and successfully under RPRP-1. It also reflects new developments and activities required under more recent environmental law in the State of Sergipe and lessons learned from RPRP-1. It is summarized in Annex 1 1, and has been made available to the public in PRONESE’s office and on its website (www.pronese.se.g;ov.br) and in the Bank’s Infoshop.
23 The RPRP- 1 financed one subproject (tractoriequipment). 24 National Indian Foundation (FUNAI); National Water and Sanitation Foundation; (FUNASA); Agrarian Development Ministry (MDA), State Coordination for the Promotion of Policies of Racial Equality (COOPIR), and Nucleus of Education, Diversity and Citizenship of the State Secretary of Education (NEDICISEED). 25 Draft IPPP is available at PRONESE headquarters in Aracaju and website.
34 75. Specifically, the EMP: (a) ensures that the proposed project is fully compliant with Bank Safeguards and with relevant federal and state environmental legislation; (b) reflects environmental laws pertaining to the environment, social sector and indigenous peoples; (c) further consolidates awareness and integration of environmental standards in all subprojects financed by the new project; and (d) fosters convergence between rural poverty reduction and defensehaluation of the environment.
76. The project is a Category B, indicating that its potential environmental impact on human populations and ecologically important areas is considered moderate/modest. Neither the State, nor the Bank, through the project, will approve subprojects which cause degradation to essential natural habitats. While individual investments are small-scale, it is essential that all comply with federal and state environmental laws. No subproject agreement will be signed or funds transferred until the environmental viability of the subproject is determined. All subproject agreements eventually signed between PRONESE and community associations will contain environmental compliance clauses.
77. Environmental evaluation of each subproject prior to its financing is already a standard, adhered to procedure designed to prevent, minimize or mitigate eventual adverse effects on the environment. Basic screening includes: (a) use of standard subproject designs for the most commonly demanded andor technically difficult subprojects, incorporating environmental analysis and mitigation features; (b) applying a checklist of environmental elements to all subprojects during the subproject design and approval phase, and obtaining subproject environmental licenses from state agencies for those which require this procedure; (c) monitoring compliance with Bank Safeguards policy throughout the subproject cycle; (d) including environmental indicators in project monitoring and evaluation activities; (e) assessing aggregate environmental impacts of the project; and (e) promoting continuous capacity development and training activities. Environmental monitoring is not restricted to investments in water (small dams, water supply systems, wells, cisterns) but covers the full range of eligible subprojects. PRONESE has also adopted a range of other measures designed to secure the environmental integrity of the proposed project (see Annex 11).
78. The State of Sergipe has the legal and institutional capacity, structure and experience to execute all environmental requirements under the proposed project. While the state’s environmental laws are quite demanding in terms of the number of requirements, the implications for the new project are not onerous, given the simplified procedures agreed with the State based on the small scale of most individual investments financed and provisions in federal and state law for such concessions. The project Operational Manual will reflect all key measures for environmental preservation, addressing the Bank’s Safeguard policies and Brazil’s legal provisions. Adherence will be monitored by PRONESE and specialist partners with environmental expertisehesponsibilities throughout the subproject cycle; via the Bank’s regular project supervision and the Mid-term Review; and, under the project’s reporting and evaluation requirements.
F. Safeguard policies
Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.0 1) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.1 1) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples (OP/BP 4.10) Forests (OP/BP 4.36)
35 Safety ofDams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BP 7.60)* [I [XI Projects on International Waterways (OP/BP 7.50) [I [XI
G. Policy Exceptions and Readiness
79. There are no policy exceptions and the project is ready for implementation.
* By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas
36 Annex 1: Country and Program Background BRAZIL: Sergipe State Integrated Project: Rural Poverty
1. Poverty and Inequality in Brazil. Since the early 1990s, Brazil has experienced sustained reductions in poverty and inequality, driven largely by a combination of sound macroeconomic policies and several bold and innovative, pro-poor investment initiatives. On the economic management front, the poor have benefited directly from lower inflation levels and indirectly from economic growth, trade liberalization and associated job creation. Targeted pro-poor initiatives have included the national Bolsa Familia cash transfer program, significant investments in education at all levels, and large-scale, community-driven rural development and land reform programs throughout the Northeast region. The share of Brazilians living in poverty has decreased from 36% at the start of the 1990s, to around 28-30% at the present time, and improvements in consumption and income indicators have been accompanied by important advances across a range of non-income measures of well-being (access to health, education, clean water, sanitation, electrification). With regard to inequality, Brazil’s Gini coefficient has decreased from just under 0.62 to about 0.58, and the incidence of extreme poverty has dropped about twice as fast as has overall poverty.
2. The Northeast Region. These advances notwithstanding, Brazil still faces major challenges in tackling poverty, vulnerability and social exclusion, and this is nowhere more striking than in the Northeast region generally and its rural areas in particular. Throughout Brazil, poverty remains more deeply entrenched in rural areas (53%) than in large metropolitan cities (20%) and smaller urban centers (26%). In terms of broad geographic distribution, some 52% of all Brazil’s poor reside in the Northeast region and the majority of these are inhabitants of rural areas, villages and small towns, where economic activity revolves largely around agriculture and associated services. Growth in the Northeast has equaled or surpassed national rates over the past decade, but the starting point with respect to incomes and well- being was considerably lower than the national average and thus sustained investment and reform efforts are needed to close the gap.
3. The World Bank has maintained a long-term partnership with the Brazilian Federal-and State Governments to address development issues in the Northeast. In particular, a series of Bank-financed rural community-driven development (CDD) projects under the Northeast Rural Poverty Reduction Program (RPRP) have benefited some 11 million people in the region with around 55,000 investments in basic socioeconomic infrastructure and productive facilities, and are collectively responsible for much of the improvement which has taken place in access to such services in the rural Northeast over the past 15 years. They have also helped to strengthen citizen participation and improve transparency and accountability for use of public resources intended to benefit the rural poor, are helping to harmonize policies, targeting and delivery arrangements for a growing range of other Federal and state programs, and over the past five years have been increasing efforts to link small farmers to regional, national and international markets.26 Going forward, the RPRP will be a critical instrument for meeting the Northeast states’ rural poverty reduction objectives.
4. The State of Sergipe: With a total population of 1.93 million and geographic area ofjust 22,000 sq. km, Sergipe is Brazil’s smallest state. Sergipe ranks 23‘d among all Brazilian states in terms of its Human Development Index and 54% of its total population is still classified as poor. Rural poverty is
26 The RPRP (known in Brazil as the Programa de Combate a Pobreza Rural, PCPR,) presently has US$296 million in individual, state-level loans under implementation or in processing. The RPRP (and its predecessor Northeast Rural Poverty Alleviation ProgramiRPAP and Northeast Rural Development ProgramNRDP) has benefited over 1 1million people across the rural Northeast.
37 especially severe, with 50% of rural households depending on monthly incomes of less than one minimum salary and with 61% on less than two minimum ~alaries.~’Major strides have been made in recent years to improve the coverage of basic services. The proportion of rural households without electricity was reduced from 23% in 2003 to 12% in 2006. A similar improvement was registered in access to sanitation with families lacking services declining from 22% to 13% in the same period. About one-third of the reduction in each sector was the direct result of the first phase of the Rural Poverty Reduction Project (RPRP- 1). Nevertheless, considerable challenges remain to reduce rural poverty and improve community wellbeing in Sergipe with, inter alia, some 46% of rural households still lacking clean, piped water supply. More importantly, the focus of public interventions has now shifted markedly to the challenging task of increasing employment and raising incomes.
5. The new State Government of Sergipe (in office since January 2007) has prepared a comprehensive Strategic Plan for 2007-201 0, which led to its Multi-annual Development Plan (PPA) for 2008-20 1 1 entitled “Development with Inclusion through Rights and Incomes”, approved by the Federal Treasury in December 2007. The plan has eight strategic pillars: (a) access to health; (b) access to education; (c) security; (d) social inclusion (with emphasis on the most vulnerable and minorities); (e) modernization, democratization and transparency in public administration; (f) repair and expansion of the state’s road network; (g) environmental protection of water resources; and (h) sustainable and participatory territorial planning. The proposed Sergipe State Integrated Project: Rural Poverty is the second phase of the Rural Poverty Reduction Project which closed on June 30, 2008. The proposed project is considered a strategic priority by the State Government as it directly supports six of these eight pillars (only security and roads are not addressed by RPRP-2) and will be a major instrument to support local participatory planning, increase employment and incomes (through productive subprojects) and integrate cross-sector programs and policies. The 2008 budget, approved by the State Legislative Assembly on December 19, 2007, allocates R$52.7 million (about US$30 million) for investments by PRONESE (the state enterprise/technical unit responsible for implementation of RPRP-2), a significant portion of which is destined for this project.
6. The Bank-Client Relationship: The Bank has maintained a continuous, long-term partnership over many years with the Federal Government and Northeast state governments to address rural poverty under the NRDP, R-NRDP, RPAP and RPRP programs. These programs/projects (including RPRP-1 in Sergipe) have achieved impressive results on the ground and therefore, strong Borrower ownership.28 The RPRP-~~’will be part of the Northeast Brazil CDD portfolio currently comprising eight State loans. Its design takes into account the lessons learned and experiences of 26 separate community driven development (CDD) projects supported by the Bank in the Northeast since 1993. In the aggregate, these operations have financed over 55,000 community subprojects, with a total investment of US$ 1.4 billion, of which 75.2% has been for small-scale basic infrastructure and social facilities and 24.8% for productive activities. The Program operates in 1,500 municipalities (of the total 1,686) throughout the region, serving 37,600 CAS, and it has benefited an estimated 11 million people-roughly 60% of the rural poor in the Northeast-with at least one subproject investment.
27 One minimum salary is $415/month or about US$236 R$380/month at current rate of exchange. ** Respectively, the Northeast Rural Development Program (NRDP, 1985-1992), Reformulated Northeast Rural Development Program (R-NRDP, 1993-1997), Rural Poverty Alleviation Program (RPAP, 1995-2000) and Rural Poverty Reduction Program (RPRP, 2000-present). The overall program is generically referred to as the RPRP and in Brazil, as the PCPR, Program de Combafe a Pobreza Rural. The NRDP was a fairly traditional, integrated rural development program with some pilot CDD features. Full-scale CDD started with the reformulation in 1993, a radical response to broad agreement in Brazil and the Bank that many aspects of the NRDP were not working. *’Known in all states by the local abbreviation PCPR (Projeto de Combate a Pobreza Rural).
38 7. The RPRP process has given the Bank credibility among Northeast community associations, the participatory municipal councils, and state and federal agencies which recognize the catalytic effects of the RPRP and are increasingly using its institutional arrangements for decision-making and delivery of other public programs directed to the rural poor. This partnership has been enriched by a series of Bank- supported sector investment projects in the Northeast (education, health, land reform, micro-finance, larger-scale water and other infrastructure investments), and the Bank has invested heavily in analytical and advisory work directly relevant to rural poverty issues in the Northeast regionq3’In addition, through its rural development work elsewhere in Latin America and other continents, the Bank has accumulated considerable cross-country knowledge which it has been able to transfer to Brazil. This is very much a two-way exchange, in which the Bank has also helped to export knowledge developed in Brazil to other parts of the world, inter alia on community-driven development, land reform, natural resource management and the “how to” of linking small farmers with larger markets.
8. Strategic Context. The Brazil Country Partnership Strategy (CPS) for the 2008-201 1 period describes how the Bank’s engagement will focus on addressing higher value-added “paradigmatic challenges”. In describing one of these challenges, the CPS explicitly highlights how in the past few years the RPRP in the Northeast region built social capital and enabled poor communities to gain access to basic services such as water supply and electricity. The challenge now is how to respond to the overwhelming demand from those communities (and the state governors) for economic inclusion. The focus of Bank engagement in the Northeast in this next CPS period is thus on strengthening community- level productive activities and their integration into markets (national and international). The proposed RPRP-2 for Sergipe is consistent with and an integral part of this strategy. In addition, and at the same time, the RPRP-2 will continue to finance basic socioeconomic infrastructure for poor rural communities including vulnerable and traditional groups, thereby contributing to the State Government’s “development with inclusion” strategy.
9. The RPRP-2 would be the second of a planned two-phase program of support to Sergipe approved by the Federal Committee for External Financing (COFIEX) on October 26, 2000. In its approval, COFIEX, acting under provisions of the new Fiscal Responsibility Law (LFR) divided the planned operation into two loans of US$20.8 million each with conditions for moving to a second phase: (i) satisfactory implementation of phase one; (ii) disbursement of 50% of the first loan; and (iii) commitment of an additional 25% of that first loan. Bank supervision and the ImplementationCompletion Report (ICR) of January 31, 2007 (Report No. ICR233) confirmed that these conditions were met or exceeded and the ICR rated the project Satisfactory overall.31Further, the 2004 Brazil Country Assistance Evaluation by IEG (then OED) gave this program/portfolio a positive overall assessment for its role in expanding the provision of basic infrastructure to the rural poor of the Northeast, and for its use of project-financed Municipal Councils to strengthen social capital, thus paving the way for a wider range of poverty reduction activities.
10. Impact of the RPRP. Approved by the Bank’s Board of Directors in January 2002, the RPRP-1 financed, via a matching grants scheme with community participation/contribution, some 1,030 small- scale community investments in socio-economic infrastructure, productive facilities and social subprojects benefiting about 137,000 people organized in 600 community associations across 70 municipalities. Project Municipal Councils (CONDEMs) are now active in all 7 1 project-eligible municipalities with a key role in setting investment priorities, targeting beneficiaries and social auditing associated with the targeting, allocation and use of project resources. They are also increasingly capable
30 Bolsa Familia; Programa Nacional de DST e AIDS 111; Projeto de Vigildncia e Controle de Doenpas (VIGISUS 11); Programa de Saude de Familia; PROAGUA semi-arido; Programa de ModemizaGgo do Setor de Saneamento 11; Projeto de Transporte Rodoviario; and, Programa de Apoio 51 Reforma Previdenciaria dos Municipios - PREVMunicipios. 31 IEG’s Review (May 10, 2007) of the ICR for the Sergipe RPRP Iconfirmed the overall project outcome rating of Satisfactory.
39 of acting as forums for decisions about the allocation of resources from other state and federal poverty programs (see Annex 4).
1 1. Surveys across the Northeast participating states indicate strong community support for this method of service delivery. In Sergipe, as a result of RPRP-1, about 25,000 poor rural people now enjoy the multiple benefits of 266 investments in rural electrification. The positive welfare impact and cost- effectiveness of rural electrification investments are described in a recent IEG Another 6,600 poor rural residents have better access to safe, regular water through 37 investments in water supply systems. Around 35,000 people are increasing or have enhanced potential to increase family income via investments in productive facilitiedactivities (tractodequipment, orange grove rehabilitation, sheep- raising, community sewing facilities and irrigated agriculture) or have acquired the basic infrastructure (water and electricity) to launch such activities in the future. Some 19,000 people accessed social investments including better housing (casus populures) and sanitation.
12. Assessment of poverty impact and wellbeing effects, as well as social capital formation under RPRP-1 rely on the Physical Performance Study conducted for the Mid-term Review of RPRP-1 (Hydros, 2004), field surveys conducted for PRONESE’s Borrower Completion Report for RPRP-I (BCR, 2006), extrapolations from evaluation studies of similar projects/subprojects in the States of Bahia, Ceara and Pernambuco by the Federal University of Campinas (FECAMP, Sao Paulo, 2004, 2005), and research on social capital formation by Costa (1994-2006) and by Costa and Rizvi (2003). The following summarizes key findings of these studies:
Impact on family well-being and economic prospects:
Hydros (2004) and the BCR (2006) found sampled subprojects completed, operational, well- maintained, with construction of good quality, and the vast majority delivering expected benefits to communities. Both studies reported high ratings for community satisfaction. About 82% of Hydros interviewees said their quality of life had improved, mirrored by the 81% of BCR interviewees who reported similarly.
Hydros (2004) surveys also found that 89% of subprojects were fully meeting their objectives, rising to 100% for certain types, e.g., housing improvements, tractors/equipment, electricity, domestic sanitation and water cisterns. Importantly, benefits tended to remain in the communities. Sustainability of subprojects was judged highly-probable in 100% of investments in tractors, electricity, irrigation subprojects with hydrometer, multi-use community centers, small-scale clothes- making ventures, and information technology training subprojects, with high rates for other types. In 92% of subprojects surveyed, beneficiaries had assumed responsibility for operation and maintenance (O&M). The O&M function was assumed by local authorities and power concession firms in the case of electricity, bridges and local roads.
Numerous statements made by beneficiaries to the BCR (2006) field team indicate the positive impact on community and family wellbeing of project investments and importantly, of the democratic, participatory decision-making processes supporting them. Beneficiaries’ cited: improved financial situation in the home; increased planting and harvest, higher agricultural production, crop diversification, increased area cultivated and reduced costs of production; purchase and use of
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32 The Welfare Impact of Rural Electrification: A Reassessment of the Costs and Benefits, IEG, 2008. The study found, inter alia, that willingness to pay for electricity is high - even among very poor beneficiaries - exceeding the long-run marginal cost of supply; and, that project benefits are greater under grid-extension systems (as utilized under the Northeast RPRP) for reaching the poor and those least able to connect.
40 domestic appliances; better health; access to learning, information and job opportunities; and, better access to local government, roads, electricity, water and markets.
BCR (2006) reported that following implementation of their RPRP-1 subproject, 44% of respondents had been able to obtain new financing, including from the National Family Agriculture Support Program (PRONAF) credit lines A, B, C and D, additional subprojects under the project, and rural credit through the Bank of Brazil (BB) and Bank of the Northeast (BNB).
Rural electrijkation investments deliver numerous benefits: powering homes, schools, streets, small businesses and shops, agro-processing units and pumps; improving security and permitting night- school and literacy classes, food and medicine conservation, improved productivity from small-scale irrigation and processing facilities and access to information. FECAMP (2005) found high ratings for quality of life improvements, household comfort and access to newdevents. Families reported increased food consumption, higher incomes from more complex productive activities, increased use of domestic appliances and evidence of increased property values.
Water supply for human consumptioduse delivers rapid benefits: normal access to a clean, safe, water source; improved household wellbeing; reduced time spent collecting water from often distant locations; and lower incidence of chronic gastric and related illnesses. Secondary impacts include the ability to construct regular hygiene facilities and higher property values. Basic water supply systems with domestic connection and household cisterns registered especially high beneficiary ratings. Small-scale reservoirs have important productive effects, permitting irrigated agriculture, animal herding, increased herd size and new crops, but these take longer to develop. State and municipal fiscal costs for providing trucked water to dry or drought-stricken rural areas are greatly reduced (see Annex 10).
Productive subprojects for employment and income generation were just under one-third of all investments under RPRP-1, with tractors and equipment predominating. Tractor investments are highly sought after, with important direct and indirect benefits (see Annex 10). FECAMP studies in participating Northeast states demonstrate that tractors create employment, bring additional agricultural land into production, increase production, reduce time spent on labor-intensive activities, increase the number of crops per year and create new productive opportunities. Small-scale agro- industries similarly, have important impacts including value-added product for sale, and the processing of materials previously discarded. Beneficiary responses reveal the inherent challenges of small-scale productive endeavors - technical assistance, credit, market linkages and planning - well-documented by FECAMP and others and described in more detail in Annex 5.
Among social investments by RPRP- 1, housing constructiodrehabilitation replaced the common taipa housing in rural areas with its attendant health threats, particularly the transmission of Chagas disease. Houses were constructed by mutirao (communally), tended to be demanded by the poorest communities, employed standardized designs, materials and unit costs, and greatly improved family comfort, health, security and privacy. Construction quality was found to be generally very good.
Impact on social capital:
0 The BCR (2006) represents a window onto communities’ sense of their own evolution under the RPRP’s participatory mechanisms which require collective action. About 70% said their subproject was the direct result of collective action, as well as association and community “ownership” of the subproject. Some 85% of those surveyed felt that their direct, collective involvement in executing their subproject assisted its construction per se, monitoredcontrolled the use of funds and the purchase of materials, built understanding about resource use and what the process entailed as
41 opposed to “just signing papers brought by the mayor”, and helped them fight for additional investments.
Some 65% of BCR (2006) interviewees believed that: they had open access to the RPRP-1; their association worked to achieve their subproject; a strong, united community could achieve more; they now had knowledge, understanding of the “right way” and resources; their associations helped people who lacked the conditions to reduce their poverty; their community leaders brought people together to obtain subprojects; and, their subprojects were approved because oftheir collective action as associations.
FECAMP (2004) showed that the change in structural social capital occurs more intensively in communities which have implemented subprojects. The attainment of immediate, concrete benefits is indispensable to maintaining the organizational goals of the community association beyond subproject completion.
Striking gains were made in both participation and empowermentAeadership by female beneficiaries, through the project’s governance structure, rules and procedures (Section IV D).
Finally, Costa and Rizvi (2003) found that when compared with community associations without subprojects, associations benefited by the RPRP (including from their surveys in Sergipe) were more capable of: responding to communal demands; resolving internal conflicts; effectively advocating for their members; mobilizing human and financial resources; and solving local problems for the community.
13. Lessons for the RPRP-2. A series of lessons from the RPRP-1 and similar projects in other Northeast states is reflected in the new operation:
Self-selection of beneficiaries into the RPRP results in effective targeting: the ex-ante socio- economic profile of project beneficiaries region-wide indicates that 40% overall are illiterate, 50% have insecure access to basic food and a majority has income below the poverty line. Overall, about three fourths of project beneficiaries have initial incomes equivalent to less than US$l per day. In Sergipe, the RPRP-1 financed just 38% of the total demand for subprojects registered by PRONESE, indicative of levels of deprivation in poor rural areas and potential demand for investments under the proposed RPRP-2.
CDD mechanisms can improve the quality and targeting of non-project resources while leveraging additional andor complementary funding and intensifiing poverty reduction efforts: Early indications are region-wide that channelindintegrating federal and state programs through the participatory, representative MCs can intensify and accelerate poverty reduction efforts. The RPRP- 1 expanded the role and responsibilities of about one-third of all MCs to include debate, decision- making and resource allocation for other federal and state programs resulting in the “leveraging” of an aggregate US$45.0 million of additional resources for about US$10.5 million of project resources, a ratio of 1:4. As implied, not all MCs were equally capable of executing this broader role.33 Sergipe therefore wishes to scale up the use ofproject MCs to achieve local-level integration of poverty programs to eradicate illiteracy, reach 100% of households with electricity and clean water, and expand opportunities for income-generation.
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33 Programs involved included: CrPdito Fundiurio (Bank-supported, Federally-financed land reform); the State-financed Program to Revitalize Citriculture; Luzpara Todos (EletrobrasiMinistry of Mines and Energy, electricity access program); and Projeto de Inclusdo Digital (State Secretariat of Education, IT training for youth).
42 CDD motivates and builds social capital Demand-driven project design improves local governance, promotes accountability and empowers traditionally poor and vulnerable rural people using participatory methods for decision-making, execution and O&M. Under RPRP- 1, 7 1% of communities surveyed attributed their subproject to collective action, while 85% felt that their direct involvement assisted subproject construction, monitored/controlled the use of funds and purchase of materials, built understanding about resource use and facilitated their fight for additional investments in their community.34RPRP-2 will expand and consolidate positive experiences under its predecessor to provide diverse opportunities for local people to convert collective action into concrete gains, working through their CASand MCs. See Annex 1.
CDD can be an effective mechanism for productive investments which link small-scale producers to markets: Experiences in the production of honey, dairy products, fruits, specialized crafts, cashew and other products across the participating Northeast states demonstrate that organized clusters of small-scale producers with common productive interests/goals as well as appropriate and continuous technical and commercial support, can successfully serve more sophisticated markets. Many such communities/clusters are already exporting to the EU and selling products to national and international supermarket chains. Issues inherent to the gestation, desigdpreparation, technicaVfinancia1 analysis and operational phases of small-scale productive investments demonstrate that such subprojects may require specialized support over extended periods (see Annex 5).
0 CDD can eflectively target and empower poor rural women and is an appropriate methodology for indigenous peoples and ethnic groups: Experience in Sergipe under the RPRP Ishows that demand-driven institutional mechanisms not only enable women to access the benefits of community investments, but also provide leadership/learningopportunities for women through their associations and Municipal Councils. In Sergipe and region-wide, women have demonstrated entrepreneurial potential and managerial capacity in a range of productive endeavors financed by the RPRP. Further, participatory mechanisms are consistent with the inclusion of traditional communities (indigenous and African slave-descendent groups) who have demonstrated their capacity to present proposals, get support within the MCs for their approval, successfully administer resources received from the project and execute their subprojects. Under RPRP-I, traditional communities received 46 subprojects totaling some US$l.3 million and benefiting 5,160 families. Their effective management of the subproject cycle and active role in the MCs signal their expanded involvement under the proposed RPRP-2.
34 FECAMP (2003) showed that the change in structural social capital occurs more intensively in communities which have implemented subprojects. The attainment of immediate, concrete benefits is indispensable to maintaining the organizational goals of the community association beyond subprojett completion. Similarly, Costa and Rizvi (2003) found that when compared with community associations without subprojects, associations benefited by WRP are more capable of (i) responding to communal demands; (ii) resolving internal conflicts; (iii) effectively advocating for their members; (iv)mobilizing financial and human resources; and (v) solving local problems for the community.
43 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies BRAZIL: Sergipe State Integrated Project: Rural Poverty
Sector Issue Projec?’ Latest Supervision (ISR) Rating Ongoing Projects PDO -IP Community-Driven RPRP Minas Gerais (7329-BR) S S Rural Development Bahia Integrated (7327-BR) S HS Maranhi40 Integrated (4735-BR) S HS Pernambuco Add. Fin. (4625-BR) S S Ceara Add. Fin. (7387-BR) S S Piaui Add. Fin. (4624-BR-BR) S S
Water PROAGUA (7420-BR) S S
Health Disease Vigilance and Control S S Project (VIGISUS 11, 7227-BR)
Social Program to Modernize the S MU Sanitation Sector I1 (4532.-BR) Bolsa Familia (7234-BR) S S
Education FUNDESCOLA I11 (7 122-BR) S S
Land Reform Land-based Poverty (703 7-BR) S S
Public Sector Municipal Pension Reform Prog. MU MS Reform (PREVMunicipios, 4673-BR) IEG Ratings Closed Pro-iects: Implementation Sustainability Rural Development RPAP Paraiba (425 1-BR) MS M RPRP- 1 Sergipe (4649-BR) S S Land Reform Land Reform Pilot (4147-BR) S S Credit CrediAmigo (4554 - BR (ICR)) S S Health Family Health Project (7105-BR) S S
35 Rio Grande do Norte Additional Financing was approved by the Board on September 18, 2007 and is awaiting Effectiveness.
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I I t 7- td td C i’ Annex 4: Detailed Project Description BRAZIL: Sergipe State Integrated Project: Rural Poverty
1. Background: The RPRP-2 would be the second of a planned two-phase program of support to Sergipe approved by the Federal Comisslio de Financiamentos Externos (COFIEX) on October 26, 2000. In its approval, COFIEX divided the operation into two loans of US$20.8 million each and established three conditions that would trigger preparation of the second phase: (i)satisfactory implementation of the first phase; (ii)disbursement of 50% of first-phase loan proceeds; and (iii) commitment of an additional 25% of first-phase loan proceeds. Bank supervision missions and the Implementation Completion Report (ICR) of January 3 1, 2007 (Report No. ICR233) confirmed that these conditions were met or exceeded and the ICR rated the project Satisfactory overall.
2. Lending Instrument: Total estimated cost of the RPRP-2 is US$27.1 million, of which US$20.8 million will be financed by a Specific Investment Loan (SIL) and US$6.3 million will come from State Government counterpart resources including a minimum contribution to each subproject of 10% in labor and/or materials from beneficiary community associations. The Borrower will be the State of Sergipe with the guarantee of the Federal Government of Brazil. The projected execution period is four years.
3. Project Development Objective: The project is an integral part of the Government of Sergipe’s rural development with inclusion strategy. The project will (i)improve the rural poor’s access to basic socioeconomic infrastructure, (ii)raise incomes and capital assets through investments in productive activities and increased linkages between small producers and markets, and (iii)strengthen the cross-sectoral integration of investments in rural areas through improved participatory planning and monitoring at the local, municipal and State levels.
4. Key Project Outcome Indicators:
70% of project financing for socioeconomic infrastructure subprojects goes to the 41 poorest rural communities (Area 1) 0 Household incomes by project beneficiaries increase by 50%, including special populations] Value of household assets of project beneficiaries increase by 30% 70% of associations with productive investment subprojects have contracts with commercial buyers 0 30% improvement in a social capital index by the end of the project, as reported by project beneficiaries At least 35% of all productive investment subprojects are led by women Project leverages at least $5 in additional resources from other programs for every $1 in project investment funds.
5. Target Area and Population: The Project Area will comprise the same 71 municipalities included in RPRP-1, with more intense focus on Area I, the 41 poorest municipalities with lowest Municipal Index of Human Development (HDI-M), i.e. those with HDI-M of <0.623. These 41 poorest municipalities would receive about 70% of total resources for an estimated 700 community subprojects. The remaining 30 municipalities - Area I1- would
I Women, quilombola and/or indigenous groups 49 receive about 30% of subproject resources for about 300 investmentsn2Female-headed households, and indigenous and quilombola communities would receive targeted attention. The project’s target population are mostly small-holders, tenants, sharecroppers and landless laborers living in remote, low density rural areas or in the rural periphery of municipal centers where studies show headcount poverty is severe, and with income primarily from farming, wage labor, pensions and remittances.
Project Components:
6. Component 1: Communitv Suburoiects (US$24.2 million, about 90% of total project cost) will support, through matching grants to CAS, the implementation of about 1,000 subprojects for small-scale economic and social infrastructure, and productive and market- oriented investments. These investments are intended to improve the livelihoods and wellbeing of an estimated 100,000 people in about 670 communities. As under RPRP I,the communities themselves, through their associations and participatory Municipal Councils (known in Sergipe as Municipal Development Councils or CONDEM), will identify, prioritize and execute investments, guided by an information campaign to build understanding of project objectives and rules and to increase community understanding of the HDI-M and its components, and by an Operational Manual which, inter alia, describes the project’s environmental procedures and Bank Safeguards compliance requirements, detailed criteria for community subproject eligibility, subproject monitoring and supervision requirements, and operation and maintenance parameterdrules. The precise mix of investments cannot be determined in advance given the demand-driven nature of the project but the percentage of productive, income-generating investments is expected to rise significantly over RPRP-1. PRONESE currently has standard subproject designs for five types of subprojects: family house; domestic sanitation system; household cistern of circular design; manioc mill; and community center. Subprojects likely to be prominent among those financed include the following:
Economic infrastructure: to include water supply, electricity (especially when intended to complement other investments such as productive), small concrete bridges, fords, sanitation, housing improvements, community storage facilities, education and health, cultural and environmental activities (see (d)), and computer skills development for professional improvement.
Social infrastructure: to include investments directly related to community/family wellbeing such as domestic sanitation systems, housing improvements, school building reform, health posts, child-care centers, as well as equipment for social and community purposes and productive activities destined for family subsistence for the maximum number of beneficiaries. Innovative subprojects such as those delivering professional training in information technology (piloted successfully under RPRP-1) are also eligible for financing.
Productive subprojects; to include improved agricultural activities, small-scale livestock, fish farming, honey production, small-scale non-agricultural activities including the introduction of marketing and technology systems. See Annex 5 for detailed description of productive subprojects and a strategy for linking small producers to markets.
Environmental subprojects were piloted successfully under RPRP- 1 and will be mainstreamed under RPRP-2. Such subprojects are intended to protect, defend and value the environment and might include (i)recovery of degraded areas, control and reversal of contamination, e.g., legal
* Area IIDH-M range is 0.545 (Santa Luzia do Itanbi) to 0.622 (Nebpolis); Area I1 range is 0.623 (Itabi) to 0.684 (Cedro de Sao Jo%o). 50 reserve areas, springs, matas ciliares, faixas marginais de proteqfio, areas undergoing desertification and under environmental stress; (ii)protection of areas of environmental value; (iii)provision of services and production of goods of interest to Conservation Units including alternatives for employment and income generation for land reform settlements in the interior, around and in the area of influence of Conservation Units; and (iv) exploitation of income and employment opportunities through the sustainable use of natural resources and adoption of environmentally suitable technologies including those which establish synergies with existing, completed community subprojects.
Communities are entitled to a maximum of 8% of total subproject cost, for subproject preparation and implementation assistance. The costs to the communities of preparing subprojects are included in the total subproject value and cannot exceed 3%. Costs of technical assistance for subproject execution, especially productive and environmental subprojects, must be analyzed by PRONESE based on need and technical specialization required. Inclusion of these costs in subproject budgets occurs after PRONESE's final approval and amounts are limited to a maximum 5% of total subproject cost. PRONESE also has its own technical team and consultants to provide technical assistance for the standard-design subprojects, without cost to the association.
7. ComDonent 2: Institutional Development (US$1.4 million, about 5% of total project cost), executed by the Sustainable Development Company of the State of Sergipe (PRONESE), would include: (a) technical assistance and training to support mobilization and strengthening of CA to identify, prepare, operate and maintain subproject investments; (b) capacity-building for MC to manage responsibilities defined in the Project Operational Manual, including assessment and supervision of CA, participatory planning, financial management of community subprojects, and environmental management of small community subprojects, and project dissemination campaigns; and (c) workshops and seminars for MC and CA to exchange experiences with project implementation and to explain and facilitate integration of/with other federal and state poverty reduction programs.
Specifically, training activities would be designed to enhance/support:
Planning and information systems: development of information and dissemination systems for use by public/private entities and in research and communications; monitoring system, internal control and evaluation of PRONESE's performance; and, development of special projects, studies of productive chains and preparation of standard subproject designs.
Professional development: awareness-building, establishing institutional partnerships between PRONESE, other public agencies, NGOs and OSCIPs; courses in professional development for beneficiaries of productive subprojects, in collaboration with SENAI, SENAC, SENAR and SEBRAE.
Knowledge acquisition: training courses for continuous upgrading of skills for PRONESE administrative and technical staff at middle and higher levels in diverse subjects to improve professional qualifications and to improve public management, including training for environmental management.
Equipment for information management, communications and diffusion: acquisition of computer equipment for CONDEMs in each municipality, installation of communications software for web and internet, training courses for CONDEM administrators and workshops for members, and materials for local/municipal information diffusion,
51 Maintenance and upgrading of MIS: training to ensure technical proficiency in maintaining and upgrading the MIS to ensure its provision of information to the Bank, State Court of Accounts (audits) and to support procurement of equipment, products and information services by PRONESE.
Special studies: training supporting preparation of physical performance, impact evaluation and case studies.
Other activities financed under the Institutional Development component would include:
Project dissemination: This is designed to familiarize a range of stakeholders, most importantly the beneficiary communities - but also NGOs, civil society, technical assistance providers - with project eligibility criteria, rules and standards, the subproject cycle, participatory mechanisms, and role of PRONESE. Information campaigns are also designed to promote community mobilization and organization and to reach women, youth, ethnic and indigenous groups. An initial information campaign will be followed by continuous multi-media efforts including via Internet and Intranet to foster a participatory, iterative, information-based culture. PRONESE is responsible for the overall preparation and conduct of information campaigns.
Training for PRONESE, CONDEMs and beneficiaries: Training for PRONESE would be in two modules: the rules and philosophy of the RPRP-2 and technical/operational competencies (administration, analysis, supervision and evaluation). Training would also promote the modernization and effective decentralization of PRONESE. Specific training for CONDEMs is designed to enhance participatory planning, improve their structure and consolidate their activities, and build skills in the preparation and execution of subprojects and their financial oversight. Training would focus on organizational capacity-building, management training including operation and maintenance of subprojects, compulsory initial training for all associations awaiting resources for approved subprojects, and critical traininghechnical assistance for associations with productive subprojects.
Environmental management training: This will focus on basic knowledge of local and regional environmental characteristics; treatment of environment in subproject formulation, evaluation, approval, management and monitoring; adoption of appropriate technologies; training of community “multiplier” agents with interest in the planning and supervision of subprojects from an environmental perspective. All PRONESE personnel will engage in training and skills upgrading for the following objectives: to identify opportunities for environmental subprojects; prepare all stakeholders to incorporate environmental considerations in their decisions; build awareness in beneficiaries residing in sensitive/vulnerable areas ofavailable protection measures; facilitate understanding of environmental aspects of the Operational Manual; prepare user- friendly forms of project environmental provisions for non-specialist audiences; prepare the technical basis for environmental subprojects and ensure that infrastructure, social and productive investments reflect/manage environmental concerns; and, support environmental evaluation, control and monitoring activities.
Technical assistance: The project will finance technical assistance - delivered by PRONESE and contracted NGOs and service providers - for the CONDEMs and associations. This service is free of charge to beneficiaries and the plan is to reach the maximum number of associations with technical assistance appropriate to each subproject.
8. Component 3: Horizontal Integration (US$0.9 million, about 3% of total project cost) to provide technical assistance, consultancies, software acquisition, and systems installation to the State Secretariat of Planning (SEPLAN) to strengthen its results-based management capacity to
52 improve planning, integration, monitoring and evaluation of public policies and investments for poverty reduction; to improve the alignment of public expenditures with the State’s development priorities, as outlined in the State PPA (2008-201 1); and to support modernization of state public administration.
Financed activities will include: training for state technicians to construct databases to monitor and evaluate public policies, and training in the integration of those policies; preparation of a training plan and appropriate planning tools; training of municipal public service employees in the integration of public policies; consultants to promote transparency in programming and budgeting; consultants to develop the SIG (Geographic Reference Information System); consultants for ex-post evaluation of state poverty programs; acquisition of software for the SIG; installation of a cost system for the public budget; training for SIG users; holding of a Municipal Integration Forum; and conducting missions to exchange experiences.
9. Component 4: Proiect Administration, Supervision, Monitorinp and Evaluation (USO.6 million, about 2% of total project cost) will finance the operational costs (excluding salaries) of project administration/coordination, supervision, monitoring, and impact evaluation. An established, upgraded Management Information System (MIS) would continue to be operated and maintained by PRONESE. Evaluation studies financed by the project would include: annual physical performance reviews to assess quality and sustainability of subprojects, including reviews of community-based procurement; case studies to assess project economic impact; beneficiary survey-based Physical Performance Study at Mid-Term; and comprehensive impact evaluation with control groups and comprising a baseline following Effectiveness and follow-up at project completion. See cost by component in table below and further details, Annex 6.
Monitoring and Evaluation
10. Management Information System (MIS)): Analysis of implementation will rely on a database of subproject information from the established project Management Information System (MIS), operated and maintained by PRONESE. The MIS used under RPRP-1 will continue to serve RPRP-2, with appropriate upgrades. It is integrated across three dimensions: (a) a subproject information module containing pertinent physical and financial information for each subproject; (b) a financial management model, from which SOEs are generated; and (c) a project management model from which all project reports are generated. The database also includes community profiles to improve the project’s capacity to evaluate impact. Finally, the online MIS permits real-time data entry and monitoring. PRONESE will continue to be responsible for maintaining and updating the MIS, including key project information as agreed with the Bank. Through periodic processing of database information, combined with field visits and inputs from project supervision reports, contracted studies and audits, PRONESE will continue to monitor project characteristics and trends, identify problems and accomplishments and undertake or promote appropriate actions to improve project implementation.
11. The appraisal mission determined that the MIS meets all requirements for sound monitoring of projecthubproject implementation including financial management (as noted above), and meets Bank standards for the issuance of quarterly Financial Reports in IFR format directly from the MIS database (Annex 7). The Bank project team will - as under the first phase project - continue to monitor project performance indicators through the online MIS and, with inputs from the State, review monthly disbursement summaries and supervise implementation progress on a sample basis from the field.
12. Evaluation Program: Many difficulties were encountered in establishing and launching systematic evaluation under RPRP-1 - as described in the project Implementation Completion
53 Report - and thus the successful implementation of an evaluation program is a high priority under RPRP-2. The project would assess the impact of subproject investments and provide feedback to improve project operations. Studies would include the following:
Annual physical performance reviews: to evaluate the quality and sustainability of commonly- demanded and financed types of subprojects, including reviews of community procurement experience/performance .
Case studies: to evaluate the economic impact of the project on beneficiaries and sustainability of investments. Case studies will survey examples of successful productive investments with strong market potential to prepare profiles of what works and why, and to replicate these cases where feasible.
Physical performance study: to evaluate for the Mid-term review, the success of RPRP-2 investments, looking at achievement of objectives and at quality, efficiency, effectiveness and long-term sustainability of investments based on randomly sampled beneficiaries and subprojects. It will assess inter alia, project acquisitions, subproject costs, distribution of benefits within the community and community cost-sharing. It will also study the completion status of subprojects, time taken to implement, adequacy of physical design and materials, mode of acquisition (procurement), capacity of the investment to satisfy beneficiary needs, and operation and maintenance practices. The intensity of subproject use will also be assessed, along with coverage of benefits (Le. benefits to families inside/outside the association and/or the community).
Impact evaluation: comprising a baseline following Effectiveness and follow-up at project completion using a quasi experimental methodology with control groups (beneficiary, non- beneficiary and beneficiaries of other, similar programs). The evaluation will assess: (a) poverty targeting of beneficiaries relative to the income distribution of the population at large; (b) household welfare; (c) social capital formation as revealed by surveys of community and municipal leaders; (d) improved municipal governance; (v) cost-effectiveness of infrastructure investments compared with traditional delivery mechanisms; and (e) cost-benefit of productive investments. Community and municipal leaders will also be consulted for the analysis of impacts on social capital. The Bank project team has already proposed to and discussed with PRONESE, a draft Terms of Reference (TOR) for evaluation studies to ensure that evaluation work is timely and of good quality throughout implementation. PRONESE was urged by the Bank appraisal team to reach a decision on the acceptability of the TOR and proceed to the next steps. Progress on establishing systematic M&E will be closely monitored by the Bank.
Project Integration
13. While continuing to focus on the rural space, the RPRP-2 would intensify integration activities initiated under RPRP-I , linking the project closely to other Bank-supported operations in Sergipe (e.g., Credito Fundiario and Pro-Agua Semi-Arido) and with State- and Federally- funded programs with similar goals, among them Luz Para Todos (universal access to electricity) and the National Family Agriculture Support Program (PRONAF). Under RPRP- 1, PRONESE sought to mesh project-financed activitiedfacilities with state rural sector policies and decision- making. Subproject proposals were required to be consistent with the PPA (2004-2007) and training for the Municipal Councils (CONDEM) shifted towards developing their understanding of the types of investments consistent with this approach. Within this evolving framework, the RPRP-1 expanded the role and responsibilities of the CONDEMs to include debate, decision-
54 making and resource allocation for other program^.^ Project integration with these other programs involved about one-third ofall CONDEMs in decisions affecting an aggregate US45.0 million of parallel, complementary resources, of which the project’s share was about US$10.5 million, a ratio of 1 :4. Similar activities under the proposed RPRP-2 are expected to garner some US$ 20.0 for each US$ 1.00 of Loan resources. Table 1 summarizes how Bank assistance and selected state and federal programs would contribute to meeting the objectives of Sergipe’s PPA.
Table 2: Selected Strategic Themes, Costs and Benefits / Estimated Beneficiaries Sergipe PI: L, 2008-201 1 Total Cost Estimated Program/ (US% nillion to 2( 1) PCPR Strategic Themes Beneficiaries Project Program/ Total (% RPRP-2 total) and Benefits Project cost Universal Access to Basic Sanitation ProAgua Semi- 40.5 1.2 41.7 3.0 1 5,700 families Services* Arido (Works)
Socially-Targeted Casa Nova 123.7 7. I 130.8 18,640 families Housing ** Vida Nova
Irrigated Projeto Manoel 84.3 4.4 88.7 1,700 families Agriculture** * Dionizio
Family Credit0 11.9 0.0 11.9 2,400 families Agriculture*** Fundihrio
Family 8.8 0.7 9.4 3,000 families Agriculture*** PRONAF
Universal Access to 400 families / and Usage of Luz para 8.9 0.2 9.1 residential Electric Energy* * * Todos connections
TOTAL 278.1 13.6 291.6 31,840 families
tate Government Strategic Plan 2008-201 1: Development with 11 usion * Strategic Directive 1 : Universal Access to Health ** Strategic Directive 4: Social Protection and Inclusion, with Emphasis on Most Vulnerable Populations and Minorities ** * Strategic Directive 8: Sustainable, Participatory Territorial Development
8. Actions will be implemented to integrate the RPRP-2 with other programs and projects already underway with resources providedguaranteed by the Federal and State Governments. Actions selected relate directly to the directives of the State’s Multi-Year Strategic Plan (2008- 201 1) with the emphasis on universal access to health, the social protection and inclusion of vulnerable populations (female-headed households) and minorities (quilombolu and indigenous communities), and sustainable, participatory territorial development. Integration activities will be
Cridito Fundiririo (Federally-funded, Bank-supported land reform); the State Government’s Citriculture Revitalization Program; Luz para Todos (Federally-financed universal access to electricity), and the Digital Inclusion Program, the State Education Secretariat’s IT training program for youth. 55 decided and made operational via the same participatory mechanisms as RPRP-2, that is, through community demand, prioritized and approved by the Municipal Councils (CONDEM). The nature of the programs/projectsinitially selected for integration is explained below:
Universal Access to Basic Sanitation Services: Under the responsibility of the Superintendency for Water Resources (SWSEMARH) and the Sergipe Sanitation Company (DESO), development of the Pro-Agua Semi-Arido Program (Agreement 3 14/2004/SRwMI - Improvement, Expansion and Automation of the Integrated Water Conveyance Systems of the Alto Sertgo and Sertaneja) will extend their water supply coverage to the entire region surrounding the aqueducts by mid-2009. Preliminary estimates of rural water investments total US$41.7 million of which 4% or US$1.23 million would be financed by the RPRP-2 with household connection systems in small rural communities. An estimated 5,700 families would benefit.
New House, New Life (Cum Novu, Vidu Nova): This program seeks to promote social objectives through the supply of socially-motivated housing improvement as a way of stabilizing family units. The program is coordinated by SEPLAN and executed in partnership with Caixa Econamica Federal (CEF), the State Secretariat for Inclusion, Assistance and Social Development (SEIDES), the Sergipe State Company for Housing and Public Works (CEHOPISE) and PRONESE. This collaboration is expected to benefit a little over 18,000 families.
Program for the Sustainable Development of the Semi-Arid Region of Sergipe (Projeto Nova Califhnia - Manoel Dionizio): With an estimated total of about US$SS.O million, the proposed IDB-financed program will be executed in five municipalities (Caninde do Sgo Francisco, Pogo Redondo, Port0 da Folha, Monte Alegre de Sergipe, and Nossa Senhora da G16ria) adjacent to the California Irrigation Perimeter. RPRP-2 activities will be complementary, since these municipalities belong to its area of action mainly through the implementation of productive subprojects, participating and collaborating in “local productive arrangements” (APL) which will be formed. It is estimated that of the total cost, the RPRP-2 will contribute with about 5%. On the other hand, spontaneous demand could emerge for infrastructure and social subprojects, within the conditions of the RPRP-2, through linkages of community associations in land settlement areas or colonies in process of formation, with the respective Municipal Council (CONDEM) of that municipality.
National CrCdito Fundiario (CF) Program: The objective of this program (Federally- financed and Bank-supported) is to implement the state’s agrarian policy which envisions the democratization and best use of land in the state. The program is coordinated by the Federal Ministry of Agrarian Development (MDA), and is executed in Sergipe by PRONESE. It should be noted that once a settlement is created by the CF, a new rural community is established and as such, is eligible to seek benefits from the RPRP, not only for subprojects but also for training, environmental education, marketing and other services.
National Program to Strengthen Family Agriculture (PRONAF): The Federally-funded PRONAF finances poor and small-scale farm producers under various differentiated lines of credit to strengthen their engagement in agribusiness activities to add value to and increase their production, generate employment and income, upgrade professional farm skills and increase property values through the modernization of productive systems. PRONAF activities in recent years in Sergipe have concentrated on grant financing for poorer/smaller groups A and B, generating some R$3-4 million per year. Integration of PRONAF with RPRP-2 is likely to occur through the productive subprojects under the Local Productive
56 Arrangements (L,PA) where primary production is family-based and other activities in the production chain such as processing are handled collectively.
Light for All (Luz para Todos): This program, which seeks universal access to electricity, is coordinated by the Federal Ministry of Mines and Energy and executed with support from the Sergipe State Government through its state-level energy companies: Empresa Energetica de Sergipe (Energipe) and the Southern Sergipe Electrcity Company (Sulgipe). The program is contemplated within the PPA (2008-201 1) at around US$8.9 million for a program which involves - besides this amount - additional, non-budget resources of over US$77.6 million. The RPRP-2 contribution will be in the installation of small, low tension lines and potential demands for household connections which will emerge once high tension systems will be installed.
14. Partnerships/Collaboration: In addition to the above programs, other collaborative actions are contemplated with Federal, State and local institutions and agencies in water supply, agro-livestock productive chains, irrigated agriculture, environmental education and clean-up, environmental management and protection of water resources, integration of programs and the project’s inclusion goals designed to ensure the participation of special populations. See Annex 7 for specific partner agencies.
15. Project Costs and Financing:
* The Bank finances 75% of total indicative costs of community subprojects (US$18.1 m) but for disbursement purposes it is 83% of amounts disbursed (by Bank and Borrower), which is the amount reflected in Schedule 2 of the Loan Agreement.
57 Annex 5: Productive Subprojects BR4ZIL: Sergipe State Integrated Project: Rural Poverty
Background
1. The Rural Poverty Reduction Project 11: Sergipe4 will be part of the Northeast Brazil CDD portfolio currently comprising eight State loans. Its design takes into account the lessons learned and experiences of 26 separate community driven development (CDD) projects supported by the Bank in the Northeast since 1993. In the aggregate, these operations have financed over 55,000 community subprojects, with a total investment of US$ 1.4 billion, of which 75.2% has been for small-scale basic infrastructure and social facilities and 24.8% for productive activities.’ The Program operates in 1,500 municipalities (of the total 1,686) throughout the region, serving 37,600 CAS, and it has benefited an estimated 11 million people - roughly 60% of the rural poor in the Northeast - with at least one subproject investment.
2. In the State of Sergipe, which at the beginning of the program had one of the lowest Human Development Index (HDI) ratings in Brazil, a high percentage of communities opted for infrastructure and social sub-projects (68%), consistent with findings throughout the Northeast that rural communities tend first to satisfy basic infrastructure and social needs before prioritizing productive sub-projects. In many cases, investment in basic infrastructure is a prerequisite for undertaking income-generating sub-projects. However, in Sergipe 32% of RPRP- 1 investments were productive, higher than most other participating states. While most of these productive sub- projects were directed to improving community-level food consumption or to processing products such as manioc flour for village markets, Sergipe also had some promising experiences with productive projects linking small-scale producers to markets.
3. The RPRP-2 intends to significantly intensify such activities based on some ‘rules of the game’ for the screening and approval of these sub-projects developed through field observations across the Northeast region in participating states, and for the development of partnerships with other programs and agencies, such as the National Family Agriculture Program (PRONAF), the Bank of Brazil (BB), the Bank of the Northeast (BNB) and the Brazilian Service to Support Small and Medium Enterprise (SEBRAE). Productive sub-projects financed under RPRP- 1 included tractors/equipment, orange grove rehabilitation, cattle and sheep-breeding, sewing centers, craftworks, manioc mills, fishing equipment and small-scale irrigation systems.
4. Although community demands for infrastructure and social subprojects will continue, especially in the municipalities with the lowest HDI-M, demand for investment in productive sub- projects is likely to intensify under RPRP-2 and will involve/require a more systematic approach to subproject design, feasibility and sustainability.
Known in all states by the local abbreviation PCPR (Projeto de Combate a Pobreza Rural). A recent comprehensive impact evaluation of the Northeast Rural Poverty Reduction Program for the period 1993 to 2005 by Binswanger et a1 (2006) analyzed more than 30 coefficients to estimate the effects of the PCPR on productive assets (as a proxy for increases in income) and found that all coefficients associated with the treatment group were positive. While the study could not prove statistical significance, given the relatively small participation of productive sub-projects, it concluded that it would be very difficult to find that all these coefficients were positive if the PCPR had not had a positive impact on assets and incomes. Furthermore, the per capita increase of the value of their durable goods was estimated at 45% which, over three years more than paid for the sub-project investments. 58 Lessons Learned from Productive Subprojects under the RPRP Program Region-wide
5. Some states already have significant experience with productive subprojects (in Rio Grande do Norte, for example, 39% of all subprojects are already productive in nature; Pernambuco, Paraiba and Piaui also have considerable experience), while others are only starting. Some of the most interesting experiences include cashew production and papaya exports in Rio Grande do Norte, honey production in Piaui, quality textiles (rendus) in Paraiba, and organic produce for supermarket chains in Pernambuco. The most significant positive and negative lessons learned so far include:
0 There is considerable scope to market small, family farm-produced agricultural and non- agricultural products, provided the supply is organized;
0 With proper support, rural communities in Northeast Brazil can meet the quality, organizational and delivery requirements of sophisticated global markets;
The RPRP can play a pivotal role in organizing and aggregating associations of suppliers, facilitating the access to technical assistance, and financing the investments needed to meet market demands and standards;
At the same time, productive subprojects are inherently more complex, more costly to prepare and evaluate, more risky to implement, and require considerably more (and often highly specialized) technical and commercial assistance than traditional infrastructure subprojects;
0 Productive subprojects usually involve a smaller number of beneficiaries (thereby increasing the per-beneficiary cost), often a subset of a CA;
0 Failure of productive subprojects is often the result of lack of rigor in prior analyses of the technical, economic, and financial viability of the proposed investments;
0 But, many types of productive endeavors are low risk due to their simple nature and forms of operation (e.g., manioc flour mills, small grain-processing, agricultural mechanization, honey and cashew production). One key success feature seems to be the fairly simple management skills required for collective processing or marketing activities that can be accomplished using a fee-for-service modality;
0 Mixed subprojects (production activities done by individual families, marketing done collectively) tend to work better than purely collective subprojects;
0 Initially, RPRPs should provide seed money (through matching grants) to poor families that show potential for taking on productive endeavors and where established contacts with purchasers show the commercial viability of the proposed investments. Once the first ventures succeed in a given area, families and CAS can continue on their own and gain access to micro-credit and other financial services;
0 Grouping of associations can be extremely important to reach the scale necessary to ensure quantity and quality of output and level the playing field in negotiations with purchasers in larger markets.
59 Recent Developments
6. Since 2002, the Northeast program has paid increasing attention to the importance of strengthening linkages between farmers and markets. Examples of this were the successful initial experiments carried out under the aegis of a pilot Fair Trade Project, in which the Rural Poverty Reduction Projects of five Northeast states took part. Exploratory visits were made by European businesses and NGOs, and beneficiary representatives participated in the SANA Fair in Bologna, Italy in 2002. This resulted in successful arrangements for the export of honey, cashew nuts and handicrafts to European markets through Italian buyers.
7. In addition, communities participating in the Northeast RPRP have used this as a springboard for further exports directly to the European and North American markets. Data for 2004 and 2005 suggest that about 5,000 families have been involved, exporting honey, papayas, cashew nuts, organic coffee and handicrafts, and that the total revenue from these operations amounts to R$18 million Gust over US$10 million equivalent). During 2006/07, communities of the Northeast RPRP have further increased their participation in export markets. Additionally, linkages with national (e.g., Rede Mais with 30 supermarket outlets in Rio Grande do Norte) and international supermarket chains operating in Brazil (e.g., Carrefour, Wal-Mart and Pcio de Apxar/Cassino Group) have already started. The main products sold by RPRP communities to these supermarket chains include fruits, vegetables, milk, yogurt and cheese. In other states such as Paraiba, communities selling to Carrefour supermarkets in Brazil are also in the process of obtaining certification to sell goat cheese in all Carrefour outlets worldwide. Further, some 500 female artisans from poor rural communities in Paraiba are exporting high quality “renaissance” lace products to Europe and the US., selling to well-known grifes (brands) in SBo Paulo, and participating in fairs and fashion shows. There are also associations of women producing and selling fresh flowers to the Northeast state capital cities of JoBo Pessoa, Recife and Natal.
Strategy for Linking Small-scale Rural Producers to Markets
8. The experiences with productive sub-projects under the earlier phases of the Northeast program show that small transformation industries at the local level managed by CAS primarily oriented to increasing family/community consumption or for sale in village markets (e.g., manioc mills, vats for rice and beans, small processing units for fruits, use of community tractors, etc.) have been generally successful. However, production aimed at regional, national or international markets tended to face greater difficulties, mainly due to the lack of knowledge of actual market demands, particularly in terms of quality and packaging, insufficient volume to meet buyers’ expectations, and inadequate technical assistance to CAS.
9. On the basis of this experience, over the last five years the Bank and STUs in all the Northeast states have adopted a strategy which is proving successful and which is also similar to strategies for linking small producers to markets followed in other countries in Latin America and South Asia (e.g., Bolivia, Colombia, India and Sri Lanka). The strategy is implemented at two levels: (a) linking RPRP project participants with key market agents; and (b) the related operational modalities within the RPRP project itself.
Linking Organized Rural Producers to Markets
10. The strategy has four key steps:
Meeting the market to better understand product demands and requirements;
60 Facilitating contacts between potential buyers and producer groups with existing or potential capacity to comply with market requirements;
0 Engaging technical support from the private sector, strengthening partnerships with public technical assistance organizations, such as SEBRAE; and
Developing stronger partnerships with micro-financing entities for them to work directly with producer associations
1 1. The details of each step of the strategy are as follows:
(a) Meeting the market (e.g. contacting national and international representatives of potential buyers) to better understand their product demanddrequirements. The demand for products originating in the small farm sector in developing countries has been growing at a rate of 25% p.a. in the European Union during the last 10 years. At the same time, there has been a growing tendency in Brazil for exporting firms and supermarket chains to be interested in products coming from family agriculture, including organic projects and those with favorable impact on the environment. The most important niche is known as ‘Fair Trade’, formed by an international network of stores specialized in selling products from small farmers in low-income countries or poorer regions in middle income countries (like Northeast Brazil). The European participants in this network alone include around 2,700 stores in 18 countries, with annual sales of about US$900 million. Representatives of the network also exist in Australia, Canada, the United States and Japan, among others.
Step 1 of the Project strategy is to invite representatives of these organizations to visit the projects, explore the kinds of products in which they have an interest, define the volumes they would potentially be willing to acquire, and determine the type of investments needed in terms of production, processing and packaging, to reach the level of quality required by the market. This is already happening in Paraiba and other Northeast states.
(b) Facilitating contacts between potential buyers and producer groups/Community Associations (CAS) with existing or potential capacity to comply with market requirements. One of the important advantages (identified by both national and international buyers) of the Northeast Brazil RPRP, vis-&vis programs in other countries, has been its scale. The fact that the RPRP is working with almost 38,000 organized communities, involving 11 million people, creates a very significant potential pool of suppliers from CAS producing particular products which can ensure quantity, quality and continuity of supply, and this offers an advantage which buyers consider difficult to match.
Step 2 of the Project strategy then is to use the project Management Information System (MIS) to pre-identify communitieshegions engaged in productive activities that buyers have expressed a general interest and to facilitate contacts between buyers and producer groups. This includes engaging both individual associations at the grass roots level and, where appropriate, forging strategic alliances and integrating groups of associations in the same region, with the same products in order to achieve larger scale and production regularity.
(c) Engaging technical support from the private sector; strengthening partnerships with public technical assistance organizations such as SEBRAE, as well as with national and international NGOs.
Step 3 of the Project strategy addresses three sets of capacity building needs of CASthat are in the process of linking to markets or already have established such linkages.
61 (0 On technical matters, in consultation with the buyers, professionals have been identified who could provide technical support to communities on design issues and in reaching quality standards required by the markets. Until now this has been on a case-by-case basis, but going forward, a more systematic inventory of professionals will be developed.
(ii) On the various aspects of small business management, the Northeast program has been working in partnership with SEBRAE. This arrangement has been working well in the RPRP states and is being expanded.
(iii) National and international NGOs (e.g., World Vision, CONTAG through its links with international NGOs) have also been partnering with the program on aspects of helping communities understand and navigate exporting procedures from Brazil and importing procedures in Europe and elsewhere. Communities that are just starting the process of trading internationally find this kind of support critical; some of those that have acquired more experience are now retaining professionals who do this type of work for commercial exporting companies.
(d) Developing stronger partnerships links with micro-financing entities, such as Banco do Brasil and Banco do Nordeste. The linkages with both national banks have been developed and are working at the local level throughout the Northeast. Representatives of these banks participate in the monthly meetings of the project participatory MCs. There they identify CASwhich already have been financed by the RPRP for an initial productive sub-project, have established a good track record of operating as a group, and have potential for economically viable expansion. While the producers benefited by the RPRP were not on the radar screens of these banks as individuals, they now become visible and attractive to the credit institutions as organized groups. PRONAF is also using the RPRP’s participatory MCs for the allocation of credit to family agriculture. Since it is at the level of the MCs that decisions are made about the projects including RPRP-2 in Sergipe, including BB and BNB support for productive sub-projects, PRONAF’s involvement becomes totally complimentary to project efforts.
Ster, 4 of the Project strategy involves building on these relationships and seeking opportunities for scaling up and developing new partnerships. For example, a more sophisticated approach is now being developed with the Vice Presidency for Social Responsibility through the strategy of Desenvolvimento Regional Sustentavel (Dm) of the Banco do Brasil, and also the Fundacao Banco do Brasil, to review and finance jointly proposals for matching grandcredit of groups of CASlinking to the markets.
Adapting the operational modalities within the PCPR project itself
12. Finally, the project strategy requires the adoption of key ‘rules of the game’ for screening and approval of productive sub-projects. Thus far, two approaches have been used for screening and approving productive sub-projects. The first applies to productive activities financed under the RPRP with the objective of increasing family consumption and/or being sold in the village/surrounding markets. The second applies to productive sub-projects targeting more sophisticated state, national and international markets. This second category, in turn, includes two sub-groups, those associations which are first-time entrants to more sophisticated markets, and those which have already started and are scaling up their operations.
13. The project strategy involves screening and approval procedures for productive sub- projects in the Project Operational Manual which have been calibrated to meet the needs of the two different categories of productive subprojects.
62 (c) For CAS producing for own consumption and/or local markets, the rules for screening and approval are similar to those applicable to other subprojects financed by the project albeit with the inclusion ofIRR calculations
(d) For CAS having their first experience with more sophisticated markets, sub-project investment proposals have to meet the following criteria: (a) presentation of a business plan indicating the market being targeted and reasonable commitments from buyers to purchase the output, provided timing, volume and quality criteria are met; (b) the business plan must demonstrate that the organizational arrangements among the producer associations are sufficiently robust; (c) the proposed investment must meet financial, economic, environmental and managerial feasibility criteria; and (d) the proposal must be prioritized by the MC(s) involved, and appraised by the STU. For these sub-projects, the project will provide matching grants for the initial investment, technical assistance and training.
(e) Those communities in the second category which already have proved themselves and are scaling up their market linkages need to follow the same steps as above, but in addition, they need to meet the criteria of the micro-financiers with which the program helps them to connect. For these sub-projects, most ofthe activities are financed by the banks, however some activities like technical assistance, training and complementary infrastructure may be supported by the project.
Lessons from Other Countries
14. Some of the features being used in the Northeast RPRP for linking small producers to the markets, including the basic rules for screening/approval of productive sub-projects, have also been tested in other countries with good results. For example, projects in Colombia and Bolivia have developed rules for screening and approval of sub-projects for linking producers to markets similar to those used in Northeast Brazil (although in some cases the respective governments play a stronger role in providing support directly to private enterprises). In Colombia, the Government is providing incentives for the creation of Productive Partnerships between associations of small and medium size producers with the commercial private sector. Under a Bank co-financed project 1 17 partnership schemes were created and a recently approved follow-up operation would finance the creation ofanother 300 partnerships.
15. A project with similar characteristics and rules is also being implemented in Bolivia, creating rural alliances between associations of small producers and the private sector. In India and Sri Lanka, the creation of federations (or groups of associations, as in Brazil) is also being used to establish a critical mass of small producers both for the purpose of ensuring enough quantity and continuity of supply and to increase their leverage in the negotiations process. Additionally, these federations have been successful in accessing the micro-finance markets, which poor producers as individuals were unable to do.
Cooperation with IFC
16. In five states of the Northeast, Bank and IFC representatives have visited RPRP CAS and private sector companies exporting to Europe and the US, to try to establish a modus operandi for cooperation. There are several possibilities: (a) IFC financing of some technical assistance; (b) a possible project through IFC’s Grassroots Business Initiative, linked to some private company(ies); (c) direct access of PCPR beneficiaries to IFC’s Pangea store; and (d) perhaps the most important opportunity for cooperation with IFC, the financing of “anchor enterprises” (empresas ancorm), working with project communities involved in exporting to international markets. An example is being developed, with a view to piloting it under RPRP-2 including in Sergipe.
63 Annex 6: Project Costs BRAZIL: Sergipe State Integrated Project: Rural Poverty
Local Foreign Total Project Cost By Component and/or Activity us us us $million $million $million
1. Community Subprojects 19.90 3.56 23.46
2. Institutional Development 1.23 0.15 1.38
3. Horizontal Integration 0.74 0.08 0.82
1. Project Administration, Supervision, 0.49 0.05 0.54 Monitoring and Evaluation
Total Baseline Cost: 22.36 3.84 26.20 Physical Contingencies 0.35 0.25 0.60 Price Contingencies 0.10 0.10 0.20 Total Project Costs’ 22.81 4.19 27.00
Front-end Fee 0.05 Total Financing Required 22.81 4.24 27.10
64 Annex 7: Implementation Arrangements BRAZIL: Sergipe State Integrated Project: Rural Poverty
Project Oversight and Coordination
1. The Sergipe State Secretariat of Planning (SEPLAN) is responsible for project oversight, for ensuring that the annual state budget includes adequate resources to support the project, including counterpart funds and for providing all support needed by PRONESE to implement the project. SEPLAN is the formal link between the State Government and the Bank and delegates day-to-day project coordination to the Sustainable Development Company of the State of Sergipe (PRONESE), a public enterprise with considerable autonomy and its own permanent staff. PRONESE performed the functions of a State Technical Unit (STU) under the previous project and will continue this role under WRP-2, maintaining responsibility for overall project coordination.6PRONESE also intends to increasingly delegate supervision of the Community Associations (CA) to the Municipal Councils (MCKONDEM) and concentrate on oversight of the MCs themselves, as well as general project coordination and promotion.
PRONESE: Operational Structure and Functions
2. An organization chart showing PRONESE’s current structure is included at end-Annex and the primary responsibilities/duties of its administrative, financial and operational units are summarized below. A proposal to restructure PRONESE has been discussed within the State Government but no decision has yet been made.
(a) Administrative Council (AC): The AC has authority to determine all matters of personnel and salaries, changes in PRONESE’s statute, increases to its capital endowment and remuneration of the Executive Directorate. Its deliberations, decisions and monitoring also cover the following: the annual budget proposal and its execution; Annual Operating Plans for programs/projects under its control; ensuring that work programs conform to government regulations; preparation and signature of contracts and agreements involving PRONESE assets; procurement of goods exceeding R$60,000; the application of funds/resources; and, analysis and approval of annual audit/accounting exercises and reportdstudies prepared by PRONESE.
(b) Executive Directorate: Consists of the President, Director of Operations and the Director of Administration and Finance.
(c) Director-President of PRONESE: (i) Carries out the decisions and obligations assumed by PRONESE for the preparation, coordination, execution and evaluation of special programs and projects created or agreed with national and international organizations; (ii) Establishes relationships with the State Administration and with the leaders of public, private, state, national and international entities, related to its technical, administrative and financial activities; (iii)Controls the activities of PRONESE’s Cabinet, and its Legal and Technical Departments; (iv) Authorizes procurement processes and controls expenses authorized under the budget and via additional credits.
(d) Cabinet: Represents PRONESE’s link to the public and the Director-President, and manages all bureaucratic functions associated directly with that position. c
6 PRONESE also coordinates the Federally-funded and Bank-supported CrPdito Fundiario project in Sergipe and other programs. The STU is within PRONESE but is usually presented as synonymous. 65 (e) Legal Department: Issues opinions, reports and information on PRONESE’s activities and programs and provides legal support to the execution of those programs/projects; prepares contracts and terms and procedures for the application of financial resources; and provides legal assistance to the Community Associations and other entities who have agreements with PRONESE to ensure the monitoring and proper delivery of community subprojects.
(f) Technical Support Unit: This unit provides support through four “branches”:
e Planning and Institutional Development: (i)prepares Annual Operating Plans (POA) for programs/projects under PRONESE’s control in partnership with the Directorate of Operations and related management units, accompanies their execution and suggests mechanisms/solutions to the Executive Directorate to achieve targets and objectives; (ii) promotes the execution of training and capacity-building together with other units within PRONESE, for PRONESE personnel, project beneficiaries and entities associated with the execution of its programs/projects; (iii) creates and implements technical and administrative mechanisms to improve internal procedures and requirements; (iv) maintains a close relationship with the state’s planning, budget, statistical and institutional development system; (v) prepares, monitors and updates the project Operational Manual; (vi) allies itself with other programs, projects and institutions involved in sustainable rural poverty reduction to reduce overlap and duplication of programs/activities; and (vii) prepares PRONESE’s annual budget proposal.
e Monitoring and Evaluation: (i) monitors and physically and financially evaluates programs/projects coordinated and/or executed by PRONESE, and reports on progress; (ii) implements managerial mechanisms to monitor and control PRONESE’s activities to support decision-making by the Executive Directorate; (iii)establishes indicators and rules for studies, research and reports for the analysis, monitoring, execution and evaluation of projects financed by PRONESE; (iv) evaluates and monitors entitiedindividuals contracted to support PRONESE projects; (v) prepares annual reports on PRONESE’s activities.
e Social Communications: (i) promotes and disseminates the institutional “image” of PRONESE and its activities; (ii)acts as the public liaison and communications arm of PRONESE; and (iii)promotes social and cultural events.
e Information Technology: (i)executes or supervises the installation of new software; (ii) supervises maintenance of PRONESE IT systems; (iii)supervises, supports and improves PRONESE databases; and (iv) trains system users within PRONESE.
(g) Directorate of Administration and Finance: This directorate supports the Director- President as appropriate, issuing technical, administrative and financial reports and opinions; (ii) prepares, controls and updates files showing the movement of resources and submission of statements of expenditure (presta@o de contas) related to obligations with financial entities supporting its programs/projects; (iii)organizes, executes and controls all registers connected with the submission of accounts by entities executing PRONESE projects/programs; (iv) supervises, controls and monitors and the use, disposal and maintenance of all capital goods belonging to PRONESE; and (v) proposes measures to modernize PRONESE’s administration.
The Accounting and Finance Division within the above directorate coordinates, controls, supervises and guides all budget and financial execution through its: (i) Accounting and SOE Section which is responsible for financial control of PRONESE’s budget; controlling all resources pertaining to agreements, contracts, projects and projects of PRONESE; preparing budget proposals and controlling the movement of bank balances/accounts; and (ii) Treasury 66 Section which issues checks, payments, bank orders, keeps all financial records/files, does monthly reconciliations and prepares financial and disbursement documents.
(h) Directorate of Operations: This critical unit conducts the physical and financial supervision of all agreements, contracts, programs and projects under execution and proposes solutions to any issues affecting their performance; and proposes measures to simplify procedures, reduce costs and eliminate duplication. It has under its control/coordination the RPRP, the Federally-funded and Bank-supported Cre‘dito Fundidrio program (land reform) and controls the NTGA (Technical Unit for Environmental Guarantees), PRONESE’s internal unit responsible for the application of State and Federal environmental lawdstandards and more specifically, for project compliance with Bank Safeguards. The Directorate of Operations has several subordinate management units (Gerincias de Projetos) responsible for planning, standards, coordination, monitoring and evaluation of the RPRP and Cre‘dito Fundidrio programs. They do the following:
e Support community organizations and representatives of the target population in the functioning of the participatory Municipal Councils and operational mechanisms of all types designed to support execution of PRONESE projects/programs;
e Analyze and issue technical opinions on productive, infrastructure or social subprojects presented by the community associations or other organizations defined in programs under PRONESE’s control;
e Supervise and report on the physical and financial execution of PRONESE projects/subprojectsand sign the handover documents upon completion;
e Promote the preparation and execution of training programs with PRONESE units and with public beneficiary organization;
e Assist community associations in the selection, contracting and supervision of firms executing project-financedsubproject works and services; and
e Continuously update the project’s Management Information System (MIS) with data and information on projects under PRONESE’s control/coordination.
0) Environmental Quality Technical Group (NTGA): The NTGA has the following responsibilities (see also Annex 11):
Prepares the Preliminary Environmental Report for projects and activities developed by PRONESE;
Assists beneficiary communities to obtain an Environmental License, Water Usage Permit and/or other authorizations which may be necessary for their subproject;
Prepares training plans, and conducts information dissemination and educational events on the environment;
Promotes environmental education and engages PRONESE staff, community leaders, and beneficiaries in environmental conservation, recovery and improvement;
67 Prepares proposals to implement environmental subprojects, demonstration units, arrange agreements and partnership arrangements between public and private entities, and nationalhternational NGOs;
Trains and builds capacity in PRONESE technicians on all environmental procedures;
Prepares manuals on environmental conservation and protection, and develops/organizes monitoring and evaluation systems for environmental impact from community subprojects;
Ensures that PRONESE complies with all environmental laws applicable to its services and products;
Identifies and proposes mitigating measures for possible environmental impacts from the subproject formulation stage to the implementation and operational stages;
Identifies actions to generate employment and income related to the protection, recovery, conservation and valuation of the environment and which could become subprojects for financing by the RPRP-2;
Develops initiatives for eco-efficiency, defense, conservation and valuation of the environment as vehicles for rural poverty reduction;
Develops activities to mobilize the beneficiary population, training them as actors to incorporate environmental variables in all stages of development offinanced activities;
Monitors and evaluates environmental actions, promote the evaluation of aggregated environmental impacts; and establish procedures for evaluating subproject environmental impacts;
Creates conditions for beneficiaries to take advantage of opportunities for financing environmental subprojects; and
Links environmental defense with poverty reduction and employment/income generation.
Partnerships and Integration
3. PRONESE's coordination ofthe project will be supported via a series ofpartnerships:
(a) Cross-sector integration functions will be supported by the following Federal and State entitiedprograms: Company for the Development of the Sgo Francisco and Parnaiba Valley (CODEVASF); Brazilian Agro-Livestock Research Company (EMBRAPA); Federal Agricultural Delegation; the Institute for Colonization and Agrarian Reform (INCRA); Silo Francisco Hydro- Electric Company (CHESF); and other Federal programs such as Fome Zero, Transferencia de Renda Minima, Luz para Todos (universal access to energy), Programa Nacional do Cre'dito Fundiurio (Federally-funded and Bank-supported land reform program), and the State-supported Casa Nova Vida Nova (socially-oriented housing program).
(b) Other collaborative actions are contemplated with Federal, State and local institutions and agencies, including: (i) Secretariat of Agriculture and Agrarian Development (SEAGRI) for family agriculture, irrigated agriculture, strengthening of agro-livestock productive chains, with participation of the Secretariat of Economic Development and of Science and Technology
68 (SEDETEC) in the case of the latter; (ii) Secretariat of Environment and Water Resources (SEMARH), on environmental education, construction and recuperation of infrastructure for environmental clean-up, and environmental management and protection of water resources; (iii) State Infrastructure Secretariat (SEINFRA); and (iv) State Secretariat for Inclusion, Assistance and Social Development (SEIDES).
(c) To implement the Traditional Communities Participation Plan (PPCT), PRONESE will collaborate with the National Indian Foundation (FUNAI), National Health Foundation (FUNASA), Ministry of EducatiodSecretariat of Continuing Education, Literacy and Diversity (MEUSECAD), Ministry of Agrarian Development (MDA), Special Secretariat for Policies Promoting Racial Equality (SEPPIR) and federal universities. Collaboration/partnerships are also planned with state-level entities7
Project Coordination
4. PRONESE does the following:
e Mobilizes and organizes potential beneficiary communities and strengthens capacity of MCs (supported by municipal authorities, rural labor unions, NGOs and churches); e Prepares and conducts project dissemination/information campaigns; e Reviews community subproject proposals for compliance with project guidelines, Bank Safeguards and eligibility criteria in the Project Operational Manual; e Assesses the degree of community participation in identifying, preparing and executing subprojects and the quality oftechnical assistance; e Provides technical and legal oversight and final approval and financing of subproject proposals; e Supervises and monitors projecthubproject implementation; e Ensures that project implementation complies with State and Federal environmental laws and Bank Safeguards; e Promotes integration of the project with other State and Federal programs, through the CONDEMs; e Ensures convergence between rural poverty reduction and environmental defense; e Conducts project planning, administration and financial management; e Prepares project reports, studies and impact evaluations, and prepares annual implementation and physical performance reviews;
I At the state level, links are being established to the State Secretariat of EducationiEducation,Citizenship and Diversity Unit (SEEDNEDIC); State Secretariat of Labor, Youth and Social Equality (SETRAPIS/COOPPIR),with the State Federation of Rural Workers of Sergipe (FETASE), and with NGOs experienced in working with traditional communities. 69 Manages and updates the Management Information System (MIS), monitors performance through the MIS and periodically reports progress based on the MIS;
Implements introductory training and technical assistance programs for all MCs and CONDEMs with approved subprojects (including training on subproject, implementation, contracting, operation and maintenance, financial management and environment). Contracts specialized consultants to support these activities, when appropriate; and
Provides standardized designs and cost indicators for common types of subprojects to beneficiary associations to ensure reasonable quality and cost. Departures from standard designs/costs need to be justified in the subproject proposal as would investments which fall outside the range of standardized costs;
Supervises the MCs to ensure they are adequately managing subproject implementation quality and providing sufficient training support to communities, and establishes their annual indicative budgets; and
Prepares and submits project Annual Operating Plans (POA) to the Bank for approval.
See project Operational Manual for other responsibilities of PRONESE.
5. Information Campaign: PRONESE will conduct a statewide information campaign to continuously disseminate information about the project and its guidelines to all potential beneficiary communities, thereby increasing awareness, transparency and participation in the project. Such communications will be prepared and disseminated in culturally-appropriate forms for special/traditional communities. An Action Plan, satisfactory to the Bank, for the implementation of a campaign to be carried out by the Borrower in its territory to disseminate information about the project, including, inter alia, the guidelines for participation of Community Associations in the project, would be a condition of loan Effectiveness.
6. Community Associations (CAS) are groups of poor rural people with common interests who organize into legally-constituted associations. The associations legally represent the community, present and defend their demands and interests and are responsible for managing the subprojects at the local level. They identify, prepare, implement, supervise, operate and maintain their subprojects, assisted both by technical specialists whom they contract directly and by technical assistance and training made available by MCs and PRONESE throughout the subproject cycle. Once subprojects are approved for financing, CAS can access a percentage share of subproject cost (up to 8% total depending on the type of investment - maximum 3% for preparation and 5% for implementation) for technical assistance required during the design and implementation stages. Community associations can request a second subproject but their first investment must be complete and performance fully satisfactory.
7. Municipal Development Councils (CONDEM - MC) comprise 80% representation of beneficiary communities and civil society with majority representation and voting power, and 20% local government authorities.* This is an important distinction vis-a-vis “municipal councils” in many development programs elsewhere: elected municipal governments participate in, but do not exercise majority control over, the CONDEM/MCs. The key organization for targeting
8 In Sergipe, the 80% comprises association members, one representative of the Rural Workers Union, one from the Catholic Church, one from other religious bodies in the municipality; the 20% comprises one representative of the Municipal Executive, one from the Legislative, and representatives of other public agencies operating in the municipality. 70 benefits and allocating project resources, MCs also provide a bridge between poor rural communities and local government and have the potential to engage in other, non-project resource allocation and decision-making activities. The MCs receive logistical support from the Mayor’s Office (meeting place, administrative support etc).
8. The MCs’ role is fundamental in mobilizing communities and promoting their participation in local decision-making. They receive, prioritize and approve subproject proposals from the CAS during regularly-scheduled and widely-publicized meetings, submit investment plans to PRONESE and assidmonitor subproject implementation. In Sergipe, the MCs are increasingly discussing issues of broader interest to rural people, and promoting the integration of the Bank-supported project with other state and federal poverty programs. Part of the resources for technical assistance services is used directly by PRONESE to finance the working costs of MCs; transfer of these resources is via agreements between PRONESE and the MCs. The MCs can contract consultants to provide technical assistance and training - with PRONESE oversight - to support identification of demand and priority-setting, preparation of annual plans, partnership formation with mayors and other entities, subproject analysis, diagnoses of local conditions, training, and the preparation, monitoring and supervision of subprojects.
9. Municipal Authorities: The Municipal Authorities (Mayor’s Office and Chamber of Deputies) have no legal obligation for project implementation yet they play a vital role and are essential partners for the long-term sustainability of project mechanisms and benefits. Due to the decentralized nature of the project, the State, directly or through PRONESE, establishes partnerships with these authorities considered essential to and/or facilitating good project performance. The basic principle is that the participation of these authorities should promote and reinforce beneficiary participation but not substitute for it. Their participation has increased substantially in recent years including support for: project dissemination activities; community organization and mobilization; in some cases, contribution to State counterpart funds; strengthening capacity of the CONDEMs; enhancing the project’s knowledge of local environmental conditions (e.g., Conservation Units); identifying threats, opportunities and alternatives for environmental protection; ensuring environmental compliance of subproject activities; logistical needs of CONDEMs; community procurement activities; and deliberating and approving changes to local laws affecting CONDEM functions.
10. Incentives and penalties: Project supervision, monitoring, evaluation and audits ensure strict adherence to project rules and procedures defined in the Operational Manual. PRONESE will use incentives to reward CONDEMs and community associations who demonstrate quality performance, to promote good management and responsible subproject implementation. At the same time, to motivate better performance in the case of unsuccessful and problematic implementation, the project penalizes CONDEMs and associations which do not comply with project rules, e.g., low community participation (reflected in demand levels) and diversion or poor utilization of project resources.
Subproject Cycle
1 1. The following outlines the subproject cycle:
A statewide information campaign, tailored where needed to special/traditional populations (women, quilombolu and indigenous), will increase public awareness of project goals and rules;
0 CAS determine their local investment priorities and choices and prepare subproject proposals for financing, with technical assistance when needed;
71 Community subproject proposals are submitted to their MCs, discussed, ranked by priority and approved, based on each MC’s annual indicative budget allocation (and whether the community is located in Area A or B);
PRONESE technically evaluates an approved subproject and confirmlotherwise, its compliance with Bank Safeguards and with subproject technical, social and environmental guidelines established in the Operational Manual, before releasing funds;
Subproject agreements are signed between PRONESE and CAS for approved subprojects, spelling out the terms and conditions for the funding, execution, ownership, and O&M of the investment;
Resources for subproject implementation are transferred by PRONESE from the project directly to the CA’s bank account;
CAScontract goods, works and technical assistance to implement their subproject, and may request technical assistance to develop O&M arrangements for subprojects; and,
CASassume responsibility for the new facility, and manage its operation and maintenance through user and/or O&M fees collected from association members. In some cases, such as electricity subprojects, local/state power concession firms assume responsibility for O&M.
Project Operational Procedures
12. The proposed project would be implemented according to detailed procedures defined in the Operational Manual, based on that used by RPRP-1 and revisedupdated to reflect design advances under the RPRP-2 phase, lessons learned from RPRP- 1, and details on procedures for applying Bank Safeguards to individual and aggregated subprojects. A synthesis of the Operational Manual will be provided to MCs and CAS. Adoption by the State of an updated Operational Manual, in a form satisfactory to the Bank, would be a condition of loan Effectiveness.
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Annex 8: Financial Management and Disbursement Arrangements BRAZIL: Sergipe State Integrated Project: Rural Poverty
1. The Rural Poverty Reduction Project I1 - Sergipe will, as a follow-on operation, utilize the financial arrangements from the previous project, upgradedadjusted where needed. A Financial Management Assessment (FMA) in January, 2008 found that the arrangements for financial management of project execution are Satisfactory. The Financial Division and Technical Assistance Division within the State Technical Unit (PRONESE) have the experience and qualifications needed for all project financial management functions. Accounting, financial management and FM reporting systems provide the information needed to manage the project. The project management information system (MIS) has the capacity to record and produce the FM reports required by the Bank in a timely manner and the internal controls in place are adequate and reliable. PRONESE was found to be observing all aspects of financial management required by the World Bank to ensure sound use of RPRP-2 resources. The overall financial management risk associated with the projects is rated Low.
2. The FMA recommended specific modificationshpdating for the RPRP-2 in regard to: (a) the project Operational Manual; (b) staff training for systems maintenance and support; (c) user documentation for planned new FM software; and (d) audits. These actions are under completion. More specifically, certain arrangements used by the RPRP-1 will be adapted to better reflect updated project and World Bank documents including Fiduciary Management for Community Driven Development Projects: A Reference Guide, Guidelines for the Assessment ofFinancial Management Arrangements and OB/BP 10.02, and the recent FMA.47
Implementing Entity and Financial Management System
3. The Project will be implemented by the State Technical Unit (STU) under the State Secretariat of Planning (SEPLAN, see also Annex 7). The STU was established via Decree no. 6,417 of August 1, 1984, and changed via Law no. 6,253 of December 2007 which converted the STU to a public institution with the legal attributions of a private entity, with its own assets, administrative and financial autonomy, and integrated with the Indirect State Administration linked to the Secretariat of Planning. The STU is responsible for coordinating and executing state programs promoting sustainable development, executing special projects with internal andor external funding, focused on rural poverty reduction, technical assistance to municipal and state entities to implement these programs. A proposal in 2007 to restructure the STU has not yet been approved. It would include the creation of a Fiscal Council directly subordinate to the Administrative Council.
4. The FMA found that the STU’s financial administration team of 19 professionals (Financial and Technical Assistance Division) has the experience and qualifications needed to carry out its financial management functions. The proposal under discussion to restructure PRONESE would include the administrative and financial arrangements (see Organization Chart, end-Annex). The task team was informed that the possibility of hiring a specialized firm
41 The World Bank Financial Management Assessment mission in January 2008 considered the following: (a) project institutional arrangements, FM skills/team composition, systems and internal controls; (b) budget and accounting processes; (c) FM systems, policies and procedures; (d) adequacy of flow of funds and arrangements for disbursements including preparation of SOEsJnterim Unaudited Financial Reports (IFRs); and (e) adequacy of arrangements for internal and external audits. The mission also conducted a document review, including the Social Statute of PRONESE, Law 4.498 of January 2, 2002; draft Operational Manual; PRONESE’s 2008 budget; Project Management Report for 2006 and other reports; the most recent Bank Financial Supervision report for the project (June 2006); and PRONESE’s responses to independent auditors’ recommendations for the 2005 and 2006 audits. 77 is being considered, to develop a new financial and administrative management system (Sistema de Gerenciamento Financeiro - SIG) bringing together the Budget, Accounting, Administrative, and Financial modules with one tool.
Project Risk Analysis
5. As noted above, the overall financial management risk is assessed as low, based on the considerations in Table 1.
Table 1: Risk Rating
Risk Ratin Measures Inherent Risk Brazil’s system provides reliable information. Adequate systems exist to manage and track the receipt and use of funds and there is a high level of fiscal transparency. The risk to both Bank and country funds is low. Entitylproject Low The legal and institutional arrangements are adequate, and specific FM administrative and financial systems are adequate. Control Risk
Preparation Funds Flow Low
Counterpart Funds Staffing The Team responsible for project financial administration (Financial Division and Technical Assistance) is adequately experienced and qualified for its financial management duties. Accounting Accounting procedures are adequate. rocedures I Independent auditors to be hired.
Table 2: Summary of Financial Management Arrangements
Budget, Accounting, Financial Reporting and Audit
6. Budget: Annually, SEPLAN sends a legislative proposal to the Secretariat of Government with a budget proposal for the coming year and with a value determined by the
48 Risk ratings followed the indicative criteria included in the FM guidelines, indicated in the first paragraph ofthis document.
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STU to serve project needs. Following analysis by the Secretariat of Government, the proposal must reach the State Legislative Assembly by September 30 of each year. The budget proposal for 2008 was valued at some R$52.8 million, made up entirely of state resources and this was approved in the State’s annual budget (Lei Orcamentaria Annual - LOA).
7. Accounting: The STU is regulated by Accounting Law 6.404/76. Its respective rules and procedures are considered satisfactory by the World Bank. The accounts management information system actually utilized and developed by Ajusoft Znformutica was considered adequate to record project transactions, uses accounting standards acceptable to the World Bank and capable of recording and reporting with confidence project transactions including those involving counterpart funds. The accounting system is multi-user with password-segregated access and developed within a PARADOX database. Ajusoft provides technical support under an annual, renewable contract.
8. The FMA noted from its analysis ofthe accounting software utilized that: (a) the project will be capable of separate recording of transactions within STU accounts; (b) financial reports and issuance of requests for reimbursement are prepared by the MIS; (c) origins of resources are produced by the Ajusoft accounting system and applications/investments of resources are issued by the MIS; (d) payments are made by electronic transfers and or nominated checks (with copies of bank payments filed). Following payments for expenditures, Ajusoft is updated.49
9. Financial Reporting: The project Management Information System (MIS) is judged fully capable of recording and producing the FM reports required by the Bank. In Sergipe, the MIS not only tracks and records the subproject history but also project financial transactions. The physical modules (subprojects) are integrated with the financial module within the same frame. Some further improvements are being discussed. Interim Un-audited Financial Reports (IFRs, formerly called FMRs - Financial Management Reports) will be prepared and sent to the Bank quarterly in the currency of the Loan and in Reais, up to 45 days following the end of the quarter. All counterpart funds participatiodcontribution should be incorporated and reflected in IFR-1A to IFR-1E. The report designated “reconcilia@o bancaria da conta especial” (in the IFR 1-D format) as well as a reconciliation with the Bank’s Client Connection will be prepared and sent to the Bank. Further, at the end of the year, IFRs must be reviewed by external, independent auditors. The results of this audit will be furnished to the Bank within six months after the end of the calendar year. The mission provided the STU’s Director for Administration and Finance with a model IFR for adoption by the STU.
10. Audit: Under the proposed restructuring, the STU will have a department of internal audit. In addition to internal controls, the STU will also receive an annual audit by the State Court of Accounts and from external auditors. A model for the contracting of external auditors was provided to the Financial Director of the STU. According to arrangements for Bank- financed projects in Brazil, the project will send to the World Bank an audit report covering the period January 1 to December 31, submitted to the Bank no later than June 30 in the year following that for which the project accounts are audited. The audit report will be prepared by an Independent Auditor based on Terms of Reference acceptable to the World Bank. The year- end IFR (Interim Un-audited Financial Report) will serve as the Financial Statement of the Project, on which the independent auditors will express their opinion. The annual audit will also include a review of the eligibility of expenditures disbursed on the basis of SOEs, as well as on the Designated Account, compliance with all financial covenants and a Management Letter on
49 The STU also uses other systemslplanilhas as accounting tools: MIS - Monitoring and Information System; Personnel System; System for submission of accounts for Credit0 Fundiario; system for financial budget control; vehicle expense controls; Assets System; Excel-based calculation of amortization and depreciation of assets; SISAP - State Courts of Accounts (Tribunal de Contas do Estado). 50 The MIS uses a proprietary software to monitor the project’s physical and financial progress. The system is multi-user, developed in Visual Basic, uses a database in Access and was evaluated by the FMA in mid-2006 as both secure and adequate.
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internal controls and recommendations. Community subproject investments will be included within the scope of the audit exercise and include physical visits to subprojects.
1 1. The project will receive a letter from the World Bank concerning its review of the audit report and if needed, the Bank will request explanations about exceptions indicated by the auditors as well as actions to be taken by the project to resolve them. Independent of the annual audit, World Bank representatives will supervise annually the financial execution of the project to evaluate its fiduciary aspects and performance.
12. The 2006 Audit Report was analyzed by the Bank and found satisfactory. Auditors expressed unqualified opinions for Project Accounts, Statements of Expenditure and the Special Account.
Financial Arrangements for Subprojects
13. Community associations (CAS) prepare subprojects based on their needs and priorities, which are approved and sent by the MCs to the STU. The MC comprises a majority of representatives of CAS with the remaining cohort made up of local legislative and executive powers and civil society. Subprojects are approved through a technical opinion from, and budget and financial availability of, the STU. For most inputs (goods), the STU can compare indicated values for the subproject with those available in the database, indicating market value. Community counterpart is generally not financial and is calculated by observing, for example, time in labor, or services provided to the community. The counterpart proposal is already indicated at the time of subproject approval. The agreement between the STU and a CA stipulates the financial arrangements to be observed by the latter. The same are included in the Operational Manual, which is being updated. As a general rule, each association opens its own account in the Bank of Brazil or in the commercial bank closest to the community to receive project resources. World Bank and State counterpart finds are delivered simultaneously to the CASfor the subproject.
Flow of Funds and Disbursements
14. Flow of funds: Total value of this Specific Investment Loan will be US$20.8 million. The control and financial execution of resources allocated to the project, including counterpart, will continue to be the responsibility of the STU, linked to the State Secretariat of Planning (SEPLAN). The STU will use the same procedures for Financial Management as under RPW- 1 with some upgrades. SEPLAN will maintain an account in US Dollars with the Bank of Brazil in New York, to receive deposits, and a corresponding account in Reais in the Bank of Brazil in Aracajk The Bank will deposit loan advances to this account and SEPLAN will in turn, deposit these advances in Reais (R$) into an Operations Account in the Bank of Brazil in the state capital Aracaju, exclusively for the financing of project expenditures (in Reais).
15. State counterpart funds will be deposited in an account in Reais in BANESE (Bank of the Northeast in Sergipe). Resources available in Reais in the Bank of Brazil Account in Aracaju will be transferred to a Real-denominated account in BANESE which will merge all available project funds in Reais. In this same account, four sub-accounts will be opened according to the four project component^.^' For better accountability, transfers to individual subproject accounts will be in the form of advances with submission of accounts by communities ('presta@o de contas), financed by the program. Individual subproject bank accounts will be in the name of the Community Associations, which will make payments directly to suppliers. The opening of these accounts must be supported by contracts/agreements. The Community Associations will utilize these accounts exclusively for payments of eligible
SI Community Subprojects Sub-account; Institutional Development Sub-account; Horizontal Integration Sub-account; and Administration, Supervision, Monitoring and Evaluation Sub-account,
79 80 subproject expenditures, in installments and based on level of physical progress. Following the initial advance to the subproject account, subsequent advances will be made based on proof of physical progress in the form of submission of accounts to the STU by beneficiary community associations. This entire process will be controlled and monitored by the MIS (or the new system proposed) so that they can be reflected in IFRs.
16. Community contributions to subproject investments would be defined in the agreement between the STU and the CA. This contribution would be computed as part of counterpart finance of the project. Simple, standard records, the format for which is included in the project Operational Manual, would be completed by a designated community representative. They would be used to record cash contributions, which will be directly paid to suppliers, materials and labor inputs, and would be subject to project audit procedures.
17. The financial arrangements for the RPRP-2 in Sergipe are described in the Operational Manual which is being updated to reflect implementation of the Repeater operation. The updated Operational Manual will be submitted to the Bank for specialist evaluation of FM and Disbursement arrangements.
18. The STU will be responsible for reconciliation of bank accounts (accounts in both US Dollars and Reais). These reconciliations will be prepared monthly and should be made available within 15 days following the end of the month. The STU will also be responsible for preparation and transmittal to the Bank of applications for disbursement.
19. Disbursements: Although fully capable of producing IFRs for report-based disbursements, the Borrower has decided that disbursements will adopt a traditional transaction- based mechanism. Accordingly, disbursements will be made on the basis of SOEs, except for contract for goods, works and non consultant services exceeding US$1 00,000 equivalent; contracts with consulting firms above US$ 100,000 equivalent; and with individuals above US$50,000 equivalent, which will be supported by Records and Summary Sheets (SS). The minimum amount for each Application will be agreed with the Bank and reflected in the Disbursement Letter. The STU will study the need for retroactive jnancing of eligible expenditures in the 12-month period preceding signature of the Loan Agreement. The information required to compile SOE, as well as all relevant supporting documentation, will be maintained in the MIS database. All applications will be forwarded to the World Bank in Brasilia. At this stage, it is not envisaged that the Borrower will consider converting to report- based disbursements.
20. SOE values are approximate and may be revised by the Bank's Loan Department (LOA) in the Disbursement Letter prepared by LOA and agreed with the Borrower at negotiations. A designated account (previously referred to as the Special Account), with a maximum ceiling (previously referred to as authorized allocation) of approximately US$2.0 million (10% of the Loan), will be opened to ensure the timely flow of funds and smooth project implementation. Taking into consideration the experience gained during implementation of the first phase, no disbursement trigger is required to raise the designated account to its maximum ceiling. The designated account ceiling will be documented by LOA in the Disbursement Latter and agreed to with the Borrower at negotiations. '
21. Based on this documentation, the Bank replenishes the Designated Account. The Bank of Brazil provides the remittances in Reais through an exchange contract for deposit in the Operations Account. The State Secretary of Finance deposits the counterpart contribution in the Management Account. Payment for subprojects is then effected. In the vast majority of cases, disbursements to community associations are made in partial payments contingent on completion of set phases of the subproject implementation, Le., installments on the full subproject cost. The transfer of resources to the subprojects is utilized to effect the
80 81 disbursement. This initiates a new cycle with the sending to the Bank of SOE's and Records, as described above. The RPRP-2 would be disbursed over four years. The project is expected to be completed by the Closing Date of December 3 1, 201 1. Allocation of loan proceeds by disbursement category is shown in Table 4.
22. Financial Covenants: Standard Financial Covenants will apply for this Project.
23. Supervision Plan: Biannual supervision missions will be carried out under the Project.
Total project cost: 27.1 100 20.8 77
Table 4: Allocation of Loan Proceeds Expenditure Category Project Cost Financing Allocation of Loan in US%M Percentage Proceeds (US%M) 1. Grants for Community Subprojects (a) Area 1 Grants 16.49 75% 12.37 (b) Area 2 Grants 7.07 75% 5.30 2. Consultants' services and training for Parts 2,3 and 4 of 2.20 100% 2.20 the Project 4. Administrative Costs (a) incremental operational costs 0.20 20% 0.04 (b) project supervision and monitoring costs 0.40 50% 0.20 5. 0.05 0.05 6. Unallocated 0.64 0.64 Total 27.10 20.80
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Annex 9: Procurement Arrangements BRAZIL: Sergipe State Integrated Project: Rural Poverty
A. General
1. Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004 and revised version of October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 and revised version of October 2006, and the provisions stipulated in the Legal Agreement. The general description of various items under different expenditure categories is described in general below. For each contract to be financed by the Loan, the different procurement methods or consultant selection method, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team in the Procurement Plan as applicable. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
Procurement
2. Procurement of Works: Works procured under this project would include: (a) small works costing less than US$SO,000, embodied in subprojects demanded by community associations and will vary according to the nature of the investment subproject, such as rural electrification, small-scale dams, water supply systems, localized rural road improvement and housing improvement, among many others. Procurement of works under subprojects costing less than US$50,000 equivalent would be carried out mainly through community participation which may include direct contracting by the communities. This procurement method is appropriate because most subprojects: (i)would be small and/or implemented in scattered or remote areas and therefore it will be difficult to obtain competitive proposals; (ii) can be managed directly by rural communities, which will also contribute directly to the work through the donation of unskilled labor and local materials; (iii)will be selected on the basis of willingness of the beneficiary communities to contribute to and physically supervise works execution; and (iv) would provide means by which communities could play an active role in the local development process; (b) procurement of works under subprojects estimated to cost more than USSSO, 000 equivalent and less than US$l00,000 equivalent will follow shopping procedures; and (c) contracts for subprojects estimated to cost more than US100,000 equivalent are subproject to Bank no objection and would be awarded on the basis of National Competitive Bidding (NCB) procedures and the procurement will be done using SEAIN'S Standard Bidding Documents (SBD) agreed with the Bank. Procurement guidelines for the project are described in the project Operational Manual.
3. Procurement of Goods: Most of the goods procured under this project are part of the subprojects demanded by community associations and will vary according to the nature of the investment subproject, such as farm tractor and implements, small product processing units and irrigation kits, among many others. The vast majority of community subprojects involve both works and goods. Normally goods and works come together and whenever this is the case, the total amount of procurement (works and goods) will define the SBD to be used.
4. In addition to goods to be procured by community associations for the approved subprojects, PRONESE (the STU) is expected to acquire some goods such as computer equipment for the institutional strengthening component, and rent vehicles for the field supervision and monitoring work. Procurement of goods estimated to cost less than US$lOO,OOO equivalent would follow shopping procedures. Contracts estimated to cost more than US$lOO,OOO equivalent per contract would be awarded on the basis of National Competitive
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Bidding using the Bank’s SBD documents. Procurement of goods by communities will also be described in the Project Operational Manual.
5. Procurement of non-consulting services: Non-consulting services are equally part of the subprojects demanded by community associations and will vary according to the nature of the investment subproject, such as services provided by skilled and unskilled workers, among many others, and will be procured as described above for goods and works.s2 As in the case of goods, PRONESE is expected to acquire some non-consulting services, such as those required for training events (logistics) and project dissemination campaigns. Procurement would be done using SEAIN’s SBD agreed with the Bank for contracts estimated to cost more than US$lOO,OOO equivalent. Shopping will be used for contracts estimated to cost less than US$l00,000 equivalent.
6. Procurement of goods and non-consulting services may also be carried out in accordance with the method known as ‘‘pregGo eletrdnico”, as provided in Brazil’s PregFio Law No. 10.520 of July 17, 2002, under “COMPRASNET”, the procurement portal of the Federal Government, for contracts estimated to cost less than US$lOO,OOO. Scattered printing services, computer equipment and peripherals, office equipment and furniture, sundry items and logistics for training events and workshops may also be procured under this method.
Selection of Consultants
7. Firms: The Loan would finance contracts with consulting firms for an information campaign, technical assistance, studies and capacity-building for the beneficiary communities and the State Technical Unit - PRONESE. The selection and employment of consultants will be carried out under arrangements acceptable to the Bank using the Bank’s Standard Forms and Contracts. Short lists of consultants for services estimated to cost less than US$500,000 equivalent may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines, and all consultancy services estimated to cost above US$lOO,OOO per contract will be subject to prior review by the Bank.
8. Individuals: The consulting services required for the project include specialized advisory services and services to support project monitoring. Individual consultants would be selected by comparison of qualifications of a minimum of three candidates and retained in accordance with the provisions of Paragraph 5.1 through 5.3 of the Consultant Guidelines, or may be selected on a sole-source basis in accordance with Paragraphs 5.3 and 5.4 of the Consultant Guidelines, subject to prior approval from the Bank. The competitive process to be followed to select individual consultants would be described in further detail in the Project Operational Manual.
9. During project preparation, the possibility was identified of using universities, training institutions, and national and international technical assistance organizations for training and provision of technical assistance and for carrying out of studies, such as impact and results evaluation, physical performance studies and various special studies. Whenever the short list includes a mix of categories of firms/groups the selection would be either quality-based (QBS) or based on the consultant’s qualifications (CQS).
Community Participation
10. Goods and works costing US$50,000 equivalent or less per contract under Community Subprojects, may be procured in accordance with procedures acceptable to the Bank as provided
52 In the case of communities, normally both services are part of a subproject.
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for in paragraph 3.17 of the Guidelines (including direct contracting) and as set forth in the Operational Manual.
Project Incremental Operating Costs
11. Sundry items, utilities and other incremental recurring costs would be financed on a 20 percent basis and would be procured using the shopping method. Once the suppliers are established (generally those offering the lowest cost for lists of items), a purchase order will be issued using PRONESE’s regular administrative procedures which were reviewed and found acceptable to the Bank. Internal travel may be procured, preferably, through pregdo eletrdnico andor other administrative procedures acceptable to the Bank and detailed in the Operational Manual.
B. Assessment of the Agency’s Capacity to Implement Procurement
12. PRONESE implemented the first phase of the Project without any major problem and handled Bank procurement well. PRONESE will plan, implement, supervise and monitor all procurement tasks carried out by its Comissdo Especial de Licitagdo (CEL) under the project. PRONESE will second or employ a dedicated, experienced and qualified professional to work on procurement, who will take on the function of procurement coordinator and will be the point person in ensuring that procurement planning, implementation and monitoring is done in accordance with approved Bank procedures stipulated in the Loan agreement and in the project Operational Manual. If necessary, an assistant would be added.
13. The overall procurement risk assessment for the project is rated as high, although most procurement under the project is small. Remedial actions have been identified in the attached Action Plan, and these are under implementation to mitigate procurement risks.
14. The key issues and risks concerning the procurement component for implementation of the project have been identified and are summarized below:
Procurement Cycle Management: The project technical team is located within PRONESE under supervision of its President. Once the technical documents, (e.g., technical specifications, Terms of Reference) are ready, the special bidding committee (Comissdo Especial de Licitagdo), prepares the bidding documents. PRONESE does not have standard bidding documents for each procurement method. The actual bidding committee reported to the Bank mission that it has never been involved in procurement planning, nor has it had previous experience with Bank procurement. For project implementation and following Effectiveness, the Comissdo Especial de Licitagdo, STU and SEPLAN staff will therefore be trained in procurement procedures as well as in preparing procurement plans.
Project administration and monitoring will be under the responsibility of PRONESE (the State Technical Unit), as shown in the organizational chart below:
Support and Control Systems: The project’s Management Information System (MIS) was assessed by the Bank’s FM Specialist and was found to be adequate. However, it may need to be adapted to produce procurement reports.
Record-keeping: The team noted that the availability, quality, security and completeness of procurement records and files need improvement. The bidding committee unit lacks secure space, office equipment and cabinets to file procurement documentation in an orderly manner.
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Procurement Information System: There is a need to upgrade the existing client Information Systems Activity within the MIS to include a module for reporting the procurement plan and other procurement reports. 53
0 Staffing: The bidding committee should incorporate at least one full-time, experienced and dedicated staff-member. PRONESE (STU) will need to assign a responsible person to monitor and supervise the procurement management system.
15. The measures agreed to overcome identified risks are as follows:
Activity Actions By Whom Timeframe Approval / Review
Update its Procurement Plan for the initial By the Bank Completed 18 months of project implementation. and CEL Prepare a single “one-size-fits-all” legal Client’s Before By the Bank 2 opinion on procurement under the project Procuradoria effectiveness within PRONESE Appointment of one full time and 3 experienced staff with extensive experience PRONESE After By the Bank in the procurement field effectiveness Revise the Operational Manual to include PRONESE Comp By the Bank 4 procurement workflows and processes, and leted including subproject procurement procedures. Arrange for adequate and safe space to keep PRONESE Before By the Bank 5 procurement proposals and improve working effectiveness
Train all PRONESE and CPL staff. Bank After TTL 6 effectiveness - d -
53 The Management Information System (MIS) in Sergipe has the capability of recording and producing FM reports required by the Bank
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PRONESE
CONSELHO DE ADMINISTRAG A0
DI RETORI A DIRETORI5 DE ADMINISTRATNA E OPERAGOES FINANCE IRA I I
I ..,...I ..,. ..,...... I......
C. Procurement Plan
16. For procurement to be carried out directly by PRONESE, a Procurement Plan is being prepared and will be presented at negotiations. For the procurement to be carried out by the communities it is not feasible to prepare a realistic plan as the subprojects are demand-driven and, based on experience under the previous project in Sergipe, their average value is expected to be about US$25,000. The Procurement Plan for PRONESE will be updated in agreement with the Project Team annually to reflect the actual project implementation needs and improvements in institutional capacity.
D. Frequency of Procurement Supervision
17. Procurement Reviews: The Bank's review of the selection of consultants will be in accordance with Appendix 1 of the Guidelines for Selection and Employment of Consultants and the provisions stipulated in the Loan Agreement. The size of the sample for post-review will be 1 in 5 in all cases. This ratio may be adjusted during project implementation depending on the performance of the project and the results of the reviews. The procurement supervision plan should recommend that independent post reviews of procurement be carried out, if appropriate, and give the number and scope of such reviews. The supervision plan should include special missions for procurement supervision at critical points of project implementation.
18. In addition to the prior review carried out from the Bank's office in Brasilia, specific procurement supervision missions will take place twice a year during the implementation period of the project, and periodic visits to the field will be conducted to carry out post review of procurement actions. Additionally, all regular bi-annual supervision missions will look at
86 87 procurement aspects of the project and their findings will be reflected in the Implementation Status Reports (ISRs).
19. Prior Review: The proposed prior review thresholds for the project are summarized below:
’able 2: Prior R Expenditure category
Works 54 >loo NCB All processes
Direct contracting All cases regardless of the amounts involved Agreements All cases regardless of the amounts involved
20. Ex-post Reviews: All bidding processes regardless of their value are subject to ex- post procurement review. All documentation included but not limited to: terms of reference, bidding documents and requests for proposals, bids or proposals received, correspondence on all bids either prior to or following the award of contract and any subsequent amendments should be maintained in their respective files until at least two years following the closing of the project.
2 1. The Bank’s review of selection of consultants will be in accordance with Appendix 1 of the Guidelines for Selection and Employment of Consultants and the provisions stipulated in the Loan Agreement. Consultant contract documents to be reviewed will include TORS, shortlists, evaluation reports, and contract forms. A review process similar to individual consultants, will apply to training and workshops.
54 For Disbursement purposes, every contract above US$50,000 shall include the Bank’s review note on the technical adequacy of the civil works project.
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Annex 10: Economic and Financial Analysis BRAZIL: Sergipe State Integrated Project: Rural Poverty
Summary of Benefits and Costs:
1. Specific investments carried out under the new project will be decided by communities over the life span ofthe project. It is thus not possible to know apriori how available resources will be allocated, and therefore a precise ex ante estimation oftheir cost-effectiveness, rate ofreturn and fiscal impact is not possible. However, subprojects to be financed under the proposed repeater project would, in general, be similar to those financed under the previous project. Based on accumulated experience under that project, and from the rural poverty projects in other Northeast states, the following aspects of project investments were assessed: (a) cost-effectiveness and sustainability of infrastructure and social subprojects; (b) additional impacts of infrastructure subprojects; (c) financial viability of productive subprojects; (d) the fiscal impact ofthe Project; and (e) its aggregate impact.
Cost Effectiveness and Sustainability of Infrastructure and Social Subprojects
2. About 35% ofsubproject investments under RPRP- 1 were ofthe infrastructure type (considerably lower than most other participating states), a comparatively high 3 1% were productive endeavors, and social subprojects comprised 34%. Most infrastructure subprojects represent core public services (e.g., water, sanitation, electrification, social investments). Numerous studies, including a recent study by The Bank's Independent Evaluation Group (IEG) focused on rural electrification' show that these basic services provide benefits that justify their universal provision, The experience of RPRP-1, as well as other projects under the RPRP in other Northeast states, has shown that the CDD approach to rural infrastructure and service delivery targeted to the poorest can work in a cost effective manner in the Brazilian Northeast.
3. Several aspects of project design help to ensure that the RPRP mechanism for delivering communal infrastructure and social investments represents the least-cost, best alternative. First, the demand-driven nature of each subproject permits scarce resources to flow where they are most needed. Community participation, under the direction of the project MCs, ensures that the selected subproject is the best alternative for that community. Furthermore, the project has, in the MCs, a democratic mechanism to prioritize the use of resources available at the municipal level.
4. Second, the use of standard technical designs (projetox padr6o) for the most common types of infrastructure and social subprojects (including corresponding cost parameters) ensures that CASemploy least-cost models for subproject implementation. These standard designs also decrease search and information costs for CAS by providing established patterns of initiating and completing a subproject. Experience under RPRP demonstrates that the technical quality ofthese investments has been good.
5. Third, the delegation of subproject implementation directly to the CAS generates cost savings when compared to comparable quality works implemented by public sector agencies. The contracting procedures prescribed in the Project Operational Manual require direct contracting through competitive processes on all subprojects: the CA solicits three bids for the subproject and chooses the least-cost bid.
1 The Welfare Impact of Rural Electrification: A Reassessment of the Costs and Benefits, An IEG Impact Evaluation, January 2008
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6. These characteristics have contributed to the cost-effectiveness of the subprojects financed under the project. Based on the analysis of a random sample of subprojects (including ten categories which collectively represent some 80 % of the types of subprojects being financed), it was found that, for infrastructure and social subprojects, costs under the RPRP were 30-50 % cheaper than projects of similar type/quality financed by the state. Evaluations in Sergipe (as well as evaluations, physical performance reviews and case studies of similar RPRP investments in other Northeast states, e.g., Bahia, Ceara, Pernambuco, Piaui, Rio Grande do Norte and Paraiba) examined the quality of the materials used, the quality of overall finish, and the quality of operation of the investments. In all states surveyed, the majority of subprojects were found to be technically satisfactory and of good quality. Beneficiaries expressed their satisfaction with the quality of their subprojects and regarded more than 90% of all investments as being satisfactory overall.
7. In the case of RPRP-1, the main types of infrastructure sub-projects were rural electrification and water supply. It is by now well-documented across the Northeast region that rural electrification, by delivering electricity to households, increases the level of family wellbeing by permitting access to pumped water, better processing and conservation of food, evening activities (e.g., studying and reading), and leisure. Street lighting significantly improves community security. Schools with access to power can initiate learning via television and night school sessions, especially for adult literacy programs. Health posts with access to electricity can conserve vaccines and other medications. Power also permits productive activities such as home sewing. Commercial and industrial power connections generate productive employment. The use of other electricity-powered equipment can increase agricultural productivity.
8. Water supply. Investments in clean, regular water benefited some 6,600 people under RPRP-1. Investments which make available clean, safe water, include: (a) positive and direct impact on family wellbeing; (b) savings in time and improved conditions in family wellbeing once families can cease the daily collection of water from remote and usually unsanitary locationshources; (iii)viable initiation of productive activities such small-scale, industrial processing units and the irrigated production of fruits and vegetables; (iv) employment generation through O&M of the water supply systems; and (v) positive and significant impact on reducing the incidence of water-borne disease. Water is mainly destined for human and domestic consumption, but it is also used for animal consumption, business, industrial needs, and for the irrigated production of fruits (such as papaya and passion fruit) and vegetables. Impact evaluation of the Northeast Rural Poverty Reduction Program (by Binswanger et al, 2006) in other states confirms the impact of water supply sub-projects on improving health conditions and reducing disease in a statistically significant way.
Financial Viability of Productive Subprojects
9. The percentage of productive sub-projects financed by RPRP-1 in Sergipe was relatively high (32%), and they represented a variety of typical subproject types financed under the RPRP region-wide. Benefit-cost ratios for cross-regionally sampled subprojects are high (close to 2.0) for the main types of productive subprojects analyzed. Analysis of selected productive subprojects also suggests that the investments are generally financially sustainable (Table 10.1). Cost recovery through user fees by the average beneficiary association is, in general, adequate to cover both O&M and replacement of the original investment long before the end of its useful economic life.
10. For illustrative purposes, productive subprojects representing some of the most typical productive investments carried out under RPRP-1 - including in Sergipe - were selected for financial analysis. Activity models were constructed for these subprojects, based on field interviews with the managers of the subprojects, supervision and project preparation missions, and consultation of standard project designs (projetos padrco) prepared by the STUs.
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11. The results of the financial analysis are summarized below.
12. The investment cost of the productive subprojects surveyed ranged from around R$7,000 to R$ 65,000, which is typical for productive investments. All sub-projects showed satisfactory internal rate of return (IRR) with some quite high (ranging from 15.4% to over 50%). All of the sub-projects needed less than six years to recover their investment, and some needed fewer than 3.5 years. The net incremental income or value added generated by the sub-projects (at full development) ranged from R$1,149 (feed preparation equipment) to R$90,78 1 (one type of irrigation sub-project), with an average value of around R$28,000 for an average investment of around R$39,000. To complete the financial analysis of productive sub-projects, a weighted average was calculated of the IRR of the activity models included in the sample. The shares of each of the twelve types of illustrative models (which were taken to represent similar ones) in the total amount invested in RPRP-1 were used as weights. The resulting average was about 25%. This figure is indicative of the potential viability/profitability of productive projects commonly financed under the project.
Fiscal Impact
13. There are two possible assumptions for estimating the fiscal impact of the project on the budget of the State Government of Sergipe. One assumption is that, in the absence of the project, the State Government would not carry out the type of investments financed by RPRP, devoting those resources to other uses. An alternative assumption is that without RPRP, government would carry out the investments using a different targeting and disbursement mechanism. The latter is the most plausible assumption, particularly for the infrastructure and social investments, in view of their absolute priority, the social and political pressure from the rural population and municipal authorities in favor of these investments, and the sustained interest shown by the State Government under the RPRP-1 project. The focus here is therefore on this second hypothesis. It is worth noting, however, that if the investments were not carried out, the resources saved by the State Government would not significantly alter its overall fiscal position. The average annual cost of the RPRP-1 to the State of Sergipe in the period 2002-2006 has been about 0.5% of its total annual budgetary expenditures and about 0.57% of the State’s total annual current expenditures.
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14. Under the second assumption, the direct impact of RPRP on government earnings derives both from savings in government costs and from the generation of incremental government revenue. There are tangible government savings associated with the community driven design of the program. Thus, as mentioned above, evaluations have shown that the cost of investments implemented by communities (either directly or contracted) were 30-50 % lower than prices paid by public authorities for similar works. There are also budgetary savings associated to the decreased need for state and local governments to provide some inescapable services which need is reduced by project investments. This is for instance the case with government costs for water distribution using carros pipa to communities without drinking water in critical periods. In Sergipe, it is estimated that savings expenses for carros pipa associated with RPAP investments totaled about R$900,000 during a year of ‘normal’ rainfall. In years of severe drought, savings were at least twice that figure.
15. With respect to revenue generation, direct impacts are likely to be small but indirect impacts could be significant. The incremental revenue on the sales tax (ICMS) will be small because much of the incremental production of subprojects is either home-consumed, not liable to taxation or circulates in informal markets where tax is rarely paid. Infrastructure subprojects, however, can have big, one-time, indirect benefits. Experience for instance, shows that there was a significant increase in the purchase and use of domestic appliances when electricity became available. The incremental ICMS revenue from the most common appliances (e.g., TV sets, refrigerators, stereos, irons, antennas) is estimated to have been about R$1.5 million. Incremental ICMS revenue from electrical equipment is also associated with the purchase of items such as agricultural machinery and irrigation pumps.
Aggregate Results: Brief Economic Analysis of WRP-1: Sergipe
16. The RPRP-1 financed 1,030 community subprojects of which the most common were: rural electrification (26%), community housing (20.2%), tractors/equipment (9.3%), orange-grove recuperation (6%), cattle-raising (4.6%) and water supply (3.7%), totaling some 70% of all investments. The main aggregate results are summarized in Table 2. The methodology applied to calculating economic benefits was the traditional estimation of the investment and benefit net present value, from which the benefithost ratio was calculated. From the streams of investment and benefits, Internal Rates of Return were calculated, along with the number of years needed to recover the investments. The cost data were obtained directly from the Project MIS, on an annual basis and converted to US$. Benefits were identified for each type of subproject (see below) and datdinformation were collected by field visits and some from previous studies and expert validation.
17. The field visits covered a reasonable number of sites for the selected subprojects but the sample cannot be considered statistically representative. There were no control groups, which implies that the basic assumption is that if it were not for the financing made by the project, communities interviewed would have no access at all (Le., using other sources) to water and electricity. In spite of these deficiencies, data and information used were considered acceptable and “typical” in many aspects, according to the judgment of experts and others with extensive knowledge of the field and of the subprojects in Sergipe. In order to compensate for these deficiencies, very conservative (Le. lower) estimates were used instead of those obtained from field interviews. Even after using the lower estimates, a sensitivity analysis was done, assuming that actual costs were 10% higher and, simultaneously, benefits were 10% lower.
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* Considering benefits and costs of subprojects covered by the case studies ** Considering only benefits of subprojects of the case studies and costs of all subprojects financed. Given the low initial IRR estimated (2%), no additional estimation of IRR, benefit cost ratio and years to recover investments were calculated. ***Considering an increase of 10% in costs and simultaneously, 10% drop in benefits
18. The time horizon used was 14 years (2002-2015), which was estimated to be consistent with the expected useful life ofthe investments. For the calculation ofnet present value ofthe streams of costs and benefits, a discount rate of 10% was used. Cost figures used in the analysis were obtained from the Project’s MIS include investment costs financed by the World Bank and counterpart funding provide by the State of Sergipe. These costs were distributed according to annual payments made by the Project State Technical Unit to the beneficiary associations.
19. The results are encouraging. As can be seen, the IRR, with the exception of housing rehabilitation, exceeds lo%, higher than the discount rate normally utilized in Brazil, meaning that the subprojects are financially sustainable. Even under more restrictive conditions where costs increase 10% and benefits simultaneously decline lo%, the IRRs remain above 10% except in the cases of rural electrification and housing rehabilitation. These two cases might be explained as follows: (a) the spillover effects from energy installation are comparatively minor compared to other participating Northeast states in terms of inducing other productive investments; and (b) in the case of housing, the social impacts are huge but difficult to measure and thus the data in Table 10.2 almost certainly under- estimate the benefits of such subprojects. Productive subprojects (tractors and orange grove recuperation) are promising in terms of sustainability and economic returns, as seen in Table 10.2. Water supply subprojects despite their relatively small incidence, show quite high IRRs. All benefithost ratios exceed 1.0 except for housing rehabilitation. The number of years to recover the investment ranges from 4-9.7 years with most requiring less than 8 years, i.e., mostly within the period of the normal useful life of investments.
Identified Benefits of Surveyed Investments
20. Rural electrification: Identified benefits were: (a) beneficiary willingness to pay (amount of electricity bill paid by beneficiaries); (b) new businesses initiated following energy availability (measured by value of additional employment); (c) new houses built, induced by energy availability (measured by estimated income generated at the community level (employment and materials); (d) same as (c), but referring to rehabilitatiodreform of existing houses; and (e) sales tax (ICMS) collected via purchase by beneficiaries ofelectrical appliances.
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21. Water supply: Identified benefits were: (a) beneficiary willingness to pay, which is a proxy for the value families attribute to the availability of water and thus it incorporates the effect of missing or unmeasured benefits such as comfort, wellbeing, improved health, time saving and others; (b) value of time saved by family members in not having to physically collect water; (c) estimated monetary savings due to reduction in disease.
22. Productive subprojects: Identified benefits in the case of tractors were: (a) employment generated from the operation and maintenance of equipment; (b) additional jobs generated by the availability of the tractors; and in the case of orange grove recuperation were: (c) gross value of additional production of oranges.
23. Housing Rehabilitation: Identified benefits were: (a) actual and potential savings in rental of houses in the community; (b) estimated monetary savings due to the reduction of diseases like Chagas resulting from sub-standard housing/materials; (c) new houses built, measured by estimated income generated at community level (employment and materials); and (d) fee paid by beneficiaries for the operation of the subproject by the association.
24. The most interesting result is obtained when calculations are made charging the total investment costs (Le, for all types of subprojects funded by the Project) and on the other side, only benefits from electricity, water supply, productive and housing rehabilitation, Le., the case studies, are considered. In this case, the IRR remains positive but reduced to 2%. Sensitivity analyses performed, which assume costs that are 10% higher and benefits 10% lower, demonstrate what could be considered the most likely result: the benefidcost ratio is around 1.3 and the rate of return approximately 13%. The number of years to fully recover the investment is around 7.8. The conclusion that can be drawn from the simulations, even under very strict assumptions, is that these community investment subprojects pay off given current conditions in Brazil.
Table 10.3. Rural Poverty Reduction Project I- Sergipe: Performance 2002-2006
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Table 10.4. Rural Poverty Reduction Project I- Sergipe: BenefitKOst Ratio, IRR and Years to Recover Investment for Specific Sub-project Types and Project as a Whole
PV A discount rate of 10% was used * Cost and benefits of the studied subprojects only ** Costs increased by 10% and benefits reduced by 10%
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Summary of Benefits and Annex 11: Safeguard Policy Issues
BRAZIL: Sergipe State Integrated Project: Rural Poverty
1. The RPRP-2 in the State of Sergipe, as with the RPRPs in all other participating states under the Northeast CDD program, finances investments determined by community demand and classified for analytical purposes as basic infrastructure, productive and sociaVenvironmenta1. Under the project’s development objectives, and consistent with the State Government’s strategy of “development with inclusion” (PPA, 2008-200 1 l),organized, poor, rural communities will improve their wellbeing, incomes, capital assets and social capital through demand-driven investments in socioeconomic infrastructure and market-linked productive activities.
2. The Project covers 71 municipalities, with preferential focus on 41 municipalities with lowest Municipal Index of Human Development (IDH-M), which will receive some 70% of resources available for subproject investments. (About US$23.5 million or 86% of total project cost will be invested in subprojects). The Project is a Category B, that is, its potential environmental impact on human populations and ecologically important areas is considered moderate/modest. Neither the State, nor the Bank, through the Project, will approve subproiects which cause degradation to essential natural habitats.
3. The principal Safeguards issues arising from the RPRP-2 relate to assuring compliance with Environmental and Social Safeguards, but compliance with Natural Habitats, Pest Management and Cultural Property Safeguards are also covered. The following describes compliance requirements and procedures on all Safeguards triggered by the project, safeguard-related risks and/or impacts identified through studies and assessments, federal and state environmental laws, institutional capacity and measures to be adopted throughout project implementation.
A. EnvironmentalManagement Plan
4. The Environmental Management Plan (EMP) for the proposed RPRP-2 project describes the legal, institutional and operational context, requirements and procedures for ensuring that environmental issues are addressed throughout the project cycle.’ These represent both a continuation of successful practices established under RPRP- 1 (2002-2006), updated with legal and institutional requirements under more recent environmental legislation of the State of Sergipe, and lessons learned from RPRP-1 and similar projects in other Northeast states. The EMP also reflects Bank Safeguards requirements and responds to questions identified in the Bank report entitled “Thematic Review - Rural Infrastructure Projects in Brazil” (QAT Thematic Review, 2002).
5. The EMP governs the following aspects of environmental management:
Ensuring that the project is fully-compliant with Federal and State environmental laws and with Bank Safeguards; Assessment of adverse and/or positive environmental aspects associated with the financed subprojects, both individually and collectively; Identifying opportunities for employment generation and income through activities which protect, restore, conserve and/or properly value the environment;
I A preliminary version of the EMP was drafted in 2005 and a new version was prepared in 2008.
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Building into all eligible subprojects activities designed to protect, restore, conserve and/or properly value the environment; Generating synergies between productive activities, community development and environmental protection, including the formation of localized linkages between subprojects and other public and private entities; Training all involved parties, especially the beneficiary public, to promote environmental management, both in regard to subprojects and in overall environmental issues; Promoting joint management of environmental issues between the project, local and state entities; and Linking environmental conservation and protection activities with poverty-related investments consistent with the State’s PPA 2008-2011 (see above). *
Environmental Evaluation of Subprojects
6. Environmental evaluation of each subproject proposal prior to approval/financing is already a standard process designed to prevent, minimize or mitigate eventual adverse effects. The basic methodology for the vast majority of subprojects is applied via simplified procedures appropriate to their small scale, as agreed with the State and permitted under Brazilian law. Environmental monitoring is not restricted to investments in water (small dams, water supply systems, wells and cisterns) but covers the full range of eligible subprojects. Importantly, activitiedinvestments needed to mitigate identified adverse impacts become part of the subprojects itself (Le., are built into subproject design) and as such they are financed together with the intended subproject.
8. Main procedures cover:
0 Dissemination of project environmental rules and standards to the CASand MCs; 0 Application of an environmental checklist to all subprojects, and obtaining environmental licenses from state agencies for those subprojects which require this procedure; Use of standard subproject designs for the most commonly demanded and/or technically difficult subprojects, incorporating environmental analysis and mitigation features; and Monitoring compliance with Bank Safeguards policy throughout the subproject cycle and ensuring compliance with federal and state environmental laws.
8. A series of newhpgraded EMP tools was recommended by the Bank project team to PRONESE to enhance the screening process for identifying potential environmental impacts of subprojects, both ex ante and expost, and to determine the need for environmental licensing of certain subproject types?
0 Environmental Worksheet: The worksheet would provide the following information for each subproject regarding its potential environmental impacts: (a) impact of the actions proposed under the subproject; (b) subprojects with pollution potential requiring environmental licensing beyond a certain threshold or scale; (c) subprojects which, by their prescribed activities, require
* Environmental protection of water resources for example, is a specific pillar of the State’s 2008-201 1 PPA. Some of these tools are discretionary - depending on certain conditions - and others mandatory, Le., agreed with PRONESE for the EMP and as part of the responsibilities of the Environmental Quality Technical Group (NTGA). Discretionary tools are those whose effectiveness depends on certain conditions and include participatory Environmental Assessment, subproject classification and subproject packages. Mandatory tools include: environmental worksheet, detailed environmental checklist, aggregate impact assessment, subproject environmental monitoring, support to environmental licensing (simplified procedures were agreed with SEMARH on an ad hoc basis up till now; SEMARH now has a new tool, the environmental declaration, which can be used for most RPRP subprojects); identification of opportunities, negative list, NTGA effectiveness, and mobilization and training.
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environmental licensing or authorization; and (d) subprojects which are restricted from being implemented in certain sensitive areas (e.g., APAs). The worksheet is complemented by the Sergipe Conservation Units and Sensitive Areas List (see EMP, Annex 2).
Detailed environmental checklist: Included in each subproject proposal, the checklist would be completed by the community association and depict the environmental situation in the locality where the investment is to take place and the possible interactions between the proposed investment and the environment. PRONESE already employs this checklist as part of subproject preparation but more detail would be required. The checklist should be clear, direct and easily understood by the project beneficiaries; PRONESE should also make available training to prepare the community associations.
Subproject pre-selection and classijication: Each subproject will be assigned to a category by the CONDEMs (and validated by the Environmental Quality Technical Group - NTGA - in PRONESE) for the purpose of environmental screening.
(i)Category A: Subprojects with no adverse environmental impact, and those subprojects which promote conservation.
(ii)Category B; Subprojects with potential for adverse environmental impact, requiring an environmental assessment to identify mitigation measures. The assessment is completed by the community association and its respective Municipal Council (CONDEM) - with assistance as needed from the NGTA - and presented with the subproject proposal.
(iii)Categoty C: Subprojects which, in addition to potential environmental impacts, require licenses, authorizations, concessions or permits. Assessment of these subprojects will be conducted by the NTGA, together with the respective CONDEM.
Participatory Environmental Assessment: Similar in approach to the Rapid Rural Appraisal method, this assessment is a useful tool to facilitate community awareness-building regarding the environment and will aid in the completion of the environmental worksheet.
Aggregate Impact Assessment The potential aggregate (cumulative) impact of subproject investments will be assessed ex ante, during the selection of subprojects for a given territory within the project area. Additionally, ex posr assessment of cumulative impacts will also occur during the implementation and monitoring stages of the subproject cycle, during the Mid-term Review, and at the conclusion of RPRP-2.
Subproject environmental monitoring: The NTGA, in collaboration with SEMARH, will develop monitoring indicators to: (a) assess and detect environmental impact (whether positive or adverse) following subproject implementation, as well as (b) to capture any unforeseen impacts in order to factor such information into future subproject assessments (c) to assess changes in local environmental quality and (d) assess EMP effectiveness. Community participation, along with that of the CONDEM, in such monitoring will be crucial, and sufficient training and capacity-building will be available through the project for this purpose.
Environmental Licensing of subprojects: Some subprojects financed under the RPRP-2 will be subject to obligatory environmental licensing by the State of Sergipe. The NTGA will facilitate agreements and provide support to the Secretariat for Environment and Water Resources (SEMARH), as well as the Brazilian Environmental Institute (IBAMA) as needed, to simplify
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required procedures and guarantee compliance with existing legislation, in an effort to optimize time and resources.
Identification of opportunities for environmental subprojects: Efforts will be made to incorporate environmental themes into subprojects to be financed under the RPRP-2. The NGTA, together with ADEMA, SRH and other RPRP-2 partners, will develop a list of opportunities for subprojects aimed at environmental preservation and conservation for wide circulation and discussion by participating CAS. Initially, five categories of environmental subprojects are proposed: (a) Recuperation of degraded areas and/or pollution control, e.g., in legal reserves (APAs), headwaters, buffer zones, areas of desertification, areas under pressure; (b) Protection of environmental assets and environmental awareness; (c) Goods and works to improve Conservation Units; (d) Sustainable use of natural resources and environmentally-friendly technologies, including those which seek synergies with existing subprojects; and (e) Increased eco-efficiency of projects financed under the RPRP-2.
Negative list of subprojects: The project will not finance any communi@ subproiect with potential to cause environmental harm. The project EMP and Operational Manual list a series of subproject types expressly prohibited including: new dams exceeding 10 meters; and clearing more than 50 ha per subproject of caatinga or other natural vegetation.
Implementation of subproject ‘>packages” in a given region or territory: While isolated subprojects are expected to have negligible impact on the environment, those subprojects clustered in a given region can, in the aggregate, generate environmental impact - both positive and/or adverse. As such, projects within a given area will be assessed to determine their synergies with other existing and planned subprojects to determine the nature of these potential impacts. Subprojects that could generate such aggregate impacts are the following: (a) those situated in the same watershed; (b) those in municipalities with severely degraded natural resources; and (c) those on the margin or within declared Conservation Units.
Demonstration subprojects using environmentally-friendly technologies: Alternative technologies - as opposed to those traditionally used by the beneficiary population - will be eligible for financing, and will require a process of mobilizing and informing the public, its leadership and any intermediary organizations (e.g., NGOs), as well as government agencies. In this context, Demonstration Units - in coordination with ADEMA, SRH and others - will be deployed as a method to facilitate both awareness and adoption of these alternative technologies. Community associations and CONDEMs would also be able to access technical assistance under the project to clarify the possible advantages, disadvantages and required investments to put these technologies into operation. NTGA effectiveness: The NTGA, within PRONESE, will have the primary role in supporting environmental concerns under the RPRP-2. For project implementation, PRONESE is staffed with a well-qualified technical team, including civil engineers, agronomists, social specialists (e.g., education, health) and economists. To manage environmental issues, the project team is being reinforced by the NTGA, mainly responsible for EMP implementation. To implement the EMP and assess, monitor and ensure compliance with environmental safeguards (whether from federal and state legislation or under the Bank’s safeguards), NTGA will work closely with federal and state * environmental management entities including SEMARH and IBAMA, as well as with municipal governments and NGOs within the project area.
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Mobilization and training of the beneficiary public and other stakeholders: Training and capacity-building with be continuous to equip the beneficiary public with the tools needed to deal with environmental issues both under the project and beyond. Similarly, PRONESE staff would participate in a regularly-scheduled environmental training program. SEMARH can help define/present the objectives and suggested content for such training and seek partnerships with qualified service providers as needed/available. Specific objectives of the environmental training will include: (a) prepare all actors under the project to adequately consider environmental issues in their decision-making processes; (b) raising awareness of those beneficiaries residing in environmentally-sensitive areas; (c) build understanding and a means of compliance for the environmental guidelines in the project Operational Manual; (d) establish a technical basis for the formulation and implementation of environmental subprojects, as well as the insertion of environmental criteria in the design of all subprojects undertaken; and (e) support the environmental evaluation and monitoring under the project, in order to ensure safeguard compliance. 9. In addition to project beneficiaries (i.e., community associations, CONDEMs), training will focus on the technical teams of the NTGA, SEMARH, service providers involved in the design of subprojects, and other interested elements of civil society. Additionally, in the context of future partnerships, training for health workers, rural extension agents, and public school teachers may be deployed as well. Table 2 summarizes the environmental training needs and proposed environmental activities for the RPRP-2.
Lessons of Experience
10. The STU for the previous project complied with Bank Safeguards policies and project environmental rules (including Federal and State norms) applicable at the time. For the proposed project a fully-revised Environmental Management Plan, incorporating current Bank safeguard provisions, has been prepared. The design of RPRP-2 heeds lessons for effective environmental oversight from its predecessor and similar projects in other Northeast states, namely:
0 continuous, systematic supervision/monitoring during subproject implementation via the Monitoring Committees comprising representatives of the CAS,MCs and STU; 0 continuous educational campaigns which, among other benefits, establish the MCs as a crucial filter against potentially damaging subprojects and a promoter of good practice examples of environmentally sensitive investments (e.g., garbage collection, beekeeping and sanitation); 0 an Operational Manual with all instruments needed to ensure compliance with state and federal environmental laws; 0 capacity-building in environmental monitoring, analysis and management; 0 insertion in the Monitoring and Information System (MIS) of a link to environmental issues, impacts and mitigation measures; 0 joint problem-solving seminars to resolve difficult environmental issues including appropriate mitigation; 0 the effectiveness of standard subproject designs which include environmental features; and 0 inclusion of in-house environmental expertise on the STU project team.
41 II. The following summarizes the legal, institutional and procedural elements most relevant for the RPRP-2 project. A more detailed presentation is available in the project file.
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Legal Framework for the Environment
A. Federal Law
12. Federal environmental legislation relevant to the Project, focused on water resources, covers the following: (a) environmental licensing; (b) granting of water user rights; (c) protection zones around reservoirddams; (d) conservation units; (e) natural and cultural patrimony; and (f)criminal responsibility.
13. Licensing: Federal law requires licensing for Project-financed works, but specifies only dams and water treatment plants, not other types such as wells for public, private and/or irrigation use, distribution systems and cisterns. The principal environmental body (federal and/or state) then defines criteria and detailed requirements, and implements federal laws, based on type, size and features of an individual enterprise/work. State law calls for the licensing of large-scale water supply works, providing leeway for the negotiation of simplified procedures for small-scale systems.
14. Permits for Water Usage Rights: Consistent with Federal law, State legislation of 1997 mandates obtaining permission for installing, expanding or altering any facility using water resources and for works or services which change flow, quantity or quality. Where the intended use involves small populations and volumes, permits are not required.
15. Protection Zones for Man-made Reservoirs: Provisional Measure 2 166-67 of 200 1 mandates the expropriation or acquisition of land surrounding a reservoir for permanent preservation. Responsibility for its maintenance is not specified. In the case of water for domestic use, the rules of state environmental agencies during the licensing process govern the acquisition and control of such areas.
16. Conservation Units: The National System for Nature Conservation Units (SNUC - Law 9985- 2000) established the norms and criteria for creating and managing conservation units. Activity within such units must adhere to local Management Plans and requires prior authorization of the administering agency.
17. Historic, Cultural and Archeological Patrimony: All such patrimony and its use, protection and recovery are governed by the Federal Government under the 1988 Constitution.
18. Criminal Responsibility: The Law of Environmental Crimes (9605/1998) established for the first time, criminal penalties for such acts. All persons involved are held physically and legally responsible, regardless of who instigated the event.
B. StateLaw
19. Licensing: The State Secretariat of Environment and Water Resources (SEMARH) is the lead agency responsible of state environmental and water resource management policy in Sergipe, including research, planning, resource monitoring, exploration, environmental recuperation and defense. SEMARH is supported by an environmental policy formulation body, the Environmental Protection Council (CECMA), which issued guidelines for the state licensing system in 1979. In 2006 the licensing system was reformed. Currently, there are five types of licenses: LP, LI, LO, environmental declaration (for small projects), and environmental authorization (for temporary activities). State legislation consists of Law no. 5.858/06 and previous CECMA licensing resolutions. Law no. 5.858/06 has not yet been complemented with specific regulations.
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20. License of Water Use Rights: Sergipe created the permit for water use rights in 1997 in the context of the establishment of a Water Resources State Management system. The license became operational in 2001. There are three types of water permits: preliminary permit, water use permit, and work permit. State legislation governing water use permits and licenses to construct water works consists of Law no. 3.870/97, which instituted the State Water Resources Policy, and Decree no. 18.456 /99, which regulates technical water supply services, licenses for water use rights and other related matters.
21. Subprojects involving the following activities are dependent on obtaining a water use permit: water supply for human or animal consumption; irrigation; aquaculture (fish farming, shrimp farming); industrial and commercial usage; leisure activities; release of waste water into bodies of water for purposes of dilution, transport or assimilation; and, other types of usage which alter the regime, quantity and quality ofwater resources.
22. The majority of water supply and small dam subprojects financed by the RPRP-1 fell under the license exemption provisions in the Law due to their small size, benefiting from simplified procedures. This is likely to continue under the RPRP-2.
23. Protected areas: According to Sergipe Environmental Policy in regard to Conservation Units, APPs and Legal Reserves, there are areas with particular cultural and environmental attributes that may be considered areas of special use. Sergipe has three Federal Conservation Units and four State Conservation Units. Furthermore, the state environmental agency has already identified valuable and sensitive areas and ecosystems for which new Conservation Units are being proposed. Relevant legislation related to those areas is contained in the EMP file.
24. Pesticides: Registration and authorization from the state environmental agency are required for pesticide usage, regulated by Law no. 2.441/83.
Institutional Structure/Capacity to Manage Environmental Issues
25. The State of Sergipe has the legal and institutional capacity and experience to execute all environmental requirements under the project. The project Operational Manual reflects the enhanced EMP and includes all key measures for environmental preservation, addressing the Bank’s Safeguard policies and provisions ofBrazilian Federal and State law.
26. The STU has a staff of 29 graduates with specialization in agriculture/agronomy, land, environmental sciences, social sciences and economics as well as 20 technicians and 5 1 administrative, financial and legal personnel. The STU can also call on specialized consultants in irrigation, environment, water resources and social sciences, and has open access to all state environmental agencies (see EMP, Operational Manual and project file) to analyze, monitor and supervise environmental Safeguards and laws/regulations. STU staff provides advice on subproject preparation and coordinate subproject activities with CASand MCs. They also supervise subproject implementation, including compliance with environmental norms.
27. In 2005, the PRONESE Administrative Council approved the creation of a new STU unit, the Environmental Quality Technical Group (NTGA - see above), currently being established and staffed. The objective of NTGA is to ensure that community subprojects do not have negative impacts on the environment by: (a) supporting the process of obtaining Environmental Licenses for subprojects, when needed; (b) submitting requests to SEMARH for Water Use Permits, when needed; (c) evaluating subproject proposals from the environmental perspective, recommending mitigation actions where needed; (d) validating the pre-selection and classification of subproject proposals by the MCs for
101 102 environmental screening and assisting the screening process itself; and (e) preparing training programs and information campaigns for the CAS, MCs and PRONESE itself and for broader environmental education, to raise societal awareness for the prevention, detection and resolution of environmental problems.
28. NTGA will consist of specialists in biology, agronomy, environmental management, forestry and civil engineering and will have access to technical support from specialized public and private agencies: the State Department for Agricultural Development (DEAGRO); the State Secretariat of Environment and Water Resources (SEMARH); the State Secretariat for Science and Technology (SEDETEC); the Brazilian Institute for the Environment (IBAMA); the Brazilian Agricultural Research Corporation (EMBRAPA); the Brazilian Institute for the Support of Micro and Small Enterprise (SEBRAE-SE); the Federal University of Sergipe and Tiradentes University; and the Articulaqclo do Semi-Arido (ASA- Sergipe), as well as other non- governmental organizations specialized in environmental and sustainable development matters.
29. Environmental capacity building is an integral part of the project’s overall trainindtechnical assistance program under Component 2: Institutional Development. Actions agreed at the STU level include: (a) expanding the technical expertise of staff on environmental matters; (b) inserting environmental modules into the project Monitoring and Information System (MIS); (c) applying a negative list of prohibited investments; (d) updating the Operational Manual to reflect Bank Safeguards and new state and federal legal requirements; (e) creating a new category of community investments already in use in other participating states (environmental subprojects) which might include for example, soil and/or water restoration activities by communities; and (f)continuous training of the STU, Municipal Councils and community associations through courses, workshops, demonstration units, rapid participatory diagnoses of existing environments, and on-the-job training.
Public Consultation
30. Consultation with project stakeholders has been conducted within the proceedings to prepare the Sergipe Participatory Master Plan for Territorial Development (PP). The project was presented at numerous municipal meetings, reaching some 22,000 rural participantdstakeholders. The preliminary version of the EMP has been available in the project website (http://www.pronese,se.gov.br) since 2005. The 2008 updated version of the EMP is available through the State Technical Unit website and the Bank’s Infoshop.
Procedural Elements: Project Cycle
3 1. The cycle for the environmental evaluation of subprojects is summarized below:
(a) Presentation: The RPRP is launched following an extensive information dissemination campaign, which includes indigenous and ethnic communities and covers project objectives, rules, eligibility criteria, operational mechanisms and environmental aspects. This campaign features awareness building for the MCs and CAS on environmental rules and standards for protection, restoration, conservation and valuation of the environment and is followed by additional campaigns throughout the implementation period. Further, NTGA agrees with SEMARH on simplified procedures for environmental licenses and permits related to the project. NTGA trains multipliers in MCs and CAS.
(b) Preparation of subprojects: Subproject preparation is initiated by MCs and CASwith the support of NTGA and multipliers. The STU provides, where appropriate, standardized subproject designs to facilitate preparation and ensure the inclusion inter alia, of key technical and environmental parameters
102 103 and standards. NTGA reviews AA assessment tools such as the list ofpotential environmental impacts of subprojects, selects indicators for monitoring and evaluating, and indicates the methods for data collection and organization. There are training activities focused on the environmental aspects of subprojects.
(c) Analysis: MCs carry out a preliminary review of CA subproject proposals, taking into account key environmental criteria. All existing MCs will be trained to provide guidance to the CAS on the basic requirements of federal and state environmental laws and Bank Safeguards, and to provide a preliminary analysis of proposals using an environmental checklist. The baseline for environmental monitoring is set up in this phase.
(d) Selection and approval of subprojects: The selected proposals undergo an environmental analysis by the STU, supported where needed by specialized technical personnel from partner institutions. Licensing procedures are a requisite for subproject approval. No agreement is signed or funds transferred until environmental viability is established. Agreements between the STU and CAS stipulate compliance with environmental guidelines at the implementation and operational stages. Environmental conditionality is included in the subprojects and in the agreements with CAS.
(e) Implementation of subprojects: NTGA and MCs ensure compliance with environmental conditionality. Monitoring activities take place from this phase on.
(0 Operation and maintenance: This phase determines whether supplementary training is needed on environmental aspects, based on community performance.
(g) Evaluation: This involves the maintenance and use of the project Management Information System (MIS) and studies of physical performance and impact, including ofthe project’s environmental aspects.
Environmental Activities by Component
32. The EMP encompasses activities on various levels to be implemented under the proposed project:
Component I: Community Subprojects. At the level of individual subprojects: (a) identification and neutralization of potential adverse environmental impacts, beginning at the point of subproject formulation and extending through both implementation and operation; and (b) the treatment of the environment as an opportunity to generate both employment and income through subproject investments.
At the regional level (e.g., water basins, municipalities or groups of municipalities): (a) evaluation of cumulative impacts; (b) implementation, in an integrated manner, ofa cluster of subprojects linked by the same environmental condition(s), e.g., interference with a water sub-basin, Area of Conservation, or jointly located in an area of special environmental value or environmental pressure, or which share a common environmental objective; and (c) inclusion of initiatives to defend, conserve, restore and properly value the environment as a means ofreducing rural poverty.
Component 2: Institutional Development. Undertake activities to mobilize the beneficiary public, as well as training and technical assistance for all project participants in order to incorporate the environment in all stages ofthe proposed project.
Component 3: Horizontal Integration. Training and technical assistance for SEPLAN to conduct results-based management of public policies under its jurisdiction, including the monitoring and evaluation ofthe effectiveness of environmental protection and promotion activities .
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Component 4: Supervision, Monitoring and Evaluation. Prepare indicators for monitoring and impact assessment ofenvironmental actions and assess project environmental quality.
Table 1 summarizes the environmental guidelines of the proposed project and associated proposed actions.
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Natural Habitats (OP/BP 4.04)
33. As discussed in the EMP and further detailed in the project Operational Manual, neither the State, nor the Bank, through the Project, will approve subprojects which cause degradation to essential natural habitats. The EMP provides: (a) a list of Federal and State Conservation Units in Sergipe; (b) a list of identified, valuable and sensitive areas and eco-systems; and (c) a list of areas for which new Conservation Units are being proposed. This information will help identify valuable natural habitat areas.
Pest Management (OP 4.09)
34. The EMP already defines a process, including screening criteria in the project Operational Manual, for detecting the potential use of pesticides under both the RPRP-1 and proposed RPRP-2. Where appropriate, the proposed project already promotes integrated pest management approaches under subproject investments.
Cultural Property (OPN 11.03, being revised as OP 4.11)
35. In the event of “chance finds”, the project Operational Manual already outlines procedures to be followed in the event of such discovery of culturally-significant materials during subproject implementation.
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B. Indigenous and Afro-Slave-DescendentPeople’s Development Framework
36. The strategy for the participation of indigenous and Afro-slave-descendent (“quilombolas”) communities in RPRP-2 was developed in consultation with indigenous and quilornbola leaders, representatives of government agencies and civil society organizations working with these peoples, and with specialist anthropologists. It builds upon the RPRP’s extensive experience of working with community associations representing these people in the Municipal Councils and those which have already implemented several community subprojects with RPRP support. A first version of this strategy was available through the PRONESE website for about two and a half years. The final version is now available at the same website (www.pronese.se.gov.br) and at the World Bank InfoShop. Racial equality, ethnic diversity, indigenous and quilombola rights, and social inclusion have been widely discussed at the state level during the Municipal Conferences for Territorial Planning coordinated by the State Secretariat of Planning. Participation of representatives of traditional communities in these events was intense and proved their claim to have a voice in local development and public policies addressed to them. The RPRP-2 guidelines and the present participatory strategy effectively respond to and echo these concerns.
Background
37. Indigenous groups: When the Portuguese arrived in Sergipe there were several indigenous groups, each with their unique name and leadership. Today, the only remaining indigenous group is the Xocd, which inhabits the Island of Ssio Pedro in the Silo Francisco River, in the municipality of Porto da Folha. The Xocd were brought to the Island of Ssio Pedro in the 19‘h century to become part of the Ssio Pedro de Porto da Folha mission. Later, with the systematic decimation of the indigenous population, Xocd land was vacated by governmental decree in 1873 and the Xocd people were forced off their lands. The Xocd returned to the Island of Ssio Pedro in 1979. There were violent conflicts with local farmers but, with the assistance of the Catholic Church, the Xocd recovered their traditional lands in the 1980’s. In 1985, some 3,600 hectares were identified as Xocd lands by FUNAI and named Caiqara. A total of 4,220 hectares were officially demarcated for the Xocd, under Decree no. 40 1 of December 29, 199 1. The population of the Xocd is about 360 people. Their village on the Island of Ssio Pedro already has access to electricity, potable water, public telephone, as well as a primary school and health post (which, through FUNASA, is staffed with a doctor and dentist, coexisting with popular herbal remedies and other traditional practices). Subsistence agriculture, fishery and crafts are their main economic activities. Fishing has declined following construction of dams and hydroelectric power plants on the Ssio Francisco River.
38. Quilombola communities: The first African slaves were introduced to Sergipe sugar cane farms in the 17th century; most came from the then-provinces of Bahia and Pernambuco. Afro-descendents comprised three-fourths of the population of Sergipe by the middle of the 19‘h century and 34% lived in slavery. The abolitionist legislation of the late Brazilian Empire reduced drastically the number of slaves and when slavery was abolished (1888), just 5.6% of the province’s slave population remained so. In Sergipe, slaves often ran away and formed many “ranchos”, “coitos” or “mocambos” - terms commonly used to designate the communities of runaway slaves. The community of Mocambo, municipality of Porto da Folha, was the first community of Afro-slave descendents to organize and claim its identification as a quilombola community. Its example was followed by many. The Palmares Cultural Foundation (FCP), the federal agency under the Ministry of Culture charged with identifying and certifying quilombola communities recognizes 15 such communities in Sergipe. Civil society organizations and social movements mention the existence of 19 others.
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39. Quilombola communities are dispersed throughout the state territory, but most are located in the semi-arid, poorest rural areas and in the municipalities with lowest levels of human development (HDI < 0.623), i.e., those comprising the priority targeted area (Area A) of the RPRP-2. Their population is about 6,000 families living from subsistence agriculture, fishing and rural day laboring. Quilombola communities in Sergipe are seeking legal possession of about 4,800 square kilometers of state territory. Poverty is rampant. Available information suggests that about 80% of quilombola families earn less than one minimum wagelmonth and most are supported by federal programs for income redistribution and eradication of child labor. Illiteracy rates are also high. Nonetheless, most quilombola communities have organized themselves into community associations and benefited from previous RPRP projects (see below).
Previous RPRP Experiences with Traditional Communities
40. The Rural Poverty Alleviation Project (pre-RPRP-1) financed in 1999 a productive subproject (tractor with implements) for the AssociaqGo Indigena do Povo Xocd. The investment benefited 68 families, almost the entire p~pulation.’~Since then, the Xoco have been represented on the Municipal Development Council (CONDEM) in the municipality of Porto da Folha. In 2005, they presented a second proposal (manioc flour mill) to the RPRP-1 which was approved by the CONDEM, but was not financed by PRONESE due to dwindling project resources in the final stages.
41. The RPRP’s support to quilombola communities (certified or not by FCP) has been more widespread and intense. Some 26 of the 35 communities identified as quilombola have benefited from 46 community subprojects, with housing and electrification being the most common. Some US$l.3 million dollars have been invested, benefiting 5,161 families (with repetition).
42. In addition to the RPRP, both the State and Federal governments are either implementing or in the process of implementing programs in the areas of education, health and infrastructure, while respecting the characteristics and cultural context of the Xocd and quilombola communities.
Legal Framework
43. The 1988 Constitution of Brazil recognizes the diverse societies of the nation’s indigenous population, their customs, languages, beliefs, traditions and the right to their traditional, occupied lands. The Brazilian Constitution (1 988), the Decree 4,887 (November 20, 2003) and Normative Instruction 20 (September 19, 2005) govern the process of official recognition of quilombola communities and land regularization, establishing self-determination as the main criterion. To date, the Palmares Cultural Foundation has recognized and certified 1,171 quilombola communities throughout Brazil, of which 15 are in the State of Sergipe. Federal legislation also guarantees the rights of indigenous and quilombola communities to special and culturally appropriate education. State legislation (Law 5,497 of December 23, 2004) establishes guidelines for the inclusion of African and Afro-Brazilian Culture and History as an obligatory discipline in basic school education.
Institutional Partnerships
44. At the federal level, public policies addressing traditional communities are coordinated by the National Indian Foundation (FUNAI), the National Health Foundation (FUNASA), the Palmares Cultural Foundation (FCP, under the Ministry of Culture), the Special Secretary of State for Promoting Racial Equality (SEPPIR), the National Land Reform Institute (INCRA, under the Ministry of Agrarian
59 The subproject had a total cost of US$24,820, yielding a cost per beneficiary family of US$365, or about 75% of the cost per beneficiary family for other subprojects under the PCPR financed in Porto da Folha.
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Development), and the Secretary of Continuing Education, Literacy and Diversity (SECAD, under the Ministry of Education). At the state level, these policies are coordinated by the Nucleus of Education, Diversity and Citizenship (under the State Secretary of Education) and by the Coordination for the Promotion of Policies of Racial Equality (COOPIR).
45. During implementation of the traditional, participatory strategy under RPRP-2, PRONESE will intensify the partnerships already built with the above institutions and will also work with the state’s Federation of Rural Labor Unions (FETASE), the Federal University of Sergipe (UFS) and other civil society organizations which were consulted during preparation of the strategy.
Targeting Strategy
46. RPRP-2 will focus its resources in 41 municipalities with HDI lower than 0.622. Most traditional communities are included in these municipalities. Some 70% of the financial resources allocated by the project to community subprojects will be invested in these municipalities.
47. In each municipality, PRONESE staff members - who normally participate in CONDEM meetings - will encourage/motivate Council members to assign high priority to proposals presented by poor, traditional communities - especially those which have not yet participatedbenefited. Subprojects financed for traditional communities will not be included in the indicative budget ceiling allocated annually to these municipalities.
48. Particular efforts will be made to ensure that: (a) dissemination campaigns reach the most remote traditional communities; (b) they know and understand the RPRP-2 guidelines, (c) they mobilize to take part in the project; and (d) their proposals receive equitable treatment in the Municipal Councils’ decision-making processes.
Participation Strategy
49. Since its inception, the RPRP in Sergipe has focused its actions in the rural space and principally in those communities with the highest levels of poverty. Under the proposed project, dual objectives will be pursued: (a) promoting further social inclusion of Xocd and quilombola communities; and (b) sustainable development which strengthens their local identity and respects their cultural diversity. To provide the conditions needed for the physical and cultural survival of the Xocd, the Government of Sergipe will continue to invest in their development, following the approach laid out under the RPRP-1. The State of Sergipe will continue and intensify assistance to these traditional groups. RPRP-2 will finance for Xoco and quilombola communities those subprojects already demanded and prioritized, among them productive investments in agriculture, their principal source of income.
50. To further ensure the effective participation of Xocd and quilombola communities, PRONESE will take three actions:
(a) Design/implement an information campaign using content, language and other appropriate forms of communication, both at the beginning of the project and throughout its implementation;
(b) Develop/implement with NGOs and other institutions with indigenous and quilombola expertise, a training program to facilitate the articulation of community demands, formation of leadership, and the harmonization of these demands with community development plans; and
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(c) Contract a specialist to accompany both the training and more broadly, the subproject cycle vis-& vis these traditional communities.
5 1, The participation of the traditional communities will therefore take place through the community subprojects which they will eventually implement, their participation as members/councilors of CONDEMs, and with training and capacity-building programs designed to promote cultural preservation, environmental protection, economic development and improved well-being for the community. This training is intended to build self-esteem and a sense of inclusion among these traditional communities by incorporating the RPRP’s principles of participation, democracy and decentralization which, when put into practice, will transfer decision-making on development needs and public policies to them.
Expected Benefits
52. By attending community demands, it is expected that RPRP-2 will make a crucial contribution to reducing deficits in housing and sanitation infrastructure, to improving productive capacity and increasing income opportunities, and to reducing food insecurity and social vulnerability among indigenous and quilombola communities. By intensifying the mobilization of these communities and expanding their opportunities to participate in more democratic and egalitarian processes of local/municipal decision- making, the RPRP-2 will improve their self-esteem, community participation and civil participation, increase citizenship and constituency, political representation and social capital. By stimulating support to indigenous and quilombola demands, the project can potentially help overcome barriers to social inclusion and democracy due to racial stereotypes and ethnic prejudices. Finally, by making indigenous and quilombola communities a priority, the project will ensure that its focus is on the poorest of poor communities in Sergipe.
Risks and Mitigating Measures
53. Two main risks are involved when dealing with indigenous and quilombola communities: (a) the promotion and implementation of actions that harm their cultural and economic diversity; and (b) the resistance of local actors to supporting the demands presented by these communities due to racial/ethnic stereotypes and prejudices. The RPRP’s trademark CDD approach and the institutional arrangements to implement the project in close consultation and partnership with experienced government agencies and civil society organizations are adequate measures for mitigating the first risk. The dissemination campaign, close supervision by PRONESE technical staff of Municipal Council meetings, councilors’ training and orientation in ethnic issues and social inclusion principles, and stimuli to promote the equitable evaluation and approval of indigenous and quilombola proposals, are expected to limit the second.
Monitoring and Evaluation
54. The strategy of participation of traditional communities in RPRP-2 will be closely monitored and rigorously evaluated. Monitoring tools include the project’s Monitoring Information System, the community profile-at-entry worksheet, supervision field visits and community meetings. Evaluation will involve: (a) studies of physical performance and beneficiary assessment; and (b) impact evaluation (baseline study, mid-term evaluation, and final evaluation) applying a quasi-experimentalmethodology.
Public Consultation
55. Public consultation on all aspects of Project design - including support to traditional communities - has been conducted effectively through the participatory MCs in which representatives of traditional communities have actively participated since implementation of the RPAP. This process will continue
113 114 under RPRP-2. The MCs provide open forums which meet regularly and are recognized as legitimate, inclusive chambers for local consultation and decision-making, During project preparation, consultations took place between Xokd leaders and expert anthropologists and a preliminary version of the Traditional Community Participation Plan (TCPP) was reviewed by the Bank and also available on the website of the project State Technical Unit (http://www.pronese,se.gov.br) and in the Bank’s Infoshop.
56. In addition, a number of public, consultative events were arranged by PRONESE since 2006:
(a) In partnership with Banco do Nordeste and the Ministry of Agrarian Development, PRONESE brought 2,700 people together to promote the Programa Terra de Negro (a special line of the National Credit0 Fundiario Program (PNCF) designed for quilombola land settlements) and disseminate information on the Bank-supported RPRP.
(b) In 2007, a state meeting was held with the participation of the Movimento dos Sem Terra (MST), the Sergipe Federation of Rural Workers (FETASE) and the Sergipe Quilombo Coodination to discuss state policies targeting traditional communities.
(c) All 75 municipal State-sponsored conferences - coordinated by the State Secretary of Planning and designed to prepare Territorial Development Plans and discuss programs including the RPRP - dealt with issues of social inclusion, ethnic diversity, racial tolerance and traditional communities. Meetings were held in 15 municipalities with traditional populations, 13 of which are within the RPRP-2 area. Another eight regional meetings and one state-level event covered the same themes.
(d) Two meetings were held recently by PRONESE to work on the strategy for participation of traditional communities in the RPRP-2: (i)with representatives of the state agency created to mobilize, organize, and support quilombola communities (COOPIFUSETRAPIS); and (ii) with the Diversity, Identity and Citizenship Unit of the State Secretariat of Education, responsible for delivering public education to indigenous and quilombola peoples.
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Annex 12: Project Preparation and Supervision BRAZIL: Sergipe State Integrated Project: Rural Poverty
Planned Actual PCN review 0 3 /22/200 5 03/22/2005 Initial PID to PIC 03/3 0/2005 03/30/2005 Initial ISDS to PIC 03/3 1/2005 03/3 1/2005 Appraisal 06/06/2005 0 1/28/2008 Negotiations 05/20/2008 08/04/2008 Board/RVP approval 09/2 3 /200 8 Planned date of Effectiveness 12/0 1/2008 Planned date of Mid-term Review 05/31/2010 Planned Closing date 12/31/2011
Key institutions responsible for preparation of the project:
SEPLAN/PRONESE
Bank staff and consultants who worked on the project included: Name Title Unit Jorge A. Muiioz Task Team Leader LCSAR Fatima Amazonas Operations Officer LCSAR Joao Vicente FM Specialist LCSFM Anemarie Guth Proite Procurement Specialist LCSPT Isabella Micali Drossos Legal Counsel LEGLA Mariana Montiel Senior Counsel LEGLA Miguel Santiago Oliveira Disbursement Officer LCAFC Cidalia Brocca Financial Analyst LOADM Yanny Rocha Team Assistant LCC5C Anna Roumani Consultant, Rural Dev. LCSAR T~lioBarbosa Consultant, Economist LCSAR Luis 0. Coirolo Consultant, Economist LCSAR Estela Neves Consultant, Environment LCSAR Albert0 Costa Consultant, Sociologist LCSAR Raimundo Caminha Consultant, Rural Dev. LCSAR Jog0 Barbosa de Lucena Consultant. Rural Dev. LCSAR
Bank funds expended to date on project preparation: 1. Bank resources: US$43,000 2. Trust funds: 0 3. Total: US$43,000
Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$5,000 2. Estimated annual supervision cost: US$88,000
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Annex 13: Documents in the Project File BRAZIL: Sergipe State Integrated Project: Rural Poverty
State of Sergipe:
Plano de GestGo Ambiental (Environmental Management Plan), PRONESE, January 2008.
Strategic Plan, 2007-201 0, Government of Sergipe
Multi-annual Development Plan 2008-20 11, “Development with Inclusion, through Rights and Incomes”
Relatdrio de Desempenho Fisico, Hydros Consulting, 2004
Borrower Completion Report, SEPLANTEC/PRONESE, November 2006
Plano de Participacao de Comunidades Tradicionais (PPCT 2008)
Bank Documents:
Brazil Country Partnership Strategy, 2008-201 1
Implementation Completion Report, No. ICR0000233, January 3 1,2007
The Welfare Impact of Rural Electrification: A Reassessment of Costs and Benefits, IEG, January 2008
Decentralized Rural Development, Enhanced Community Participation and Local Government Performance: Evidence from Northeast Brazil, Van Zyl, Sonn and Costa, July 2000
QAT Thematic review - Rural Infrastructure in Brazil, 2002
Economic and Financial Assessment of the Rural Poverty Reduction Program, 2000
Can Community-driven Infrastructure Programs Contribute to Social Capital - Findings from the Rural Northeast of Brazil, Costa and Rizvi, May 2003
Projetos Renascer (PE, Produzir (BA) e Silo JosC (CE) - Perfil Socioeconomico da Populaqgo Beneficiaria - Fase 11, Relatorio de Consultoria Tecnica, Federal University of Campinas (FECAMP), Stio Paulo, 2004
116 117
Annex 14: Statement of Loans and Credits BRAZIL: Sergipe State Integrated Project: Rural Poverty
Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d PO89013 2008 BR Municipal APL: Recife 32.76 0.00 0.00 0.00 0.00 32.76 0.00 0.00 PO89929 2008 BR RGN State lntegrated Water Res 35.90 0.00 0.00 0.00 0.00 35.90 0.00 0.00 Mgmt PO94 199 2008 BR-(APL1) RS Integrated Munic Dev 18.90 0.00 0.00 0.00 0.00 18.90 0.00 0.00 PO890 1 1 2007 BR Municipal APL1: Uberaba 17.27 0.00 0.00 0.00 0.00 17.27 0.00 0.00 PO89793 2007 BR State Pension Reform TAL I1 5.00 0.00 0.00 0.00 0.00 5.00 0.00 0.00 PO70867 2007 BR GEF Caatinga Conserv. and Sust. 0.00 0.00 0.00 10.00 0.01 10.00 0.00 0.00 Mngmt PO8265 1 2007 BR APL 1 Para lntegrated Rural Dev 60.00 0.00 0.00 0.00 0.00 59.85 17.85 0.00 PO95460 2007 BR-Bahia Integr.Hway Mngmt. 100.00 0.00 0.00 0.00 0.00 100.00 0.70 0.00 PO82523 2006 BR HD Technical Assistance Loan 8.00 0.00 0.00 0.00 0.00 7.09 5.99 0.00 PO66535 2006 BR GEF Amazon Aquatic Res - AquaBio 0.00 0.00 0.00 7.18 0.00 6.48 1.70 0.00 PO8 1436 2006 BR-Bahia Poor Urban Areas Integrated 49.30 0.00 0.00 0.00 0.00 45.34 29.62 0.00 Dev PO8 1023 2006 BR- Sugar Bagasse Cogeneration Project 0.00 0.00 0.00 0.00 0.00 0.27 0.00 0.00 PO50761 2006 BR-Housing Sector TAL 4.00 0.00 0.00 0.00 0.00 3.99 1.99 0.00 PO95675 2006 BR-2nd Progr. Sustn.& Equit Growth 601.50 0.00 0.00 0.00 0.00 601.51 601.51 0.00 PO93787 2006 BR Bahia State Integ Proj Rur Pov 54.35 0.00 0.00 0.00 0.00 7.12 -14.35 0.00 PO92990 2006 BR - Road Transport Project 501.25 0.00 0.00 0.00 0.00 500.00 187.75 0.00 PO52256 2006 BR-MG Rural Poverty Reduction 35.00 0.00 0.00 0.00 0.00 12.73 -5.07 0.00 PO90041 2006 BR ENVIRONMENTAL SUST. 8.00 0.00 0.00 0.00 0.00 6.43 5.49 0.00 AGENDA TAL PO89440 2006 BR-Brasilia Environmentally Sustainable 57.64 0.00 0.00 0.00 0.00 53.69 21.99 0.00 PO83533 2005 BR TA-Sustain. & Equit Growth 12.12 0.00 0.00 0.00 0.00 9.81 6.45 0.00 PO877 I I 2005 BR Espirito Santo Wtr & Coastal Pollu 36.00 0.00 0.00 0.00 0.00 16.28 15.73 0.00 PO82328 2005 BR-1nteg.Munic.Proj.-BetimMunicipality 24.08 0.00 0.00 0.00 0.00 2.37 -5.36 0.00 PO88009 2005 BR GEF-Sao Paulo Riparian Forests 0.00 0.00 0.00 7.75 0.00 5.13 3.70 0.00 PO76924 2005 BR- Amapa Sustainable Communities 4.80 0.00 0.00 0.00 0.00 3.98 3.20 0.00 PO69934 2005 BR-PERNAMBUCO INTEG DEVT: 31.50 0.00 0.00 0.00 0.00 22.40 17.55 0.00 EDUC QUAL IMPR PO75379 2005 BR GEF-RJ Sust EM in Prod Landscapes 0.00 0.00 0.00 6.73 0.00 5.72 3.15 0.00 PO60573 2004 BR Tocantins Sustainable Regional Dev 60.00 0.00 0.00 0.00 0.00 49.32 41.02 18.12 PO877 13 2004 BR Bolsa Familia 1st APL 572.20 0.00 0.00 0.00 2.86 11.22 14.08 0.00 PO83013 2004 BR Disease Surveillance & Control APL 100.00 0.00 0.00 0.00 0.00 51.03 43.95 0.00 2 PO80830 2004 BR Maranhao lntegrated: Rural Dev 30.00 0.00 0.00 0.00 0.00 17.87 17.87 0.00 PO49265 2003 BR-RECIFE URBAN UPGRADING 46.00 0.00 0.00 0.00 0.00 34.81 27.43 18.79 PROJECT PO541 19 2003 BR BAHIA DEVT (HEALTH ) 30.00 0.00 0.00 0.00 0.00 12.39 12.39 0.00 PO58503 2003 GEF BR Amazon Region Prot Areas 0.00 0.00 0.00 30.00 0.00 11.83 30.00 0.00 WPA) PO76977 2003 BR-Energy Sector TA Project 12.12 0.00 0.00 0.00 0.00 8.98 8.98 0.00
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PO74777 2003 BR-Municipal Pension Reform TAL 5.00 0.00 0.00 0.00 0.00 2.92 2.92 2.92 PO43869 2002 BR SANTA CATARINA NATURAL 62.80 0.00 0.00 0.00 0.00 11.45 11.45 0.00 RESOURC & POV. PO51696 2002 BR SA0 PAUL0 METRO LINE 4 209.00 0.00 0.00 0.00 0.00 22.24 22.24 22.24 PROJECT PO73192 2002 BR TA Financial Sector 14.50 0.00 0.00 0.00 4.57 3.95 8.52 0.04 PO57653 2002 BR- FUNDESCOLA IIIA 160.00 0.00 0.00 0.00 0.00 2 1.90 -50.65 0.00 PO66170 2002 BR-RGN Rural Poverty Reduction 22.50 0.00 0.00 0.00 0.00 22.50 0.00 0.00 PO60221 2002 BR FORTALEZA METROPOLITAN 85.00 0.00 0.00 0.00 86.49 36.01 83.19 31.48 TRANSPORT PROJ PO70552 2002 GEF BR PARANA BIODIVERSITY 0.00 0.00 0.00 8.00 0.00 2.32 8.00 0.00 PROJECT PO73294 2001 BR Fiscal & Fin. Mgmt. TAL 8.88 0.00 0.00 0.00 0.00 4.86 4.56 4.86 PO50772 2001 BR LAND-BASED POVRTY 202.10 0.00 0.00 0.00 58.13 71.18 55.55 -2.57 ALLEVIATION I(SIM) PO50875 2001 BR Ceara Rural Poverty Reduction 37.50 0.00 0.00 0.00 0.00 13.72 -23.78 -23.78 Project PO50880 2001 BR Pemambuco Rural Poverty Reduction 30.10 0.00 0.00 0.00 0.63 24.50 -4.87 0.38 PO50881 2001 BR BR-PIAUI RURAL POVERTY 22.50 0.00 0.00 0.00 0.00 19.00 -3.50 -3.50 REDUCTION PO59566 2001 BR- CEARA BASIC EDUCATION 90.00 0.00 0.00 0.00 0.00 2.16 2.16 2.16 PO06449 2000 BR CEARA WTR MGT PROGERIRH 136.00 0.00 0.00 0.00 0.00 9.61 9.61 9.61 S IM PO38895 1998 BR FED.WTR MGT 198.00 0.00 0.00 0.00 40.00 50.00 40.00 5.00 PO43420 1998 BR WATER S.MOD.2 150.00 , 0.00 0.00 0.00 125.00 7.86 132.83 -0.73 Total: 3,981.57 0.00 0.00 69.66 317.69 2,113.65 1,393.54 85.02
BRAZIL STATEMENT OF IFC's Held and Disbursed Portfolio In Millions of US Dollars
Com mitted Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. ABN AMRO REAL 98.00 0.00 0.00 0.00 15.77 0.00 0.00 0.00 2005 2005 ABN AMRO REAL 98.00 0.00 0.00 0.00 15.77 0.00 0.00 0.00 2001 AG Concession 0.00 30.00 0.00 0.00 0.00 30.00 0.00 0.00 2002 Amaggi 17.14 0.00 0.00 0.00 17.14 0.00 0.00 0.00 2005 Amaggi 30.00 0.00 0.00 0.00 30.00 0.00 0.00 0.00 2002 Andrade G. SA 22.00 0.00 10.00 12.12 22.00 0.00 10.00 12.12 2001 Apolo 6.04 0.00 0.00 0.00 3.54 0.00 0.00 0.00 1998 Arteb 20.00 0.00 0.00 18.33 20.00 0.00 0.00 18.33 2006 BBM 49.40 0.00 0.00 0.00 49.40 0.00 0.00 0.00 200 1 Brazil CGFund 0.00 19.75 0.00 0.00 0.00 18.15 0.00 0.00 2004 CGTF 54.01 0.00 7.00 65.12 54.01 0.00 7.00 65.12 1994 CHAF'ECO 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 1996 CHAPECO 1SO 0.00 0.00 5.26 1.50 0.00 0.00 5.26
118 119
2003 CPFL Energia 0.00 40.00 0.00 0.00 0.00 40.00 0.00 0 00 1996 CTBC Telecom 3.00 8.00 0.00 0.00 3.00 8.00 0.00 0 00 1997 CTBC Telecom 0.00 6.54 0.00 0.00 0.00 6.54 0.00 0 00 1999 Cibrasec 0.00 3.27 0.00 0.00 0.00 3.27 0.00 0 00 2004 Comgas 1 1.90 0.00 0.00 11.54 11.90 0.00 0.00 11 54 2005 Cosan S.A. 50.00 5.00 15.00 0.00 50.00 5.00 15.00 0 00 Coteminas 0.00 1.84 0.00 0.00 0.00 1.84 0.00 0 00 1997 Coteminas 1.85 1.25 0.00 0.00 1.85 1.25 0.00 0 00 2000 Coteminas 0.00 0.18 0.00 0.00 0.00 0.18 0.00 0 00 1980 DENPASA 0.00 0.52 0.00 0.00 0.00 0.48 0.00 0 00 1992 DENPASA 0.00 0.06 0.00 0.00 0.00 0.06 0.00 0 00 Dixie Toga 0.00 0.34 0.00 0.00 0.00 0.34 0.00 0 00 1998 Dixie Toga 0.00 10.03 0.00 0.00 0.00 10.03 0.00 0 00 1997 Duratex 1.36 0.00 3.00 0.57 1.36 0.00 3.00 0 57 2005 EMBRAER 35.00 0.00 0.00 1145.00 35.00 0.00 0.00 145 00 1999 Eliane 14.93 0.00 13.00 0.00 14.93 0.00 13.00 0 00 1998 Empesca 1.33 0.00 2.67 0.00 1.33 0.00 2.67 0 00 2006 Endesa Brasil 0.00 50.00 0.00 0.00 0.00 50.00 0.00 0 00 2006 Enerbrasil Ltda 0.00 5.50 0.00 0.00 0.00 0.00 0.00 0 00 2006 FEBR 12.00 0.00 0.00 0.00 12.00 0.00 0.00 0 00 2000 Fleury 0.00 0.00 6.00 0.00 0.00 0.00 6.00 0 00 1998 Fras-le 4.00 0.00 9.34 0.00 4.00 0.00 6.04 0 00 2006 GOL 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0 00 2005 GP Capital Ill 0.00 14.00 0.00 0.00 0.00 0.14 0.00 0 00 GP Cptl Rstrctd 0.00 2.22 0.00 0.00 0.00 2.16 0.00 0 00 2001 GPC 0.00 0.00 9.00 0.00 0.00 0.00 9.00 0 00 GTFP BIC Banco 44.91 0.00 0.00 0.00 44.91 0.00 0.00 0 00 GTFP BM Brazil 4.22 0.00 0.00 0.00 4.22 0.00 0.00 0 00 GTFP Indusval 5.00 0.00 0.00 0.00 5.00 0.00 0.00 0 00 1997 Guilman-horim 18.08 0.00 0.00 14.37 18.08 0.00 0.00 14 31 1998 lcatu Equity 0.00 5.46 0.00 0.00 0.00 4.16 0.00 0 00 1999 lnnova SA 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0 00 1980 lpiranga 0.00 2.87 0.00 0.00 0.00 2.87 0.00 0 00 1987 Ipiranga 0.00 0.54 0.00 0.00 0.00 0.54 0.00 0 00 2006 Ipiranga 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0 00 2006 Itambe 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0 00 2000 Itau-BBA 12.86 0.00 0.00 0.00 12.86 0.00 0.00 0 00 2002 Itau-BBA 70.61 0.00 0.00 0.00 38.47 0.00 0.00 0 00 1999 JOSAPAR 7.57 0.00 7.00 0.00 2.57 0.00 7.00 0 00 2005 Lojas Americana 35.00 0.00 0.00 0.00 35.00 0.00 0.00 0 00 1992 MBR 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0 00 2006 MRS 50.00 0.00 0.00 50.00 0.00 0.00 0.00 0 00 2002 Microinvest 0.00 1.25 0.00 0.00 0.00 0.82 0.00 0 00 Net Servicos 0.00 10.93 0.00 0.00 0.00 10.93 0.00 0 00 2002 Net Servicos 0.00 1.60 0.00 0.00 0.00 1.60 0.00 0 00 2005 Net Servicos 0.00 5.08 0.00 0.00 0.00 5.08 0.00 0 00 1994 Para Pigmentos 2.15 0.00 9.00 0.00 2.15 0.00 9.00 0 00 1994 Portobello 0.00 0.59 0.00 0.00 0.00 0.59 0.00 0 00 2000 Portobello 4.28 0.00 7.00 0.00 4.28 0.00 7.00 0 00
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2002 Portobello 0.00 0.90 0.00 0.00 0.00 0.90 0.00 0.00 2000 Puras 0.00 0.00 1 .oo 0.00 0.00 0.00 1 .oo 0.00
2003 ' Queiroz Galvao 26.67 0.00 10.00 0.00 26.67 0.00 10.00 0.00 2004 Queiroz Galvao 0.60 0.00 0.00 0.00 0.08 0.00 0.00 0.00 2006 RBSec 22.83 1.51 0.00 0.00 0.00 1.51 0.00 0.00 Randon Imp1 Part 2.33 0.00 3.00 0.00 2.33 0.00 3.00 0.00 1997 Sadia 2.55 0.00 2.33 3.28 2.55 0.00 2.33 3.28 1997 Samarco 3.60 0.00 0.00 0.00 3.60 0.00 0.00 0.00 1998 Saraiva 0.00 1.24 0.00 0.00 0.00 1.24 0.00 0.00 2000 Sepeti ba 26.24 0.00 5.00 0.00 11.24 0.00 5.00 0.00 2002 Suape ICT 6.00 0.00 0.00 0.00 6.00 0.00 0.00 0.00 1999 Sudamerica 0.00 7.35 0.00 0.00 0.00 7.35 0.00 0.00 2006 Suzano petroq 50.00 0.00 10.00 140.00 39.50 0.00 10.00 110.50 200 1 Synteko 11.57 0.00 0.00 0.00 11.57 0.00 0.00 0.00 2006 TAM 50.00 0.00 0.00 0.00 17.00 0.00 0.00 0.00 1998 Tecon Rio Grande 3.55 0.00 5.50 3.71 3.55 0.00 5.50 3.71 2004 Tecon Rio Grande 7.87 0.00 0.00 7.76 7.59 0.00 0.00 7.48 2001 Tecon Salvador 2.95 1 .oo 0.00 3.10 2.95 0.77 0.00 3.10 2003 Tecon Salvador 0.00 0.55 0.00 0.00 0.00 0.55 0.00 0.00 2004 TriBanco 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 2006 TriBanco 0.35 0.00 0.00 0.00 0.35 0.00 0.00 0.00 2002 UP Offshore 9.01 9.51 0.00 23.29 0.00 2.51 0.00 0.00 2002 Unibanco 16.89 0.00 0.00 0.00 16.89 0.00 0.00 0.00 Total portfolio: 1,164.15 253.88 144.84 503.45 703.91 223.86 141.54 400.38
Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2000 BBA 0.01 0.00 0.00 0.00 1999 Cibrasec 0.00 0.00 0.00 0.00 2006 Ipiranga I1 0.00 0.00 0.00 0.10 2002 Banco Itau-BBA 0.00 0.00 0.00 0.10 Total pending commitment: 0.01 0.00 0.00 0.20
120 121
Annex 15: Country at a Glance
BRAZIL: Sergipe~- State Integrated Project: Rural Poverty Latin Upper. POVERTY and SOCIAL America mlddle- Development diamond' Brazil 6 Carib. income 2006 Population, mid-year (millions) 887 556 8x) Life expectancy GNI percapita (Atlas mefhod, US$) 4,730 4,767 5 9t3 GNI (Aflas method, US$ billions) 892 5 2 650 4 790 Average annual growth, 2000.06 T
Population (Sy 14 13 08 GNI Gross Laborforce (%) 18 21 13 per primary Most recent estimate (latest year avaliable, 2000-06) capita enrollment
P 0 vert y (% of populafio n below nafio nal PO verty line) 22 Urban population (%of totalpopulation) 85 78 75 Life expectancyat birth (rears) 71 73 70 I Infant mortality (per 100Olive births) 31 26 26 Child malnutntion (%ofchildren under5) Access to improvedwatersource Access to animproved watersource (%ofpopulation) 90 91 93 Literacy (%of popuiafion age 153 89 90 93 Gross primary enrollment (%of school-age popuiafion) '110 tB 112 -. B rani Male '116 t20 ki6 ~ Upper-middle-income group Female f35 m x)4 KEY ECONOMIC RATIOS and LONG-TERM TRENDS ZOOS 1986 1996 2008 Economic ratios' GDP (US$ billions) 2681 8397 882 5 1067 5 Gross capital formation1GDP 81 70 60 68 Trade Exports of goods and services/GDP 68 66 151 147 Gross domestic savingslGDP 216 152 86 87 Gross national savingslGDP l7l 141 158 l73 T Current account balancelGDP -19 -28 16 13 Domestic Capital Interest payrnents1GDP 24 10 12 savings formation Total debt/GDP 407 216 213 Total debt servicelexports 468 426 45 5 Present value of debt/GDP 23 7 Present value of debtiexports 1519 Indebtedness 1986-96 1996.06 ZOOS 2006 2008.10 (average annual gmvdh) GDP 16 24 29 37 46 ----Brazil GDP percapita 00 10 15 25 38 Uooer-middle-income om UD Exports of goods and services 65 95 01 46 33
STRUCTURE of the ECONOMY
1986 1996 2006 2006 (%of GDP) Agnculture 112 55 56 51 Industry 452 260 30 3 30 9 M anufactunng 330 68 84 84 Services 437 685 64 0 64 0 Household final consumption expenditure 678 647 60 4 60 4 General gov't final consumption expenditure 07 201 20 1 89 Imports of goods andservices 64 84 n5 117 I ---"GCF -GDP
1986-86 1996-06 2006 2006 Growth of exports and Imports (Oh) (average annual gmvdh) Agriculture 23 43 10 41 20 Industry 01 19 21 27 10 M anufactunng 32 19 11 16 services 29 35 34 41 0 03 04 05 06 Householdfinal consumption expenditure 28 19 38 47 -10 General gov't final consumption expenditure 18 24 19 36 Gross capital formation 18 03 36 87 Imports of goods and services 90 14 93 81
Note 2006 data are preliminary estimates This table was producedfrom the Development Economics LDB database 'Thediamonds showfourkeyindicators inthecountry(inbold)comparedwithits income-groupaverage If dataaremissing thediamondmll be incomplete
121 122
Brazil
PRICES andGOVERNMENT FINANCE 1986 1996 2006 2006 Domestic prices (%change) Consumer pnces 1500 158 6.9 42 Implicit GDP deflator 1453 171 7.5 43 Government finance (%of GDP, includes current grants) Current revenue 01 64 Current budget balance -04 -06 Overall surplusldeficit -16 24 ---GDPdeflator -CPI
TRADE 1986 1996 2006 2006 Export and Import levels (US$ mill.) (US0 millions) Totalexports (fob) 22,394 46,925 118,308 P7305 350 ODD T Iron ore manganese 1,722 2,695 Soybeans 1,562 1,08 1DD.DDD Manufactures ne39 35,025 711P 79 904 Total imports (cif) 14,044 53,346 73,560 96 835 Food 2,484 1,374 5D.DDD Fuel and energy 3,541 5,929 n925 Capital goods 3,464 P,SB 25,114 49 003 0 Eport pnce index (2000-WOj 74 '06 117 w Import pnce index(2000=WO) 41 83 97 89 Terms of trade (2000=W0) 82 98 PO PO
BALANCE of PAYMENTS 1986 1996 2006 ZOO6 Current account balance to GDP (Oh) (US% millions) Eports of goods and services 23,870 52,785 04,403 156 908 imports of goods and services 6,576 67,065 97,801 PO 243 r7----- Resource balance 7,294 -14,280 36,602 36 665 Net income -9,259 -n,669 -25,968 -27 489 Net current transfers -26 2,446 3,557 4 307 Current account balance 4,991 -23,503 13,985 0 621
Financing items (net) 1,759 31,899 2,61 6 49 Changes in net reserves 3,232 -8,396 -6.146 -32 040 Memo: Reserves including gold (US% millions) 6,760 6010 53,799 85 839 Conversion rate (DEC, local/US$) 497E-9 10 2.4 22
EXTERNAL DEBT and RESOURCE FLOWS 1986 1996 ZOO6 2006 Composition of 2006 debt (US$ mill.) (US$ millions) Total debt outstanding and disbursed 09.051 61338 87,994 IBRD 7,546 5876 8,083 9 694 IDA 0 0 0 0 Total debt service 11.618 25,217 62,762 IBRD 1'64 1638 1,335 1174 IDA 0 0 0 0 Compositionof net resource flows Official grants 30 80 1P Official creditors 1,68 -751 34 Pnvate creditors -444 15,758 1.672 Foreign direct investment (net inflows) 345 11200 15,193 Portfolio equity(net inflows) 9 5,785 6,451 F World Bank program U8.460 Commitments 1,620 858 852 205 A- IBRD E- Bilaterd Disbursements 1.69 1500 773 2 203 B. IDA D. Other wltilaterd F. Private Pnncipal repayments 608 1,222 1029 743 C-IMF G. Short-tern Net flows 1011 278 -255 1460 Interest payments 556 46 307 432 Net transfers 455 -08 -562 1028
Note This table was producedfrom the Development Economics LDB database. TWO7
122 R.B. DE GUYANA FRENCH 38°00' 37°30' VENEZUELA GUIANA SURINAME (Fr.) COLOMBIA RORAIMA Atlantic Ocean BRAZIL AMAPÁ
RURAL POVERTY ALLEVIATION PROJECT II For detail, see O IBRD 36235 Ã AMAZONAS H STATE OF SERGIPE PARÁ N CEARÁ RIO GRANDE A R DO NORTE
A TOCANTINS PARAÍBA M PIAUÍ PERNAMBUCO ACRE ALAGOAS BRAZIL SERGIPE RONDÔNIA BAHIA PERU MATO GROSSO 0 10 20 30 40 50 9°30' 9°30' Brasília KILOMETERS BOLIVIA GOIÁS To Paulo Afonso MATO MINAS GROSSO GERAIS ESPÍRITO DO SUL SANTO SÃO PAULO RIO DE PARAGUAY JANEIRO 500 CHILE PARANÁ Canindé de S. Francisco SANTA Atlantic Ocean CATARINA ARGENTINA RIO Rio Pacific Ocean GRANDE NORTHEAST REGION São DO SUL BOUNDARIES
Francisco INTERNATIONAL BOUNDARIES Poco Redondo URUGUAY
37°00' 36°30' 750
Porto da Folha Gararu 10°00' 10°00' Mte. Alegre de Sergipe ALAGOAS
500 Itabi Canhoba
1000 N.S. da Glória Propriá
To Jeremoabo Aquidabã Feira BAHIA Nova Neópolis Japoatã 1250 Carira E Ilha das Flores P Pacatuba Brejo Grande N.S. das Dores Capela 10°30' 10°30' I Frei Paulo Ribeirópolis Pinhão Siriri Japaratuba G Malhador
Itabaiana Pirambu R Riachuelo Simão Dias Poco Verde SergipeRio
E
Rio ARACAJU Lagarto Vaza
S 11°00' Barris Salgado A TLANTIC 11°00' S. Cristovão
Riachão do Dantas
750 OCEAN
Tobias Barreto Estancia
Itabaianinha Fundo 500 AVERAGE ANNUAL RAINFALL IN MILLIMETERS
Rio Santa Luzia do Itanhi CLIMATIC ZONES:
Umbaúba HUMID SEMI-ARID The boundaries, colors, SELECTED CITIES AND TOWNS 11°30' denominations and any Cristinápolis other information shown 11°30' Rio Real Indiaroba on this map do not MAIN ROADS imply, on the part of To Esplanada The World Bank Group, STATE CAPITAL any judgment on the legal 1000 STATE BOUNDARIES status of any territory, IBRD 36236
JUNE 2008 or any endorsement or acceptance of such
boundaries. 1250 38°00' 37°30' 37°00' 36°30'