Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No: 34001-AR

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED ADAPTABLE PROGRAM LOAN Public Disclosure Authorized IN THE AMOUNT OF US$70 MILLION

TO THE

ARGENTINE REPUBLIC

FOR AN

URBAN FLOOD PREVENTION AND DRAINAGE PROJECT

IN SUPPORT OF THE SECOND PHASE OF THE URBAN FLOOD PREVENTION AND DRAINAGE PROGRAM Public Disclosure Authorized

May 9,2006

Finance, Private Sector and Infrastructure Department Argentina, Chile, Paraguay and Uruguay Country Management Unit Latin America and the Caribbean Region

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 April 30,2006) Currency Unit = Argentina Pesos AR$ = US$0.33

FISCAL YEAR January1 - December31

ABBREVIATIONS AND ACRONYMS AGN Auditoria General de la Nacidn (General Auditing Office) APL Adaptable Program Lending B/C Benefits over Costs CAS Country Assistance Strategy EL4 Environmental Impact Assessment EMP Environmental Management Plan FM Financial Management FMR Financial Monitoring Report FRL Fiscal Responsibility Law GDP Gross Domestic Product IAU Internal Audit Unit INA Instituto Nacional de Agua (National Water Institute) INDEC Instituto Nacional de Estadistica y Censos (National Institute of Statistics and Census) rwRM Integrated Water Resource Management MFPIPS Ministerio Federal de Planificacion, de Inversion PGblica y Servicios (Federal Ministry ofPlanning, Public Investment and Services). MOEP Ministry of Economy and Production NGO Nongovernmental Organization NPV Net present Value PIU Project Implementation Unit PA Provincial Agencies PPI Proyecto de Proteccidn para Inundaciones (Flood Protection Project) POM Project Operational Manual PWA Provincial Water Authorities RFRF Federal Fiscal Responsibility Regime RP Resettlement Plan SIGEN Sindicato General de la Naci6n SUEP Sub Unidad Ejecutora Provincial (Provincial Executing Sub-unit) TA Technical Assistance TOR Terms ofReference UCPyPFE Unidad Coordinadora de Programas y Proyectos con Financiamiento Extern0 UEC Unidad Ejecutora Central (Central Executing Unit) UTE Unidn Transitoria de Empresas (Joint Venture) WRM Water Resource Management

Vice President: Pamela Cox Country Director: Axel van Trotsenburg Sector Director Makhtar Diop Sector Manager: John Henry Stein Sector Leader Juan Gaviria Task Team Leader: Maryse Gautier

.. 11 ARGENTINA Urban Flood Prevention and Drainage APL 2

CONTENTS

Page

A . STRATEGIC CONTEXT AND RATIONALE ...... 1 1. Country and Sector Issues...... 1 2 . Rationale for Bank involvement ...... 7 3 . Higher level objectives to which the project contributes ...... 8 B. PROJECT DESCRIPTION ...... 9 1. Lending instrument ...... 9 2 . Program Objective and Phases...... 9 3 . Project development objective and key indicators.,...... 12 4 . Project components ...... 14 5 . Lessons learned and reflected in the project design ...... 17 6 . Alternatives considered and reasons for rejection ...... 17 C . IMPLEMENTATION ...... 18 1. Partnership arrangements ...... 18 2 . Institutional and implementation arrangements ...... 18 3 . Monitoring and evaluation ofoutcomes/results ...... 19 ... 4 . Sustainabihty ...... 20 5 . Critical risks and possible controversial aspects ...... 20 6 . Loan conditions and covenants ...... 21 D. APPRAISAL SUMMARY ...... 22 1. Economic and financial analyses ...... 22 2 . Technical ...... 24 3 . Fiduciary ...... 24 4 . Social...... 25 5 . Environment ...... 28 6 . Safeguard policies ...... 30 7 . Policy Exceptions and Readiness ...... 31

... 111

Annex 1: Country and Sector or Program Background ...... 32 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 34 Annex 3: Results Framework and Monitoring ...... 35 Annex 4: Detailed Project Description...... 39 Appendix 1 to Annex 4: Template of Risk Reduction Plan ...... 47 Appendix 2 to Annex 4: Additional Flood Prevention Projects ...... 50 Annex 5: Project Costs ...... 53 Annex 6: Implementation Arrangements ...... 54 Annex 7: Financial Management and Disbursement Arrangements ...... 56 Annex 8: Procurement Arrangements ...... 68 Annex 9: Economic and Financial Analysis ...... 73 Annex 10: Safeguard Policy Issues. Environmental Assessment...... 86 Annex 11. Safeguard Policy Issues - Social Impact Analysis ...... 99 Appendix to Annex 11: Resettlement Policy ...... 118 Annex 12: Fiscal Situation of Participating Provinces ...... 125 Annex 13: Project Preparation and Supervision ...... 133 Annex 14: Documents in the Project File ...... 135 Annex 15: Statement of Loans and Credits ...... 136 Annex 16: Country at a Glance ...... 137 Annex 17: Letter of Development Program ...... 141 . Annex 18: Map IBRD#34360 ...... 148

iv

ARGENTINA

URBAN FLOOD PREVENTION AND DRAINAGE APL 2

PROJECT APPRAISAL DOCUMENT

Date: May 4,2006 Team Leader: Maryse Gautier Country Director: Axel van Trotsenburg Sectors: General water, sanitation and flood Sector ManagerElirector: Makhtar Diop protection sector (100 percent) Themes: Access to urban services and housing (P); Other urban development (P);Water resource management (S) Project ID: PO93491 Environmental screening category: Full Assessment Lending Instrument: Adaptable Program Loan Safeguard screening category: Significant impact

[XI Loan [ 3 Credit [ ] Grant [ ] Guarantee [ 3 Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 70.00 Pronosed terms: FSL

RECONSTRUCTION AND DEVELOPMENT Total: 86.94 4.63 91-57 Project implementation period: Start July 1, 2006 End: September 30,2010 Expected effectiveness date: October 1, 2006 Expected closing date: March 31, 201 1 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Re$ PAD A.3 Does the project require any exceptions from Bank policies? Re$ PAD D. 7 [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [ IN0 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 C.5 Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Re$ PAD D. 7 Project development objective Re$ PAD B.2, Technical Annex 3 The project would help reduce vulnerability of Argentina to flooding, through a mix of physical, institutional and financial measures. It will be the second phase ofan APL. While Phase 1 ofthe program develops a risk management program for the City ofBuenos Aires, Phase 2 develops a risk management program for six provinces complying with the selection criteria, and undertakes preparation of the future operations. The measures will aim at improving the security of economic assets and persons living in flood-prone areas by constructing defense facilities to reduce future losses due to floods, by implementing a housing program for the benefit of the lowest-income population, and by strengthening national and provincial institutions and systems for dealing with future floods. These provinces (Chaco, Corrientes, Misiones, Santa Fey and Entre Rios), are located along the two main rivers, the Parank and Uruguay, constituting the Argentinean region most vulnerable to flooding. The provinces have started to develop a risk management strategy under the current Flood Protection Project (4 117-AR), and they succeeded in achieving positive results in risk identification and mitigation.

Project description Re$ PAD B.3.a, Technical Annex 4 Component 1: Institutional Strengthening (US$2.77 M) The component is aimed at providing the provincial institutions with flood risk reduction instruments

Component 2: Improving Flood Preparedness (US$12.5 1 M) For vulnerable areas not benefiting from further investment in structural defenses, the component would provide improved housing in safe areas for lower income families living in flood prone areas. It would also provide housing for those that may be resettled from the lands required for the works.

Component 3: DeveloDment ofKev Defense Facilities mS52.15 M)

vi This component would finance works to protect important urban areas against flood effects.

Component 4: Project Implementation and Administration (US2.39 M) Technical assistance would be provided to help implement the project and carry out annual audits.

Which safeguard policies are triggered, if any? Re$ PAD D. 6, Technical Annex 10 Environmental Assessment (OP 4.01): (i)an EA report has been prepared, which includes: an ex-post evaluation ofthe environmental perfomance ofthe Flood Protection Project; (ii)updated environmental data sheets for all sub-projects included in the APL2; and (iii)a Regional Environmental Management Plan (REMP), based on the ex-post evaluation. Natural Habitats (OP 4.04): the REMP included a component for wetland protection especially in urban and peri-urban areas as well as environmental enhancement measures along storm drains (linear parks). Cultural Property (OP 11.03): chance finding procedures are included in the environmental guidelines for construction ofcivil works. Involuntary Resettlement (OP 4.12): involuntary resettlement offamilies may be necessary for some civil works in the flood prone areas. In accordance with OP 4.12, a resettlement framework (RF) has been provided to the Bank, and made available to the public in accordance with said policy. International Waterways: in accordance with its Policy for Projects on International Waterways (OP/BP 7.50), the project falls under the exemptions to the notification requirements ofthe Bank policy. The memo proposing the exemption to the notification requirements has been approved by the Regional Vice President, LCR.

Significant, non-standard conditions, if any, for: Re$ PAD C. 7 The Board conditions of preparing an environmental management plan and an operational manual, both acceptable to the Bank, have been met.

Loadcredit effectiveness: Satisfactory subsidiary loan agreement has been entered between the Borrower and at least one province.

Covenants applicable to project implementation: 0 In the Subsidiary Loan Agreement with each province the Government will include a clause by which the province will (a) attach and implement the Risk Reduction Plan, and (b) maintain compliance with the provisions ofthe Fiscal Responsibility Law, 01 with the provisions ofa fiscal framework consistent with the principles ofthe law; 0 All subprojects to be financed with Loan proceeds will need to fall under exception to notification requirement under the International Waterways Policy; 0 The Government will, prior to the commencement ofthe bidding process in respect to any subproject or activity, prepare and furnish to the Bank bidding documents acceptable to the Bank; 0 The Government will ensure that participating provinces commit to procure all

vii contracts for goods, works and services to be financed under the loan according to Bank guidelines; 0 The Government is to prepare, under TORS satisfactory to the Bank, and furnish to the Bank, no later than thirty days after the end of each calendar quarter during project implementation (starting with the report due in April, 2007), a project implementation progress report including information on procurement, the expenditures incurred and the results achieved during the preceding quarter in each ofthe project components; 0 The Government is to follow financial management requirements: standard conditions for financial management with traditional (disbursement-based) disbursement justification, use ofSOE and a Special Account; the annual audited financial statements will be furnished to the Bank not later than six months after the end ofeach year and will include certified lists of contracts signed and initiated procurement processes; and the semiannual FMRs will be submitted to the Bank not later than 45 days after the end ofeach calendar semester; 0 Not later than three months after the effective date, the Government will establish and implement the new procurement information system to facilitate project management and monitoring; 0 Not later than one year after the effective date, the Government will develop a new financial management information system to facilitate project management and monitoring, and replace the current system with the new system; 0 The Government shall ensure that each participating province will have agreed to establish adequate mechanisms to maintain compliance with the provisions ofthe Fiscal Responsibility Law, or with the provisions ofa fiscal framework consistent with the principles ofthe law; and 0 The Government shall ensure that, if it is determined by the Bank that resettlement will be involved for any subproject, the participating provinces will carry out and implement a resettlement plan for the corresponding subproject.

viii A. STRATEGIC CONTEXT AND RATIONALE

1. This document presents the second phase, of US$70 million, of an Adaptable Program Lending (APL) operation totaling US$200 million which was approved by the Board on April 5, 2005, and which would reduce vulnerability to urban flood risk in selected Provinces of the Republic of Argentina. The first loan of the APL, of €98 million (US$130 million equivalent), supports the City of Buenos Aires in the execution of a comprehensive flood prevention program. This second phase ofthe APL, totaling US$70 million would target selected provinces ofArgentina.

2. The Argentine Government (the Borrower) has requested that the Bank support the second phase of the Flood Prevention Program to reduce the flood risk that affects the living conditions of vulnerable and poor people and restricts the productive potential of part of the country’s economy, The second phase would target five provinces, Chaco, Corrientes, Entre Rios, Misiones and Santa F6, which include areas that are among the most exposed to floods in the country. Although Buenos Aires and Formosa are also located in the priority basin, they are not part of the project. The province of Buenos Aires benefits from a separate Bank loan and the province of Formosa decided not to participate during the last stage of project preparation. Additional provinces, located in a different hydrological basin, could also join the project for activities limited to feasibility studies aimed at preparing an investment program for a future project. The Bank supports this request because it targets the recurrent urban flooding problems caused by adverse climatic conditions and inadequate drainage, and which have high social and economic costs.

1. Country and Sector Issues

3. Argentina’s Economic Context. Argentina’s recovery from the economic crisis of 2001- 02, one of the most severe downturns in living standards on record, has been impressive. The social impact of the crisis was enormous. Poverty increased dramatically, with the number of poor growing to more than half ofthe total population, while the number of extreme poor nearly doubled. Sparked by increased exports and then by a gradual expansion of consumption spending, a demand-led recovery is underway. After three years of fast growth (averaging roughly 9 percent per year during 2003-05), GDP has recovered to the pre-crisis peak of 1998. Export earnings are higher, tax revenues have increased, fiscal performance is exceeding targets, and the Government has restructured some 75 percent ofits debt in default.

4. Macroeconomic policy since 2003 has emphasized fiscal discipline, improved external competitiveness and a rebuilding of international reserves. The Federal Government recorded a primary surplus of2.3 percent ofGDP in 2003, 3.9 percent in 2004, and an estimated 3.7 percent in 2005. At the provincial level, a primary surplus of 0.7 percent of GDP was achieved in 2003, increasing to 0.9 percent in 2004, and is estimated at 0.5 percent in 2005. Inflation remained well under control in 2003-04, despite the massive devaluation during the crisis, although price pressures reemerged in 2005 with inflation reaching 12.3 percent by the end of the year. The exchange rate was maintained in a narrow range around AR$2.9 to the US dollar through most of 2005, and is now trading in a range of about AR$3.05 to the US dollar.

1 5. The recovery has been pro-poor, in that incomes of the poor have grown faster during the upturn than the average for the population as a whole. Poverty has been cut markedly, with the poverty rate falling to 38.5 percent by the first half of 2005 and 33.8 at present (INDEC, March 28, 2006). Unemployment has also fallen, and although informality remains widespread, formal employment is rebounding, with job growth in the formal sector outpacing expansion in the informal sector in 2005. Inequality, which has been on a long-term upward trend in Argentina, was exacerbated by the crisis and has yet to show a decline subsequently. However, the economic and social advances of the recovery have come from a low starting point and large segments ofthe population continue to face great hardship.

6. The challenge for Argentina is to build on the strong recovery to establish the foundation for sustainable, more equitably shared private sector-led economic growth over the medium term, This would represent a significant break with its history of protracted slow growth, recumng periods of crisis and increasing social exclusion. Prudent macroeconomic policies have played a central role in the recovery. A successful transition to sustained growth will require, in addition to continued prudent macroeconomic management, a combination oflonger- term vision and pro-active policies to promote private investment, expand social inclusion to tackle growing problems of structural poverty and excluded populations, and strengthen governance under a sound institutional framework.

7. Sector Issues. Floods have a strong impact on the national and provincial economies and affect the poor disproportionately. Typically, after a flood, a recurrent event in Argentina, the government is forced to reallocate funding from development activities to relief and reconstruction. In Argentina, as in many other countries, devastating natural disasters are a frequent occurrence. The acceleration of demographic and economic trends has disturbed the balance ofecosystems, increasing the risk ofhuman, social and financial losses. As supported by disaster analyses, major disasters not only damage capital assets but have long-term negative effects on the economy as well. Disasters can seriously dislocate a nation’s economy, triggering shortfalls in tax revenue, creating fiscal deficits, increasing public debt levels and depressing overall economic performance, as measured by changes in the gross domestic product (GDP), balance ofpayments and gross capital levels. The poor are most vulnerable as they often live in low lying areas and lack insurance on assets beyond the home and therefore, may lose most of their assets in the floods.

8. Argentina’s Exposure to Flood Risk. Flooding is the major natural hazard in Argentina, where it poses a major challenge to development. Since 1957, Argentina has had 11 major floods. Floodplains cover over a third of the country. That area contains the most developed agricultural and industrial zones in the country, an extensive transportation network and two major hydroelectric dams. Of those major floods, three have caused direct damage in excess of US$ 1 billion each: the 1983 flood, at US$1.5 billion; the 1985 flood, at US$2 billion; and the 1998 flood, at US$2.5 billion. According to the statistics of Swiss-Re (1998), Argentina ranks 18th in the world in potential flood losses, which it puts in excess ofAR$3 billion a year (US$3 billion in 1998). Argentina is also one of 14 countries whose potential flood losses are greater than 1 percent of GDP. In Latin America, only Ecuador has a higher GDP exposure from flood risk. In pure potential economic loss terms, Argentina has the highest risk in Latin America.

2 9. The most distinctive geographic feature of Argentina is the delta formed by the conjunction of three large rivers: the Paraguay, Paranh, and Uruguay. The waters of the combined Parana and Uruguay rivers, which drain a quarter of the water of South America with a watershed that covers over 4.1 million square kilometers, flow into the Rio de la Plata and then out to the sea. Heavy precipitation throughout the year and the country’s flat topography often combine to inundate the floodplains of all four rivers. The coastal areas ofthe northeastern and central parts of the country are also at risk, and storm surges pose a threat to regions along the coast, The El Nifio phenomenon also exposes Argentina to flood risk and has affected the South American coast repeatedly in the last century. The most exposed regions are again the Parana River flood plain, but the arid and semi-arid regions of the northwest are also susceptible to increases in rainfall.

10. Dangerous conditions occur with alarmingly high frequency. For example, hydrological data for the city of Corrientes reveal that flooding occurs in two of every three years. Following the 1997-1998 El Nifio phenomenon, frequent and heavy rains occurred in 1999, leading directly or indirectly in 2000 to major floods in Buenos Aires Province. The rains in the Rio Quinto basin created flood events in the south of the San Luis Province, Cordoba and Santa FC, as well as in the northwest of Buenos Aires Province. Early 2003, the country center and north areas received heavy precipitations that reached the Rio Salado basin in the Santa FC Province, leading eventually to the disastrous floods of the Santa FC urban area on April 29, 2003. The flood intensity, due to a lack ofprevention, had severe impacts on people and assets. Other local events occurred in the Cordoba Province originating in alluvial phenomena.

11, Flooding issues for the Littoral Provinces. The provinces ofthe ParangParaguay River basin are exposed to a high level ofrisk due to floods. The Littoral Provinces area has the most developed agricultural and industrial zones and contains a wide range ofresources. However, its flood plain extends dramatically, with a width varying from 13 km in Corrientes to about 56 km in Rosario. In addition, the basin is an area ofheavy precipitation almost throughout the year as a result of rain-producing systems of tropical and extra tropical origins. Consequently flood plains along the Parank River are periodically inundated.

12. El Nifio events have coincided with severe flooding in the Parana River basin. Since 1983 the strongest recorded floods ofthe century have occurred in parallel with the strongest measured El Nino events. The 1982-83 event gave rise to the worst flooding in the Parana basin in the twentieth century, with an estimated US$1.8 billion in economic losses. Along with the flooding came disease outbreaks, due to the damage to potable water and sanitation facilities, and the collapse of other social infrastructure services. On a smaller scale, the 1992 flood, which coincided with the 1991-92 El Nifio, also had a tremendous impact on the basin, with economic losses of US$905 million and 3.1 million inhabitants flooded. The 1997-98 El NiAo event has been measured as the second strongest ofthe century, only behind that of 1982-83. As a result of this, southern Brazil has sustained substantial rains which have flooded the Uruguay River, which discharges directly into the Parana River delta.

13. Nevertheless, the last El Nifio phenomenon did not impact the Argentine cities as strongly as expected. Resistencia in the Chaco Province prepared emergency evacuation plans in late

3 April and May 1998, which luckily were not activated, as rains receded and the Parana River level started to decrease.

14. Government and Provinces Strategy. The Government of Argentina, together with the City of Buenos Aires and the Littoral Provinces, has started addressing the flooding issue since 1992, with a strong commitment expressed through ambitious investment financing and institutional adjustments. The strategy was aimed at introducing a water basin approach (see paragraph below). The water basin strategy would help prioritize interventions in the rural and urban areas. The non-structural measures would add to the protection effects of the physical interventions by developing measures at the city level to reach the whole urban areas, and further strengthen resilience to floods.

15. Introducing a Water Basin Strategy. The area of the ParanuParaguay River basin, considered as the most sensitive to floods in Argentina, has been studied several times. A first study in 1970 assessed the hydro-meteorological data ofthe Basin and its natural resources. For the preparation of the Flood Protection Project, a water management strategy was carried out by an international consulting firm in 1994. The study provided a comprehensive definition of flood risk levels in different Basin areas. Maps defined areas of flood risk for recurrences of 20 and 100 years, and also indicated the maximum extent ofthe surface and area of influence ofthe river that could be expected in a normal year. The study also proposed a river basin approach to achieve more coordinated management ofthe alluvial valley. Based on an analysis of cost ofpast floods, the study determined the extent to which additional investments are economically justified, resulting in a program of flood control measures for urban centers and strategic sites. The study also encompassed proposals for legal and institutional framework reforms. The Government and the Provinces are implementing the recommendations of the study, developing investment programs and strengthening institutions.

16. Financing Flood Protection Measures. The Government’s investment in its flood protection program has benefited from US$630 million in external financing from IBRD and JICA since 1992. Based on the comprehensive water basin study explained above, the Littoral Provinces, Buenos Aires, Chaco, Corrientes, Entre Rios, Formosa, Misiones, Santa Fe and the City of Buenos Aires developed a risk reduction program. From the program of flood defense investments and non-structural measures proposed by the study, they identified a priority list of measures that have been part-financed with the assistance ofthe Bank (Flood Protection Project, loan 41 17-AR), and that are still being implemented.

17. In addition, a group of Provinces, from the Northeast region (Chaco and Misiones), the Northwest and Central regions (Tucuman, Salta, La Rioja, C6rdoba) and fi-om Patagonia, (Chubut), have coordinated their efforts to increase the protection of their areas most sensitive to the El Niiio event. They identified a series of physical measures and agreed to launch a Water Basin Management study, the NOA study (for Northwestern Argentina). They agreed with the Bank the objective of preparing a loan before the full effect of El NiAo was felt, to offset potential damage (El Niiio Emergency Project, loan 4273-AR). The NOA study was only partially completed in the project implementation period.

4 18. The Argentinean Government expanded the strategy to assist the Cities in improving urban drainage countrywide, including the preparation of Urban Master Plans emphasizing the use of non-structural measures, and the definition of drainage network improvement programs. The Government received the support of a Japanese grant (PHRD, grant TF25819) in 2000 to finance pilot cities and prepare a potential project. While the project preparation was stopped in 2002 due to the economic crisis, the feasibility study was completed, and the Government could benefit from the end products: an Urban Drainage Manual and comprehensive or partial Urban Drainage Master Plans for 15 cities. The preparation ofthe APL built on these results.

19. Urban Flood Prevention and Drainage Program (APL).The latest program the Government committed itself to, aimed at increasing economic resilience to flooding, by putting an emphasis on risk prevention. This program targets the urban areas of the most exposed provinces with resources of US$200 million. It is by nature geographical and is aimed at addressing the Capital City/Provinces flooding issue according to selection criteria (see para. 39). The first phase was directed at the City of Buenos Aires, beneficiary of a €98 million (US$130 million equivalent) direct loan from the Bank, and the second phase is this proposed loan.

20. The program objectives are twofold: (i)increase the region’s capacity to reduce flood impacts through the protection of its critical urban infrastructure, and (ii)gradually introduce a risk reduction approach to the investments of the provincial and municipal government administrations. To reduce both the vulnerability of the urban population and of critical infrastructure, a risk management strategy would include the following: Risk identification: hazard maps, vulnerability analysis, understanding of the direct, indirect and secondary effects ofdisasters. Risk reduction: land use planning, structural design and construction practices, building and natural resource management codes, early warning systems, and effective disaster preparedness and response plans. 0 Risk transfer and financing: through an insurance and re-insurance system.

21. The program will participate in strengthening the first two critical aspects, which were initiated under the ongoing Flood Protection Project and will be further developed and strengthened in the proposed program. The last, risk transfer and financing, will not be addressed at this stage. The Government decided to concentrate its efforts on risk identification and reduction.

22. APL 1. Phase 1 of the program developed a risk management program for the City of Buenos Aires. The scope ofthe works, the complexity ofthe project, and the basin autonomy in hydraulic terms justify a separate phase. The capital city has implemented a Hydraulic Master Plan and the feasibility study for a major flood defense works during the current Flood Protection Project. As the first step of the Hydraulic Master Plan, the City has the objective of strengthening an overall flood prevention system for Buenos Aires as a whole in order to achieve the efficiency and sustainability appropriate for a large city. The City also committed itself to reducing the importance ofthe Project Implementation Unit (PIU) during project implementation so that city government agencies would take progressive responsibility for the sector after appropriate capacity strengthening. Control works will be carried out in the’ Maldonado Basin, and feasibility studies implemented in additional basins for future investment programs. Phase 1

5 was approved by the Board on April 5, 2005 and is scheduled to be signed in May 2006. The delay is due to administrative issues linked to the choice of currency, ministerial changes at the Federal level, and a shake up ofthe city government.

23. Institutional Aspects. The Government and the Bank are discussing a framework agreement that sets the principles and transition guidelines aimed at integrating in the medium term the stand alone PIUs that have prevailed in most Bank operations in Argentina into the regular state structure.

24. The main principles established under the agreement provide that: (i)project execution should be managed, as a general rule, within the regular public administration and directed by the respective line authorities; (ii)PIUs may be established when there are specific operational or institutional considerations, provided there are clear links established with the line state organization; (iii)in these cases, the main functions of the PIU should focus on project management and the implementation of the fiduciary and safeguard functions required by the Bank. Thus, the Bank would not finance purely administrative project implementation expenses and in those cases where it is currently doing so, there will be an effort to phase out such financing; (iv) the PIUs that are established should seek to minimize the project’s administrative costs and ensure that project implementation be contracted out following competitive processes in which the scope, timing and expected outputs are explicitly established. Specific targets on administrative costs ratios will be set for projects based on benchmarks reflecting best practice for different types of projects, i.e., infrastructure, technical and social assistance, and will be monitored on a semi-annual basis; and (v) projects should identify from the outset the project function that will be expected to be converted into permanent state functions and the specific plans to ensure that the switch to the line functions is done in due course during project implementation.

25. The new and existing projects that have project management arrangements deviating from the agreed framework will prepare corrective strategies with a specific timetable to conform project management arrangements to the agreed principles, including the gradual phasing out of the financing of PIU personnel linked purely to project implementation functions. In any case, Bank financing for the PIU will not exceed the benchmark agreed for each type of project referred above.

26. With the new challenges faced by the Provinces, the Government strategy will encompass a framework to strengthen institutional sustainability at Provincial level. The vulnerability reduction to be achieved by the Government strategy would limit the sensitivity of economic growth to floods, benefiting directly the areas where low income housing and economic activity are concentrated. The provincial governments would prepare Risk Reduction Plans and Operation and Maintenance Plans for the project activities, including the specification of institutional responsibility (agencies in charge), the human and financial resources and the appropriate indicators for activity monitoring.

6 2. Rationale for Bank involvement

27. The Bank has demonstrated that it can play an important role in assisting Argentina in the definition and implementation of a strategic infrastructure program that contributes to the enhancement of living conditions in the country, within a framework of fiscal sustainability. Given the magnitude ofthe impact of floods, in social and economic terms, it is anticipated that the results of the program would have a significant positive impact on the overall national situation. The first phase of this program, targeting the City of Buenos Aires, which is the economic engine ofthe Country, was approved on April 5,2005 and is expected to have positive repercussions at national level.

28. The Bank has been actively involved in the development of the infrastructure agenda in Argentina through support for key projects that have: (i)contributed to the reduction of the infrastructure backlog in the country; (ii)supported institutional transformation processes to improve the provision of services, the management of national and provincial assets and the rationalization of expenditure programs; and (iii)facilitated the formation ofkey sector policies. In the water sector for instance, the Bank has supported the promotion of efficient water and sanitation services, the strengthening ofregulatory capacities and the provision ofservices to the poor.

29. The Bank has been involved in flood control and prevention for more than 12 years, financing three projects that have helped to recover the damaged infrastructure, rehabilitate the most important transport and social facilities and strengthen national and provincial resources for dealing with periodic flooding. The Bank began its involvement in the sector in 1992, assisting the country to face an emergency situation, with the Flood Emergency Project (PREI-3521-AR). The Bank also reallocated US$40 million from the Provincial Project I(3280-AR). Since then, it has been involved in the financing of two major projects, one of which (Emergency Flood Protection Project El NiAo (4273-AR)) was completed in December 31, 2004, while the other is in its final phase (Flood Protection Project Loan 41 17-AR). During this period, the 11 Provinces and the City involved with the Bank in the previous projects have developed a strong technical capacity on flood management as well as a strong knowledge ofproject implementation, through high capacity PIUs.

30. In addition, the Bank has ample experience in disaster risk management and, since 1983, has worked closely with many Latin American countries in the development of national emergency management systems. The Bank can bring experiences ofdifferent clients to bear in the task of building a comprehensive management system, as well as effective information systems. The Latin America and Caribbean Region, in particular, has advanced this agenda by promoting risk prevention as part of a comprehensive strategy of risk management, including risk information, risk mitigation and, more recently, risk transfer. Based on this knowledge, the project focuses on reforms that will provide Provincial sustainability for risk management. The non-structural and technical assistance measures of the program will be designed with this objective in mind.

31. In the area of water management, the Bank is supportive of a new approach that favors integrated water management instead of only addressing downstream flood prevention without

7 considering the broader multi-sectoral and basin-wide issues. Thus, in support ofthe framework of the Acuerdo Federal de Agua, the Bank plans to follow-up in the future with a proposed Integrated Water Resource Management program. In parallel, the proposed program could be introduced for the City and specific provinces as long as the selected provinces have previously benefited from basin wide management strategies. Therefore, in the 2004-2005 CAS and the new CAS to cover 2006-2008, four projects are envisaged with direct involvement in the water sector:

0 Flood Management and Urban Drainage program (first phase for Buenos Aires City, and the second phase for Provinces); 0 Proposed Basic Municipal Services projects (1&2); the first project will support local drainage works for secondary networks; and 0 Proposed Integrated Water Resources Management (IWRM) program.

3. Higher level objectives to which the project contributes

32. The overall and specific objectives of this project are consistent with the Country Assistance Strategy (CAS) discussed by the Board on April 15, 2004, which seeks to reduce the extent and severity of poverty in Argentina by focusing on: (i)sustained economic growth associated with social equity in order to reduce poverty effectively, (ii)greater efforts to foster social inclusion, and (iii)efforts to improve governance with major improvements projected in the efficiency ofpublic administration.

33. The proposed Urban Flood Prevention and Drainage APL 2 addresses the CAS objectives: the project would concentrate on areas where there is a high strategic consensus: infrastructure provision and social inclusion. The vulnerability reduction to be achieved in the project would limit the sensitivity of economic growth to floods. Moreover, the drainage and flood defense infiastructure would foster the development of the construction sector. In addition, the project would provide some relief to the poor, since 28 percent of them countrywide live in flood-prone areas. The drastic reduction of flood damage expected from the project would directly benefit the main provincial urban areas most exposed to floods, where economic and social activities are concentrated. In areas where flood protection works will not be undertaken at this stage, the project will develop non structural activities that may strengthen flood prevention capacity, and ensure project sustainability.

34. The objectives of this project are also consistent with the new CAS to be discussed by the Board on June 6, 2006. The objective of sustained growth with equity encompasses infrastructure development with a focus in reducing vulnerability to urban flooding and drainage problems. Moreover, the new CAS seeks to support to improve governance through building on the progress realized in Bank support for institutional strengthening at both national and sub- national levels, which the project will achieve with the non structural measures.

8 B. PROJECT DESCRIPTION

1. Lending instrument

35. The proposed project is the second phase of a two-phase Adaptable Program Lending (APL) operation. The choice of an APL operation came from the need for greater flexibility in program execution to achieve the consolidation ofan efficient vulnerability reduction scheme for the country and an adequate sequencing of structural and non-structural activities in the capital city and provinces in order to gradually strengthen the risk management system countrywide.

36. The project (APL2) is proposed as a four-year operation with an IBRD loan of US$70 million and a contribution ofUS$21.6 million from the Argentine Government. The loan will be transferred to the Provinces through subsidiary loans.

2. Program Objective and Phases

37. The program will develop a risk reduction framework to increase economic resilience to flooding. The APL is horizontal and will assist the City of Buenos Aires (phase 1) and provinces subject to flooding (phase 2).

38. Phase 1 ofthe proposed project, approved on April 5,2005, will be executed over a period of six years. The City of Buenos Aires benefited from a direct loan from the Bank with a sovereign guarantee from the Argentinean government. The project will help develop a risk management program for the City, through the improvement of the level of protection of its drainage system and the implementation of a risk management program. The project is implemented within the framework of the Buenos Aires Hydraulic Master Plan, involving the whole city for non-structural measures and the Maldonado Basin for the first stage of the structural measures. The risk management scheme will aim at providing assistance to the city government to promote a prevention, mitigation and emergency response to floods. In addition, the scheme will strengthen the city agencies so that the transfer of responsibilities from the implementation unit to the agencies will be fully carried out during project implementation.

39. Phase 2 would target selected provinces that meet the trigger indicators agreed upon and would strengthen the country’s risk reduction arrangements through geographical expansion of sustainable institutions and infrastructure investments. Priority is given in Phase 2 to provinces located along the two main rivers, the Parana and Uruguay, which are, with the City of Buenos Aires, highly vulnerable to flooding. Phase 2 will build on priority activities identified by the Water Basin Management study carried out in the preparation stage ofthe ongoing project.

40. Trigger Indicators. Eligible provinces under the proposed APL would have to meet the following triggers, as the City ofBuenos Aires successfully did for phase 1.

9 Table 1: Trigper Indicators for Phase 2 Trigger - Indicator

A critical mass of Littoral Provinces has At least four of the five Littoral Provinces have undertaken a program policy for risk developed a risk management strategy, satisfactory management and institutional measures to the Bank, and completed all preparatory studies coordinated with the related works. for subprojects.

Eligible Provinces meet fiscal eligibility Provinces adhere to the Fiscal Responsibility Law, criteria for entry and are ready to develop or comply with all its provision. measures.

41, Compliance with the Program Triggers. The status ofthe triggers, as set out in Table 1, is as follows:

0 First trigger: although substantial progress has been made towards achieving the trigger condition, it was concluded in the negotiations with the national government that obtaining the participating provinces’ commitment to the Risk Management Strategy in the context of an approved loan would permit the federal government to engage more effectively on this issue. In addition, the Bank has reached full agreement with the Federal Government about the scope and contents of the Project, including the Risk Reduction Strategy, as further explained in paragraph 41. Therefore, the first indicator to this trigger (which stipulates that at least four of the five Littoral provinces have developed an acceptable risk management strategy) is expected to be met by each of these Provinces as a condition for participating in the Project. Additionally, the dialogue with the five Littoral Provinces continues to be highly productive and there are no foreseeable obstacles to reaching agreement on a satisfactory Risk Management Strategy with each of the provinces. Each Provincial Strategy - satisfactory to the Bank- will be reflected in the adoption of a risk reduction plan which will be described in an annex to the appropriate Subsidiary Loan Agreement. The second indicator of the first trigger is complied with, since the Provinces have fully completed all preparatory studies,

0 The second trigger is complied with: the participating provinces have adhered to the Fiscal Responsibility Law.

42. Program policy for risk management. Discussions have been held with the Borrower regarding the principle of a Risk Reduction Strategy, with two parts: (i)an agreed set of activities for Risk Reduction, including structural and non-structural measures; and (ii)an institutional arrangements framework for the sustainability of the plan objectives. This Risk Reduction Strategy will be reflected in an acceptable Risk Reduction Plan, to be presented by each province as one ofthe conditions for participating in the Project. As mentioned in paragraph 40 above, each of these plans will be attached to the pertinent Subsidiary Loan Agreement. Although no detailed strategy has yet been agreed with the Provinces, no major risk is foreseen, due to their long term engagement (more than 10 years) in addressing vulnerability to floods.

10 Nevertheless, the Bank will pay a special attention to ensure that designing and implementing the Risk Reduction Plan remains a central part ofprovincial involvement.

43. The proposed project is part of an ongoing strategy that stems from the preparation ofthe ongoing Flood Protection Project (Loan No. 4117-AR). The five Littoral Provinces, Chaco, Corrientes, Entre Rios, Misiones and Santa Fey have developed in recent years an investment program conducive to the construction of an overall strategy, the objectives ofwhich are detailed below. The provinces have started to implement this strategy under the Flood Protection Project and have committed to an additional list of flood defense works, contingency plans, environmental mitigation actions, and land use measures under the proposed project.

44. Among the building blocks of the ongoing strategy, are the achievements of the Flood Protection Project, which are noteworthy. Sub-national authorities passed laws restricting land use in flood prone areas. As a next step, 18 municipalities in the 7 provinces involved in the Flood Protection Project (i.e. the five provinces and Buenos Aires and Formosa), approved local land-use plans (Ordenanzas Municipales) to enforce the law in their areas. Twenty-four municipalities developed Urban Environmental Diagnoses, aimed at identifying the major environment issues directly linked with flooding, such as solid waste management, isolating the drainage system from clandestine sewage connections, and developing of reservoirs and buffer zones. In addition to these first activities, the provinces launched a communications program, including public consultations, and a regional conference on contingency plans, which had the participation of Public Works Secretaries, Civil Defense Directors, and representatives from central, provincial and local governments. The Risk Reduction Plans will build on this success adding key activities to complete a comprehensive framework for risk management.

45. These achievements are framed into the five objectives of the strategy, described as follows: (i)protecting the urban areas exposed to floods with structural measures, (ii)developing in an integrated and coordinated way, measures aimed at reducing the risk for population living in flood-prone areas, and direct the urban development toward zones of lower risk, (iii) developing a specific program to relocate low income population settled in the high-risk to safer areas, (iv) promoting awareness ofthe population and public institutions about emergencies, and (v) creating incentives to develop an urban environmental program mitigating the flood risk.

46. In addition, the Borrower has agreed with the Bank on the principles of a risk reduction plan which will provide an institutional setting for project sustainability and sector development at the provincial level. The principles of this plan will strengthen the strategy at the sub-national level, and the adoption of the same by each province will be a condition for participating in the Project. Agreement with provinces will be sought at the onset of preparation of the Subsidiary Loan Agreements (as part of the review of the criteria to be met to participate in the Project). These principles aim at identifying, among other things, the institutions responsible for risk reduction and at providing them with the adequate resources to maintain and advance flood reduction activities. The institutional framework is part of the Risk Reduction Plan, for which a template is attached as an example in Appendix 1 to Annex 4. However each province may propose a different institutional organization setting, according to their distinctive characteristics.

11 47. The five participating provinces carried out the feasibility studies for all identified subprojects, and, in the process ofproject preparation, have completed the economic evaluation and the environmental assessment. Preparatory studies have been considered acceptable to the Bank, The provinces identified a potential list of subprojects, which also comply with the requirement: economic analyses and environmental assessments were carried out for each of them.

48. Provincial Fiscal Developments. A general review of the provincial fiscal situation was carried out by the Bank. The results indicate that provincial finances have improved significantly since the 2001-2002 crisis. For 2004, Argentina’s provinces as a whole are estimated to have attained a primary surplus of about 0.9 percent of national GDP (the estimate for 2005 is 0.5 percent). This was the result of large increases in the transfer by the National Government of “co-participated” revenues as well as in provincial revenues, despite a growth in primary spending of over 20 percent with respect to 2003. Fiscal conditions in the provinces that will participate in the proposed Project reflect the general improvement in indicators (see Annex 12). Revenues in all participating provinces have increased substantially. The decline in real public sector wages helped generate overall, as well as primary, fiscal surpluses in 2004 and in the first semester of 2005. There are, however, important differences among the five provinces in particular with respect to debt indicators. Santa Fe enjoys relatively low levels ofdebt service as a percentage of current revenues net ofmunicipal transfers - currently at between 5 percent and 10 percent. Corrientes Entre Rios, Misiones and Santa Fe, on the other hand, face higher debt service burdens, which in 2005 are estimated to exceed the ceiling of 15 percent ofprovincial net current revenues set under the Federal Fiscal Responsibility Law (Law 25.917, FRL). The FRL calls for remedial measures, including the achievement of primary surpluses for those provinces that surpass the debt-to-net revenue ceiling.

49. While current economic and fiscal conditions are favorable, risks remain, Fiscal health could be adversely affected by a number of factors, including a rapid expansion of current spending, due, for example, to repressed wage increase demands, or to a significant decline in the revenue effort linked for example, to a slowdown in growth. Fiscal performance in the first semester of 2005 has shown signs of deterioration in the primary fiscal balance of Corrientes. There is risk of non-compliance with the FRL in 2005 for Corrientes and potentially other participating provinces especially as a result ofpressures for wage increases. Several provinces face relatively high levels ofdebt service payments over a number of years. A related risk is the dependence of a number of provinces on the availability of National Government financing, especially given that as of mid-2005 about 2/3 of provincial debt is owed to the Federal government. Provinces adhering to the FRL will be eligible for federal financing. Nevertheless, the timeliness, quantity, cost, and overall availability of federal resources is subject to annual, bilateral negotiations between the Province and the National Government, and thus to a significant level of uncertainty. The current absence of alternative sources of finance (with the exception of multilateral financing) highlights provincial dependence on the National Government.

50. The existence of a framework for organizing fiscal relations between the National Government and provinces, as embodied in the recently approved FRL, can mitigate some of these risks. The Project relies on this new institutional framework for fiscal sustainability, and on its application during project implementation by the National Government. This would be

12 accomplished directly through application of the FRL for those provinces adhering to the law, or through equivalent arrangements to be established between the National Government and provinces that have not yet adhered to the law.

3. Project development objective and key indicators

5 1. The project would help reduce the vulnerability ofArgentina to flooding, through a mix of structural and non-structural measures. It will be the second phase of an APL, planned over the next four years. While phase 1 ofthe program develops a risk management program for the City of Buenos Aires, phase 2 will provide the five provincial governments (Chaco, Corrientes, Misiones, Santa Fey and Entre Rios) with some tools and instruments for a risk reduction program, The measures will aim at improving the security of economic assets and persons living in flood-prone areas by constructing defense facilities to reduce future losses due to floods, by implementing a housing program for the benefit of the lowest-income population, and by developing new structural activities for dealing with hture floods. The selected provinces benefit from a Water Basin Management Strategy and are well advanced in project preparation. These provinces are located along the two main rivers, the Parana and Uruguay, and constitute the Argentinean region most vulnerable to flooding. The provinces have succeeded in achieving positive results in flood risk identification and mitigation under the current Flood Protection Project (41 17-AR). The APL2 will assist the selected provinces to ensure that the non-structural measures will be accompanied by specific and relevant actions that ensure dissemination and implementation to mitigate flood risk (e.g., contingency plans will be implemented with broad community participation and communication).

52. The project will contemplate the possibility ofinvolving new provinces, in addition to the five selected provinces, for activities limited to feasibility studies (see component 1 (iii)of para. 56 below). These feasibility studies intend to develop water basin strategies at the level of new hydrological basins with the objective of preparing investment programs for future projects. This second group of provinces will also comply with the fiscal eligibility criteria, as requested by the triggers.

53. The impact of the project would be through the increased protection of areas that are currently periodically flooded. This impact can be measured principally by means of Risk Maps, which will be updated based on the progressive implementation ofthe main works. The project will benefit directly the population ofthe urban areas.

Key indicators

54. The following are the proposed key indicators for the project: a The size ofthe urban area protected by the proposed works in the selected provinces The number ofmunicipalities for which land use planning includes risk mapping

These were chosen for their relevance to the project objectives and because they can be measured over time.

13 4. Project components

55. Phase 2 has been prepared in cooperation with the Federal Subsecretariat of Water Resources. The preparation of this project was based on a river basin-wide assessment, the "Study ofthe Regulation ofthe Alluvial Valley of the Paranit, Paraguay and Uruguay Rivers for Flood Protection." This was carried out by an international consulting firm (Sir William Halcrow & Partners Ltd. of England) under financing from the Flood Rehabilitation Project (Loan 3521-

*

56. The above referenced study was conducted during April-September 1994. The study provided a comprehensive definition offlood risk levels in different Basin areas. It developed the mathematical model required for that purpose, including simulations based on and analyses of existing hydrological data and mathematically generated series to cover large periods of recurrence. Maps defining areas offlood risk were developed based on hypotheses ofrecurrence of 20 and 100 years, and the largest area of flood coverage ever recorded (limit of the alluvial valley). These maps also indicated the maximum extent of the surface and area of influence of the river that could be expected during a normal year. The study also encompassed proposals for a river basin-wide approach, requisite legal and institutional framework reforms, and a preliminary hydrological and environmental assessment of the region. Significant features of the study included the intention through the river basin approach to achieve more coordinated management of the alluvial valley. This represented an effort to break away from the previous "vicious cycle'' of "investment-damage-new structural protection investment." The study made another important contribution in examining the costs of past floods in the Basin's river valley, and relating these findings to a determination of which additional investments in protection works would be economically justified.

57. Based on the above study and recent assessments by each province, the proposed project will have four components:

Table 2: Proi

2. Emergency Social Interventions 13.870 12.509 1.361 3. Development of key defense facilities 72.360 52.152 20.208 (including contingency amounts) 4. Project Implementation and Administration 2.391 2.391 0.000 91.394 69.825 21.570 Front-end fee 0.175 Total 70.000

Component 1: Non-structural measures The component is aimed at providing provincial institutions with flood risk management instruments that can assist with the implementation of specific institutional development activities. The activities will thus benefit the agencies involved in flood emergencies and prevention. In order to participate in strengthening the institutions, the proposed activities will be accompanied by communication actions, implementation plans or other institutional actions that

14 will involve provincial agencies in the use of the instruments and hrther development of these activities. The technical assistance would be provided to:

Develop and implement provincial or municipal contingency plans to prepare for emergencies; the plans will include implementation modalities and will propose simulation exercises involving the provincial agencies involved, municipalities and local communities; Propose regulations for the Land Use Laws approved during the previous project. The effects of regulations will be analyzed and developed with the municipalities, and a communication program will be developed to inform all communities and private sector on the impacts. Implementation modalities are proposed in the additional list of actions in Appendix 2 ofAnnex 4; Prepare an environmental program for the municipalities involved, including environmental management plans, rapid urban environmental assessments, and solid waste management plans. The actions and their implementation are included in the environmental management plan; and Develop and disseminate the next steps of flood prevention investments, through regional master plans and feasibility studies for future flood risk reduction activities.

This component will ensure that the products of non-structural measures will be disseminated and implemented through local institutions and community-based participation and work with key stakeholders. The component will have specific performance indicators that tie the non- structural measures with implementation as indicated in Annex 4.

Table 3: Non Structural Measures Activities I LoanAmount 1 US$ 1. Contingency plans 200,000 2. Land Use regulations and institutional framework 250,000 3, Environmental program 898,000 4. Regional water management and feasibility studies 500,000 5. Additional Studies 925,000 Total 2,773,000

Component 2: Emergency social interventions The component would provide housing in safe areas for those families that may be resettled from the lands required for the works and for lower income families living in flood prone areas in their immediate proximity. The housing component would follow the same principles as in the previous project, providing funding through vouchers for a program of self-construction of houses by the community. The self-help and mutual aid housing component has been highly successfil in the current Flood Protection Project and represents a valuable alternative housing solution for the population with the lowest income. The component will include, in addition to the purchase of construction material, the training of the selected beneficiaries in the sector, as well as technical assistance and non-formal environmental education for the beneficiaries and the municipalities’ representatives.

15 Province No. of New Housing Units Loan Amount US$

Chaco 497 3,054,000 Corrientes 730 4,486,000 Entre Rios 200 1,229,000 Misiones 47 1 2,894,000 Santa Fe 40 246,000

Component 3: Development of Key Defense Facilities This component would finance works to protect important urban areas against flood effects. It would consist of minor rehabilitation of existing schemes and would include fortification of flood defenses in geographic areas with strong economic activity and the greatest vulnerability to serious repeated flood damage. Works would concentrate on the improvement of existing drainage channels, the construction of new ones, embankments, raising bridges, small flood control works, and urban drainage. On average, the new drainage channels to be constructed will represent about 10 to 20 percent ofthe existing schemes.

Province Activities Loan Amount US$

Chaco Urban Drainage and Control Works in Gran 10,068,465 Resistencia. Corrientes Defense Works Goya 14,214,185 Entre Rios Defense Works, Concordia, Diamante, La Paz, 8,522,823 Victoria. Misiones River embankments, Puerto Esperanza and 5,497,150 Puerto Iguaz6. Santa Fe Defense Works, in Galvez, LaRosas, Rosario; 9,401,228 Bridge improvement, RP3 - Caiiada Omb6 and RP 82-S - Campo Andino; and Urban drainage in Santo Tom&

For each work, the implementation unit at the provincial level will prepare an Operation and Maintenance Plan, providing information on the agency in charge ofworks maintenance as well as the financial resources necessary to accomplish this task.

Component 4: Project Implementation and Administration Technical assistance would be provided for US$2.39 million (or 3.4 percent of project loan) to help implement the project. The implementation units are composed of 8 staff per province and 12 at the central level which will be financed from the loan proceeds.

16 5. Lessons learned and reflected in the project design

58. Lack of fiscal resources and counterpart funds could delay project implementation. Due to the Government’s efforts to contain public expenditures in order to achieve economic and fiscal stabilization, resources allocated to infrastructure investment programs are suffering permanent modifications that cannot be anticipated by the executing agencies, and which consequently delay or even stop the progress of project implementation, creating cost overruns within the subprojects. Given this, and particularly considering the current fiscal situation in the country in general, the proposed program would be proactively monitored throughout project implementation to ensure getting to a sustainable situation. This scenario would allow adequate planning ahead of the pace of implementation of the infrastructure program, avoiding unnecessary cost overruns. The Provincial administrations will be strongly encouraged to create specific accounts with resources coming from the Bank’s special account and from the provincial budgets for counterpart funding.

59. Expenditure planning and flood protection infrastructure management need to be carefully considered. Too often in the past, flood protection projects in Argentina were designed and implemented without due consideration for the overall maintenance needs of the assets built. Experience has shown the importance of including comprehensive routine maintenance strategies to maintain the overall condition of the infrastructure. Some provinces such as Santa Fe have identified the maintenance needs of their hydraulic assets and have set clear priorities in the annual budget. The maintenance plan will include at a minimum information about: i)who is responsible for Operation and Maintenance of the works, ii) what options provinces have for management in protecting infrastructure, and iii) performance of annual audits to ensure proper Operation and Maintenance.

60. Implementation arrangements need to be adapted. While the establishment of the PIUs in the 1990s was the most appropriate decision, to face the challenge the new Flood Protection projects represented for the Provinces, the Government and the Bank are discussing a framework agreement that sets the principles and transition guidelines aimed at integrating in the medium term the stand alone PIUs into the regular state and provincial structures.

6. Alternatives considered and reasons for rejection

61. Number of operations and lending instrument. Given that the program embraces several provinces and the City of Buenos Aires, the option of designing two separate operations was considered. This alternative would prove much simpler in terms of preparation and coordination, since some local governments have progressed at different paces during the preparation phase, but this would not permit issues to be dealt with under a common framework, Due to the Government’s emphasis on strengthening the whole country’s resilience to flooding, the decision was made to apply a country-wide approach to program development. On the other hand, Standard Investment Loans (SIL) were initially considered to support the entire program. However, this approach would have implied an initial commitment of the total amount of loan proceeds and would have reduced flexibility in the design. Operation flexibility was needed to better accommodate both the implementation pace between components and the preparation timing between projects within each component.

17 62. A third APL phase was also envisaged to address a demand which far exceeds the proposed US$70 million of APL2. However, the Government is preparing an Integrated Water Resource Management strategy in close coordination with the Bank. The fiture investment programs would then be part of this strategy. Thus, instead of preparing a third phase, it was agreed to develop new projects with the Bank under revised objectives. The scope would then be better adapted to effective needs than a third phase which would remain within the present objectives.

63. Level of decentralization and independence granted to participating provinces to implement the Project. The alternative of eliminating prior reviews at the national level for procurement activities carried out by the Central Executing Unit (UEC) (particularly for those with experience in Bank-financed operations) was considered, as a means to reduce implementation delays (since each request prepared by participating provinces is sent to the UEC for revision before they are sent to the Bank for consideration). This alternative was not applied, given that the National Government, as the Borrower ofthe proposed operation, bears the overall implementation risk which is more controllable if the UEC carries out ex-ante revisions. However, procurement and financial management capacity assessments will be taking place in each participating province at the beginning of Project implementation, with the purpose of identifying areas that need to be strengthened. Thus, the possibility of eliminating said prior review for the remaining procurement activities would be re-evaluated during project implementation.

64. Borrower choice. An alternative for project implementation was also considered. Most investment projects tend to be implemented through the federal government and extended to provincial governments through subsidiary loans. Another possibility is to implement this project directly with the governments ofthe participating provinces. This approach was chosen for the first phase ofthe APL, based on the recognized strong capacity ofthe Government of the city of Buenos Aires, because it would simplify implementation arrangements and speed procedures. The new Country Assistance Strategy for 2006-2008 will support additional flood risk management objectives under the proposed Basic Municipal Services projects and envisaged integrated water resources management program.

C. IMPLEMENTATION

1. Partnership arrangements

There are no partnership arrangements in the framework ofthis project.

2. Institutional and implementation arrangements

65. Executing entities. Under the current institutional organization, the Provinces rely on specific implementation units, the SUEPs (Sub Unidades Ejecutoras Provinciales) to facilitate the preparation and implementation of large flood defense works. A central unit, the UEC (Unidad Ejecutora Central) is in charge of project coordination and quality control for the implementation.

18 66. Strenahs and weaknesses. The UEC has broad experience in implementing multilateral financed projects as well as highly skilled FM and technical staff who have been working for the unit since the early 1990s. The SUEPs of Santa Fe, Corrientes, Misiones and Chaco also have FM personnel with relevant experience in the implementation of Bank-financed projects. However, the FM assessment and internal control issues at the SUEP level reported by the auditors of the ongoing project indicate some weaknesses in provincial units. This risk will be mitigated through the following measures: i)continuous engagement of external auditors at sub- national level; ii) auditors’ visits to all SUEPs each year of project implementation and; iii) preliminary reports on internal control including a section on the follow-up ofrecommendations made in the prior audit.

67. Proiect Management. The SUEPs will be responsible for the administrative and operational aspects of the four components (Le., preparing bidding documents, carrying out the bidding processes, granting the contracts, signing contracts, approving payments, and supervising the works and services they contracted), under the UEC’s supervision.

68. An improved Project Operational Manual (POM) will provide guidance and establish standards for all aspects of project implementation, and will seek improvement in the existing scheme, with the objective of strengthening provincial response to flood risk. Based on a capacity assessment of the provincial procurement and financial management expertise, the review process could be adjusted. Agreement has also been reached on project performance indicators.

3. Monitoring and evaluation of outcomes/results

69. The UEC, SUEPs, and the provincial agencies involved would keep adequate records as detailed in the POM. Successful implementation ofproject objectives also will require intensive monitoring of actual performance by both the UEC and the Bank. To facilitate this supervision, the UEC will prepare and furnish to the Bank a progress report on project execution of such scope and detail as the Bank shall reasonably request not later than January 3 1, April 30, July 3 1 and October 31 of each year. The monitoring methodology is specified in the POM. The UEC would use the monitoring indicators described in Annex 3 to evaluate project implementation in the progress reports.

70. Several lessons from the experience of the previous project and other lending related to provincial development in Argentina have been incorporated to streamline project execution. To increase the cost-effectiveness of review of technical proposals and procurement documents, thresholds for prior review by the UEC and the Bank were carefully reviewed in the development of the POM so as to balance cost with risk. In addition, procedures for the review of procurement documents were streamlined. The provinces will be required to use standard procurement documents approved by the Bank, copies of which will be included in the POM. To improve sub-project management, the POM will require that all sub-project proposals contain a timetable for all main stages of sub-project execution in an agreed format. These timetables are expected to provide the UEC with more reliable information, thereby permitting more adequate projections needed to plan sub-proj ect reviews.

19 71. The timely implementation of the project depends on adequate financial resources being available when needed and on good performance (especially in quality and speed) of the local implementation arrangements. For this reason, the Bank, together with the Ministry of Economy and Production, will monitor closely the fiscal indicators of each province. Meetings with the provinces would take place every year, within three months of the conclusion of each fiscal year, to review project progress and assess implementation in each province.

72. In the event that additional resources are made available for investment, the Bank, the Provinces and the Federal Government might jointly decide to finance additional investment sub- projects in provinces with a good implementation record. The Bank, the Provinces and the Federal Government might also jointly decide to replace sub-proj ects in provinces showing delays in sub-project preparation.

4. Sustainability

73, The program and the project address long term sustainability through:

i) Increased information for provincial governments: the project will provide the provincial governments with more comprehensive instruments for flood emergencies as well as prevention; ii) Ensuring provincial commitment to a Risk Reduction Plan through the identification of pertinent institutions responsible and the provision of stable financial resources to ensure continuous maintenance ofthe defense and drainage works; and iii)Ensuring provincial commitment to a Risk Reduction Plan through the identification of pertinent institutions responsible and the provision of stable financial resources to ensure continuous implementation of non-structural measures, e.g., contingency plans, risk maps, flood prevention and mitigation initiatives with community and stakeholder participation.

5. Critical risks and possible controversial aspects

The overall project risk is modest.

Risk Rating with Risk Risk Mitigation Measures Mitigation Lack of counterpart funds andor Requires closer supervision and checking of M inadequate budget allocations provincial annual budgets during project implementation.

20 Risk Lack ofappropriate maintenance Requires preparation ofprovincial M/H would decrease efficiency and maintenanceplan, commitment that said plan life expectancy ofthe flood would be included in the subsidiary defense works agreements, and follow up. Implementation delays due to Studies for works to be implemented in the L insufficient availability of pre- first year have been completed. For the works investment studies, weak involving resettlement, carrying out a close supervision ofworks or of follow-up on resettlement plans and their coordinating mechanisms. implementation. Fiscal policies by the Provinces Provinces have committed to the Federal M that may undermine their Ministry ofEconomy and Production to take capacity to provide counterpart corrective fiscal measures in accordance with funding. the Fiscal Responsibility Law Lack ofsustainability of flood The non-structural component has been M prevention schemes designed to provide institutions with more efficient tools. The Esk Reduction Plan is included in the subsidiary loan agreements, and the provinces are committed to implement it. Cumbersome and lengthy review Take stock of the procurement capacity review M and approval process among ofthe provinces, to be carried out year 2, and central and provincial units take appropriate measures towards more decentralized system. Continuous engagement ofexternal auditors at M internal control framework at sub-national level; Auditors’ visits to all sub-national level (SUEPs) SUEPs each year ofproject implementation; Preliminary reports on internal control including a section on the follow-up of

I recommendations made in prior audit. H= High; M=Modest; L=Low;. =Negligible

6. Loan conditions and covenants

74. The following additional effectiveness condition has been discussed and agreed with the Borrower. The Government ofArgentina will:

0 Enter a satisfactory subsidiary Loan Agreement with at least one province, including issuance of acceptable legal opinion concerning validity ofthis agreement.

75. The Board conditions of preparing and hrnishing to the Bank an environmental management plan and an operational manual, both acceptable to the Bank, have been met.

76. The covenants applicable to project implementation are the following:

0 In the Subsidiary Loan Agreement with each province the Government will include a clause by which the province will (a) attach and implement the Risk Reduction Plan,

21 and (b) maintain compliance with the provisions ofthe Fiscal Responsibility Law, or with the provisions of a fiscal framework consistent with the principles ofthe law; 0 All subprojects to be financed with Loan proceeds will need to fall under exception to notification requirement under the International Waterways Policy; 0 The Government will, prior to the commencement ofthe bidding process in respect to any subproject or activity, prepare and furnish to the Bank bidding documents acceptable to the Bank; 0 The Government will ensure that participating provinces commit to procure all contracts for goods, works and services to be financed under the loan according to Bank guidelines; 0 The Government is to prepare, under TORS satisfactory to the Bank, and furnish to the Bank, no later than thirty days after the end of each calendar quarter during project implementation (starting with the report due in April, 2007), a project implementation progress report including information on procurement, the expenditures incurred and the results achieved during the preceding quarter in each ofthe project components; 0 The Government is to follow financial management requirements: standard conditions for financial management with traditional (disbursement-based) disbursement justification, use of SOE and a Special Account; the annual audited financial statements will be furnished to the Bank not later than six months after the end ofeach year and will include certified lists of contracts signed and initiated procurement processes; and the semiannual FMRs will be submitted to the Bank not later than 45 days after the end ofeach calendar semester; Not later than three months after the effective date, the Government will establish and implement the new procurement information system to facilitate project management and monitoring; Not later than one year after the effective date, the Government will develop a new financial management information system to facilitate project management and monitoring, and replace the current system with the new system; The Government shall ensure that each participating province will have agreed to establish adequate mechanisms to maintain compliance with the provisions of the Fiscal Responsibility Law, or with the provisions ofa fiscal framework consistent with the principles ofthe law; and 0 The Government shall ensure that, if it is determined by the Bank that resettlement will be involved for any subproject, the participating provinces will carry out and implement a resettlement plan acceptable to the Bank for the corresponding subproject.

D. APPRAISAL SUMMARY

1. Economic and financial analyses

Cost / Benefit NPV= US$136 million; ERR = 29 percent (see Annex 9)

22 77. The Argentina Urban Flood Prevention and Drainage APL2 Project is economically feasible, as shown by a detailed economic analysis, enhanced by elaborate sensitivity and risk analyses.

78. The economic analysis was done for all subprojects included in the first phase of the project in the Provinces of Chaco, Corrientes, Entre Rios, Misiones, and Santa Fe. To comply with the objective of preventing flood damage, each subproject considered a specific type of work according to the problem and the characteristics ofthe flooded area. For some subprojects, defense works were the best solution, whilst for others drainage works were better. Others considered a combination ofboth options, and others consisted ofprotection ofthe infrastructure damaged with the flood (as is the case ofVictoria in Entre Nos which involved protection of the water intake). The economic benefits and costs were estimated according to each subproject’s expectations and the type ofsolution presented.

79. The economic benefit stream was calculated through the avoided damage cost method, measured as the cost of direct flood damage, which the project would cause to be avoided. This calculation corresponded to the difference between damage costs under two scenarios: “with” and “without” the implementation of the project. The associated damage costs varied with the intensity of the flood, water levels, and extension of flooded areas. These costs were calculated in probabilistic terms, based on historical data and a hydrological mathematical model for storm simulation and increase of water levels of the rivers for different years of recurrence. The avoided damage cost was estimated for (i)the residential sector, (ii)the public sector (urban infrastructure), and (iii)the industrial and commercial sector. (See Annex 9 for details).

80. According to economic evaluation results, the project will generate net benefits of US$ 136 million, returns of 29 percent, and a ratio between benefits and costs of 2.7. Total avoided damage cost is US$218 million. All subprojects are economically feasible, with returns varying between provinces from 14 percent in Misiones to 61 percent in Santa Fe. The Province of Santa Fe gets the highest returns, with benefits of almost ten times the costs, and net profit ofUS$ 110 million.

Table 6: Results of the Economic Analysis of the subprojects listed in the first phase (US$ 000) Net Present Value of Flows I Net costs Benefits Benefit IRR Chaco 15,054 23,149 8,095 17% Corrientes 26,418 37,203 10,785 18% Entre Rios 13,546 17,986 4,440 15% Misiones 13,156 15,420 2,264 14% Santa Fe 13,113 123,970 110,857 61% Total 8 1,287 217,729 136,442 29%

81. The results of the risk analysis show that the project as a whole is robust and the likelihood of a negative outcome is almost non-existent. When results are analyzed for the sub- projects listed in the first phase, it is found that all Provinces have probabilities higher than 96

23 percent of having a positive return. The same can be said about each subproject, with probabilities ofat least 90 percent ofhaving returns.

2. Technical

82. Works would concentrate on embankments and small flood controls, improvement of existing and construction of drainage channels, and raising bridges. These investments would follow the basin-wide hydraulic master plan developed for the flood prone area. The project design is based on a list of 13 works for which design studies were carried out, as well as economic analyses and environmental assessments. Given the nature of the works, the final sitting and/or alignment ofthe works still need further analysis in all sites. Nevertheless, this list is not final and could be amended to accommodate cancellations and replacements with new works due to technical or financial issues.

83. A comprehensive list of physical improvements was first prepared based on a provincial protection strategy expressed in the provincial master plans. A large part of the selected works has been identified under the current Flood Protection Project (Loan 4117-AR), and the proposed list complements this strategy. As the investment requirements would be quite substantial, the list has been prioritized and the proposed loan would finance the higher priority group (see Annex 4 and Appendix to Annex 4). The priority criteria for selection of subprojects were based on minimum environmental and economic compliance with standards (see paragraphs below) and on the fact that subprojects would defend the most important economic assets.

84. The selected works include city defenses such as embankments, hydro mechanical systems completing these embankments, stabilization of rivers, and the channeling and straightening of streams. A second set of works includes storm drains and improvement of city drainage systems, and replacement ofbridges which could impair the evacuation of flood flows. The exact sitting of the works will be determined at the final stage of subproject preparation, at which point, the precise number offamilies to be resettled will be provided.

3. Fiduciary

85. A Financial Management (FM) assessment was performed in accordance with OP/BP 10.02, and in line with Financial Management Practices issued by the Financial Management Sector Board on November 3, 2005 to determine whether the Project financial management arrangements are acceptable to the Bank. A financial management assessment report is included in Annex 7. A summary ofthe conclusion is presented below.

86. The assessment conclusion is that all Project Implementation Units (PIUs) have financial management arrangements in place which meet minimum Bank requirements because they are considered capable of recording correctly all transactions, supporting the preparation of regular and reliable financial statements, safeguarding the entity’s assets and will be subject to auditing arrangements acceptable to the Bank.

24 87. The Central PIU (UEC) and Provincial PIUs (SUEPs) have gained experience and knowledge through the implementation of previous Bank-financed operations. Previous experience and knowledge were taken into account for this assessment.

88. Given lessons leamed from previous projects, some opportunities for the improvement of financial management arrangements have arisen. As part of the assessment of the sub-national level implementation, the FM team carried out a review of the provincial units through: i)the analysis of SUEPs’ responses to a simplified FM questionnaire; and ii) visits to three participating provinces. As a result of this review, some weaknesses were identified regarding the internal control framework; at SUEPs. To address those weaknesses, the scope of external auditors’ engagement will be expanded so as to ensure the continuous engagement of external auditors at sub-national level implementation.

89. The Project Operational Manual (POM), comprising the internal control system and procedures to be implemented and submitted for the Bank FM Specialist’s approval has been updated for Board approval. It includes a) chart of accounts for the project; b) format and content of the annual financial statements and the FMR format for monitoring and evaluation purposes; and c) terms ofreference for the external auditing.

4. Social

90. The following analysis was undertaken in June 2005. Since then, one province has declined to participate in the project, and the number of projects has been reduced from the original 28 works to 19. Thus, the analysis presented below considers the original six provinces and 28 works. However these changes do not affect significantly the analysis or conclusions that follow.

91. A full social assessment was carried out to estimate the direct and indirect impact ofthe project, quantify its beneficiaries, identify the project’s benefits and adverse effects and propose mitigation measures for the latter. Finally, it has reviewed consultation processes that guided project design and made recommendations on the participatory processes that will take place during implementation. The analyses moved from an aggregate level (provincial) to a micro one (locality), The 2001 Census and INDEC’s 2004 Permanent Household Survey provided the quantitative data. Census data was complemented with secondary data provided by provincial SUEPs and by interviews with SUEP and UEC staff. (See Annex 10 for detailed version). The social assessment’s main conclusions are presented below.

Project ImDact

92. The project will protect the population in at-risk areas and prevent hrther settlement in extremely flood prone areas -- sometimes turning them into public and recreation spaces. It would relocate households located within and in the proximity of the planned works through its housing subcomponent and will educate the population of at-risk areas on how to reduce health hazards and treat solid waste to reduce the chances of the water contamination that so often happens during urban floods.

25 93. From a social perspective, it is expected that the project will mitigate the effects of floods on the lives of the roughly 7.5 million inhabitants ofthe provinces. This population will become less vulnerable to floods and experience fewer disruptions to economic activities and access to public services. The impact of most of the non-structural measures, such as contingency plans and law enforcement studies, will be primarily felt at the provincial and departmental level.

94. Among total project beneficiaries, the 2.5 million who live in the areas where the flood prevention sub projects will be implemented will receive the most direct and tangible impact. Approximately 0.3 million ofthese live in the subproject’s surrounding areas and are considered direct beneficiaries. The remaining 2.2 million represent a portion within the group of indirect beneficiaries: people living in the localities where the works will take place and who will benefit from uninterrupted access to utilities’ services, and health and education centers, along with a reduced disruption oftheir economic activities. We acknowledge a broad project impact and will analyze socioeconomic data at the provincial, departmental and locality levels.

95. Considering the population of all participating provinces, the project will have an impact on 1,392,600 people with unmet basic needs and on 3,788,800 people whose income levels position them below the poverty line (50.5 percent oftotal population). Within this group at least 816,700 live in extreme poverty.’ At the departmental level there are 635,000 people that have unmet basic needs. There is no income data for this level, but 45,000 households within these departments have an unemployed head ofhousehold with one or more dependants. This number represents 45 percent ofunemployed households within the project’s participating provinces. At the locality level there are 424,783 people with unmet basic needs and 168,000 heads of household who rely on social plans for subsistence. Thirty-one percent ofthe total population in these localities is unemployed, approximately 3 13,800 people.

96. These numbers represent a conservative estimate of the number of poor people who would improve their living conditions with the present project. The social annex develops this section by analyzing poverty according to vulnerability factors which make certain groups more vulnerable to floods or more vulnerable to become poor due to the effect of floods. These factors include: level of education ofthe head ofhousehold, health coverage or age.

Social Risks and Mitigation Measures

97. One ofthe main project risks is related to the resettlement process of direct beneficiaries who live in the areas where the works will be conducted. To mitigate this risk, and in accordance with Bank policies, the Government prepared a resettlement framework which establishes the principles and objectives for the preparation of resettlement plans to be prepared in case population would need to be resettled in respect with the impact of any subproject. The resettlement framework has been presented to the Bank and considered acceptable. The resettlement methodology builds on the self-help housing component proposed among the non structural components ofthe project and which has been successfully experienced.

98. Additional risks are related to: (i)the fact that informal settlements may resurge in the flood prone areas next to sub projects; (ii)health hazards induced by floods that might occur during the execution of the works. If these happen before the works are finished they can cause

26 septic wells to overflow and contaminate water sources, or else water could accumulate in unplanned reservoirs and become contaminated; (iii)safety issues related to construction works, along with the noise and service cuts that regularly take place; (iv) the community’s lack of awareness of the risks involved in not completing the sub projects, which could give rise to problems such as a lack of maintenance and vandalism to the finished works; (v) the fact that once the works are finalized they may not be maintained; and (vi) the possibility ofa low level of community participation and/or the lack ofcoordination among the civil and public organizations that do participate. Mitigation measures for these risks will be included in project design and are explained in the social annex.

Consultation Process

99. Twenty-two public consultations were carried out in the participating municipalities during the month of December, 2004. The project team presented the characteristics of the subprojects to be conducted and project beneficiaries, NGOs and municipal and provincial employees attended the meetings and presented their views and perceived risks of the subprojects. These inputs were included in an environmental impact matrix. Mitigation measures were defined for each ofthe risks identified.

100. Beyond initial consultations, an analysis ofsimilar past projects indicates that the level of public consultations and community participation during project execution has been predominantly low. Bigger communities tend to have higher participation rates while in smaller ones public authorities work in a more centralized way. Since most of the works will be carried out within smaller settlements the project will include incentives and methodologies to: (i) stimulate the formation or continuity of civil society groups in these localities and foster their participation in public projects; (ii)institutionalize consultation mechanisms; and (iii)facilitate access to information. Each SUEP will design a plan to develop and strengthen community participation during both project execution and maintenance.

Resettlement Policy Framework

101. The involuntary resettlement process falls under the Bank safeguard policy OP/BP 4.12. While a list of priority works has been identified, the exact impact of these in terms of involuntary resettlement is not yet known due to the nature and design of the works: the exact number ofbeneficiaries will only be known at a later stage when precise sitting alignments can be determined. In addition, further works may be included in the project in replacement of the priority list if needed. For these two reasons, a resettlement policy framework has been prepared by the Argentinean Government and approved by the Bank. A summary is presented in Annex 11. Specific resettlement plans will be prepared for each work where involuntary resettlement is required and the displaced population will be fully resettled before the commencement of the works.

102. Involuntary resettlement may affect those households that are located on lands that could be required for the construction and operation of flood defense works. Additionally, voluntary resettlement can be offered to lower income people living in flood prone areas that are in proximity ofthe works.

27 Housing Subcomponent for Resettlement

103. The present subcomponent will propose new housing units to the families that may be involuntarily or voluntarily resettled by the project. Families located on works sites would be resettled following Bank Policy for involuntary resettlement (See Annex 11). Families that live in neighborhoods that the municipality and the SUEP have determined to be flood-prone could opt for voluntary resettlement. The resettlement conditions for both voluntary and involuntary resettlement would be the same to avoid community conflicts and disparities.

104. At present, the component proposes 1,938 new housing units for beneficiary families (about 10,000 people). In case resettlement is involved, the exact number of families benefiting from the component in each province will be detemined during the preparation of the resettlement plans, along with the exact number of those being voluntary or involuntary resettled.

105. It is estimated that the total beneficiary population has unsatisfied basic needs, since it lives in flood prone areas, without legal titles over the land occupied, in deficient housing units, and with limited access to safe water and inadequate sanitary conditions. The main social benefit derived from this subcomponent will be that resettled families will gain access to adequate houses in a nearby locality, with legal tenancy, secure from flood related risks, and that no new settlements will appear in the rehabilitated areas.

106. The resettlement processes will involve community participation under self-help and mutual aid schemes, building on the experience and lessons learned from the housing subcomponents implemented during the last 12 years in similar flood prevention and protection projects.

5. Environment

107. The main environmental issues associated with the project include potential affectation of natural habitats- especially in and near urban areas- and potential cumulative impacts from interference of ecological processes in the flood plains of the Parani and Uruguay Rivers, The project also includes major civil works in or around urban areas with the potential for localized impacts that need to be managed to avoid disturbances in local communities. Some civil works may result in displacement of low income families. The project has therefore been assigned a Category A for environmental purposes.

108. The management of environmental issues in the project will follow the highly successful experience of the Argentina Flood Protection Project (PPI), Most sub-projects included in the APL 2 had already been appraised as part of the PPI. During project preparation, the Environmental Assessment for the APL 2 included: (i)an ex-post evaluation of the environmental performance ofthe PPI; (ii)screening and updating ofEnvironmental Data Sheets for all sub-projects included in APL 2; and (iii)preparation of an Environmental Management Plan for the APL 2 based on the EMP for the PPI and the lessons learned and recommendations stemming from the ex-post evaluation ofthe PPI.

28 109. The ex post-evaluation concluded that: e A regional approach provided sufficient background information to develop general environmental criteria that allowed an expedient classification and prioritization of potential sites for the project. This approach allowed for site specific works while evaluating their cumulative impact at a regional level. It also allowed the identification of areas of high biodiversity, distribution of species of concern and types of habitat. This is a significant contribution towards increasing the currently low percentage of habitats in protected areas throughout the country. e Having minimum interference with ecological functions as a goal translated into strong environmental criteria for the civil works. This proved to be a cost-effective way to screen projects and also acted as a safeguard to minimize cumulative impacts on the river basins. Consulting communities on the planned civil works allowed for input that resulted in the improvement ofindividual project designs. e Coordinated environmental programs allowed a multidisciplinary approach towards improving the existing conditions at the project sites. The works provided immediate defenses against floods, and improved conditions, urban plans, environmental assessment and education will prevent conditions from deteriorating. The environmental programs also provided a framework for environmental enhancement of civil works and the communities at large. The project supported the construction of linear parks along drainage canals and river defenses and financed the restoration of urban wetlands including the creation ofnew protected areas in several provinces. e One of the most profound changes a project can have is within the regulations and laws of the country which mandate higher environmental safeguards and standards for flood protection. Within this project regulations and programs at the state and municipal level ensure among other things that: (i)the flood risk of an area is assessed prior to construction; (ii)environmental assessments explicitly address impacts on floodplains; (iii)urbanization of floodplains is avoided; and (iv) protected areas which guarantee ecological and environmental services are created. It is significant to note that 15 municipalities in 4 provinces have taken on the initiative of implementing regulations, and steps towards flood protection similar to those set forth by the project. This shows that infrastructure projects planned to protect natural habitats are an attractive, feasible option, and that well implemented projects can serve as catalysts ofnew reforms.

110. Based on the findings of the ex-post environmental evaluation, an updated and enhanced Regional Environmental Management Plan (REMP) has been prepared for the APL2. This REMP includes: (i)provision for a more selective approach to rapid Urban Environmental Assessments in priority municipalities; (ii)supporting solid waste management in cities included in the project as a means to achieve sustainability of drainage infrastructure supported by the project; (iii)increasing environmental enhancement opportunities of infrastructure projects, especially linear parks which have received high levels of acceptance among participating communities in all provinces; (iv) continuing support to urban wetland restoration and conservation efforts in selected communities; (v) developing environmental education programs; and (vi) updating the environmental construction manual that was applied during the PPI. These activities will be implemented in selected municipalities preferably (but not necessarily) in those

29 where physical works are being implemented. In addition to the REMP, a resettlement framework has been prepared.

11 1. Specific works will be managed through: (i)the implementation of mitigation measures already identified in the environmental assessment of each work and included in the Environmental Data Sheet of each project; (ii)the application of the updated environmental manual for construction. Contractors will be requested to present project-specific environmental construction management plans based on this manual; and (iii)supervision of compliance with the environmental manual by the SUEPs.

112. The EA report was presented to local institutions and NGOs in regional workshops. Project specific consultations were carried out in all communities with civil works under the APL2 project, The EA report is available in the UEC in Buenos Aires and in all provincial offices (SUEPs) in the region. An executive summary in English was also prepared and sent to the Bank. The project's EA was reviewed by the Regional Safeguard team.

6. Safeguard policies

113. Safeguard policies triggered by the project include:

Environmental Assessment (OP 4.01): (i)an EA report has been prepared, which includes: (i)an ex-post evaluation of the environmental performance of the Flood Protection Project; (ii)updated environmental data sheets for all sub-proj ects included in the APL2; and (iii)a Regional Environmental Management Plan (REMP), based on the ex-post evaluation. Natural Habitats (OP 4.04): the REMP included a component for wetland protection especially in urban and peri-urban areas as well as environmental enhancement measures along storm drains (linear parks). Cultural Property (OP 11.03): chance finding procedures are included in the environmental guidelines for construction ofcivil works. Involuntary Resettlement (OP 4.12): involuntary resettlement of families may be necessary for some civil works in the flood prone areas. In accordance with para 28 of OP 4.12, a resettlement framework (RF) is requested before appraisal. The RF, based on the housing strategy ofthe project, was approved by QAT. International Waterways: in accordance with its Policy for Projects on International Waterways (OP/BP 7.50), the project falls under the exemptions to the notification requirements of the Bank policy. The memo proposing the exemption to the notification requirements has been approved by the Regional Vice President, LCR.

30 Safeguard Policies Triggered by the Project Environmental Assessment (OP/BP/GP 4.01) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Cultural Property (OPN 11.03, being revised as OP 4.11) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples (OD 4.20, being revised as OP 4.10) Forests (OP/BP 4.36) Safety of Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP/GP 7.60)* Projects on International Waterways (OP/BP/GP 7.50)

The Bank Policy on Indigenous People (OP 4.10) is not triggered by this project. The works are located in urban areas, and no indigenous people have been identified in the selected works sitting.

7. Policy Exceptions and Readiness

No policy exception is needed for the project. With projects that comprise 85 percent of the APL 2 ready to be tendered, the project is deemed at this stage as ready to be implemented.

~ * By supporting the proposedproject, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas

31

Annex 1: Country and Sector or Program Background ARGENTINA: Urban Flood Prevention and Drainage.APL 2

Flood Event Evacuees Losses(in US$ billions) 1982-1983 177,000 1.8 1992 123,000 1.o 1998 105,000 2.4

4. The Flood Prevention and Urban Drainage Project represents the continuation of the actions carried out under the Flood Emergency Program (PREI 3521-AR), which were followed by the execution of the Flood Protection Project (PPI 4117-AR), and supplemented with studies led by the Federal Government -funded through a grant from Japan- aimed at preparing an Urban Drainage Infrastructure Management Project.

Water Basin Study 5. The area of the proposed project has been studied several times. Among these, the most representative was a study carried out by the Organization ofAmerican States (“Cuenca del Rio de la Plata-Estudio para su Planijkacidn y Desavvollo, I’ 1969-197 1). It provided an assessment of the hydro-meteorological data of the basin and its natural resources, including those of all the countries involved. For the preparation of the Flood Protection project, a new river basin-wide assessment, “The study of the Regulation of the Alluvial Valley of the Parana, Paraguay and Uruguay Rivers for Flood Protection” was carried out by an international consulting firm in 1994. The outcomes were (1) a methodology for assessing basin flood risk, including

32 development of a mathematical model and construction of maps showing different risks in the flood plain, and (2) measures to reduce the basin's vulnerability to flood damage and losses.

6. The study provided a comprehensive definition of flood risk levels in different basin areas. It developed the mathematical model required for that purpose, including simulations based on and analyses ofexisting hydrological data and mathematically generated series to cover large periods of recurrence. Maps defining areas of flood risk were developed based on hypotheses of recurrence of 20 and 100 years and the largest area of flood coverage ever recorded (limit of the alluvial valley). These maps also indicated the maximum extent of the surface and area ofinfluence ofthe river that could be expected during a normal year. The study also encompassed proposals for a river basin-wide approach, requisite legal and institutional framework reforms, and a preliminary hydrological and environmental assessment ofthe region.

7. Significant features of the study included the intention to achieve more coordinated management of the alluvial valley. This represented an effort to break away from the previous "vicious cycle" of "investment-damage-new-structural protection investment." The study made another important contribution in examining the costs of past floods in the basin's river valley, and relating these findings to a determination of which additional investments in protection works would be economically justified. Moreover, the consultants linked the application with these justifiable flood control measures for urban centers or strategic sites with a "living with flood strategy" for rural and other less important centers, concentrating the latter on improved prevention and warnings.

Presentation of the five selected provinces 8. The Project seeks to mitigate, and ultimately prevent, flood damage in urban areas ofthe five Argentinean provinces of Misiones, Chaco, Corrientes, Santa Feyand Entre Rios through the combination of structural and non-structural measures. Its comprehensive approach aims at strengthening Provincial Governments in Risk Management, through improved institutional coordination, improved population awareness and newhpgraded flood defense infrastructure, In doing so, it will improve awareness ofthe consequences of an indiscriminate occupation ofareas which are naturally prone to flooding, among the poorest and vulnerable components of society. As a consequence of the project, the provinces involved will see an improvement in their capacity to face periodic floods: important economic and social infrastructures will be protected, and the legal and institutional systems that sustain these measures will be strengthened.

33 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ARGENTINA: Urban Flood Prevention and Drainage APL 2

Sector Issues Project I Latest Rating 1 OED IP/DO Urban development, agriculture, Flood Rehabilitation Project-closed S fishing, and forestry PO0605 1 Water, sanitation and flood Water Supply Project-closed S protection (sewerage, drainage) PO05945 Water, sanitation and flood Water Supply and Sewerage Sector S protection Project-closed PO05977 Water, sanitation and flood El NiAo Emergency Flood Project-closed protection (General water, PO55935 sanitation and flood protection), transportation Water, sanitation and flood Flood Protection Project-active I-!S protection (flood protection) PO06052 Water, sanitation and flood Water Sector Reform Project-active UIS protection (sewerage) PO06046 Water, sanitation and flood Drainage Infrastructure Management NIA protection (flood protection) Project-dropped PO57453 Solid waste Solid Waste Management-active NIA PO89926

34 Annex 3: Results Framework and Monitoring ARGENTINA: Urban Flood Prevention and Drainage APL 2

comprehensive risk

ogram in the Argentine ear 3 - Adjust program based on edback from previous years. 1.2 Number of

Intermediate Results One per Result Indicators for Use of Results Monitoring Sub-component each Sub-component

(ear 4 - Failure by institutions to make us( )favailable risk maps may trigger further ublic sector planning and th contingency plans nstitutional strengthening activities. ecision-making process.

ercent ofmunicipal

fear 2 - Failure to produce comprehensive eas Land-Use Law. ,egulation may trigger further institutional itrengthening activities. and land use in all

fear 4 - Failure to enforce legislation may forcement ofthe aequire additional institutional agreements. w: 2 communicatior

Year 4 - Lack ofeffectiveness may requir leveloping new plans or reviewing the one od-risk contingenc: ilready in place.

35 Intermediate Results One per Result Indicators for Use of Results Monitoring Sub-component each Sub-component d. Mitigate flood impact on d. A population of Year 2 - Lack or delay ofprogress will populations with unsatisfied 10,000 re-housed in require identification of the causes and basic needs settled in high risk safe areas and adoption ofthe corrective measures needed areas. protected from floods to ensure compliance at program conclusion.

ntermediate Results One per Result Indicators for Use of Results Monitoring Sub-component each Sub-component

. Compliance with work plan e. Physical work Annual basis - Delays in work execution chedule progress. requires identifying its causes and adopting the necessary corrective measures, and resetting the schedule. , Infrastructure provides f. A total length of Year 2 - Inadequate functioning requires dequate protection 19,020 m of identifying its causes and adopting the embankments ofmajor necessary corrective measures for similar works projects and works to be implemented. g. A total length of 14,600 m ofdrainage Year 4 - Inadequate functioning requires conduits ofmajor identifying its causes and adopting the works necessary corrective measures for similar projects and works to be implemented in the following phase.

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Y 0 E Annex 4: Detailed Project Description ARGENTINA: Urban Flood Prevention and Drainage APL 2

1. The proposed project is composed ofthe following four components: Non-structural measures (Component l),emergency social interventions (Component 2), reduction of vulnerability to floods (Component 3), and project implementation and audits (Component 4). These actions complement the measures executed under the PPI project, thereby maximizing their reach.

COMPONENT 1: Non structural measures (US$2.77 M)

2. The component is aimed at providing the provincial institutions with flood risk reduction instruments. The activities will thus benefit the agencies involved in flood emergency and prevention. In order to participate in strengthening the institutions, the proposed activities will be accompanied by communication actions, implementation plans or other institutional actions that will involve the provincial agencies in the use of the instruments and further development ofthese activities. The technical assistance would be provided to prepare: 2.1 Contingencv Plans (US$200.000). Three provinces, Corrientes, Entre Rios, and Misiones will develop a provincial contingency plan, estimated at AR$120,000 each. Chaco will develop a contingency plan for the metropolitan area of Resistencia, estimated at AR$120,000, and Santa Fe will do the same for the cities of Ceres, Helvecia, and San Justo (AR$40,000 each). The plans will include an assessment of the existing operational conditions in times ofemergency, recommendations for improvements, and implementation modalities. In particular, the plans will propose simulation exercises involving provincial agencies, participating municipalities and local communities, which will be carried out during project implementation.

2.2 Regulations for Land Use Laws KJS$250,000). Each province enacted a Land Use Law during the PPI, and now needs to prepare the conditions for its implementation. The activity, estimated at US$50,000 for each province will include integration of risk areas in regulatory documents. The program will also include awareness actions with the municipal staff involved and a communication program will be developed to inform local communities and professional groups on the impacts.

2.3. Environmental program (US$S9S,OOO). The proposed activities are based on the experience ofthe previous project. They include: e In Chaco (US$226,667): an environmental management plan for the North zone of Resistencia area, a solid waste management plan, and a feasibility study for a solid waste sorting plant for the metropolitan area; e In Corrientes (US$266,667): Eight rapid environmental urban assessments in Bella Vista, Corrientes, Curuzu Cuatih, Esquina, Garmchos, Mercedes, Paso de la Patria, and Santo Tome; a lagoon rehabilitation program in Goya;

39 0 In Entre Rios (US$356,667): five environmental improvement plans in the Cities of Concordia, Diamante, Gualeguay, Parank, and La Paz; solid waste management plans for Concepci6n del Uruguay, Concordia, Federal, Feliciano and Parana; an environmental upgrade of the beach resort of La Paz; and an environmental management plan in Villaguay; 0 In Misiones (US$2 16,667): an environmental urban assessment in Oberh; a pilot plan for environmental monitoring for the urban area, an environmental management ofthe archeological site, and an environment pilot plan for wastewater issues on the Yarark stream in the City of Puerto Esperanza; an environmental management plan in Posadas; and a solid waste management plan and an environmental monitoring plan in Puerto Iguazc; and 0 In Santa Fe (US$281,333), six environmental management plans for Ceres, Galves, Las Rosas, San Jorge, San Justo and Santo Tome; rapid environmental urban assessments in Helvecia and Melincue; an environmental education and awareness program in Ceres and Rafaela; and an environmental education plan and an environmental monitoring plan for the western zone in the Salado basin of Santa Fe;

2.4 Preparation of the next steps for a flood prevention program KJS$500,000). The study will develop a new water basin management strategy, similar to the one developed for the Littoral provinces. It will involve a new basin, and thus new provinces. This study will prepare the next steps for flood prevention investment programs.

2.5 Additional studies, for an amount of US$925,000 will be defined during the first years of the project. They will aim at reinforcing provincial capacity to develop a sustainable risk reduction program.

Sustainability, coherence and integration of these activities will be ensured by the integration into the Risk Reduction Plans as explained in Appendix 1 to Annex 4.

COMPONENT 2: Emergency social interventions (US$12.51 M) 3. The Emergency Social Intervention component has a total cost of US$13.87 million, including counterpart financing, and encompasses the construction of an estimated 1,938 houses for vulnerable population living in lands that may be required by the project, and communities settled in floodable areas and having unsatisfied basic needs, as well as on-the-job training for the beneficiaries. The houses will be built using the self-help and mutual-aid system, which has proven to be particularly successful in the PPI and El Nifio projects. 4. This Housing component would extend and expand on the ongoing activity which has the same objective under the Flood Protection Project (Loan. 4117-AR). It would apply the same criteria and methods ofimplementation which were successfully carried out under the previous project, as well as the strong role played by community groups. The component also would follow the same procurement provisions and safeguards which likewise contributed to the effective implementation of this component under the Flood Protection Project.

40 5. The basic concept remains that housing is provided for low-income families located in areas highly vulnerable to floods. Specific selection of the priority site is based on both proximity to works and a determination of high vulnerability issued by SUEP and municipality. The new houses would be constructed in flood proof areas, with access to basic social and public services, and as close as possible to their present sites to minimize dislocations and allow for continuity of livelihood activities. An additional criterion is the absence of any environmental problems at the new site. The land for new sites will be acquired on an amiable basis. 6. The housing units would be 43 m2, with two bedrooms, a multi-use room, a shaded area, and water and drainage installation for the kitchen and bathroom. The water and drainage installations for the kitchen and bathroom are based on the experiences with the families who occupied the units built thus far. 7. The five selected provinces would participate in this project component, applying previous experience. The houses would be constructed with the materials obtained through the same system ofvouchers to cover their cost. The new cost of about US$7,000 per unit compares to the approximately US$6,200 (prior to crisis) for the previous prototype, with the difference representing the increased cost of construction material and basic infrastructure services. The beneficiaries would provide the labor to build their own houses or undertake a task with the equivalent labor where they lack expertise in housing construction. Also under the system, housing experts posted in the central and provincial units would work with provincial and municipal technicians to provide technical assistance to the beneficiaries in the field. In addition, the new project would contain an additional feature that builds upon the Flood Rehabilitation Project. 8. Under the new project, the housing beneficiaries would be assisted by the technical and social services provided by community organizations according to the need. These would consist of help in the selection of the beneficiaries, their organization for the community "self-help" character of the construction, design and orientation of the component, the functioning of the voucher system, and the provision of practical information for the needs ofthe beneficiaries. Previous experience has shown the necessity of this assistance for the success of the housing component. 9. Families located on works sitting would be resettled following Bank Policy for involuntary resettlement (See Annex 11). Families that live in neighborhoods that the municipality and the SUEP have determined to be in flood prone areas could opt for voluntary resettlement. The resettlement conditions for both voluntary and involuntary resettlement would be the same to avoid community conflicts and disparities. 10. Under this program, municipal technical and social experts assist groups of beneficiaries with the construction of their homes, providing some on-the-job training and improving skills. The housing beneficiaries would also be assisted by technical trainers to help prepare them for future productive employment. This additional training would be provided under community auspices with the help of the Municipal support. This training would be complemented with the practical employment opportunities of home building under this project. Exceptionally, when for reasons of age, health or disability of the beneficiaries, they are not able to do construction work themselves, or by third parties, manpower will be supplied by provincial or local governments to help them, and the

41 beneficiaries will compensate with community work. This joint venture results from coordination arrangements oflocal officials with other assistance projects.

COMPONENT 3: Development of Key Defense Facilities (US$52.15 M)

11. This structural component comprises three types of measures, all of which consist ofminor additions or alterations ofongoing schemes: (i) Construction of flood defense works in urban areas that are highly prone to flood damage and have a significant economic activity (construction, rehabilitation, and reconditioning of embankments, their respective pumping stations, and small flood control works); (ii) Construction of storm drainage works aimed at reducing the area affected by rainfall-generated floods (rehabilitation of urban and peri-urban drainage networks through dredging, straightening, cleaning, and construction of conduits and networks with their respective pumping stations); on average, the new drainage channels to be constructed will represent about 10 to 20 percent of the existing schemes; and (iii) Repair or replacement and upgrading of existing bridges damaged by past floods. What follows is a Province by Province description of each of the works included in the prioritized list of subprojects. The values provided below for each work represent the loan share, or 72% of total estimated cost. The full component cost has been estimated with a 10 percent price contingency and a 10 percent physical contingency.

11.1 Province of Chaco 0 Control works in the Canal of Soberania Nacional Avenue - Second Stage (South of the esistencia Metropolitan Area) - US$2,664,000 The first works stage, including defense embankments, reinforced concrete structures, and power supply, is currently being executed under the Flood Protection Program. The second works stage to be carried out under the Program comprises the supply, installation, and start-up of the hydro-mechanical equipment, which includes: five pumps of 3 m3/s each with their related sediment-fences and sediment-fence-cleaning systems; and five 2-m-wide and 3-m-high metal gates with their respective cofferdams and hoist systems (gantry crane). The work is supplemented by a control house, in which the respective control panels are located, as well as a warning system and remote operation capabilities.

0 Storm Drains along Vdez SrirsJield and Paraguay Avenues - Resistencia (Northern Area -Prosperidad Pond Basin) - US$2,520,000 The project comprises the on-site construction of the rectangular-section, primary storm- drain conduits in reinforced concrete along the Paraguay, VClez Sarsfield, and Laprida Avenues. The system is supplemented by constructing a secondary drainage network, catchment works, and building a final pumping station, with an installed capacity of 6 m3/s, extendable to 10 m3/s, to replace the existing temporary station in Prosperidad pond.

42 e Storm Drains in the Clayton Canal Basin - Barranqueras - US$2,016,000 The works include the on-site construction of the rectangular-section, primary storm-drain conduits in reinforced concrete along the Saavedra, Don Bosco Streets, and along Sebastib Gaboto Avenue, discharging into the Clayton Canal, whose pumping station is being built under the Flood Protection Program (PPI). The system is supplemented by constructing a secondary drainage network, catchment works, and drains.

Storm Drains in Los Hacheros Street Basin - Resistencia (Southern Area) - US$l,152,000 The objective is the construction of the primary storm-drain conduit along Los Hacheros Street. The system is supplemented by constructing a secondary drainage network, catchment works, and drains.

e Pumping Station for Avalos Pond, with an installed capacity of 8 cubic meters - US$792,000 The works consists of the building and installation of a final pumping station, with an installed capacity of 8 m3/s, extendable to 12 m3/s. This station will replace the existing temporary station in Avalos pond. In the future this pumping station will have the capacity to serve a secondary drainage network.

11.2 Province of Corrientes Final Defenses for the City of Goya: Tramo Frontal y Oriental US$8,171,137 and Tramo Norte y Sur US$3,828,263 The purpose of the project is to construct the Final Defense System for the city of Goya creating an enclosure made up of embankments that constitute the northern and southern defenses, a frontal containment system on the Goya Rivulet bank, and the fourth containment by elevating and reconditioning National Road No. 12 and Provincial Road No. 127 on the eastern sector. The overall protection system has been divided into two stages. Stage I: “Northern and Southern Defenses”, mainly consists of defense embankments with a total length of 9,000 m (1,700 m in the North and 7,300 m in the South). Stage 11: “Frontal and Eastern Defenses” involve embankments and a waterproof shield for the Frontal Defense, and the elevation of National Road No. 12 and Provincial Road No. 127. The Frontal Defense stretches over 6,400 my including 27,000 m3 of reinforced-concrete containment wall. The Eastern Defense has a length of 6,400 my including 68,000 m3of defense embankment and fills to build up to ground level.

11.3 Province of Entre Nos e Drainage System for the Manzores Stream Tributary Basin and La Rioja Street Depression Basin - Protection and Rehabilitation of River Banks - City of Concordia- US$3,600,000 This project eliminates flooding due to insufficient storm drainage, systematizing and channeling the runoff thus recovering an area of 410,000 sq. meters, as well as enhancing the storm drains and protecting the river banks from erosion, recovering an area of great cultural significance to the city. The objective of the design is the recovery of the coastal area starting in Mitre Street and finishing at the East end of the South levee. The works

43 include protection devices along around 1,200 meters at the border ofthe Uruguay River in order to avoid the fluvial erosion. The urban drainage works will participate in addressing the drainage problems in LaRioja Street basin and its influence area.

Defense for Banks and Cutbanks - El Sauzalito -City of La Paz - US$535,911 The defense works include an embankment of sand dredged from the river bed, an asphalt road, protection with organic soil and vegetation, complemented with storm drains and systematization of sewer discharges, along 600 m.

Protection of Water Intake - City of Victoria - US$396,000 This consists of protecting and improving the raw water intake from the Victoria rivulet, installing an impulsion (pressurized) pipeline to the treatment plant, construction ofan inlet chamber, settling tank feeding channels, 2,500 m3 cistern made ofreinforced concrete, and supplementary components.

Cutbanks Stabilization - Stage 11- City of Diamante- US$2,547,956 This stabilization system includes reshaping and revetting the cutbanks as a complement to the drains, catching and conveying surface water by a system comprising street gutters, ditches and canals, and catching possible infiltration from unusually high groundwater.

11.4 Province of Misiones

e Channeling the Main Arm of the Yararb Stream and Raising its Banks - City of Puerto Esperanza - US$1,200,000 Works aim at straightening and channeling the course of the Yarara stream along about 3,000 my protection with buffers, gabions and covering with vegetation. The project includes the construction of new small urban bridges, reconditioning and adapting existing bridges, channeling the North and South main tributaries and building storm drains.

Work on the Banks of the Tacuarb Stream - City of Puerto Iguazzi - US$3,360,000 This project comprises straightening, reshaping and resurfacing of the stream banks, executing supplementary works, and building bridges along approximately 4,300 m; the protection is to be made with basalt stone. The project also includes the construction of urban storm drains in the form of rectangular-section, reinforced-concrete conduits, laying pipelines and building drains, sumps and chambers.

44 11.5 Province of Santa Fe

rn Protection against Floods in Las Rosas (Monje Carrizales / Las Estacas Stream) - Belgrano Department - US$1,441,437 To protect the zone, some trees, timber and stumps will be removed. The works will also require the clearing of land, the excavating of canals (17.5 km), the building of embankments and dikes, repair of 36 existing bridges. In addition, demolition and construction of new supplementary works and reconditioning of existing storm drains and erecting wire fences have been planned.

rn Stabilization of the Waterfall in the Saladillo Stream - Rosario Deparment - US$3,138,494 The purpose of this project is to stabilize the waterfall in the Saladillo stream by building a dissipator of the submerged horizontal-axis eddy type. The project also includes complementary works such as a drainage system, pathways, lateral ladders and handrails, straightening the existing discharge of the Batlle y Ord6nez canal and providing and installing a hydraulic monitoring system among other elements.

rn Urban Drains in the City of Santo Tomk, Balcarce Main Conduit - US$936,000 The purpose ofthese works is to drain the excess storm runoff from the Tolector LaRioja" (La Rioja main conduit) Basin. The project comprises a main conduit about 2,200 m in length, a subsidiary conduit about 500 m long in 800 mm-diameter pipe, manholes, storm drains, sumps in natural ditches, road-side gutters and culverts, as well as adding granular material for stabilization where required. In addition, the plans include expanding the capacity ofthe reservoir and cleaning out the existing conduits.

rn Protection against Flooding by the Colastink Stream in the Town of Gdvez - Sun Jerdnimo Department - US$720,184 The works comprises felling trees, removing timber and stumps, and clearing along 28.1 km, mechanical excavation along 31.8 km of canals, construction of earth embankments along the canal, and construction of a dike with a volume of about 40,000 m3, supplementary works and improvement ofthe storm-drain system.

rn Substitution of a bridge over the Agular Creek on provincial road 82-S- US$979,200 The work consists of the substitution or replacement of a bridge over the Aguiar creek. The works include the construction of the access fills on both sides of the new bridge. Total length is 83 meters: 4 sections or spans of 20.75 meters each. Both abutments will have indirect foundation with 8 concrete piles of 1.20 meters diameter and a total length of 24 meters. The superstructure has 4 prefabricated and post-stretched concrete beams for a 8,30 meters roadway width.

rn Substitution of a bridge over the Caiiada El Rey Creek on provincial road 3 in the section Caiiada OmbJ-Los Amores - US$564,000 The work consists of the substitution or replacement of a bridge over the Caiiada El Rey creek. The works include the construction of the access fills on both sides of the new

45 bridge. Total length 20 meters with 4 prefabricated and post stretched concrete beams for a 8,30 meters roadway - 1 section or span of20 meters.

COMPONENT 4: Project Implementation and Administration (US$2.39 million)

12. The Component will finance from the loan proceeds the implementation units that will facilitate Project coordination and management. The units include the SUEP (Sub Unidad Ejecutora Provincial) in charge of preparing and implementing these projects at provincial level, and the central UEC (Unidad Ejecutora Central) residing within the Ministry of Planning. Through this component the SUEPs will be in charge of project preparation, contract preparation and supervision for the component activities, as well as supervising project implementation, designing and implementing their institutional program. UEC will provide technical support to provinces in the preparation and assessment of subprojects and non-structural activities, coordinate technical assistance and training activities for the participating provinces, review on an annual basis the participating provinces’ investment programs and budgets to ensure that adequate counterpart funds have been allocated, monitor achievement of agreed targets under each component, etc. 13. The implementation units will have 52 staff in total. The total cost of US$2.39 million represents 3.4 percent of the loan proceeds, and remains close to the ratio of the previous project. Indeed, in the PPI, the implementation units were composed of 110 persons, and the cost was US$9.2 million for a loan amount ofUS$3lO million (IBRD and Japanese government). The team was reduced to 52 in the proposed project to maintain a core team able to ensure the required quality for project implementation and supervision. 14. Each SUEP is composed of 8 staff, including the executive chief, the hydraulic engineer, the civil engineer, the housing and social expert, the environment expert, the procurement specialist, the financial management specialist, and the information technology expert. The PW cost per province is US$276,000. 15. The UEC includes a 12 member team for a total cost of US$1.01 million. It is composed of a chief executive, a hydraulic engineer, civil engineer, a hydromechanical engineer, a housing and social expert, an environmental expert, a procurement specialist, a financial management specialist, an information technology expert, an expert in project management and evaluation, and two assistants.

46 Appendix 1 to Annex 4: Template of Risk Reduction Plan

1. The provincial governments have initiated the preparation of a strategy aimed at reducing the risk related to flooding in their respective territories. The strategy includes a set of activities aimed at addressing the objectives of this strategy, which has been prepared in all provinces, and an agreement on the institutional arrangements (Risk Reduction Plan) for its sustainability to be annexed to the Subsidiary Loan Agreements. For each of the five identified objectives (see table below), the Provinces have agreed on a program of works and non structural activities to be financed under the project, which will complement the strategy initiated under previous projects. In addition, the provincial governments will specify the institutional arrangements under a Risk Reduction Plan for which a template is provided below. For each activity, the Province will identify the institution which will be in charge of operating and maintaining the flood defense works, developing firther the non structural activities, operating the instruments provided by the non structural activities or disseminating the information related to the non-structural measures. The Province will ensure that adequate human and financial resources are allocated for pursuing the risk reduction strategy beyond the project implementation.

2. The Operation and Maintenance plans to be prepared under this project will be included in the framework. The institution in charge of the contingency plans will develop a communication and information program targeting the public institutions as well as the local communities involved. This institution will prepare and implement simulation exercises on a regular basis to increase public awareness. The documentation on land use planning needs regular updating of the information to take into account new data or the effect ofnew works. The provincial government will have the objective of following up on this issue, with their proper resources. The displacement of population located in flood- prone areas will require from the governmental agency social follow-up.

3. As agreed, the Provinces will annex the Risk Reduction Plan in the Subsidiary Loan Agreements. The table below is provided as an example ofthis plan and will be adapted to the case ofeach province

47 W.E,

c % .I -E 5 cw 0

3 3 ru 0 Y E w .&

m 0 Y Appendix 2 to Annex 4: Additional Flood Prevention Projects Identified in the context of project preparation, not included in this program

1. During the preparation ofthis project an effort was made to assess the total demand for flood defense infrastructure within the participating provinces. As a result, a large number of projects were identified. Since the total cost of the identified projects exceeds the amount ofthe financing available under the agreed framework ofthis program, two lists ofprojects have been prepared. 2. The first list includes the prioritized subprojects to be executed under the framework of the present program (see Annex 4). The second list, presented in this appendix, includes works whose financing will be sought in the context ofa future flood prevention loan. 3. The fact that engineering design and economic and environmental assessments for these subprojects have already been completed for most of them makes them potentially executable within the context of the present program, should a financing gap be left open by a failing subproject or should additional financial resources be identified and agreed upon with the Federal and Provincial Government. 4. What follows is a province by province description of each ofthe work identified in the context ofproject preparation, but not included in this program.

4.1 Province of Chaco 0 Final design of a Plant, or Factory to classij), transfer and recycle Urban Solid Wastes

0 Institutional strengthening of Provincial Civil Defense.

0 Storm Drains along Avalos and Hernandarias Avenues - Resistencia (Northern Area - Avalos Pond Basin) - US$3,456,000 The project essentially comprises the on-site construction as a marginal addition to the existing urban drainage network of the following rectangular-section, primary storm-drain conduits in reinforced concrete along Hernandarias and Avalos Avenues. The system is supplemented by constructing a secondary drainage network, catchments works and drains.

4.2 Province of Corrientes 0 Recovery Plan of the lagoons near Goya City - Second Stage

0 Institutional strengthening of Provincial Civil Defense.

0 Urban Drainage Master Plan for the cities of Santo Tomk and Virasoro

0 Storm Drains in the City of Curuzu Cuatib - US$1,876,800

Enhancing the existing urban drainage by constructing the storm-drain mains for the principal urban basins in the city, in the form of reinforced concrete conduits built on-site and precast reinforced-concrete pipes, with their respective drains and sumps, inspection

50 chambers, and flow and control works. The works to be built in the public road will partially supplement the existing drainage network by adding two drainage collectors that discharge into three different sub-basins, the Curuzu Cuatia (the main one), the Marote and the Castillo stream. Storm Drains in the City of Mercedes- US$2,352,000

The purpose of this work is to solve the drainage of excess storm runoff of two urban basins and the flooding of the G6mez Chico and Las Garzas streams. The project comprises the addition of minor elements to the urban drainage networks through the construction of the main storm-drain conduit in an urban basin in the city, the resurfacing of the banks of the G6mez Chico stream and reconditioning the course of the G6mez and Las Garzas streams.

Storm Drains in the In,Vi. Co. District City of Bella Vista- US$579,824

The purpose of this work is to improve the drainage of the excess storm runoff that floods the housing projects built by the 1n.Vi.Co. (Conientes Housing Institute). The works planned comprise the minor construction of the storm drain along De Los Citricultores Avenue in the district of the 1n.Vi.Co. housing projects, using a pond to regulate discharge from this conduit and the eventual discharge into the river by protecting the existing gully.

4.3 Province of Entre Nos Management of Urban Solid Wastefor Feliciano City

Environmental management Plan for Gualeguay City

0 Environmental improvement Plan for Parand City (Anto fiico Creek)

0 Institutional strengthening of Provincial Civil Defense.

4.4 Province of Misiones

Environmental improvement Plan for Posadas City (second stage)

Institutional strengthening of Provincial Civil Defense.

Systematization of Sin Nombre Stream, Tributavy into the Bonito. Colonia Wanda

The project comprises minor and periodical preventive works such as the straightening, reshaping, revetting and deepening 1,380 m of the course of this stream and building bridges over it. The project may need to be revisited to address the results ofthe economic analysis.

51 4.5 Province of Santa Fe e Institutional strengthening of Provincial Civil Defense.

e Environmental improvement Plan for Tostado City

e Management of Urban Solid Wastefor Santa Fe city

e Urban Drainage System in the City of Santa Fe - Gorostiaga Basin - Derqui - Lavaisse Duct - US$2,3 76,000

The work consists of the on-site construction of one additional rectangular-section main conduit to the current urban drainage network, in reinforced concrete, which discharges into the Salado stream. It also includes supplementary works involving laying reinforced- concrete pipes of different diameters (400, 500 and 600 mm) to serve as interconnection between the different components of the existing network, and storm drains and manholes, access trap-doors, culvert and gutter catchment chambers, and bulwarks.

52 Annex 5: Project Costs ARGENTINA: Urban Flood Prevention and Drainage APL 2

Local Foreign Total Project Cost By Component and/or Activity us us us $million $million $million

Component 1: Non structural measures 2.77 2.77

Component 2 : Emergency social interventions 13.04 0.83 13.87

Component 3: Development of key defense facilities 68.74 3.62 72.36

Component 4: Project Implementation and audits 2.39 2.39

Total Baseline Cost

Total Project Costs1 Interest during construction Front-end Fee 0.18 0.18 Total Financing Required 86.94 4.63 91.57

The costs in component 3 include physical contingencies of 10 percent and price contingencies of 10 percent. Project costs have been updated as for October, 2005.

'Identifiable taxes and duties are US$14.96 M, and the total project cost, net of taxes, is US$ 76.42 M. Therefore, the share ofproject cost net of taxes is 86.62 percent.

53 Annex 6: Implementation Arrangements ARGENTINA: Urban Flood Prevention and Drainage APL 2

Project Execution and Coordination

1. The Argentine Republic will be the Borrower of the proposed Bank loan. The Borrower will onlend a portion of the proceeds of the loan to each ofthe five participating Provinces, through subsidiary loans. Other provinces could also seek subsidiaryloans for carrying out feasibility studies.

2. The project would be implemented as presented below. The Project Implementation Unit, UEC, within the Ministry of Federal Planning, Public Investments and Services would be responsible for the execution of the proposed project and, as such, would be the project’s executing agency. At the level of the provinces, the project would be implemented by the SUEPs. The UEC and SUEPs were created in 1993 and have been implementing the ongoing Flood Protection Project, as well as the El NiAo Emergency Project. The entities have therefore gained experience in project management and quality control.

3. Central Unit. The UEC would retain its responsibility for overall project management, including the provision of guidance and technical assistance to the participating provinces (directly and through the operational manual) in the preparation, approval, control, and monitoring ofproject implementation, as well as for all financial and reporting transactions with the Bank. The UEC would also retain its responsibility for all aspects concerning subproject evaluation, approval and procurement, as well as reporting and obtaining Bank approval ofacquisitions and disbursements. Main tasks are as follows:

0 Act as a permanent link between provinces and the Bank, including follow-up on supervision missions and maintaining regular contacts with the Provincial governments concerning Program execution. 0 Prepare the instructions or guidelines needed for proper program execution. 0 Submit projects, TOR and technical analysis for Bank consideration, when appropriate. 0 Prepare and process disbursement requests for external financing and the financial reports required by the Bank. 0 Manage the Project’s Special Account. 0 Prepare Accountability Reports for the Program. 0 Manage the overall Project budget in accordance with the proposed Project Description Summary Cost Table.

4. The UEC includes a 12-member team, with a chief executive, a hydraulic engineer, a civil engineer, a hydromechanical engineer, a housing and social expert, an environmental expert, a procurement specialist, a financial management specialist, an information technology expert, an expert in project management and evaluation, and two assistants. The central unit cost is US$1.011 million, or US$252,750 per year for the 12-member team.

54 5. Provincial Units. In each province the project would be implemented by the corresponding SUEP, responsible for the formulation, implementation and supervision of provincial subprojects. The SUEPs would be responsible for procurement, contracting and submission of disbursements, subject to review by UEC. A Project Operational Manual (POM) which has been agreed upon before project presentation to the Board, provides guidance and establishes standards for all aspects of project implementation. The main tasks are the following:

e Coordinate and supervise the subprojects. a Plan the execution of each ofthe subprojects contained within the respective components. a Elaborate the documents required to carry out procurement and contracting activities for all the proposed subprojects. a Perform all activities related to the bidding processes. a Supervise works and non structural measures, carrying out close inspection and supervision. e Follow up compliance ofcontracts established under the component. a Periodically evaluate results related to the execution ofthe subprojects. e Determine actions to be undertaken for solving contract conflicts. a Approve changes to the method ofwork execution. e Perform an administrative follow-up on all instances ofwork execution. e Organize and maintain files containing all technical information on works developed a Regularly perform and maintain reports for each subproject under execution, in order to enable the elaboration ofthe financial statements ofthe Project, to be submitted to the Bank. a Prepare information and documents needed to request disbursement offunds. e Implement or define an internal control system for activities related to the program.

6. Each SUEP is composed of eight staff, including an executive manager, a hydraulic engineer, a civil engineer, a housing and social expert, an environmental expert, a procurement specialist, a financial management specialist, and an information technology expert. The total cost of the provincial PIUs being of US$1.380 million, the cost of each unit per year and per province is US$69,000. 7. Loan proceeds. The Bank will finance from loan proceeds consultants’ services required for the operation of the UEC and SUEPs. Loan proceeds will also finance specialized individual consultants to support the implementation of the project, with qualifications and experience and under terms of reference acceptable to the Bank and subject to prior approval ofthe Bank, as applicable.

55 Annex 7: Financial Management and Disbursement Arrangements ARGENTINA: Urban Flood Prevention and Drainage APL 2

1. A Financial Management (FM) assessment was performed in accordance with OP/BP 10.02, and in line with Financial Management Practices, document issued by the Financial Management Sector Board on November 3, 2005 to determine whether the Project financial management arrangements are acceptable to the Bank. A summary ofthe conclusion is presented below.

2. The assessment conclusion is that all Project Implementation Units (PIUs) have financial management arrangements in place which meet minimum Bank requirements because they are considered capable of recording correctly all transactions, supporting the preparation ofregular and reliable financial statements, safeguarding the entity’s assets and will be subject to auditing arrangements acceptable to the Bank.

3. The Central PIU (UEC) and Provincial PIUs (SUEPs) have gained experience and knowledge through the implementation of previous Bank-financed operations. Previous experience and knowledge were taken into account for this assessment.

4. Given lessons learned from previous projects, some opportunities for the improvement offinancial management arrangements have arisen. As part ofthe assessment of the sub-national level implementation, the FM team carried out a review of the provincial units through: i) the analysis of SUEPs’ responses to a simplified FM questionnaire; and ii)visits to three participating provinces. As a result ofthis review, some weaknesses were identified regarding the internal control framework at SUEPs. To address those weaknesses, the scope of external auditors’ engagement will be expanded so as to ensure the continuous engagement of external auditors at sub-national level implementation.

5. The Project Operational Manual (POM), comprising the internal control system and procedures to be implemented and submitted for the Bank FM Specialist’s approval has been updated for Board approval. It includes a) chart of accounts for the project; b) format and content of the annual financial statements and the FMR format for monitoring and evaluation purposes; and c) terms ofreference for the external auditing.

Country issues

6. The Country Financial Accountability Assessment (CFAA) prepared by the Bank in 2003-2004 states that at the central level, the Government of Argentina has a fully integrated budget, accounting, treasury, and public debt financial management system. These systems control the funds received by the central government from any source and provide sufficient information to determine if the funds have been utilized as planned.

56 7. This CFAA covered the Federal Government central system and did not comprise the assessment of public financial systems at sub-national level. A CFAA update of the Federal system in Argentina is planned for FY 2006 while the evaluation of Provincial systems is planned for FY 2007.

8. A Financial Management (FM) issue raised in the Country Assistance Strategy (CAS) document issued in January 2004 was the chronic problem regarding the timely submission of audit reports to the Bank. However, Auditoria General de la Nacidn (AGN), the Borrower’s General Auditing Office chronic delay is being dealt at portfolio level were its Performance has significantly improved (last year almost 50 % of timely compliance), And also through an IDF grant to strengthen the institutional capacity of the entity, The proposed 2006-2008 CAS for Argentina features a fiduciary action plan which aims at improving the timeliness and effectiveness ofthe external audit function in the country.

9. The International Monetary Fund issued an experimental Report on the Observance of Standards and Codes (ROSC) for Argentina in April 1999, which includes a section on Fiscal Transparency. This commented that based upon the description of practices provided by the authorities and summarized in the report, Argentina has achieved a high degree of fiscal transparency. The Bank considers that this is a reflection of the significant progress that has been made on financial administration and control since the enforcement of the Financial Management Law 24- 156 in 1992.

Risk Analysis

10. The process of determining associated risks comprised the review of Financial Management Questionnaire, the CFAA, previous supervision missions and interviews with key UEC staff as well as a review of the internal control framework at the sub-national level (SUEPs) through the analysis of SUEPs’ responses to a simplified FM questionnaire and visits to some participating provinces. Technical assistance and support that UEC accounting staff provided to SUEPs during the current project were also taken into consideration for the risk analysis. Risk ratings are presented in a chart on page 58.

11. Sources of information on inherent risk in the UEC include the performance in Financial Management of other Bank-financed projects where acceptable audits’ were produced and the UEC met Bank requirements, namely: e Flood Protection Project (Loan 41 17 - P006052) e El Niiio Emergency Flood Project (Loan 4273 - P055935).

Strengths and Weaknesses

12. Strengths: UEC has broad knowledge of implementing multilateral-financed projects as well as highly skilled FM staff who have been working for the unit since the early 1990’s. The provincial units (SUEPs) of Santa FC, Corrientes, Misiones and Chaco

’ External Audit Arrangements Section contains previous projects audit issues

57 also have FM personnel with relevant experience in the implementation of Bank-financed projects.

13. Weaknesses: FM assessment and internal control issues at the SUEPs level reported by the auditors of the ongoing project indicate some weaknesses in provincial units. This risk will be mitigated through the following measures: i) continuous engagement of external auditors at sub-national level; ii) auditors’ visits to all SUEPs each year of project implementation; and iii)preliminary reports on internal control including a section on the follow-up ofrecommendations made in the prior audit.

Implementing Entity

14. Similar to the ongoing project for the beginning of the implementation period, the UEC within the Unidad Coordinadora de Programas y Proyectos con Financiamiento Extern0 (UCPyPFE) of the borrower’s Secretariat of Public Works in the Ministry of Federal Planning, Public Investment and Services, (Ministerio de Planificacih Federal, Inversi6n P6blica y Servicios) will be the coordinating unit for the proposed project. Besides, each participating province will operate and maintain a sub-unit within the SUEP to carry out project implementation. The UEC will be responsible for project accounting, reporting including preparation of FMRs, internal control, disbursements and external audit.

15. During the FM supervision of the Flood Protection Project (PPI), carried out in December 2004, UEC FM staffing was reviewed and considered adequate. UEC provided us with evidence that there have been no changes in key financial management staff for the proposed project.

58 Inherent Risk Risk Mitigation Measures Risk I Rating Modest Entity Specific - UEC employs qualified and highly Low Federal Level experienced accounting staffs who have already participated in Bank- financed operations. Audit report for similar previous projects deemed acceptable

Entity Specific - Although the weak control Modest environment, there was satisfactory I Sub-national level execution in previous projects. Most ofthe five SUEPs have staff with relevant experience. Expanded scope ofthe external audit and Bank supervision

Project Specific Modest Institutional and Set a separate budgetary line in the Modest organizational aspects Ministry annual budget to keep will remain the same track ofproj ect execution. as for the ongoing Expand the scope for the external project. However, audit, as follows: there is a moderate * Visits to all ofthe provincial element ofrisk units each year ofproject because Project implementation, execution at 5 * Production ofpreliminary reports provincial units dilutes on internal control at SUEP level to the control of the UEC ensure that adequate FM over uses offinds arrangements remain in place.

Overall Inherent Risk Modest Control Risk Risk Mitigation Measures Risk Rating Financial Management During the first year of Modest System implementation UEC will use the same system as in the current project. A new dedicated Operation ofthe new dedicated Modest system to replace the system will be reviewed with semi- existing one will be annual project supervision. developed and implemented; usual system

59 implementation risks exist Internal Control Two FM supervisions in first year Modest Framework ofproject implementation Federal Level (UEC) i)The new information system will allow the UEC to monitor online the accounting at SUEP’s level. ii)Continuous engagement of external auditors, including the production ofpreliminary reports focused on internal control at SUEPs and follow-up on prior audit issues. iii)Review ofthe SUEPs’ responses to Financial Management Sub-National Level Questionnaire (FMQ) indicates Modest (SUEPs) positive attitudes toward control. Strengthening the liaison with - provincial SAIs if needed. Overall Control Risk Modest Overall Risk Rating Modest

Accounting policies

16. UEC will keep the project accounts in its own accounting software with the chart of accounts reflecting the disbursement categories, project components and sources of financing. Accounts will be prepared using the accrual basis and International Accounting Standards (IAS) will be followed to maintain project accounting records.

17. UEC has provided the Bank FM staff with evidence that a separate budgetary line in the Ministry’s annual budget has been requested and has been set to allocate budget resources for the APL2 and keep track of project execution. Transfers to the SUEPs are recorded in the Federal Government integrated budget and accounting system and subject to control over the budgetary execution process while accounted for in the UEC information and accounting system.

Uses of Funds

18. All the project uses will be processed in the UEC dedicated accounting system while supported by documentary evidence for the related works, goods and services procured in line with the Bank guidelines for the project.

60 Financial Management Information System

19. For keeping records of the current project, UEC is making use of an in-house information and accounting system designed in the early 1990s which has been in place within the UCPyPFE since project commencement in 1998, with some adjustments made as needed. The same system is also in use for another Bank financed project, the Provincial Roads, Loan. 4093.

20. During the last FM supervision ofthe ongoing Flood Protection Project, the system was reviewed. Although it was considered reliable at that time some weaknesses were detected. As a result, the Bank recommended UEC that the information and accounting system be upgraded and adjusted to enhance project reporting.

2 1, UCPyPFE, the Central Coordinating Unit ofthe MPFP is currently working on the development of new information and accounting system to be used for all of multilateral- financed projects within the Ministry.

22. With these considerations in mind, it was agreed with UEC that the new information and accounting system be utilized to maintain the accounting records of the proposed Project not later than a year after project effectiveness. This agreement will be included as a dated covenant in the Loan Agreement.

Reporting and Monitoring, Flow of Funds and Disbursement Arrangements

Financial Statements and Financial Monitoring Reports

23. Financial statements will be prepared on the accrual basis of accounting and shall be in line with Bank requirements. A draft format of the annual financial statements to be prepared by the project is in the Project Operational Manual (POM). In addition, the UEC shall also prepare semiannual Financial Monitoring Reports (FMRs) comprising at least: i) A financial section stating for the period and cumulatively (project life) cash receipts by sources and applications, by main classification of expenditures as well as beginning and ending cash balances of the project, and a statement of accumulated investments by project component with a comparison between actual and planned expenditures. ii) An output monitoring section that: (i)sets forth physical progress in project implementation, and (ii)explains variances between the actual and previously forecast implementation target. iii) A procurement section describing the status ofprocurement under the project, as of the end ofthe period covered by the report.

24. FMR formats agreed with the UEC are part of the Administrative section of POM. UEC has made some updates and adjustments to the current project’s POM so as to include the FMR requirement, new external audit TOR and Chart ofAccounts for the new project.

61 25. The final version of the Administrative Operational Manual prepared by the UEC and acceptable to the Bank has been presented to the Bank. The POM will comprise: a) the internal control system and procedures to be implemented; b) the Chart ofAccounts for the project; c) format and contents of the annual financial statements and the FMR format for monitoring and evaluation purposes; and d) terms ofreference for the external auditing.

26. UEC will be responsible for the project’s financial management, comprising: accounting; timely submission of the FMRs; annual audits; and disbursements. It will record all transactions in its own system. FMRs will be submitted to the Bank semiannually. The physical progress indicators and the timing of the FMRs will be consulted with the TTL to ensure the usefulness of the FMRs in the overall project supervision.

Flow of Funds

27. The project will operate a Special Account in US Dollars for processing disbursements to participating provinces for payments of project eligible expenditures. As in prior projects the Special Account (SA) will be opened by the Borrower in Banco de la Nacidn Argentina (BNA) and will be under control of the UEC established within the MFPPIS.

28. Funds deposited into the SA as advances will follow the Bank’s disbursement operating policies and procedures established, as described in the Loan Agreement, and in the Disbursement Letter.

29. The flow of funds from the UEC to the participating provinces is planned similar to the ongoing project: loan proceeds will be transferred from the SA into a separate bank account opened by each participating province from which payments of project eligible expenditures will be made. Withdrawals from the SA will be made solely for payments of project eligible expenditures.

30. As eligible expenditures arise, each SUEP generates an advance request, Solicitud de Adelanto de Fondos (SAF), in the information system and then submits it to the UEC for the advance offunds to be used within 30 days after the withdrawal. Each advance request that UEC receives from the SUEPs is subject to an internal review and approval process, after which UEC authorizes funds transfer from the SA to the SUEP bank account. At the same time, UEC accounts for the advance in its accounting system.

62 31. The funds flow description is presented in the flow chart below.

Loan Funds PAccount S.A. in BNA (dollars)

Local Funds

Project Provincial Account ‘ Treasury AR $ L J

Payments to Contractors and Suppliers J

32.

Project Cost By Category Amounts Percentage of allocated Expenditures to Loan be Financed (in US$ ‘000) 1. Works 52,152 72 2. Construction Materials 12,509 90 3. Consultant Services For the UEC 1,011 100 For the SUEPs 1,380 100 For the studies and housing 2,773 100

Front-end fee 0,175

33. The New Policy Framework on Eligibility ofExpenditures in World Bank Lending applies for this project since the country’s financing parameters for Argentina have been approved.

34. Retroactive financing. The Bank will reimburse the expenditures incurred up to one year prior to the date ofthe Loan Agreement but after April 1,2006. Those expenditures, as indicated below, which will be paid in advance by the Provinces, should not exceed US$ 3.9 million.

63 Disbursement Arrangements

35. The traditional method for disbursements will be used. An Authorized Allocation (AA) for advances into the Special Account will be established. The recommended maximum authorized allocation for this operation is US$7 million which is considered adequate to cover up to six months of local currency operations. UEC can request such advance as needed once the loan is declared effective.

36. All Withdrawal Applications (WAS) will be fully supported by proper supporting documentation for all expenditures made under contracts requiring prior review by the Bank, and contracts whose value will be raised above the prior review limits as a result of amendments to the Loan Agreement. All consolidated SOE documentation should be maintained by the UEC for post-review by the Bank supervision and audit purposes for one year after the final withdrawal from the loan.

37. Requests for replenishments of the SA should be sent to the Bank on a monthly basis or whenever the account needs to be replenished by at least 50 percent. Replenishments up to the Authorized Allocation will be made on the basis of Applications for Withdrawals (Form 1903) accompanied by the supporting and other documentation detailed in the Disbursement Handbook.

38. The UEC will continue to access the Bank’s Client Connection web page to obtain the 1903 Form from the web and to perform on a periodic basis the reconciliation between its bank account and resources received from the different sources.

Internal Audit

39. UCPyPFE is subject to internal audit by the General Syndicate of the Nation (SIGEN) which is the Federal Government’s internal audit agency, under the jurisdiction of the executive branch. SIGEN supervises and coordinates the actions ofInternal Audit Units (IAUs) in all agencies, approves their audit plans, conducts research and independent audits, systematizes the information from its own reports and those produced by the IAUs

External Audit Arrangements

40. Acceptable audit reports were submitted to the Bank in previous projects implemented by the UEC and Bank requirements were generally complied with.

41. Since 1999, project audit reports have been reviewed in the Country Management Unit by the Regional FM Team. The following chart shows audit results of previous Bank- financed projects implemented by the UEC.

64 * Source ARCS ** Source: own reviews

(i)Unqualified opinion on the SOE. Auditors’ qualifications on project accounts regarding mostly accounting errors but not indicating substantial issues on project financial st at ement s .

(ii)Accounting error because the Balance Sheet included the loan as a liability, while the loan should be accounted for as revenue, which does not generate a liability in the Project accounts. This issue did not affect the Loan funds.

(iii)An accounting difference not fully reconciled of US$393,908.94 between figures in Cumulative Investment Statement, column JEXIM, and sum recorded in the Bank disbursements records; this difference was caused by exchange rate fluctuations which arose because JEXIM loan resources were disbursed in Yens and the SUCCE and the Bank used different exchange rates to convert yens into dollars. Some errors in the amounts listed in disbursements categories in Withdrawal Application (W.A.) # 44, 45, 46 and 47.

(iv) Unqualified opinion on SOE Statement. An accounting difference of US$278,002.47 between figures in Cumulative Investment St., column JEXIM and sum recorded in the Bank disbursements records; this difference was caused by exchange rate fluctuations which arose because JEXIM loan resources were disbursed in yens and the SUCCE and the Bank used different exchange rates to convert yens into dollars.

(v) The auditors’ qualification arose in relation to an amount of US$2,772,640.02 of counterpart funds accounted for in the Technical Assistance disbursement category, which the auditors observed were not eligible expenditures for the project. This was an accounting

65 error in the Balance Sheet that was then corrected by the SUCCE and did not involve Bank funds.

(vi) Qualified opinion on SOE St. arose because W.A. # 32 submitted to the Bank on December 21,2001, was not listed in the SOE statement.

(vii) Unqualified opinion on SOE statement. A qualified opinion on project account was given because the auditors were unable to review the supporting documentation of a contract signed by Buenos Aires SUEP (which is not among the five participating provinces of the new project). Due to some possible irregularities, all the bidding documents had been requested by Department ofJustice.

42. The auditors’ qualifications on previous project financial statements (Loan 41 17- AR) did not indicate substantial accountability issues that could affect project implementation and the PIU has taken appropriate actions to address auditors: comments through the past years.

43. Project financial statements will be subject to an annual financial audit under Terms of Reference and by an auditor acceptable to the Bank within the first six months of each fiscal year. It was proposed that Argentina’s Supreme Audit Institution, AGN, carry out this task. Annual audit will cover all funding and expenditures reported in the project financial statements. For audit purposes the fiscal year will be the calendar year.

Audit Report Due Date 1) Project Financial Statements June 30 of each year 2) Special Opinions June 30 of each year SOE: an opinion on the eligibility of expenditures reported and on the correct use of Loan funds Special Account

Impact of Procurement Arrangements

45. An assessment ofthe capacity ofthe UEC to supervise and implement procurement actions for the project has been carried out by Andrks Mac Gaul, Senior Procurement Specialist on October 5, 2005. The assessment reviewed the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement and the Ministry’s relevant central unit for administration and finance (UCPyPFE). The agency is staffed by a team of 12 high-level employees in the infrastructure sectors of hydraulic engineering, civil engineering, hydromechanical engineering, housing and social expertise, environment and institutional expertise, procurement, financial management, information technology, project management and evaluation, and administrative assistance. However, the procurement function has not been staffed as yet.

66 46. The overall project risk assigned for procurement is average.

Financial Covenants

47. Section 4.01 “Standard” wording for project audits. The annual audit reports will be furnished to the Bank not later than six months after the end ofeach calendar year.

48. Section 4.02. “Standard” wording for FMRs. The first FMR shall be furnished to the Bank not later than 45 days after the end of the first calendar semester after the Effective Date, and shall cover the period from the incurrence ofthe first expenditure under the Project through the end of such first calendar semester; thereafter, each FMR shall be furnished to the Bank not later than 45 days after each subsequent calendar semester or quarter, and shall cover such calendar semester or quarter (as the case may be).

49. Section 4.04. A preliminary report ofproject audits shall be hrnished to the Bank no later than 45 days after the end of the first calendar semester of each year of project implementation.

Loan dated covenant: 50. Not later than one year after the effectiveness date, use of the new information and accounting system will commence to facilitate project management and monitoring.

Supervision Plan

5 1. Previous experience in implementing Bank-financed projects has been considered to define the FM supervision plan. Table below shows the FM supervision objectives, tasks and timing planned for this project.

Type Timing Mechanism Objective

Visit Twice through Integrating project team Review S. Account first year of supervision missions. reconciliation; uses offunds; implementation; follow up on External Audit once a year recommendations/ raised issues. thereafter. Review staffing. FMR Semiannually Over the FMR submitted to Review FMR information Review the Bank. consistency. Internal Semiannually Over the preliminary report Ensure adequate financial Control to be submitted by AGN management arrangements Report continue in place at SUEPs’ Review level. Audit Annually Over the Audit Report Review Audit Report. I Review I I submitted to the Bank I

67 Annex 8: Procurement Arrangements ARGENTINA: Urban Flood Prevention and Drainage APL 2

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 "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

2. Procurement of Works: Works procured under this project would include implementation of flood defenses, raising bridges, improving of existing channels, and construction of new ones, embankments and small control works. The procurement will be done using the Bank's Standard Bidding Document (SBD) for Smaller Contracts for all ICB and NCB documents agreed with or satisfactory to the Bank. Prequalification is not foreseen.

3. Procurement of Goods: Goods procured under this project would include construction materials for the housing self-construction component. The procurement will be done using the NCB documents and Requests for Quotations agreed with or satisfactory to the Bank. The Project Operational Manual (POM) will include detailed procedures for the procurement of construction materials, which will be based upon those included in the OMapplicable to the previous operation.

4. Selection of Consultants: Consulting services required for the project from firms and individuals will include technical assistance aimed at (a) providing the central and provincial institutions with risk reduction instruments through appropriate studies, (b) preparing the next stages offlood protection investments, though regional master plans and preparation studies, and (c) helping implement the project and carry out financial management audits. Shortlists of consultants for services estimated to cost less than US$500,000 equivalent per contract may be composed entirely of national consultants, in accordance with the provisions ofparagraph 2.7 ofthe Consultant Guidelines.

5. Others: The procurement procedures and SBDs to be used for each procurement method, as well as model contracts for works and goods procured, will be presented to the Bank and on the project's web page [www,minplan.gov,ar]prior to the commencement of the bidding process.

68 B. Assessment of the agency’s capacity to implement procurement

6. Major procurement activities will be carried out by implementation units located in the participating provinces, SUEPs, following Bank rules and the Province’s laws and regulations. Procurement actions by SUEPs will be initially under the full prior-review of a Federal Level Coordination Unit UEC. UEC is supervised by UCP&PFE which also provides legal support to project implementation. UEC will also carry out some relatively minor procurement by itself, in this case following Bank rules and federal-level procurement laws and regulations. All SUEPs and the UEC have participated in previous Bank operations (Loans 3521-AR, 41 17-AR and 4273-AR) and gained considerable experience in Bank Procurement. An Independent Procurement Review to the 41 17-AR was conducted during its implementation and no major procurement issue was found.

7. An assessment of the capacity of the UEC to supervise and implement procurement actions for the project has been carried out by AndrCs Mac Gaul, Senior Procurement Specialist on October 5, 2005. The assessment reviewed the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement and the Ministry’s relevant central unit for administration and finance (UCPFE). Project issues and risks concerning procurement that could impact implementation ofthe project have been identified and include the following:

(9 UEC has not appointed a Procurement Expert acceptable to the Bank. (ii) UEC does not have a Procurement Information System acceptable to the Bank. (iii) An Operational Manual describing the working relationship between UEC and UCP&PFE and the previous project’s Operational Manual has not been updated. (iv) During the implementation ofthe previous flood protection project it was often found that final quantities in ad-measurement contracts resulted higher than those included in the original contracts’ bidding.

8. The corrective measures that have been agreed are the following:

(9 UEC will appoint a Procurement Expert acceptable to the Bank during project implementation. (ii) UEC will implement a Procurement Information System acceptable to the Bank no later than three months after the effective date. Such a system will be implemented under Terms ofReference to be agreed with the Bank prior to Negotiations. (iii) An Operational Manual acceptable to the Bank has been presented to the Bank. It includes clear definitions on the role ofUCP&PFE. (W The loan will not finance any increase either by variation order or price adjustment, which in aggregate exceed 20 percent of the original contract amount. Subsidiary Loan Agreements will indicate that in such cases Participating Provinces will finance the completion ofthe works with its own funds.

9. Additionally, country issues and risks concerning procurement that could impact implementation ofthe portfolio have been identified, including the following:

69 (9 During the recent implementation of infrastructure projects in Argentina, it was

found that sometimes (a) bid prices were I substantially higher than updated and revised cost estimates and (b) pre-bid cost estimates were not sufficiently precise or up-to-date. (ii) The MFPPIS has decided not to resort to International Arbitration as a conflict resolution mechanism. (iii) During recent post-review work in Argentina it was found that the list of contracts from which the sample to be reviewed would be selected, which the implementing agency provided to the Bank, was not accurate enough. (W Federal and Provincial procurement laws, regulations and practices are not fully consistent with Bank rules.

10. The additional corrective measures that have been agreed are the following:

(9 The Loan Agreement includes Special Procurement Conditions aimed at ensuring increased competition and monitoring by civil society through electronic publication ofbidding documents and broad electronic dissemination ofinformation on procurement, which will be drawn from project procurement reports to be prepared by UEC under TOR agreed with the Bank at Negotiations. (ii) Project Standard Bidding Documents acceptable to the Bank will include enhanced adjudicator clauses. (iii) The project financial management auditor will include in its reports lists of contract signed and procurement processes initiated under the project and such lists will be certified by the project financial management auditor. 64 The Loan Agreement will include the Special Procurement Conditions listed in Section E and additional Special Procurement Conditions applicable to a given Province may be added to Subsidiary Loan Agreements if necessary.

11. The overall project risk for procurement is average.

C. Procurement Plan

12. The Borrower, at appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team on December 16, 2005 and is available at UEC’s office at the Federal Ministry of Planning. It will also be available in the project’s database and in the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

13. In order to avoid any possible confbsion, the Project Procurement Plan will clearly identify which SUEP or the UEC will be primarily responsible for each procurement process.

70 D. Frequency of Procurement Supervision

14. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended annual supervision missions to visit the field to carry out post review ofprocurement actions.

E. Details of the Procurement Arrangements Involving International Competition

1. Goods, Works, and Non-Consulting Services (a) List ofcontract packages to be procured following ICB and direct contracting:

Table 1 : Procurement Plan Summarv

Ref. Contract Estimated Procuremen P-Q Domestic Review Expected No. Description cost t Preference by Bank Bid- US$ Method (yes/no) (Prior / Opening million Post) Date 1 Corrientes - 5.3 ICB No No Prior November Defense 15, 2006. Works Goya - Sectors North and South 2 Corrientes - No Defense 15, 2006. Works Goya - Sectors Front and - West 3 Entre Rios - 5.0 ICB No No Defense 2006. Works - Concordia (b) Contracts for works estimated to cost above $3,000,000 per contract, all direct contracting and the first two contracts under each procurement method regardless of amount will be subject to prior review by the Bank.

2. Consulting Services (a) Consulting assignments are not expected to involve shortlists of international firms.

(b) Consultancy services to be provided by firms estimated to cost above the equivalent of $200,000 per contract, the first two contracts under each selection method regardless of amount, consultancy services to be provided by individuals estimated to cost above the equivalent of $50,000 per contract and all single source selection of consultants will be subject to prior review by the Bank. The above referred $50,000 threshold amount represents the total amount estimated to be paid to an individual consultant throughout the life ofthe project.

71 (c) Short lists composed entirely of national consultants. Short lists of consultants for services estimated to cost less than US$500,000 equivalent per contract, may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

E. Special Procurement Provisions

15. The following shall apply to procurement under the project:

General

0 Foreign and local contractors, service providers, consultants and suppliers shall not be required: (a) to register; (b) or establish residence in Argentina; (c) or enter into association with other national or international bidders as a condition for submitting bids or proposals. 0 The invitations to bid, bidding documents, minutes of bid opening, requests for expressions of interest and notifications of award of all goods, works and services (including consultants’ services), as the case may be, shall be published on the web page ofOJicina Nucional de Contrataciones in a manner acceptable to the Bank. 0 Witness prices shall not be used as a parameter for bid evaluation or contract award.

Goods and Works

0 A two-envelope system of procurement will not be used for the procurement of goods, services (other than consultants’ services) or works. 0 After the public opening of bids, information relating to the examination, clarification and evaluation of bids and recommendations concerning awards shall not be disclosed. to bidders or other persons not officially concerned with the bidding process until the award is published. Bidders shall not be allowed to review or make copies of others bidders’ bids. 0 Contracts of goods, services -other than consulting services- and works shall not be awarded to the “most convenient” bid but to the one that has been determined to be substantially responsive and the lowest evaluated bid, provided that the bidder is determined to be qualified to perform the contract satisfactorily. 0 Price Adjustment in Civil Works Contracts for prices in local currency shall follow the Price Adjustment Methodology agreed between the Government of Argentina and the Bank.

Consultant Services

0 Bank models of contracts will be used and the use of “Convenios” will not be permitted.

72 Annex 9: Economic and Financial Analysis ARGENTINA: Urban Flood Prevention and Drainage APL 2

COST-BENEFITANALYSIS

1. The Argentina Urban Flood Prevention and Drainage Project for the Parana and Uruguay Basin is economically feasible, as shown by a detailed economic analysis, enhanced by elaborate sensitivity and risk analyses.

Objective

2. The project would help reduce vulnerability of the Participating Provinces to floodi.ng, through a mix of structural and non structural measures aiming at the protection of its critical urban infrastructure. These measures will aim at improving the security of economic assets and persons living in flood-prone areas. On the basis of this objective, cost benefit analysis was used to determine: (i)the economic viability of the investment project, measuring its costs and benefits; and (ii)the risk profile of each subproject in all Provinces.

Methodology

3. The cost benefit analysis for the Argentina Urban Flood Prevention and Drainage Project APL 2 was done from the economic perspective. The net benefit of the project equals the difference between the incremental benefits and the incremental costs of two scenarios: “with” and “without” project. The “with” project scenario considers the proposed investment program and its associated flood protection plan. The “without” project scenario considers nothing is done and flood damage will continue. On the basis of these scenarios, the incremental financial benefits and costs of the proposed investment programs were assessed. The stream of financial flows was then adjusted for the impact of taxes and subsidies to arrive at the economic flows of costs and benefits. The project was appraised measuring its flow of costs and benefits for the lifetime, which was estimated according to the type of works, Le., for defense projects the lifetime was estimated at 50 years, for drainage and sewerage pipelines, as well as for protection of water intake 30 years. The discount rate used for the analysis was 10.5 percent, estimated as Argentina’s opportunity cost ofcapital2.

4. The economic analysis was done for all sub-projects included in the first phase of the project in the Provinces ofEl Chaco, Corrientes, Entre Rios, Misiones, and Santa Fe; as well as for some others considered for a second phase in the Provinces of El Chaco, Misiones, Corrientes, and Santa Fe. To comply with the objective of preventing flood damage, each subproject considered a specific type of work according to the origin of the flood, the problems created, and the characteristics of the flooded area. For some subprojects, defense works were the best solution, whilst for others drainage works were

International Institute for Advanced Studies (1 998). Buenos Aires-Colonia Bridge Project, Financial and Economic Appraisal. Final Report. Cambridge, MA, July 30.

73 better. Others considered a combination ofboth options, and others consisted ofprotection of the infrastructure damaged with the flood (as is the case for Victoria in Entre Rios, which involved protection of the water intake). Table 1 presents a summary ofthe type of work included for each subproject in the first phase, and table 2 presents a summary of some ofthe projects considered for the second phase.

Table 1. List of Subprojects and Components of Investment Considered in the First Phase.

Province Project Type of work to prevent flood or damage Pluvial Calle 10s Hacheros lrainage kPluvial Calle Clayton lrainage Estacion Bombeo Laguna 'umping Station Avalos hstallation & start-up ofthe hydro- nechanical equipment (To finish the first Chaco 1 Soberania Nacional stage of the Flood Protection Program which :onsisted of defense works). Drainage Pluviales Av Sarfield- Drainage Paraguay Cuenca Prosperidad

Corriente Goya Final Defense System for the City Drainage and rehabilitation ofriver banks to Concordia prevent erosion Cutbanks stabilization (reshaping cutbanks, Diamante Entre Rios drainage) Defense for banks and cutbanks (defense, La Paz drainage, and sewerage network) Victoria Protection of Water Intake Canal the main arm ofthe Yarara Stream, Pto Esperanza elevate its banks, and build storm drains Misiones Work on the banks of the Tacuara Stream Pto Iguazu and drainage Balarce Sto Tome Drainage Stabilization of a waterfall and Cascada Saladillo-Rosario complementary works as drainage and straightening the existing discharge Santa FC Protection against the floods, clearing the Las Estacas-Las Rosas land and excavating canals Los Llanos-Galvez Drainage Bridge A Aguiar & Bridge A Bridges El Rey

5. The sub-project Soberania Nacional consists of two components: (i)installation of hydro-mechanical equipment, and (ii)drainage works for the south region of the Metropolitan Area of Gran Resistencia (AMGR). The first component would be used for two purposes: (a) to finish the first stage of the defense works previously implemented as part of the flood protection program of the AMGR; and (b) to complement all drainage

74 works needed for the south region of the AMGR. The evaluation of this sub-project was done considering only the benefits of drainage of the south region. Therefore the benefits are underestimated, given that with the implementation ofthe hydro mechanical equipment, and the defense works would be completed and the benefits that come along with them would eventually pass to the whole population ofthe AMGR.

Table 2. Subprojects and components of Invesment Considered in the Second Phase.

Province Project Type of work to prevent flood or damage Av Wilde-Hermanderias- Drainage Avalos Bella Vista Drainage Corrientes Curuzu Cuatia Drainage Mercedes Drainage Misiones Wanda Cleaning and improving the Canal Lavaisse-Santa Fe Drainage Santa Fte

6. The economic benefits and costs were estimated according to each subproject’s expectations and the type of solution presented. The impact of each subproject was calculated based on the increased protection of areas that are currently periodically flooded, using Risk Maps to draw the flooded areas “with” and “without” project.

Estimation of Economic Costs

7. The flow of costs consisted ofinvestment and operating costs. The investment flow included not only the project costs but also replacement costs of equipment whose lifetime was shorter than the project’s. The project investment costs consisted ofthree components: structural measures, non-structural measures and housing construction. Structural measures corresponded to all type of works to be done, such as, drainage pipelines, defense works, pumping stations, etc.

8. Non-structural measures included actions aimed at improving the capacity of provincial institutions to reduce risks related to floods; and emergency social interventions, which consisted of the cost of relocation of an estimated 1,93S3 families from floodable areas to flood-safe places.

9. The cost allocation among Provinces for non-structural measures, when they were not specific to the Province, was made in proportion to investment costs. The operating costs included energy, fuel, maintenance, labor, and others.

10. Economic costs were estimated as financial costs subtracting taxes and adding

The estimated numbers offamilies to be relocated are as follows: in Av Paraguay (El Chaco) 497, in Goya (Corrientes) 730, in LaPaz (Entre Rios) 150, in Diamante (Entre Rios) 50, in Puerto Iguazu (Misiones) 368, in Pto Esperanza (Misiones) 103, in Santo Tome (Santa Fe) 20, and Saladillo (Santa Fe) 20.

75 subsidies, which are merely transfer payments between suppliers or beneficiaries and government, and so they are not treated as a resource cost to society. Taxes consisted of federal and provincial taxes, Le., VAT (value added tax) at 21 percent, and provincial tax, which varies from 1 percent to 3 percent.

11. The cost of relocation used in this evaluation was equal to the economic cost of building new houses, which differs significantly from the financial cost. The economic cost corresponds to the sum of all input costs, that is, labor, land, materials, etc., estimated at US$18,000 per house, while financial cost corresponded to the market price paid for the resources, estimated at US$7,000. The difference is explained by the price of land and labor. Land will be given for free to the beneficiaries by the government, and labor will have a small price, given that beneficiaries will be working on the construction with no payment.

Estimation of Economic Benefits

12. The flow of benefits was estimated as the avoided damage cost, calculated as the difference between damage costs under both scenarios (“with” and “without” the implementation of the project). The associated damage varies with the intensity of the flood, water levels, and extension of flooded area. The damage cost was calculated in probabilistic terms, based on historical data and hydrological mathematical models for storm simulation and river enlargement under different recurrences.

13. The benefits included: (i)the reduction of property and infrastructure damage caused from floods; (ii)the diminution ofinterruptions in transport; (iii)less interruption of economic activity; and (iv) savings in operating costs. The benefit achieved from the reduction of property damage to the households and non residential infrastructure was estimated using the avoided damage cost method. The benefits attained on transport were estimated based on the savings obtained when time of transportation is reduced. The interruption of economic activity was estimated only for those subprojects in which economic activity was seriously affected; the calculation was based on GDP per capita per day, Savings on operating costs were based on operating expenses with and without project situation.

Avoided damage cost method

14. The economic benefit stream calculated through the avoided damage cost, measured the cost of direct flood damage, which the project would prevent. This calculation corresponded to the difference between damage costs under two scenarios: “with” and “without” the implementation of the project. The associated damage costs varied with the intensity of the flood, water levels, and extension of flooded areas. These costs were calculated in probabilistic terms, based on historical data and a hydrological mathematical model for storm simulation and increase ofwater levels ofthe rivers. Several alternatives of investment were evaluated according to different number of years of recurrence (2, 5, 10, 25, and 50 years). The avoided damage cost was estimated for (i)the residential sector, (ii) the public sector (urban infrastructure), and (iii)industrial and commercial sectors.

76 15. The primary sources of information were: (i)census of flooded areas in each of the subproject sites; (ii)survey done during preparation; (iii)and historical data from previous floods. The damage cost was then calculated based on synthetic curves built with information from the survey about characterization of the buildings and houses, such as: location, materials of construction, size, house appliances (for residential sector), and equipment (for non residential sector). The houses were classified in three categories (A, Byand C) according to socioeconomic characteristics.

16. From the hydrological mathematic model it was possible to calculate the number of households to be damaged in each subproject with and without implementation of the investment, according to frequency of rain events. For instance, if the Barlcarce Santo Tome project in the Province of Santa Fe is not implemented, the flooded area would vary from 21 to 105 Ha. and the number ofhouses affected with the flood would be between 63 to 2,323, depending on the number of years of recurrence (Table 3). Once the project is implemented, no damage would be expected for recurrences of 1 year, and for higher recurrences the reduction ofhouses affected would diminish from 1,618 to 488 for 5 years of recurrence, or from 2.323 to 911 for 10 years ofrecurrence, as is shown in Tables 3 and 4.

Table 3. Number of houses Damaged According to Flood Frequency. Without Project Situation. Barlace Sto Tome Project Years ofRecurrence Years of Recurrence 1 2 5 10 Flooded Area (Ha) 21 50 65-68 90-105 Total Number of Houses Affected 63 709 1,618 2,323 Type A 61 676 1,495 2,156 Type B 2 25 104 137 Type C 7 19 30

Table 4. Number of houses Damaged According to Flood Frequency. With Project Situation. Barlace Sto Tome Project Years ofRecurrence

Affected 0 118 488 911 Type A 0 115 45 8 855 Type B 0 3 26 46 Type C 0 0 4 10

17. The damage cost per dwelling was calculated according to flood level, characteristics of the construction, and equipment inside the house. Then a curve is built with total damage costs for both scenarios: with and without project, versus the probability

77 of occurrence (see graph for the Barlace Sto Tome Project). The area4 under the curve corresponds to the expected damage cost for each scenario. The difference between the expected damage cost “with: project scenario, and the expected damage cost “without” project scenario corresponds to the expected avoided damage costs, or expected benefits of the project.

Expected Bene@ for the Bolcorce Sto Tome Project I (US$OOO)

18. Benefit for Public Infrastructure The damage cost for public infrastructure was calculated from historical data of previous floods and the survey done during preparation. Public infrastructure consisted ofbuildings and equipment, parks, roads and rail networks, schools, hospitals, public services (transportation, utilities). The damage cost was estimated based on the infrastructure located in the flooded area and damage caused by the flood for different years ofrecurrence.

19. Benefit for traffic. The traffic flow was simulated with and without floods. For ’ the estimation the routes, average travel distance and duration oftrips, number of vehicles, and different intensities of flood (inundated area, height of the water, and duration of the flood) were considered. With the model it was possible to quantify some of the problems caused by floods when the passage of vehicles is disrupted, such as: reduction in speed, diverted traffic, traffic jam, and cancellation of trips. Then, cost of delay was calculated as additional travel time multiplied by transport cost per hour. The transport cost varies according to vehicle type (truck, bus, or car).

20. Disruption of Economic Activity. Avoided losses for the economy were calculated based on the GDP per capita per day, the number ofdays the water will stay on the affected surface, the years of recurrence, the number of persons in the affected area, and the probability ofdamage on the economic activity.

2 1. Relocation benefits. Families living in the areas where the works will be built will be relocated. All ofthem live in flood prone areas, in deficient housing, with little access to

The area under the curve is calculated as the sum of trapezoids whose areas are equal to the average of the bases times the height. The average of the bases is the average of the damage cost, and the height is the difference between the probabilities (see graph).

78 safe water and inadequate sanitary conditions. The main benefits are the gain of an adequate house in a nearby locality, secure from flood related risks and in most ofthe cases with access to public water, sewerage network and other public facilities. The costs were estimated as equal to the costs of building the houses. Other benefits related to improvement of life quality were not estimated.

22. Annual Growth of Damage Cost. It was predictable that the damage cost will grow over time due to population growth which would increase the number of dwellings in the area as well as their contents. The annual growth rate was assumed to be equal to the increase ofthe population in each ofthe municipalities ofproject areas, and therefore varies between subprojects, from 0.06 percent in Saladillo, Corrientes to 6 percent in las Estacas- las Rosas, Corrientes.

Other benefits. 23. Savings on evacuation costs. Depending on the characteristics of the subproject, the expected evacuation cost was calculated for both “with” and “without” project scenarios. The cost was estimated as the sum of all costs associated with it, such as shelters, food, provisions, etc. The difference between the evacuation costs for both scenarios is a savings and therefore a benefit.

24. Benefits from protection of water intake. In one of the subprojects (Victoria, Province of Entre Rios) the investment consists ofprotection of the water intake, which is broken when water level of the river reaches a certain point. The benefits were calculated as the savings on the cost ofwater under both situations, with and without the project,

25. Benefits from sewerage networks. In some projects (La Paz, Province of Entre Rios), a complementary investment for the construction ofsewerage pipelines to control the flow of discharges is needed. The benefits of sewerage were estimated as the savings on operating costs when beneficiaries are connected to the sewerage network compared with previous situations.

26. Other benefits will result from the subproject but are not quantified. These include:

(i) Recreational and Cultural Activities. In most of the subprojects there will be improvement for recreational purposes of recovered areas, such as beaches, parks, paths along the river, etc. In other subprojects there will be recovery of areas of great cultural significance to the city. Even though these benefits will improve quality of life, they were not quantified for lack ofinformation.

(ii) Health benefits. It is expected that there will be some savings in health costs for the population living in the flooded area when the project is implemented. However, due to lack of data they were not quantified and therefore not included in this evaluation.

Results ofeconomic evaluation.

27. The results are presented for the projects listed in the first phase (Table 5), and those listed for a subsequent phase (Table 6). According to economic evaluation results, the net

79 returns ofthe projects listed in the first group will be US$136 million, with an internal rate of return of 29 percent, and total avoided damage cost of US$ 218 million. The projects in the second group will have a net profit of US$12 million and a 20 percent internal rate of return.

28. All Provinces have positive economic returns, varying from 13 percent in Misiones to 61 percent in Santa Fe. The Province of Santa Fe reaps 81 percent of total profits obtained in the first group ofsub-projects, with benefits almost ten times its costs, and a net return of US$l1 1 million. All the sub-projects are economically feasible, as shown in detail in Tables 5 and 6.

Table 5. Results of the Economic Analysis of the subprojects listed in the first phase (US% 000) 'S 1 Net costs Benefits benefit IRR El Chaco Pluviales Calle Los Hacheros 1,633 2,386 754 16% Pluviales Canal Clayton 3,737 5,612 1,875 17% Soberania Nacional 3,654 5,589 1,936 18% Pluviales Av. Velez Sarfield y Paraguay 6,03 1 9,562 3,531 17% Total Provincia El Chaco 15,054 23,149 8,095 17% Corrientes Goya 26,4 18 37,203 10,785 18% Total Provincia Corrientes 26.4 18 37.203 10.785 18% Entre Rios Concordia 4,854 5,783 929 12% Diamante 5,296 6,698 1,402 15% La Paz 1,840 2,237 398 16% Victoria 1,556 3,267 1,711 40% Total Provincia Entre Rios 13,546 17,986 4,440 15% Misiones Pto Esperanza 3,196 3,679 483 14% Pto Iguazu 9,960 11,741 1,78 1 14% Total Provincia Misiones 13,156 15,420 2,264 Santa FC Balarce Sto Tome 2,02 1 6,101 4,08 1 42% Cascada Saladillo-Rosario 5,567 30,590 25,022 37% Las Estacas-Las Rosas 2,127 4,954 2,827 26% Los Llanos-Galvez 1,279 47,987 46,708 377% Pte A Aguiar y A El Rey 2,119 34,338 32,220 30% Total Provincia Santa Fe 13,113 123,970 110,857 61% Total Project (Subprojects in first group) 8 1,287 217,729 136,442

80 listed in the second phase (US$ 000) Net Present of Flows costs Benefits Net benefit IRR El Chaco Pluviales Av. Hernandarias y Avalos 6,044 9,047 3,003 16% Total Provincia El Chaco 6,044 9,047 3,003 16% Corrientes Bella Vista 862 1,073 21 1 13% Curuzu Cuatia 2,036 4,946 2,910 26% Mercedes 3,065 3,222 156 11% Total Provincia Corrientes 5,964 9,24 1 3,277 17% Misiones Wanda 188 218 30 13% Total Provincia Misiones 188 218 30 13% Santa FC Lavaisse-Santa Fe 2,867 8,571 5,703 32% Total Provincia Santa Fe 2,867 8,571 5,703 32% Total Subprojects Second Group 15,063 27,077 12,013 20%

Sensitivity and Risk Analysis

29. Sensitivity Analysis. Based on a series of sensitivity analyses, some variables were identified as those conveying major risks to the expected outcome ofthe different activities. These variables are: overrun in investment costs, overrun in operating and maintenance costs, delays in building the works and decrease in benefits. The impact and risk significance ofthe risk variables is summarized in Table 7 and presented in detail in Table 8.

Risk Impact and Significance

For the project as a whole, it conveys a lower risk to the economic results, since project cost could rise 235 percent and the economic result would still be positive. For all Provinces the investment cost could be higher than 46 percent and still the economic returns are positive. For projects in the second group the risk is lower with the exception ofMercedes and Wanda whose costs could not be higher than 7 percent and 19 percent respectively. O&M Cost Overrun Direct impact on operation cost. Largely under Province control. Conveys a minimum risk to the economic results. O&M costs could increase more than 100 percent and still all the projects would have positive results, with the exception of Mercedes whose costs can not increase more than 18 Dercent. Project Delay Direct impact on costs and benefits. Ifworks take longer so will the benefits. Largely under Province control, has high impact on results for some projects such as: Mercedes, Puerto Esperanza, and Wanda, where delays of 1 year would imply negative returns. If delays of 2 years occur, only Concordia would become negative. For all other projects the results are positive even with delays of 3 years or more. Damage cost avoided Direct impact on benefits. Based on actual damage on dwellings and (benefit) hence beyond Province control, this variable conveys a high risk for some projects such as: Mercedes, and Wanda, where decrease of less than 5 percent and 14 percent respectively would make the project non feasible. For the project as a whole benefits could be reduced by 70 percent and still would show economic profits.

Table 8. Results of the Sensitivity Analysis for all sub-pr group. Brei ;-even poinl w each vari Damage Inv cost O&M Inv delay cost Overrun Overrun years decrease El Chaco Pluviales Calle Los Hacheros 60% 205% >3 -32% Pluviales Canal Clayton 65% 225% >3 -33% Soberania Nacional 65% 284% >3 -35% Pluviales Av. Velez Sarfield y Paraguay 25% 447% >3 -37% Total Provincia El Chaco 65% 303% >3 -35% Corrientes Goya 75% 8000% >3 -43% Total Provincia Corrientes 75% 8000% >3 -43% Entre Rios Concordia 21% 221% 2 -16% Diamante 3 8% 191% ,3 -24% La Paz 53% 205% >3 -30% Victoria 333% 1196% 3 -72% Total Provincia Entre Rios 47% 298% 3 -29% Misiones Pto Esperanza 3 7% 1938% 1 -26% Pto Iguazu 49% 545% 3 -31% Total Provincia Misiones 46% 644% 1 -30% Santa FC Balarce Sto Tome 302% 589% >3 -68% Cascada Saladillo-Rosario 628% 2309% >3 -85% Las Estacas-Las Rosas 84% 730% 1 -44% Los Llanos-Galvez 3200% 12147% >3 -96% Pte A Aguiar y A El Rey 152% 3 5 69% >3 -83% Total Provincia Santa Fe 497% 5406% >3 -90% Total Project 235% 2040% >3 -70%

82 Damage Inv cost O&M Inv delay cost

Overrun Overrun Years decrease El Chaco Pluviales Av. Hernandarias y Avalos 59% 302% >3 -33% Corrientes Bella Vista 27% 248% >3 -20% Curuzu Cuatia 155% 1819% >3 -59% Mercedes 7% 18% 1 -5% Total Provincia Corrientes 67% 297% >3 -35% Misiones Wanda 19% 110% 1 -14% ~~ ~~ Santa FC Lavaisse-Santa Fe 268% 1519% >3 -69% Total Subprojects Second Phase 98% 480% >3 -45%

30. Risk Analysis. To enhance the accuracy ofthe economic analysis, the uncertainties of the real world were approximated through the use ofMonte Carlo simulation using the Crystal Ball software. This software measures the extent ofvarious risks and their impact on the project, by modeling a likely distribution for each risk variable and the resulting outcome. Based on a simulation of 1,000 trials, the model recalculated the results of the economic analysis by simultaneously changing each ofthe selected risk variables. The assumed distribution ofprobabilities and their respective specifications for each variable are presented in Tables 10, 11 and 12.

83 Table 10. Variables and Distribution Function

Variable Distribution Range

Triangular Distribution with parameters: Minimum -3% Likeliest 0 Yo Maximum 15% I 0.UCo.t. Triangular Distribution with Overrun parameters: Minimum -5 Yo Likeliest 0 Yo Maximum 15%

Custom Distribution No delays 50% Probability 1 year delay 30% Probability 2 years delay 15% Probability 3 years delay 5% Probability

Damage cost Normal Distribution with parameters Mean 0 Yo Standard deviation 4%

31. The results of the risk analysis show that the project as a whole is robust and the likelihood of a negative outcome is almost non-existent. When results are analyzed for the sub-projects listed in the first phase it is found that all Provinces have probabilities higher than 96 percent of having a positive return. The same can be said about each subproject, with probabilities ofat least 90 percent ofhaving returns. For the sub-projects listed in the second group this is not true for two of these projects (Mercedes and Wanda), whose probabilities of negative outcome are higher than 50 percent. Moreover, for these two projects slight changes in some variables as investment cost overrun and a decrease in damage cost would make the projects unprofitable, as was shown in the sensitivity analysis.

84 Table 11. Risk Analysis Results for Sub-projects

Pluviales Calle Los Hacheros Pluviales Canal Clayton Soberania Nacional

Balarce Sto Tome Cascada Saladillo-Rosario Las Estacas-Las Rosas

Probability of Expected mean Positive NPV (US% 000) El Chaco Cuenca 10s Hacheros 100% 2.407 Corrientes Bella Vista 98% 143 Curuzu Cuatia 100% 2,594 Mercedes 3 7% (65) Total Provincia Corrientes 100% 2,673 Misiones Wanda 48% (1) Santa F6 Lavaisse-Santa Fe 100% 5,324 Total Subprojects Second Phase 100% 10,403

85 Annex 10: Safeguard Policy Issues. Environmental Assessment ARGENTINA: Urban Flood Prevention and Drainage APL 2

INTRODUCTION

1. The Argentina Flood and Drainage Program (PIDU) will continue supporting the investment needs of participating provinces in Argentina through the implementation of well coordinated flood protection programs. This support started in 1996 with the Argentina Flood Protection Project. (PPI) and continues with an APL program. This project constitutes the second phase of the APL. These programs include structural and non-structural measures, consolidating the provincial capacity to deal with periodic flooding, protecting important economic and social infrastructure, and strengthening the legal framework to deal with flood risks. When completed the project is expected to have provided technical assistance and financing to 7 provinces. A total of 19 projects which could not be financed by the PPI were selected along the flood plain of the Parana and Uruguay rivers.

2. Main environmental issues associated with the project are equal to those identified for the PPI. They include potential affectation of natural habitats, specially in and near urban areas, and potential cumulative impacts from interference with ecological processes in the flood plains of the Parana and Uruguay rivers. Major civil works in or around urban areas have the potential for localized impacts that need to be managed to avoid disturbances to local communities. Some civil works result in displacement of low income families living in high flood risk areas. Similarly to the PPI, the project (APL2) has therefore been assigned a Category A for environmental purposes.

3. This report summarizes the findings of (i)the ex-post evaluation of the environmental performance of the PPI; (ii)the screening, updating of environmental data sheets, and project specific environmental assessments for all 19 works included in the APL2; and (iii)relevant environmental issues included in the Regional Environmental Assessment (REA) carried out for the PPI. This REA is considered to be still valid and applicable to the APL2.

ENVIRONMENTAL ASSESSMENT STRATEGY

4. The management of environmental issues in the project will follow the highly successful experience of the Argentina Flood Protection Project (PPI), Most sub-projects included in the APL2 had already been appraised as part of the PPI. During project preparation, the Environmental Assessment for the APL2 included: (i)an ex-post evaluation of the environmental performance of the PPI; (ii)screening and updating of Environmental Data Sheets of all sub-projects included in APL2; and (iii)preparation ofan Environmental Management Plan for the APL2 based on the experience ofthe EMP for the PPI and the lessons learned and recommendations stemming from the ex-post evaluation of the PPI.

86 THE ARGENTINA FLOOD PROTECTION PROJECT (PPI)

5. Irregular rainfall patterns prevail in Argentina causing both pervasive floods and droughts. About a quarter of the territory gets repeatedly flooded. This is particularly true for Northeast Argentina, where three rivers cross the region and much of the landscape consists of extensive, low-sloping plains. Seven provinces are located here: Entre Rios, Formosa, Chaco, Corrientes, Misiones, Buenos Aires, and Santa Fe. These provinces comprise almost 30 percent of the national territory; the last two being inhabited by nearly half ofArgentina’s population, with an additional 12 percent living in the remaining five.

6. The project was the first phase of a two-stage Flood Protection Program aimed at providing cost-effective flood protection coverage of the most important economic areas, and developing a strategy to cope with recurrent floods. It is based on a river basin wide assessment carried out under financing from the Flood Protection Project. As a result ofthis study, each participating province developed a Provincial Master Plan which recommends the necessary works to reduce the effects ofrecurrent floods.

7. The structural component of the project supported the priority civil works included in the Master Plans, such as raising bridges, drainage channels, embankments, and small flood control works. Secondary civil works would be considered in a future project. The non structural components targeted: (i)the development of a new institutional framework, (ii)an early flood warning system with a new hydro-metering network, (iii)upgrading flood preparedness, and (iv) capacity building. These components particularly supported the preparation and implementation of master plans for flood defense systems in areas where flood protection works are not economically or environmentally justified.

8. The Bank provided US$200 million of the total project costs, which amounted to US$488 million, 76 percent for structural measures, 24 percent for the rest, including US$3.6 million for environmental programs exclusively. Approved in December 1996, the project will close in June 2006.

I. Minimizing interference: A Regional Environmental Assessment (REA) for the ParandParaguay Flood Plains

9. The aim of the REA (one of the first REAs in Latin America) was to protect as much as possible the integrity of the wetlands and floodplains by minimizing human interference. Its main objectives were: (a) to identify the most relevant environmental features of the river basins in order to understand the interaction between natural and anthropogenic systems, and (b) to assess a cumulative impact ofthe flood protection works. Thus the REA had three major components: (i)a regional assessment to characterize the region; (ii)a regional, integrated analysis of the cumulative impacts of the civil works, based on the standard environmental assessments for each subproject, and (iii)a regional action plan comprised of environmental programs that address region-wide weaknesses.

87 Region a1 Environmental Conditions

10. The regional assessment improves the baseline knowledge of the ecology and dynamics of the riverine and floodplain ecosystems. The following conditions prevail across the region: system stability depends on preserving natural interactions between floods and habitats; threats to biodiversity include: encroachment, illegal hunting, clearing, urban sprawl and infrastructure interfering with natural flood processes, and pollution of small rivers from untreated sewage/ industrial effluents; population in riverine areas have adapted to floods; urban and periurban areas are ill-prepared; deficient water supply, sanitation and solid waste management; poor coordination and heterogeneous environmental criteria throughout the region; and lack ofsystematic procedures to deal with environmental issues and floods.

This characterization of the environmental conditions was useful to improve the design of environmental criteria for both site selection and site-specific engineering works, A strong participatory approach was promoted throughout the project, with individual project designs being modified following suggestions from local communities and NGOs.

II. Natural Habitats Issues

12. The regional assessment identified potential threats both to the biodiversity and ecosystem hnctions in the region. The principal threats to the biodiversity of the floodplains identified in the regional environmental assessment are: (a) the destruction ofor encroachment on natural habitats; (b) illegal hunting, and deforestation of gallery forests; (c) interference of infrastructure and urban expansion with natural flood processes and connections between the river and natural lagoons and other wetlands; and (d) pollution of small rivers and streams from untreated sewage discharges and untreated industrial effluents. The environmental assessment also recognized that the construction of hydroelectric projects in the upper basins of the rivers has probably also impaired natural ecological resources and processes significantly.

13. Lack of environmental awareness and understanding of ecosystem functions throughout institutions and the communities, made it a priority to improve baseline knowledge of the ecology and dynamics of the riverine and floodplain ecosystem. This information was used to improve the design of environmental criteria for site selection and site specific engineering works.

14. The low percentage of the national territory included in protected areas also meant that the protection and management of wetlands within the project region, and especially around urban areas, needed to be specifically addressed.

88 III. Approach to Solving Issues - Environmental Criteriafor Civil Works

15. The environmental assessment had three major components: a Regional Assessment to identify the most relevant environmental features of the rivers floodplains; project- specific assessments for each of the priority subprojects and an integrated analysis of all priority projects and their cumulative impacts at the regional level. The overriding environmental goal was to protect as much as possible the integrity of the wetlands and floodplains by minimizing human interference.

16. The Regional Environmental Assessment screened subprojects for works that protected economically important infrastructure from floods, did not promote urban expansion in high flood risk areas, and had minimal interference with natural flood processes and minimal effects on sensitive ecosystems. Wetlands were specifically avoided and no projects were located within critical habitats. The 51 subprojects chosen were those where (i)the civil works did not alter the structure and functioning of floodplain habitats and surrounding wild lands and (ii)there was economic growth of at least 12 percent in the area, This last economic criterion gave preference to converted lands. Finally, to allow all provinces to participate, the investment in each province was set according to its counterpart funding capacity.

17. Standard environmental assessments were conducted for each subproject, although their scope was narrow due to the pre-screening. Based on the level of their impacts the individual projects were categorized, both before and after mitigation measures, as critical, important, moderate, or minimal. Only projects with minimal impacts were selected for the most part, although some with moderate ones were included. This in itself was a built-in safeguard that considerably reduced impacts throughout the basin.

18. The individual projects, though engineered as flood defense works, were incorporated into the urban landscape to provide open spaces for recreation. For example, the linear park in Concordia along Arroyo Concordia, and the square in the city of Concepcih del Uruguay along the Las Animas Creek are the result of recovering areas previously lost because ofpoor drainage in urban creeks.

19. The REA concluded that with appropriate mitigating measures, there would be no regional environmental impacts due to the localized nature ofthe works; these were mostly limited to urban and suburban areas where natural habitats had already been either converted or degraded.

Maximizing Benefits: Region a1 Environmental Programs

20. In response to the environmental issues raised by the regional assessment, the REA included a regional action plan. The plan comprises four environmental programs designed to address institutional weaknesses in communities affected by recurrent flooding, further supporting the new institutional framework set forth as part of the project. A total of US$3.6 million was allocated for these programs which will improve environmental assessment, management, protection, and education.

89 21. The Program to Strengthen Environmental Assessment Procedures in Key Institutions is aimed at the emergency response coordinating sub-units, provincial environmental and natural resources agencies. Its purpose is to improve their environmental capacity for flood protection works and to ensure environmental assessments explicitly address impacts on floodplains.

22. Decreasing flood impacts in urban settings is a challenging task. The Program of Technical Assistance for Urban Environmental Management involves municipalities and NGOs, and addresses the lack of sufficient urban environmental infrastructure and technical solutions to deal specifically with flood related problems. All participating localities will develop Urban Area Management Plans which will encourage settlement out of the floodplains and into planned development areas. Flood risk zoning maps were prepared for all urban sites; new regulations will restrict settlement in flood prone areas.

23. Environmental Education and Awareness Programs were set up at each of the 51 sites where civil works were located, as well as throughout the provinces involved. This extended the educational program outside the immediate area of influence of the works. The environmental education programs informed people of the importance of floods in natural habitats, maintaining flood plains, the consequences of impervious areas (mainly paving and house building), and better land use practices.

24. Program for Wetland Protection and Management. There are few protected areas and a lack of effective protection systems throughout the region. The degradation of wetland and floodplain ecosystems was common throughout, but especially true around urban areas. At a regional level, the project included digital mapping of fauna and flora species which, when overlaid, will identify critical areas with high biodiversity and populations of species of concern. This mapping provides baseline information for the prioritization offuture projects and establishment of conservation areas.

25. At a local level the program supports initiatives for protection and management of wetland and other ecosystems. Multiple institutions participate: provincial natural resources agencies, research institutions, municipalities and NGOs. The creation of a Biosphere reserve around the city ofFormosa, supported by the project, is to be highlighted.

Table 1. Wetlands restored under the PPI Name Number District . Province Lagunas Avalos, Prosperidad, Rissione, Francia, Metropolitan Area Chaco Los Teros, Arguello, Colussi, Navarro, Fortin 9 of Gran Resistencia Laguna Seca Corrientes Corrientes Lagunas Barrios Mataderos y Bosco 3 Goya Arroyo Concordia Concordia Entre Rios Rio Gualeguay Gualeguay Arroyo Las Animas 3 C. del Uruguay Arroyo Yararh 1 Puerto Esperanza Misiones Laguna Guadalupe 1 Santa Fe Santa FC Lagunas Oca, Indios, Siam, Martin Garcia 4 Formosa Formosa

90 26. As a result of the implementation of Environmental Programs, of a regional outlook on the problematic of flood plains management and of adequate supervision and coordination of all these, a citizens’ awareness program was promoted in all provinces of the basin about the consequences of indiscriminate occupation of areas in the flood valley that provide natural drainage for rainwater. A Law on Land Use, sanctioned in each of the seven provinces in the river basin, establishes among other elements, restriction strips in regard to water risk. According to said legislation, Municipal Ordinances in 18 municipalities were sanctioned, in the same spirit as the regional legislation.

Province Location Legislation or plan Buenos Aires I Campana I Decree N03688/99 Restricts construction by contour level Zhrate Decree NO3 177/99 Restricts construction by height

the entire province to risk level Gran Resistencia Resolution NO11 1 1/98 Restricts construction according I metropolitan area I to risk level I Resistencia I Decree No5.403/01 Restricts ImDemeabilitv Decree No 1.095/01 Governor declares the Environmental Improvement Plan for Lake Prosperity ofprovincial interest Entre Rios Concepci6n del Decree NO4110/96 Restricts construction by height Uruguay LaPaz Decree N0458/98 Restricts construction on the northern shore Concordia Resolution DRH No16/97 Establishes Riparian Border along the banks ofthe Concordia Stream Regulation NO3023 8/98 Prohibits construction along the linear park Regulation N032078/01 Prohibits construction along the Arroyo Las Animas Park Regulation N032253/02 Restricts construction according to level of hydrologic risk Santa FC Santa Fe (capital) Regulation No 10612/00 Adheres to the Use of Soils Law Villa Eloisa Regulation No164/98 Restricts construction according to level ofhydrologic risk Cafiada de G6mez Regulation NO3 855/98 Restricts construction according to level ofhydrologic risk Cafiada de G6mez Regulation N04327/01 Prohibits construction in affectec zone Rafaela Regulation N03212/98 Restricts construction accordiq to level ofhydrologic risk

91 Misiones I Posadas I Regulation No989/03 Adheres to the Use of Soils Law Corrientes Resolution N0320/ Defines Riparian Border Regulation No1 1 17/02 Prohibits construction without defense of construction area Regulation No1 130/02 Restricts construction according to level ofhydrologic risk Regulation No 1233/04m Declares the Lakes Recovery Plan ofmunicipal interest Mercedes Regulation No596/05 Creates reserve area within 10 m ofthe 3 principal streams

27. In spite of the financial deductions made, owing to the economic crisis and the reallocation of resources made by the Argentine Republic, the program (i)fostered, in all seven provinces of the river basin, actions of environmental training and education; (ii)was successful in the environmental integration of the subprojects; (iii)promoted citizens’ participation; (iv) developed and disclosed tools for environmental diagnostics; (v) introduced risk management into the agendas of officials and citizens; and (vi) created a new framework of norms to restrict the occupation of areas under flood risk; (vii) strengthened the capacity to manage flood contingencies.

Province Type of Document or Plan Location

Fernando, Tigre, Escobar, Campana, Zhrate, Baradero, San Pedro, Ramallo and San Nicol6s

Contingency Plan for Flood Metropolitan area of Gran Emergencies including the strengthening Resistencia of community organizations in risk (includes the municipalities of perception Resistencia, Fontana, Puerto Barranqueras, Fontana and Tirol) Corrientes Contingency Plan for Flood City ofGoya Emergencies

Contingency Plan for Flood City of San Javier Emergencies

Contingency Plan for Flood City of MelincuC Emergencies

92 IVSuccessful Strategies

28. The regional approach provided sufficient background information to develop general environmental criteria that would allow an expedient classification and prioritization ofpotential sites for the project. This approach allowed for site-specific works while evaluating their cumulative impact at a regional level. The regional approach also allowed the identification of areas of high biodiversity, distribution of species of concern and types ofhabitat. This is a significant contribution towards increasing the currently low percentage ofhabitats in protected areas throughout the country.

29. Having minimum interference with ecological functions as a goal translated into strong environmental criteria imposed on the civil works. This proved to be a cost-effective way to screen projects and also acted as a safeguard to minimize cumulative impacts on the river basins.

30. Consulting communities on the planned civil works allowed for input that resulted on the improvement ofindividual project designs.

3 1, Coordinated environmental programs allowed a multidisciplinary approach towards improving the existing conditions at the project sites. The works provided immediate defense against floods while improved conditions, urban plans, environmental assessment and education will prevent conditions from deteriorating.

32. One of the most profound changes a project can have is that the regulations and laws of a country mandate higher environmental safeguards and standards. Within this project regulations and programs at the state and municipal level ensure among other things that: (i)the flood risk of an area is assessed prior to construction; (ii)environmental assessments explicitly address impacts on floodplains; (iii)urbanization of floodplains is avoided; and (iv) protected areas that preserve ecological functions of wetlands. It is significant to note that 15 municipalities in 4 provinces have taken on the initiative of implementing regulations, and steps towards flood protection similar to those set forth by the project.

Lessons learned from the PPI

33. The identification of adverse impacts from the execution of EAR works and PAR implementation has made it possible to integrate mitigation measures, which must be carried out not only before and during the execution of each subproject, but also after their completion. This is something the project did not contemplate. e The functional relationship UEC-SUEPs has contributed to the application of criteria and methodologies that, albeit common to the seven provinces of the river basin, are adjusted to the particularities of the various territories included. In this sense, UEC’s supervision and technical coordination and management was essential to reach a common strategy, but at the same time was flexible enough to adapt to the environmental and institutional reality of each province.

93 e Actions of environmental improvement were implemented in the municipalities where the work enhanced the living conditions of the most vulnerable population, who is precisely the most defenseless regarding environmental problems. e The practice of holding Public Hearings in all the districts included in the work minimized local conflicts about works that in most cases have a significant urban impact.

Recommendations for the APL2

34. In light of the outstanding results obtained so far, it is recommended that the proposed project be developed to complete and/or complement the activities in those districts where tasks may be still pending, at project or work level, structural or non- structural measures.

35. Also recommended is the elaboration of an Environmental Manual, which has been considered acceptable to the Bank before Board approval, and which shall form part ofthe terms for opening a bid for the subprojects. On the other hand, our proposal is that the contractors, before starting their work, should submit an Environmental Management Plan (EMP), which shall be approved by SUEP and UEC. Said EMP shall be updated every two months according to the physical progress ofthe subproject.

URBAN FLOOD PREVENTION AND DRAINAGE PROJECT

36. The Urban Flood Prevention and Drainage Project APL 2 (PIDU) is a continuation of the PPI inasmuch as it contemplates the implementation of structural and non-structural measures which had not been implemented owing to financial deductions made at the time. The Project shall seek to prevent and eventually mitigate the damage caused by floods in urban centers of Argentina, through the combination of structural and non-structural measures, Its integral approach aims at improving, on the one hand, drainage and protection conditions, and on the other, at promoting citizens’ awareness of the consequences of the indiscriminate occupation of areas that are natural drainage for rainwater. Project implementation will improve the capacity of each province to face periodic flooding, protect important economic and social infrastructures, and strengthen the legal and institutional systems to sustain these measures.

37. Owing to the excellent performance and results achieved by the environmental component of the PPI, a similar criterion has been proposed for APL2, to enable it to further achieve and extend the notion that non-structural actions undertaken at regional level (environmental programs, citizens’ participation, institutional framework) constitute the main pillar ofa management policy for the flood valley. On the basis ofwhat was done with PPI, the results obtained, the lessons learned and experience gathered, the proposed project, which comprises the management of the Paranti and Uruguay basins, will include structural and non-structural measures.

94 Structural Measures

38. These consist mainly of two groups ofmeasures, all of which will consist ofminor additions or alterations of ongoing schemes: (i)defense works against floods in urban areas with high vulnerability to flood damage and important economic activity; and (ii)pluvial drainage works aimed at reducing the area affected by rains. The lists of works to be executed as part of the Master Plans formulated by the Provinces, were made on the basis of technical, economic and environmental criteria, considering: (i)the protection of important economic assets; (ii)obtaining a rate of return over 12 percent; (iii)the non- promotion of settlers in areas ofwater risk; and (iv) the least interference with natural flood processes.

39. The main categories of civil works include (i)construction, rehabilitation and conditioning of embankments; (ii)conditioning of urban and periurban channels through dredging, rectification, cleaning or pumping stations; (iii)stream training in urban areas; and (iv) conditioning or replacement ofbridges.

Environmental Management Plan for the APL 2

40. Due to the fact that the Regional Strategic Environmental Evaluation was performed during the formulation of PPI, complemented by Environmental Impact Assessments (EIA), for nearly all the works identified by the Project of Flood Prevention and Urban Drainage, these works have their own Environmental Evaluation.

41. To formulate PIDU, the strategy consisted of: (i)revision and adjustment of the EIAs made for each work, recorded in file-cards for Environmental Impact Evaluation for Specific Projects; and (ii)updating and homogenizing the Environmental Impact Studies, taking into account all the subprojects to be included in the Project ofFlood Prevention and Urban Drainage, by means of a Matrix common to all. This strategy made it possible to identify the impacts associated with each work and the mitigation measures to be included during the construction and operation of the subprojects. From the studies, it has been concluded that the impacts identified are mostly highly localized and only for a short time.

42. The main environmental criteria for the evaluation of the works were: (i)the conservation and restoring ofthe water basin in all possible cases, so as to reach conditions of environmental quality that will favor its public use and the development of aquatic biota; and (ii)non significance interference in the natural flood processes.

95 Province Location Subproject Method of mitigation

Corrientes Goya Permanent protection works Landscaping, hillside protection, construction of canals at the foot of the embankment , canal maintenance activities, wetlands restoration Chaco Resistencia Storm drainage on Los Maintenance, removal of underwater Hacheros Street, V. Sarfield lake vegetation, RSU Management Plan, Ave and Canal Clayton Nutrient contribution and contaminant Basin control plan National Sovereignty Landscaping, hillside protection, Control Works construction of canals at the foot of the embankment, canal maintenance activities, wetlands restoration Lake Avalos pumping Maintenance, removal of underwater station lake vegetation, RSU Management Plan, Nutrient contribution and contaminant control plan ___t___Entre Rios Concordia Coastal restoration and Maintenance, RSU Management Plan, storm drainage Nutrient contribution and- contaminant control plan Diamante Stabilization ofsteep Landscaping, hillside protection, RSU embankments Management Plan, Maintenance, La Paz Control ofriver Landscaping, hillside protection, RSU +embankments Management Plan, Maintenance, -7- sewerage connections plan, pavement oi

RP 82 S Bridge improvement Maintenance, pillar protection, hillside stabilization Santo Tome Storm drainage Signage, RSU Management Plan, maintenance

96 43. Although the impacts on natural ecosystems were deemed negligible, the Project will finance programs to improve environmental monitoring, the management of humid urban areas - especially those threatened by human activity - and the management ofurban solid waste.

44. Based on the findings of the ex-post environmental evaluation an updated and enhanced Regional Environmental Management Plan has been prepared for the APL2. This EMP includes: (i)provision for a more selective approach to rapid Urban Environmental Assessments in priority municipalities; (ii)supporting solid waste management in cities included in the project, as a means to achieve sustainability of drainage infrastructure supported by the project; (iii)increasing environmental enhancement opportunities of infrastructure projects, especially linear parks which have received high levels of acceptance among participating communities in all provinces; (iv) continuing support to urban wetland restoration and conservation efforts in selected communities; (v) environmental education programs; and (vi) updating the environmental construction manual that was applied during the PPI; and (vii) Contingency Plans for Water Emergencies, on the basis of the experience started with PPI, which will have local or provincial scope, as well as the training of entities in charge of emergencies. In addition to the EMP, a resettlement framework has been prepared.

Implementation Arrangements

45. On the basis ofthe foregoing outline, which covers all the spectrum ofManagement Plans, both referring to creation and instrumentation, as well as to execution, application and compliance control, it is recommended that there be an appropriate and competent implementation unit in every jurisdiction, coordinated with local institutions at the corresponding levels, with monitoring at the central level aimed at homogenizing the creation and execution ofrules, as well as managing budget from national and international origins as well as credit allocations where relevant.

46. It is important to consider that non-structural measures constitute environmentally positive actions because they do not seek to modify the natural water rkgime. Within that context, zoning and land use regulation according to flood risk is part of the appropriate environmental context that may become a central instrument of the national environmental management and warrant its intervention.

Institutional Aspects

47. In light of the actions taken so far and of the experience gained, it is deemed beneficial that the central coordination unit guarantee effective performance. The final result would be that environmental risk would be considered as key issue, in direct relation to the occurrence offloods and the mitigation actions previously referred to.

97 Public Consultation

48. During the preparation of the Project, 22 Public Consultation meetings were held, according to a tight timetable. Within a period of 30 days the subprojects identified in the PIDU, the associated impacts and planned mitigation measures were presented in 22 districts. As a conclusion ofthese public presentations, it can be asserted that the population did not object to the implementation of the works, but rather expressed a great interest in their prompt execution.

49. The EA report was presented to local institutions and NGOs in regional workshops. Project specific consultations were carried out in all communities with civil works under the APL2 project. The EA report is available in the UEC in Buenos Aires and in all provincial offices (SUEPs) in the region. An executive summary in English was also prepared and sent to the Bank. The project's EA was reviewed by the Regional Safeguard team.

98 Annex 11. Safeguard Policy Issues - Social Impact Analysis Urban Flood Prevention and Drainage Project, APL 2

Project Relevance

1. The recurrent floods that affect many Argentinean cities directly or indirectly disrupt the lives of the majority of their populations. Floods can cause severe damage and losses to private and public property, decrease real estate values, and disrupt economic activity as they paralyze cities with interruption to the transport system and electric, gas and telephone services. Floods also impede mobility and access to education and health centers, among other effects. All these factors affect living conditions, cause distress and contribute to increasing social vulnerability on several dimensions. The poorer strata ofthe population is always the one more affected by these phenomena. An estimated 28 percent of those considered poor live in low or floodable areas. Recurrent floods can also be life threatening, particularly for the population over 70 or less than 6 years of age. In the last decade, floods from the basins of the rivers Parani and Paraguay have had a massive negative impact on living conditions and economic activities. Floods in Santa Fe in 2003 caused 23 deaths and approximate economic losses ofa US$l.O billion.

2. In this context, the Government ofArgentina has prepared a project that combines a number of structural measures and a set of non-structural ones to mitigate the effect of floods and improve the official response to them. The project will focus on the frequently flooded provinces of Santa Fey Misiones, Corrientes, Entre Rios and Chaco. Flood Protection works will be carried out in specific localities within each province.

3. The following analysis identifies the direct and indirect social impact of 28 works within the project’s structural component, along with the housing subcomponent. It was carried out for six provinces in June 2005, since Formosa had been part of the selected provinces for some time but was dropped before appraisal. In addition, the selected works in the five remaining provinces have been reduced and consequently the number of households affected was reduced from about 2,200 to about 1,930. The following social analysis is therefore presented for the six provinces. The analysis quantifies project beneficiaries, describes their socio-economic characteristics and assesses project benefits. It considers any risks and adverse effects of the works to be carried by the project and assesses the need for mitigation measures. Finally, it reviews and makes recommendations on the consultation processes that guided project design and the participatory processes that will take place during implementation.

Methodology and Sources ofInformation for the Social Analyses

4. The National Census of 20015 and the 2004 Permanent Household Survey carried out by INDEC6provided the main quantitative data. The analyses moved from an aggregate level (provincial) to a micro one (locality). Availability of information was reduced as we approached direct beneficiaries; while at the provincial and departmental level it was

* Censo Nacional de Poblacion y Vivienda, Instituto Nacional de Estadistica y Censos, 2001. Encuesta Permanente de Hogares (EPH), realizada por el Institutito Nacional de Estadistica y Censos.

99 possible to get 2004 data and information on income levels and the percentage of the population that is below the poverty line, at the locality level the Census was the primary source. Census data has its limitations: (i)it defines poverty through structural factors (unmet basic needs type of indicators) and misses the non structural dimensions (income level or other vulnerability factors) that characterize Argentina’s poverty; (ii)it is outdated due to the changes in socio economic indicators and poverty levels after the economic crisis of2002; and (iii)it underestimates informal labor, overestimating unemployment levels. In view of these limitations, the socio economic characterization of beneficiaries has been complemented with indicators that serve as a proxy for income and vulnerability levels such as provincial information on social plans7and health coverage’.

5. Census data was complemented with secondary data provided by provincial SUEPs and by interviews with SUEP and UEC staff who were involved in planning the current project and in Charge of implementing similar ones. To confirm the conclusions and recommendations arrived at from statistical data and phone interviews, field visits were organized to the provinces of Santa Fe and Chaco before project approval. These visits included focus groups with Nongovernmental organizations (NGOs), civil society organizations (CSOs) and consultative groups.

6. The social assessment was carried for more works than those selected in the Project. The works covered are located in the following municipalitiesAoca1ities; In Santa Fe: Rosario, Ciudad de Santa FeyVilla Gobernador Gilvez, Santo Tome, Comuna 10s Amores, Galvez, Las Rosas, Las Parejas, Comuna de San Genaro Norte, Comuna Montes de Oca, Comuna Arroyo Aguilar, Comuna Classon, Comuna Caiiada Ombu, Comuna Campo Andino. In Chaco: Resistencia y Barranqueras. In Misiones: Puerto Iguazu, Esperanza y Wanda. In Corrientes: Mercedes, Goya, Curuz6 Cuatia y Bella Vista. In Formosa: Clorinda y Ciudad de Formosa. In Entre Nos: Concordia, Diamante, LaPaz y la Victoria.

7. The social benefits and impact of the housing sub component will be treated in a separate section due to its differences with the structural part of the project and its relevance in terms ofsocial impact.

Proiect Impact

8. The project will protect the population in at risk areas and prevent further settlements in extreme flood prone areas sometimes turning them into public and recreation spacesg. It will relocate households living in the proximity ofthe planned works through its housing subcomponent and will educate the population of at risk areas on how to reduce health hazards and treat solid waste to reduce the chances of the water contamination that so often happens during urban floods.

’ We refer to the Plan Jefes y Jefas, a cash transfer program that targets poor and unemployed heads of households. Information provided by the Provincial authorities. Information provided by the Ministry ofHealth. This is the objective ofthe housing component.

100 9. From a social perspective, the project is expected to mitigate the effects of floods on the lives of approximately 7.5 million, the total population of the provinces it will cover. This population will become less vulnerable to floods and experience fewer disruptions to their economic activities and access to public services. The impact of most of the non- structural measures, such as provincial contingency plans and law enforcement studies, will be primarily felt at the provincial and departmental level.

10. Among total project beneficiaries, the 2.5 million who live in the localities where the flood prevention sub projects will be built will receive the most direct and tangible impact. Approximately 0.3 million of these people live in the subproject's surrounding areas and are considered direct beneficiaries. The remaining 2.2 million represent a portion within the group of indirect beneficiaries; people living in the localities where the works will take place and who will benefit from unintempted access to utilities' services, as well as health and education centers along with a reduced disruption to their economic activities, We acknowledge the broad project impact and will analyze socioeconomic data at the provincial, departmental and locality levels.

Poverty Impact

11. Considering the population of the six participating provinces, the project will have an impact on 1,392,600 people with unmet basic needs. If we take into account income related dimensions ofpoverty this number will rise to 3,788,800 people below the poverty line" (50.5 percent of total population), with 816,700 within this group living in extreme poverty". At the departmental level there are 635,000 people that have unmet basic needs. There is no income data for this level, but as a proxy for poverty we could cite that 45,000 households within these departments have an unemployed head of household with one or more dependants. This number represents 45 percent of unemployed households within the project's participating provinces. Finally, at the locality level there are 424,783 people with unmet basic needs and 168,000 heads of household who rely on social plans for subsistence. Thirty one percent oftotal population is unemployed, or about 3 13,800 people.

12. This isjust a rough estimate ofthe number ofpoor who would improve their quality of life with the proposed project. The following sections deepen the analysis on the poverty impact by analyzing vulnerability factors which make certain groups more vulnerable to floods or more vulnerable to become poor due to the effect offloods.

Socio economic conditions at the provincial level

13. To understand the socio-economic context within which localities are situated, we include some provincial level data and compare it to national averages'*. Data at the

loPoor is defined as the incapacity to afford a basic service and product basket to guarantee minimum levels ofsubsistence and social integration. l1Extremely poor is defined as the incapacity to afford a basic product basket to guarantee minimum levels of subsistence and social integration. l2From the Permanent Household survey (EPH), last conducted in the second semester of2004. This survey is representative at the 70% level, and covers the main urban areas ofthe province (provincial heads). It covers Gran Santa Fe and Gran Rosario for the province ofSanta Fe, and Gran Paran6 and Concordia for the

101 provincial level is updated to 2004, has indicators on income levels and offers an accurate approximation of unemployment levels. It depicts poverty and vulnerability along both structural - access to services, housing quality--and non-structural dimensions. Localities tend to be close to their main urban centers for socio economic characteristics. In the proposed project, most localities are main urban centers or rank lower than their respective province.

14. Structural poverty is accurately depicted through the Unmet Basic Needs Index (UBN). Most of the participating provinces are below the country average of 13.3 percent with the exception of Entre Rios and Santa Fe. In the cases of Chaco, Corrientes, Formosa and Misiones the differences are considerable. In absolute terms, the six provinces have a total of 1,392,600 people that have UBN.

1980 1991 2001 House House House House % House House yo Province holds holds % holds holds holds holds Total(1) withUBN (2) Total(1) WithUBN (2) Total(1) w/UBN (2) Country 7,103,853 1,586,697 22..3 8,562,875 1,410,876 16.5 10,075,814 1,442,934 14,3 Totals Chaco 150,616 67,410 44.8 189,588 62,918 33.2 238,182 65,672 27.6 Corrientes 140,198 56,889 40.6 179,041 48,159 26.9 225,957 54,341 24.0 Entre 219,880 61,360 27.9 259,730 44,698 17.2 316,715 46,608 14.7 Rios Formosa 61,373 28,732 46.8 88,687 30,388 34.3 114,408 32,041 28.0 Misiones 129,028 50,553 39.2 181,552 54,473 30.0 235,004 55,215 23.5 Santa FC 663.778 132.666 20.0 776.997 108.959 14.0 872.295 103.557 11.9

Source: Census, 2001, INDEC. (1) For 1980: households=total dwellings; for 1991: household=total dwellings-shared dwellings or motels + households in shared dwellings or motels; for 2001=total households. (2) Percentage of households with Unmet Basic Needs over total households per province. Unmet Basic Needs have been defined according to the methodology used by INDEC in “Poverty in Argentina” (Serie Estudios INDEC No1, Buenos Aires, 1984). Households with Unmet Basic Needs present at least one of these conditions: (a) overcrowding (more than three people per room); (b) Dwelling; households that live in inconvenient dwellings (shack or room in motel); (c) sanitary conditions: dwellings with no toilet, (c) education: household with at least one child who does not go to school: (d) subsistence capacity; households with 4 or more people per employed member and whose head of household has a low education level.

15. Among non structural indicators of poverty, such as the poverty line, most of the participating provinces rank below the national average of 40 percent. While only Santa Fe and Entre Rios approximate this rate, the Provinces of Misiones, Chaco, Formosa and Corrientes rank much higher. In absolute terms, the six provinces hold 3,788,800 people that are below the poverty line.

province of Entre Rios. It also covers capital cities for the provinces of Corrientes, Formosa, Gran Resistencia and Posadas.

102 of the provinces and average of the main urban centers in the county Second sem. First sem. 2003 Second sem. 2003 First sem.2004 2004 House House House House People holds holds holds holds YO YO YO YO YO YO YO YO Total 28 main urban 42.1 54.0 36.5 41.8 33.5 44.3 29.8 40.2 centres Gran Rosario ( Prov. 42.4 54.6 37.5 47.9 31.0 42.0 27.5 36.5 Santa Fe) Gran Santa Fe (Prov. -* -* 25 -2 36.0 34.1 46.1 32.7 46.6 Santa Fe) Gran Parana (Prov. 46.4 59.4 38.4 52.3 37.0 46.4 30.2 38.9 Entre Rios) Concordia (Prov. 68.6 78.4 52.6 61.9 59.7 71.6 48.6 60.0 Entre Rios) Corrientes (Prov. 64.4 74.9 55.9 68.7 53.0 63 .O 51.4 63.9 Corrientes) Formosa (Prov. 65.7 73.9 51.6 60.4 50.9 60.7 44.2 53.8 Formosa) Gran Resistencia 63.6 73.5 54.9 65.5 50.2 61.O 52.3 64.4 (Prov. Chaco) Posadas (Prov. 61.3 71.1 49.6 61.2 44.6 55.5 40.8 51.3 Misione s) Source: Permanent Household Survey,., INDEC. March 2005. +In&an Santa Fe the survey was not conducted due to the intense floods

16. Regarding extreme poverty levels, the national average is 15 percent. Again, the majority of the participating provinces (Entre Rios, Corrientes, Chaco y Formosa) show rates that are well above this number. In absolute terms, the six provinces have a total of 8 16,660 people living under extreme poverty.

103 First sem. 2003 Second sem. 2003 First sem.2004 Second sem. 2004

I I o/. I o/. I I /o I /u YO YO YO YO YO YO Total 28 mainurban ,,,A I I '7,7 15.1 20.5 12.1 17.0 10.7 15.0 I centres I A"-y 1 I" Gran Rosario ( Prov. I 1 I 16.5 23.9 11.3 16.5 9.6* 14.2 1 Santa Fe) Gran Santa Fe (Prov. -* _* 10.6 17.1 12.5 19.2 10.5* 17.1 Santa Fe) Gran Paranti (Prov. 20.8 29.0 15.9 23.4 13.1 18.4 8.4 13.6 Entre Rios) Concordia (Prov. 43 .O 52.8 24.9 32.6 30.1 39.0 23.2 30.1 Entre Rios) Corrientes (Prov.

Formosa (Prov. 35.4 43.1 25.2 31.1 22.6 29.0 18.1 23.7 Formosa) Gran Resistencia 34.0 45.4 24.5 31.5 22.1 30.9 22.3 28.6 (Prov. Chaco)

37n n37 32f; ian iqn 1 Posadas (Prov. I L. I .V I TL.. I I &J.W I JW.47n< I lM.7 I LW. I I 1J.Y I iQc1U.J I

Source: Permanent Household Survey, I *In Gran Santa FC the survey was not conducted due to the intense floods

17. Regarding unemployment and underemployment levels the selected provinces are close to national averages which rank as high as 12.6 and 14.8, respectively. The provinces of Santa Fe and Entre Rios have the highest unemployment rates, while Entre Rios and Misiones have the highest underemployment ones. Regarding these rates it is worth noting that cash transfer programs for the unemployed, particularly the Plan Jefes y Jefas de Hogar, have reduced unemployment levels from 14.5 to 12.6 if we consider the Plan's beneficiaries who are seeking jobs. However, there is still a serious lack of employment opportunities.

104 Economically Under Employed Unemployed ...... Active employed In thousands ' In thousands ' In thousands In thousands ' I Total 28 main urban centres 10,777 9.41 5 1,362 1.590

Under Activity Employment Unemployment employment Rate Rate Rate Rate Total 28 main urban centres 46.1 40.2 12.6 14.8

Source: Permanent Household Survey, INDEC, March 2005,

18. In terms of vulnerability to floods, data on housing quality is very relevant. Most provinces rank worse than national averages when building materials, overcrowding levels and access to services are considered. A category established by INDEC as deficient housing (in Spanish vivienda deficitaria) comprises all shack-like houses, rooms in shared houses or motels, places not built for residential use and trailers. A deficient house will have at least one of the following characteristics: lack of a water household connection, lack of a flushing toilet in the premises or lack of finished floors. With a national average of 22 percent, more than half the population of Chaco, Formosa and Misiones lives in deficit housing.

105 Source; Census, 2000 1, INDEC.

19. In terms of vulnerability to floods, it is also relevant to consider the quality of building materials and the existence of dwellings that are vulnerable to weather conditions. The CALMAT categorization elaborated by INDEC gives us an approximation of the quality of dwellings in each province, with the CALMAT IV category being the one that identifies precarious ones. Formosa and Misiones rank well over the 6 percent national average of CALMAT IV houses, with 28 percent and 21 percent of their populations living under this category, showing a high vulnerability to floods. These provinces are closely followed by Chaco and Corrientes with an 18 percent rate.

Table 6: Households per quality of building materials (CALMAT) per province, year 2001 I /I\ 1 CALMAT I,11, I11 (2) I CALMAT IV(3) I

Source: Census, 200 1, INDEC. (1) We exclude households surveyed in the street. (2) CALMAT I:the dwelling presents resistant materials, has all the structural components (floods, walls and ceiling) and incorporates all elements of termination and isolation. CALMAT 11: the dwelling presents resistant materials in all its basic components but some termination and isolation elements are missing. CALMAT 111: the dwelling presents resistant materials in all its basic components but is missing all elements of termination and isolation, andor has metal ceilings or walls. (3) CALMAT IV: the dwelling is built out ofnon solid or waste materials in at least one of its basic elements.

Socio economic conditions at the Departmental level

20. Eighty percent ofthe departments’ 3.1 million people live in the localities where the subprojects will be built and will therefore clearly benefit from the project. The main

106 source of information for this level of aggregation is Census data but we have supplemented it with other indicators to obtain an approximation of non structural characteristics ofpoverty.

21. Within the 22 departments, there are 126,860 households that have at least one unmet basic need, representing 35 percent of total households with unmet basic needs within the six participating provinces. This high rate of structural poverty can be also described in terms of 152,000 households that live in houses without flushing toilets, 46,000 households that live in overcrowded houses and 40,000 households that live in houses with unfinished floors. These last numbers represent the 30 percent, the 37 percent and the 27 percent of the total households within the six provinces that live in these conditions.

22. Moving to non structural dimensions of poverty and vulnerability levels, there are more than 75,000 households within these departments whose head of household is unemployed and has more than one dependant younger than 18 years old. This number represents 45 percent of unemployed households within the project’s participating provinces. Furthermore, 159,000 heads of household within these departments have not completed primary education, which puts them in a weak position for getting a job in the short run and moving out ofpoverty. Given that Census data underestimates unemployment levels and represents pre crisis levels, these numbers show a reality that was already dire before 2002.

23. Regarding specific vulnerable groups, these departments hold more that 43,000 people who are over 70 years of age who do not receive any pension, doubling their vulnerability to floods in terms of life hazard and material losses with access to services. Also, these departments have more than 102,000 young people between the ages of 15 and 19 who are neither studying nor working, thus decreasing their chances to get out of poverty. Finally, the rate of teen pregnancies and motherhood in these departments has continued to grow with the number approaching 10,000 per year. This situation, combined with the fact that within these departments there are 1,086 households that are completely dependant on the public health system shows that the social conditions can be improved.

107 Table 7: Critical needs indicators for the Departments where

ildren that have been

Source: Own Calculations

Socio economic conditions at the Locality level: Direct and Indirect Beneficiaries

24. Structural measures ofpoverty are specifically relevant to beneficiary localities and to direct beneficiaries within them, since indicators of overcrowding levels, access to services (water, sanitation, and electricity) and/or the quality ofbuilding materials represent an important dimension of vulnerability to floods. This information can also gauge the housing deficit in each ofthe participating localities and be used to target the housing sub- component that is included in the Project as a non-structural measure. The estimated number ofproject beneficiaries at this level with unmet basic needs is 424,000. This means that there are 35,000 households that are overcrowded (5 percent of total) and at least 30,700 households who live in houses constructed with precarious materials (5 percent of total).

25. Regarding non structural dimensions of poverty, these localities show a higher unemployment rate than the national average: while the National Census rate in 2001 was 21 percent, the average rate for the targeted localities increased to 31 percent. This shows that even before the economic crisis there were already 313,000 unemployed people in these areas. Leaving aside the fact that Census data may not be the best measure of

108 unemployment since it underreports informal jobs and might not reflect the new post crisis reality, the ten percentage point difference with the national average shows that the population in these localities is highly vulnerable. Moreover, these unemployment levels are consistent with the fact that 167,000 people in these localities receive assistance from the Head of Households Plan (Plan Jefes y Jefus de Hogur), a cash transfer program for unemployed heads of household. This means that 25 percent of the households in the beneficiary localities are receiving these transfers to complement their income. The percentage is very high compared to national levels: the ratio between plans and households at the national level is 15 percent.

26. Another vulnerability factor that is directly related to unemployment levels and that ranks high in these localities is the incapacity of the national health system to reach extensive coverage. The situation was already dire before 2002; 1.1 million people depended exclusively upon the public health system. This showed a rate of 46 percent without coverage, slightly lower than the national average of 48 percent. However, the average was deceptive since it hid internal disparities. Only Santa Fe had coverage levels higher than the national average, while Misiones and Corrientes had coverage as low as 40 percent.

27. Another relevant indicator to show the vulnerability of project beneficiaries is the highest level of education reached. The higher the level, the more chances individuals have to get ahead in the Argentina’s competitive labor context. However 20 percent ofpotential beneficiaries have not finished primary school, and the rate climbs to 30 percent in the case of Misiones and Corrientes. Meanwhile, 63 percent of beneficiaries have not finished secondary school. These averages account for 937,000 people. The education gap in these localities can also be seen by the number of children and adolescents that do not go to school: 8 percent of the population in the age group between 5 and 17 years. This represents a total of 51,000 children and adolescents who are highly vulnerable to getting trapped into poverty and who will benefit from the project.

28. Regarding specific vulnerability groups: in the targeted localities there are a total of 270,000 children below 6 years of age and 167,000 people over 70. This totals 437,000 people to whom floods represent a life threat, 17.5 percent of the population within these localities.

29. Finally, it is worth mentioning that this average-based analysis misses the fact that there are differences in poverty levels among the participating provinces and localities. From the socio economic conditions, at the provincial level (provincial section of this analysis), it is clear that with the exception of unemployment levels, poverty-related indicators are higher in the provinces of Misiones, Corrientes, Chaco and Formosa than they are in Santa Fe and Entre Rios. Regarding localities, these differences are also relevant. In Santa Feymost localities’ averages show UBN levels similar to provincial ones, but Los Amores, Campo Andino and Caiiada Ombu have more than 30 percent of their population with UBN while in Santa Fe and Rosario this rate is only around 14 percent. In Villa Gobemador Ghlvez and Los Amores half of the population over 14 years of age is unemployed, in contrast with the 27 percent of Santa Fe city and Rosario. The trend is repeated regarding health coverage levels and beneficiaries’ instruction levels. In

109 Corrientes, the four localities of Goya, Mercedes, Bella Vista and Curuzu Cuatia are near provincial standards in most relevant indicators, but Bella Vista seems to have the highest level of Unmet Basic Needs (26 percent) with more than half of its population living in deficient housing. It also ranks higher than the other localities in its lack ofhealth coverage, number of heads of household without primary education, and the proportion of its population that is over 70 years of age and does not have a pension plan (50 percent). In Misiones, the localities of Puerto Iguazu, Esperanza y Wanda have UBN levels that are two points higher than their department (30 percent vs. 28 percent) and 20 percent of their houses present deficiencies in terms of building materials or finishing. The proportion of unemployment in these localities is around 30 percent, five points higher than the provincial average. In Entre Rios, the localities ofLa Paz and Victoria rank higher than the province in UBN (24 percent vs. 15 percent) and in the extent of deficient housing (38 and 30 percent vs. 22 percent). This trend is repeated along indicators ofhealth coverage, adult population that does not work or study and the percentage of people over 70 who do not perceive pension. Only Diamante is near provincial averages. In Formosa and Chaco provincial averages are very similar to the localities where the project will have activities.

Total Country Indicators Beneficiaries Totals Population 2,457,306 36,260,130 Households 677,113 10,075,814

110 people per room) Number of Children below six years of age 270,391 4,063,773 Number of people over 70 years of age 167,063 2,477,832 Source: Own elaboration.

30. Regarding the socio economic profile of direct beneficiaries-those that live in the area of influence of the protection works-it is difficult to separate out from Census data their characteristics from those ofindirect beneficiaries.

31. However from the field reports prepared for each sub project we can infer the characteristics that differentiate direct beneficiaries from indirect ones. In all the selected provinces there is a clear high correlation between vulnerability levels to floods and other natural disasters and conditions ofsocial vulnerability and exclusion. People living in flood prone areas, or those who have most suffered the consequences ofprevious floods have the highest level of UBN within total beneficiaries. Almost all direct beneficiaries live in informal settlements such as unplanned neighborhoods and shanty towns. They lack access to basic services, such as piped water and none have adequate sanitation. The quality of their building materials is deficient and improvised shacks predominate (85-95 percent). Since they settle in public land they lack tenure over it. Finally, it is often true that the most vulnerable areas have the highest number ofchildren below six years of age and of people over 70. Data from the Misiones’ SUEP states that 85 percent of direct beneficiaries are below the poverty line for income levels, and that 67 percent of these suffer from floods at least three times a year, while the remaining 33 percent get flooded once a year. Data from Formosa’s SUEP in the southern area of the city of Formosa reveals that 60 percent of the population has UBN and that 71 percent is below the poverty line.

32. A special survey carried out by INDEC among those 97,000 people most affected by Santa Fe’s floods in 2003 also proves the point of higher vulnerability levels among direct beneficiaries: even if provincial averages rank low in many of the following indicators, the population most affected by floods ranks even lower.

111 total population (Census 2001) I I Percentage Percentage Percentage Percentage of Percentage of Percentage of Total of Children households of Population of ' Population Popula below 6 and in Population in houses irregular without tion adults CALMAT with UBN with some tenure health beyond 70 IV type of deficit coverage dwellings 1 1369,589 18% 2% 14% 22% 18% 41% Santa Fe City - Flooded 97,655 29% 4% 20% 28% 26% 48% Area in

2003 ~ 1 Source: INDEC Social Risks and Mitigation Measures

33. From the carefbl social analyses done in each of the proposed 28 subproject^'^ we can infer that the main project risk is related to a potential resettlement process of direct beneficiaries who live in the areas where the works will be conducted. The exact number of families will only be known at a later stage when precise sitting alignments can be determined.

34. To mitigate these risks, the project will prepare a resettlement framework which will establish the principles and objectives for the establishment ofresettlement plans ofthe population located in areas at risk and to be subject to resettlement once the sitting of the works will be known. It will define the eligibility criteria, the methods for appraising assets, the organizational procedures, the components of the resettlement process as well as the budget and the institutional arrangements that will need to be established in each of the executing agencies. To provide social, legal and technical assistance to the resettled population in their efforts to obtain a housing alternative, the resettlement plan will have five components: territorial, environmental, economic, housing and social development. The territorial component will identify risk areas, the type of risk and the number of families to be resettled. The environmental component will include measures to make the population aware of the risk, to control and help establish mitigation measures for risk areas. The economic component will include alternatives for financing the replacement of affected property with a new one, even when the replacement value is not enough to acquire a safe and legal housing alternative. The housing component assists families to find a housing alternative according to their resources, needs and expectations. The social component helps in the socioeconomic reestablishment of the resettled population and the improvement oftheir standards ofliving.

l3See: Evaluacion Social del Proyecto de Prevencion de Inundaciones y Drenaje Urbano, Informe Final. Within each province there is a social risk analysis for each subproject and suggestions for mitigation measures.

112 35. The resettlement methodology will build on the self-construction housing component proposed below and successfully implemented in other cases. The tested methodology of working with the municipality and the beneficiary community to relocate people and deliver new units through self construction will help mitigate the risks of an inadequate resettlement process. A detailed explanation of the housing component follows in the section below.

36. Additional risks are related to the fact that informal settlements may resurge in the flood prone areas next to the sub projects. To mitigate this risk the municipality will decide on the use of the land and start developing the new activity on the land. In parallel, the municipality will increase controls to prevent newcomers and will pass ordinances that prohibit new settlements. The provinces of Chaco, Misiones and Formosa have plans to recover risk areas for recreation purposes.

37. Another risk is related to the health hazard induced by floods that might occur during the execution of the works. If these happen before the works are finished they can cause septic tanks to overflow and contaminate water sources, or else water could accumulate in unplanned reservoirs and become contaminated. In some other cases people use project sites for garbage disposal, also risking pollution. Where this threat is present municipal authorities should alert the community and observe that hygiene norms are respected and that solid waste is properly disposed. It will also be necessary to raise community awareness on these health hazards and involve it -and other relevant groups- in the preparation ofcontingency plans to deal with these.

38. Safety issues around construction works, along with the noise and service cuts that regularly take place, are also of concern. To mitigate these risks and avoid accidents, the community should be well informed about safety standards and be encouraged to enforce them. Warning signs should be adequately posted around working areas. Regarding noises and service cuts, works will be planned to minimize these disruptions and the community involved will be informed in advance.

39. The community’s lack of awareness on the risks involved by not doing the works could give rise to problems such as a lack of maintenance and vandalism of the finished works. To mitigate this risk, municipal and local authorities should work with local institutions and groups to raise awareness about the relevance ofthe proposed works.

40. Once the works are finalized there is the risk that it will not be maintained. The Municipal body that inherits the works should provide a maintenance budget and project design will include provision for this. The beneficiary community should also be incorporated in a community monitoring program to protect it against wreckage.

41. A final factor that might hamper the correct functioning of many mitigation measures is the risk of low level community participation and/or the lack of coordination among the civil and public instances that do participate. These risks and their mitigation measures are considered in the next section.

113 Consultation and .participation processes

42. Twenty-two public presentations were carried out in each participating municipality during the month ofDecember, 2004. The project team presented the characteristics of the subprojects to be conducted, and project beneficiaries, NGOs and municipal and provincial employees attended the meetings and presented their views and perceived risks on the subprojects. These inputs were included in an environmental impact matrix that is part of the environmental assessment. Mitigation measures were defined for each of the risks identified. Overall, neighbors understood and agreed with the proposed works and acknowledged that project impact would outnumber its risks.

43. Beyond initial consultations, an analysis of similar past projects yields that the level of public consultations and community participation during project execution and maintenance has been generally low. There are differences among provinces but there seems to be a direct relationship between community participation and civil society articulation rates and the size of the locality or city involved. Bigger communities have higher participation rates, as can be seen in the cases of City of Santa FC and Misiones. In these provinces participation instances seem more articulated than in the rest, with the existence of consultative councils14, public audiences and dialogue tables that are semi institutionalized even if not as numerous and representative as they could be. But even in a big city like Santa Fey recent floods have shown that there is little articulation among the active civil groups that deal with floods, and between these and public authorities. The experience is that in smaller communities public authorities work in a more centralized way. Chaco and Corrientes are particularly deficient in terms of public participation: in Chaco consultative councils are still being developed even if some informal groups interact with the authorities as needed.

44. Several causes can account for this situation, such as communities that lack adequate information, or spaces to channel their demands and concerns. There may also be a lack of community awareness of the risk posed by floods and/or the existence of processes that are planned and implemented top-down by municipal bodies.

45 * To mitigate the risk for all the works, public and executing agencies should:

Stimulate, strengthen and favor the formation or continuity of civil society groups in these localities and foster their participation in public projects during the construction and implementation phases. Institutionalize consultation mechanisms with the community, such as the consultative councils. Facilitate access to information, including technical solutions to problems. Conduct and/or support educational campaigns to raise awareness on the usefulness and impact ofthe works performed, before and during project execution.

l4Consultative councils are ad hoc groups that are formed around a single issue (a subproject in this case) to discuss its benefits and risks. Consultative councils are integrated by a number ofdifferent stakeholders, from the municipal staff in charge ofthe project, to major organizations or any NGO or civil society organization interested in its case.

114 a Design participatory strategies to centrally channel the proposals from the different community organizations. a Promote the formation of networks between all organizations that deal with flood prevention and protection issues, and articulate these networks with public instances. a Support the continuity ofthe work already done by municipal staff with community and civil society groups and promote the strengthening of local managerial capabilities. Continuity in the work processes between municipal technicians and locals is a must to achieve this.

46. Taking as a base the participation needs assessment that was included in the social analysis for each province, each SUEP will design a plan to develop and strengthen community participation during both project execution and maintenance.

Housing Component

47. Thefollowing analysis is based upon the information available at time of the social assessment.

ImDact

48. The present component will propose new housing units to families living in flood prone areas. The priority among neighborhoods to be selected will be the sites where families are affected by the structural component ofthe project. Thus the families living in the exact areas where the works will be built and other families of the same neighborhood will receive similar compensation to avoid any distortion and inequality.

49. As of now, the exact number of families benefiting from the component in each province is still to be determined together with the exact number to be covered by voluntary and involuntary resettlement, within these. Most subcomponent beneficiaries will be also direct beneficiaries of the structural component of the project since to qualify for resettlement benefits families have to live in the proximity of the protection works. The total beneficiary population has Unmet Basic Needs, since it lives in flood prone areas, in deficient housing with scarce access to water and no sanitary conditions. The main social benefit derived from this subcomponent will be that resettled families will gain access to adequate housing in nearby localities, secure from flood related risks, and that no new settlements will surge in the rehabilitated areas.

Methodolonv

50. Based on the experience and lessons learned from the housing subcomponents that have been implemented in similar flood prevention and protection projects during the last 12 years, the processes involve community participation under self-help and mutual aid construction schemes.

115 51. Under the housing subcomponents that have been implemented in similar projects to address voluntary resettlement needs, the families formed working groups to build their houses, and they receive subsidies in the form of vouchers to buy the building materials. Regarding the organization and execution of the actual works, “the UEC coordinates and supervises project execution in all provinces, while the SUEP signs agreements with provincial housing institutes and suppliers ofbuilding materials. SUEPs and municipalities make sure that mixed teams of architects and social assistants work closely with the families during the construction period. A social follow up is often required during the first year of the settlement. Project execution implies coordination of technical teams at the provincial and national levels along with civil society organizations” The land is provided by the municipality and trunk services are built with a mix of contributions from the national, provincial and municipal b~dgets’~.

52. However, the lessons learned under the current methodology applied by UECs and SUEPs, have taught that there are three conditions that should be planned in future projects:

Promoting household participation in the initial stages in the process would reduce the risk oflow levels ofparticipation in the subcomponents execution. The selection of beneficiaries and the planning and designing of the houses to be built are two elements that should be decided early. Beneficiaries are selected according to the selection process agreed upon in the resettlement framework. As indirect benefits were not planned in the project design, community relations were strengthened during project implementation. In future projects, these community relations could be improved during the implementation process through a stronger social monitoring and by articulating with other provincial and federal social programs which would increase the medium to long term impacts. Self-help and mutual aid construction schemes are not fully successful in creating links within the community or strengthening community groups in their dealings with municipal and other counterparts. Future projects could capitalize on the housing subcomponent to strengthen community relations that will in turn be useful for other social and representation purposes.

Relevant Social Indicators

53. The following is a list ofindicators that could be used to monitor the progress ofthe project as it relates to social aspects. Five to six of these have been chosen for the actual evaluation exercise. (see Annex 3)

’’ Social Assessment for the current project, citing Ignacio Zelmeister on the finctioning of the housing subcomponents that have been implemented in several Bank projects to protect against floods.

116 Value INDICATORS Year 2005

Percentage ofthe provinces’ population subject to being flooded at least once every TBD two years (critically flooded areas). Percentage ofthe provinces’ population ofchildren under 6 years ofage that is TBD subject to being flooded at least once every two years (critically flooded areas). Percentage ofthe provinces’ population over 70 years ofage that is subject to being 12% flooded at least once every two years (critically flooded areas). Percentage ofthe provinces’ houses with some sort ofdeficit (inquilinatos, 5% conventillos, hotels, pensions, etc) subject to being flooded at least once every two years (critically flooded areas). Percentage ofthe provinces’ poor households that are subject to being flooded at 25% least once every two years (critically flooded areas). Number offlood-related accidents caused by floods TBD Number ofchildren and senior citizens that suffer flood related accidents TBD

Percentage ofneighborhoods that appear satisfied with the project results and the TBD government’s response to floods. Existence ofa single coordinating agency that residents can resort to during a flood NO emergency. Number ofresidents that participate in mitigation efforts TBD Number ofCivil Society Organizations that participate in mitigation efforts NO

Existence ofa hydro meteorological network with an adequate communication

117 Appendix to Annex 11: Resettlement Policy ARGENTINA: Urban Flood Prevention and Drainage APL 2

1. The PIDU aims at preventing and mitigating the damage caused by floods in urban centers of the Argentine littoral provinces of Chaco, Corrientes, Entre Rios, Misiones and Santa Fe. To reach its objective, the project will develop infrastructure works, some of which may require the involuntary taking of land and resettlement of population for their construction and operation. The Project will also implement a Housing Sub-program based on Self-Help and Mutual Aid that is aimed at assisting the population without legal titles that may be involuntarily resettled, as well as those living in risk-prone areas around the project that want to be resettled voluntarily.

2. The beneficiaries of the Housing Subprogram will receive social and technical assistance and training throughout the process. On an exceptional basis, when for reasons of age, health or disability, the beneficiaries are not able to do construction work themselves, or involve third parties, manpower will be supplied by provincial or local governments to help them, and the beneficiaries will compensate with community work.

3. Owners of the lands required for the project will be fully compensated including: replacement value of their property and costs derived from the expropriation. This implies the payment at current market value of the property and coverage for moving expenses, as well as for taxes related to the acquisition and title deeds. Social, legal and real-estate assistance will be provided to the owners if, based on their socio-economic circumstances, it is determined to be necessary.

4. A Resettlement Framework has been prepared following the guidelines of the Involuntary Resettlement Policy 4.12 of the World Bank. Indeed, given the nature of the works, the final sitting and/or alignment of the works still need further analysis in all sites. Ifsubprojects require involuntary resettlement of population, the Borrower will prepare site-specific Resettlement Plans based on this Framework and these Plans must be approved by the Bank before being implemented.

Objectives of Resettlement

0 To mitigate and compensate for the impacts caused by involuntary displacement, when it becomes unavoidable. 0 To improve, or at least re-establish, the socio-economic conditions of the displaced population. 0 To turn the resettlement process into an opportunity to enhance territorial and urban planning.

Juridical Context

5. The Resettlement Framework is developed under the international applicable norms ratified by the Government of the Argentine Republic, by national norms, as well as by the

118 general principles of law, jurisprudence and doctrine that set guidelines for the acquisition of land, for the protection of the basic rights of people displaced by development projects and for the method for assessing the property affected.

Preparation of the Resettlement Plan

6. Composition of the Resettlement team: For the preparation of Resettlement, each SUEP will appoint professionals from the Housing Subprogram and the required consultants. The provinces shall guarantee that the team has adequate physical and economic resources for the performance oftheir tasks. UEC will be in charge ofthe central coordination through the housing expert and SUEP at the provincial level, also through its housing expert.

7. Information to the community: There will be an Information and Communications Program during the different stages of the Resettlement Plan. This Program is directed to the population that will remain in the project’s area of influence, the owners and occupants ofthe areas required for the works and host communities.

8. Articulation of the resettlement process with the technical stages of the Resettlement Plan: For the purpose of guaranteeing the availability of land at the time of starting the construction of the works and in order to have the necessary time for the execution of the Resettlement Plan in all the structural works, there will be a close relationship between the technical stages ofthe works and the formulation and execution ofthe Resettlement Plan.

9. Preliminary Studies: Preliminary studies will be conducted for the identification and social characterization ofthe areas where works will be located. 10. Assessment: This includes a Study of Land Titles, a Topographic Survey, an Assessment ofReal Estate Property, and a Socio-economic Diagnostic.

Assessment of Real Estate Property. Where persons have legal property rights over the required land, a valuation ofthe properties will be conducted according to the provisions of provincial or national legislation, as fits the case. The compensation should cover, besides the full replacement cost ofthe property, all damages derived from the expropriation. . Socio-economic Assessment. This consists ofa detailed census ofthe social units located in the areas affected by the works, and aims at gathering updated and detailed information on the demographic, economic and social characteristics of the owners and residents of the land required by the project.

Census. For the purpose ofidentifying all the social units affected, each SUEP will conduct a census for each subproject. The format of the survey must be similar to the one used the Housing Sub-program.

11, Identification of Impacts: At this stage, the impacts on the owners and residents of the properties required by the project will be identified, so as to define the corresponding mitigation and compensation measures. The ownership and use ofthe property are

119 determining factors ofthe impacts, and the population is classified according to the impacts they will face. This classification will facilitate the selection of the objectives for each measure of mitigation or compensation.

Table 1: Types of ImI .cts Variables that Impact Categories determine the impact

Partial affectation of Partial loss of property Owners or tenants with partial property affectation

Total affectation of Total loss of property Owners, tenants property

Residence in the property Loss of house Owners, tenants, leasers, users, resident tenants.

Place of attendance at Loss of access to School-age population who live school education or increase in near school and do not use transport costs to attend transport. school.

Location of health Loss of access to health Population attending health services. service or increase in costs centers or hospitals without using of transport to reach them transport

Support and solidarity Loss of social network for Population receiving support from family or neighbors support and increase in from family or neighbors living nearby costs to offset this lack of support

Community participation Loss of community Population participating in local organizations social organizations

12. Analysis and selection of resettlement alternatives: Resettlement alternatives are defined based on the results of the assessments and the identification of impacts. The type of solution must be proposed according to the characteristics and needs of each social unit, taking into account the resources, the time available to build the houses and the infrastructure required, all in coordination with the execution of the works. There are usually two resettlement alternatives:

Individual Resettlement. Owners will be compensated at full replacement cost in accordance with provincial and national laws. The compensation will cover, in all cases, the full replacement value of the property, the damages derived from expropriation. This

120 implies coverage for moving expenses, and taxes related with acquisition of the new property. Additional, social, legal and real estate support will be provided according to the requirements ofeach affected family.

Collective Resettlement. This consists of the resettlement of people into a new location providing housing, access to basic services, and social equipment, and as close as possible to their present sites to minimize dislocations and allow for continuity of livelihood activities. It implies the acquisition and adaptation of land, building infrastructure, community equipment if necessary, allocation ofhouses, providing titles, moving expenses and programs for socio-economic recovery. Social units living in risk-prone areas identified, who do not want to participate voluntarily in the resettlement program, may remain in their habitat without suffering any adverse consequences on the part of local or provincial authorities or ofutility companies.

13. Collective resettlement is usually proposed in the following situations: (1) the diagnostic identifies a high vulnerability of the population facing the displacement; (2) there is availability of land; (3) there is enough time available for the construction of the required works. The UEC has had consultations with the SUEPs and each one reported the existence ofland available for the Resettlement Plans in the time required.

14. Collective resettlements must be articulated with the participating municipalities, the contents of the Plans for Territorial Organization, the partial plans approved by each municipality, the urban renovation plans (if any) and the instruments developed by them. They also will include environmental impact assessments and will take into account impacts on host communities.

15. For the collective resettlement alternative, the work methodology of the PPI Housing Subprogram will be used.

0 The Province shall be in charge of the selection and acquisition of land, the execution or connection of links for the infrastructure networks and the community equipment necessary for the resettlement. For this purpose, the following shall be considered: location, area, proprietary situation, basic infrastructure and social services resources and the fact that it should not be located in risk areas, environmental preservation areas or those of public works construction. It should also take into account possible environmental and social impacts. Land-taking for the construction ofthis new settlement must not generate involuntary resettlement. 0 It will be the responsibility of the SUEPs, with UEC supervision, to design the housing prototypes according to the needs and characteristics of families and the building work ofhouses will use the methodology ofthe PPI Housing Subprogram. The assignment and entitlement of the houses shall be without charge to the beneficiaries.

Eligibility Criteria

121 16. Eligibility criteria to become a beneficiary of the resettlement plan and of the alternative solutions offered are: a To reside or develop an activity (a permanent and established one) in the land required for the construction ofworks, regardless of the legal status that person has on the property. a To be registered in the official census made during the socio-economic assessment.

17. Cut off date: The cut-off date of the Resettlement Plan list ofbeneficiaries will be the date of publication of the census, with the list of the eligible heads of the social units, with their corresponding identification number. To avoid later modifications, in the informative meetings the lists will be available at community centers, for revision by beneficiaries and a period of 15 days will be allowed for any adjustments owing to omissions or errors of the census. On an exceptional basis, assuming there could be a long lapse between the cut-off date and the start of the works, data may be updated through a new census.

Planning and Design of the Resettlement

18. The Resettlement Plan must establish the human, physical and financial resources and set the timetable for the execution of the housing subprogram, which should be articulated with the schedule for bids, contracts and construction ofthe structural works.

Contents of the Resettlement Plan

19. Each Plan should have the following: a Description ofthe project and the area ofdevelopment. a Applicable legal and institutional frameworks. a Location ofthe land required by the project. a Results ofthe diagnostic (topographic information on the land, study ofproperty titles and socio-economic study). a Identification and analysis ofimpacts faced by the population to be displaced. a Alternative solutions based on the type of impacts caused and on the characteristics ofthe population. a Eligibility criteria. a Program of information and consultation. 0 Program ofacquisition ofaffected property. a Program ofproperty replacement (construction ofhouses in the case ofcollective resettlements). a Program ofre-establishment ofsocial conditions. a Organizational structure to bear responsibility for the execution ofthe plan. a Human and physical resources required for the execution of the plan. a Timetable for the Resettlement Plan (RP) implementation, coordinated with the schedule for the execution ofstructural works generating the resettlement. a Detailed budget for all actions to be implemented and financial sources.

122 e Master sheet ofinstitutional responsibilities assumed by each one ofthe participating entities in every step ofthe process. e Individualization ofthe land where resettlements will be located, accompanied by the relevant documentation to guarantee its aptitude and availability, according to the chronogram ofthe structural works. e Agreements between provincial and local governments to set the procedures and strategies to keep the vacated areas and risk areas free ofintruders. e Conflict resolution and grievance redress mechanisms. e Follow-up and monitoring systems. e Evaluation system.

20. A description of the contents and specifications of the programs that make up the resettlement plans follows:

21. Information and Consultation Program: This program aims at offering the affected population, adequate, timely and permanent information on the contents of the Resettlement Plan, the process of acquisition of land, the chronograms and the rights and duties of each party. The opinions of the affected population will be taken into account during the Plan’s preparation and implementation.

Program of Re-establishment of Social Conditions

Access to education and health services

22. Through this program, access to education and health services may be re- established. In the population census, the school-age population who do not require transport services because they live near educational and health centers, will be identified. Note: This will be applied to individual and collective resettlement.

Organization and Community Participation

23. This program seeks to create community organizations in the new resettlements, in order to achieve the community’s self-direction for their own development. This will include integration activities with the host communities.

Execution ofthe Resettlement Plan

24. Implementation. A working group will be formed, with the participation of the unit in charge of the execution of the Resettlement Plan (RP), the unit in charge of the construction and the person responsible from the local Municipality. This group will meet periodically to evaluate progress, identify problems and agree on solutions. The execution of the Rp will be carried out by SUEP, the entity responsible for the project, or by other institutions through cooperation agreements.

25. Follow-up and Monitoring. A follow-up system will be created through a database for all the activities on the timetable. This system will record the most important events in

123 the process of acquisition of land and the transference of each social unit, owner or tenant. This will identify problems per unit in due time, so as to take the corresponding measures to solve them.

26. The SUEPs will be responsible for the bi-monthly monitoring of the conditions of displaced occupants and see that the execution ofRP does not deteriorate the life quality of social units as to the following variables: income (from formal or informal activities), livability of their homes, access to public services (water, energy, transport, garbage collection), education and health. The UEC will be responsible for the supervision of SUEP’s monitoring.

27. Strategy to prevent reoccupation ofcleared areas. It will be the responsibility of the Provinces, through the SUEPs, in coordination with Municipal Governments, to prevent new intrusions in the cleared areas, corresponding to the reservoirs and high-risk zones, after being vacated and until the beginning, execution and operation of the works and to take all necessary and relevant measures.

28. Conflict Resolution Mechanisms. To solve the conflicts that might be generated during the implementation of RP , and having exhausted all administrative channels, the voluntary adoption of alternative procedures will be proposed to solve conflicts prior to judicial intervention.

29. Institutional Organization. The Provinces participating in the Project, and the executive entities for the subprojects in each city, will have within their organizational structure all the necessary human, physical and financial resources for the social and technical coordination ofthe resettlement.

30. SUEP, the entity responsible for the subproject and the Resettlement Plan, may carry them out directly or through agreements with experienced institutions; in both cases keeping the responsibility for their formulation and execution. The UEC, as coordinator of the Program, will receive and analyze the Resettlement Plans designed by the SUEPs and will send them to the World Bank for consideration and approval.

Financing

3 1. The materials and assistance required for building the new houses will be financed by the project. The land, infrastructure, and other elements required for the construction of the houses will be supplied without any charge to the beneficiaries by the Provinces or Municipalities. The participating Provinces will be in charge of the compensation and all related costs.

124 I Annex 12: Fiscal Situation of Participating Provinces ARGENTINA: Urban Flood Prevention and Drainage APL 2

1. This annex provides information on the recent fiscal performance of the provinces likely to participate in the Urban Flood Prevention and Drainage Project (namely Chaco, Corrientes, Entre Rios, Misiones and Santa Fe) and an analysis of their level of indebtedness. Specifically, fiscal sustainability in these provinces is evaluated within the framework ofthe recently enacted Federal Fiscal Responsibility Regime (Rbgimen Federal de Responsabilidad Fiscal - RFRF).

2. Provincial fiscal coordination. Fiscal management within a federal system calls for inter-governmental coordination mechanisms in order to preserve fiscal sustainability at the consolidated public sector level. In Argentina, the National Government has two main instruments of fiscal coordination: a) The Federal Fiscal Responsibility Regime, enacted through Law 25917. After the adherence of the province of C6rdoba in May 2005 and the City ofBuenos Aires in July 2005., a total of 18 provinces have so far adhered (Table 1). All five provinces participating in this project have adhered to the RFRF. b) The provincial debt authorization mechanism enacted through Resolution 1075193 issued by the National Ministry of Economy and Production. The latter resolution grants powers to the Ministry of Economy and Production to authorize all domestic and external provincial borrowing operations that are denominated in foreign currency or that commit, as collateral, resources from the federal revenue sharing system. Without this authorization, provinces are not permitted to incur new debt.

Table 1: Provincial Adherence to the Fiscal Responsibility Law (as of December 2005)

Provinces that have adhered Provinces that have not adhered 1 Buenos Aires 1 Neuquen 2 City of Buenos Aires 2 San Luis 3 Catamarca 3 La Pampa 4 Cordoba 4 Salta 5 Comentes 5 Tierra del Fuego 6 Chaco 7 Chubut 8 Entre Rios 9 Formosa IO Jujuy 11 La Rioja 12 Mendoza 13 Misiones 14 Rio Negro 15 San Juan 16 Santa Cruz 17 Santa Fe 18 Santiago del Estero 19 Tucwnan

3. Federal Fiscal Responsibility Regime. The RFRF establishes the general rules for fiscal performance and for ensuring greater transparency in fiscal accounts in order to help ensure medium-term fiscal sustainability at the national and provincial levels. In addition to establishing fiscal performance indicators, the RFRF also provides for the monitoring over time of fiscal results as well as for possible sanctions in the case of deviations from the

125 provisions ofthe law. The authority for the application of the RFRF resides with a Federal Council on Fiscal Responsibility (Consejo Federal de Responsabilidad Fiscal), composed of representatives of both the National and provincial governments in order to ensure consensus among parties and coordinated action.

4. The RFRF has a number of shortcomings, including: (i)the unorthodox way in which expenditures and deficits are calculated (spending financed by international organizations and capital spending for “basic social services” are netted out), (ii)the lack of hard constraints in sub-national borrowing (there are only limits on the amount of debt service, and there is no limit to debt stocks), and (iii)the high degree of discretion with respect to sanctions in the case of non-compliance. Argentina’s strong federal character makes some degree of discretion and an emphasis on consensus in decision-making necessary for a successful application of the law. Because of this, the RFRF may have a higher probability of implementation and compliance than have the large number of national and provincial fiscal responsibility laws that came before it. In effect there is a trade-off the high level of discretion and the consensual approach under the RFRF create a potential risk that fiscal discipline will not be sustained. This is counterbalanced to some extent by the possibility that such an approach will increase ownership and thereby improve the law’s effectiveness. Results, however, may fall short of those achieved in some other federal countries where rules are more stringent, such as in Brazil, where the fiscal responsibility law of 2000 contemplates, for example, stron enforcement provisions including sanctions at both the institutional and individual levels.F6

5. In practice, provinces participating in the RFRF must comply with four basic fiscal rules:

Rule 1: The nominal growth rate ofbudgeted primary public expenditure in the provinces and in the City ofBuenos Aires must be lower than projected national GDP growth.

Rule 2: Provincial governments and the City of Buenos Aires must execute their budgets preserving financial equilibrium.l7

Rule 3: Provincial governments and the City of Buenos Aires must take the necessary measures such that their borrowing (excluding overdrafts) in each fiscal year results in debt service payments that are below 15 percent of net current revenues (i.e. net of transfers to municipalities).

l6It should be noted that the evidence ofthe effects of fiscal responsibility laws is, to date, limited. For more on the subject, see Webb, S., 2004. “Fiscal Responsibility Laws for Subnational Discipline: The Latin American Experience,” mimeo, World Bank; and Braun, M. and Tommasi, M., 2002, “Fiscal Rules for Subnational Governments,” paper prepared for an IMF/World Bank conference on Rule-Based Fiscal Policy in Emerging Market Economies, Oaxaca, Mexico. ” This equilibrium is defiied as the difference between revenues - including both current and capital revenues - and expenditures. The latter include current expenditures net ofthose financed by loans from international organizations, and capital expenditures, net of those for basic social infrastructure necessary for the economic and social development, whatever their source offinancing.

126 Rule 4: In the case that debt levels generate debt service payments greater than 15 percent of net current revenues, provincial budgets must be presented and executed with a primary surplus.

6. Provincial Finances: recent performance. During 2005, provincial public finances continued show good performance by historical standards, with primary and overall balance surpluses. In 2005 the consolidated provincial primary surplus is estimated at about 0.5 percent of GDP, down from 0.9 percent in 2004. This performance is the result of large increases in both co-participated and provincial own-revenues which was counterbalanced by an estimated 30 percent increase in primary expenditures in nominal terms, as compared with 2004.

7. The analysis shows that the fiscal position of the five provinces expected to participate in the proposed project has significantly improved during recent years, particularly with respect to the fiscal outcomes ofthe 2001 and 2002 crisis years. In the five provinces under analysis, there have been strong increases in revenues resulting from a higher level of economic activity and changes in relative prices. In particular, the decline in real wages has played an important role in generating large budget surpluses. The five provinces considered in this annex thus attained, in 2004, significant primary surpluses, calculated according to the international methodology (Figure 1). However, the province of Corrientes showed signs of deterioration of its fiscal performance in the first semester of 2005. Increases in wages and investment spending may have negatively impacted primary balances of Corrientes and potentially other participating provinces during the second semester of 2005. Official data for the second semester is not yet available. It is important to note that primary surpluses calculated according to the RFRF definition would be higher than those under the international methodology, given that they do not include current expenditures financed by international organizations and capital expenditures considered necessary for basic social services. A more precise definition ofprimary expenditures used in the RFRF has not yet been published. The ultimate determination of compliance with the RFRF will be made by the Federal Council on Fiscal Responsibility.

8. During project implementation, provincial fiscal information and analysis will be updated on a regular basis, in coordination with the National Ministry of Economy and Production.

127 Figure 1: Primary Fiscal Balance of Participating Provinces (as a percentage of total revenues, international methodology, 2001 - 2005 first semester)

-c- Chaco 20%

-c- Conientes 10%

+Entre Rios 0%

+Misiones -10%

--e Santa Fe -20% ' J 2001 2002 2003 2004 2005 1st semester

Source: Ministry of Economy.

9. Primary surpluses have been sufficient to cover interest payments due in the first semester of 2005 (Figure 2). The overall balances of all five provinces in 2004 (primary surplus minus interest payments) were positive, averaging 13 percent as a share of total revenues. In 2005 there was deterioration in the overall balance as a share of total revenues in Corrientes, which reflects the deterioration in the primary balance mentioned above.

Figure 2: Overall Fiscal Balances of Participating Provinces (As a percentage of total revenues, 200 1 - 2005 lstsemester) I

I 30%% -o-Chaco 20%

-c- Conientes 10%

0% +-Entre &os

-10% -x-Misiones

-20% --cSanta Fe -30% I ' 2001 2002 2003 2004 20051st I semester Source: Ministry of Economy.

10. The weight of debt service payments relative to total revenues is the most vulnerable aspect ofthe provincial public finances. Preliminary estimates for 2005 indicate that in all participating provinces except Santa Fe, debt service levels in 2005 were higher than 15 percent oftotal revenues.

128 Figure 3: Debt Service of Participating Provinces (as a percentage of total revenues, 2004 - 2005e)

25% 82004 O2005e 20% r 15%

10%

5 ?h

0% Chaco Corrientes Entre Rios Misiones Santa Fe

Source: provincial authorities and World Bank staff.

11. In order to meet their financial obligations, Corrientes, Misiones and Entre Rios needed additional financing from the National Government in 2005 through bilateral Planes de Financiamiento Ordenado" - PFOs (Orderly Financing Plans). In the two remaining cases, Chaco and Santa Fey overall balance surpluses were sufficient to cover their amortization payments in 2005.

12. Figure 4 shows debt service as a percentage of current revenues net of transfers to municipalities, which is the debt service ratio definition of Rule 3 of the RFRF. As explained above, compliance with the RFRF requires that this ratio remain below a 15 percent threshold. The high debt service burden implies that only three of the participating provinces would have complied with the 15 percent debt service threshold required by the RFRF in 2004: Chaco, Corrientes and Santa Fe. Moreover, given the general weakening of the fiscal stance in 2005 and the high debt service pipeline, only the province of Santa Fe would have complied with the legal threshold in 2005. However, as shown above, the four remaining provinces have complied with requirement 4 as of the first semester of 2005, which mandates a primary fiscal surplus if the debt service threshold is exceeded.

'' Beginning in 2005, the financial conditions of these bilateral agreements have significantly improved for the provinces, with longer amortizations (8 years) and a lower interest rate (2%).

129 Figure 4: Debt Service as a share of Net Current Revenues (Current revenues net oftransfers to Municipalities, 2004 - 2005e)

30%

25%

20%

15%

10%

5%

0% Chace Corrientes Entre Rios Misiones Santa Fe

Source: provincial authorities and World Bank staff.

13. The generally prudent fiscal management resulted in a decline in the stock of debt as a share of revenues in 2005, continuing with the declining trend observed since the 2001- 02 economic crisis.

Figure 5: Debt stock (as a percentage oftotal revenues, 2001 - 2005 first semester)

4Wh I -o-Chaco

3Wh -u- Comentes

200% +Entre Rios

1Wh +Misiones -Santa Fe 2001 2002 2003 2004 2005 1st semester Source: Ministry ofEconomy.

14. Compliance with the Federal Fiscal Responsibility Regime. It is expected that the Federal Fiscal Responsibility Regime, and in particular, compliance with the above mentioned fiscal rules, will provide the tools for monitoring and evaluating the fiscal framework of participating provinces. Risks exist, however, regarding the full implementation of the RFW, and whether the law’s implementation will lead to sustained

130 fiscal discipline at the provincial level. The uncertainties involved are not only technical, but also involve political economy dimensions related to intergovernmental fiscal relations in Argentina. As the RFRF is at the very early stages of implementation, the likelihood of these risks materializing is still unclear.

15. Table 2 indicates that the five participating provinces are all at risk of non- compliance with Rule 1 of the RFRF in 2005, according to which the growth of nominal primary expenditures in the provinces has to be lower than the projected growth ofnational GDP in nominal terms, as explained above. The provincial finances as ofthe end ofthe first semester of 2005 indicate annual increases in primary expenditures significantly higher than the growth of nominal GDP in the same period. This is mostly the result of increases in wages, in a context of increasing demands for nominal salary increases by provincial public employees, and remains a potential risk. Another potential risk is a decline in economic activity, which could have a negative effect on provincial revenues. The reaction of the Federal Council on Fiscal Responsibility to non-compliance and the nature of sanctions and/or corrective actions to be imposed remain to be tested. The outcome is therefore ~ncertain’~.

16. Rule 2 (budget equilibrium), has so far been met in the first semester of 2005. Only one out of five provinces (Santa Fe) would be in a position to comply with Rule 3 (debt service lower than 15 percent of net current revenues), as explained above.. However, the remaining four provinces met the requirement ofmaintaining a primary surplus (Rule 4) in the first semester of 2005, which is the remedy to Rule 3 envisaged in the RFRF. This last rule is an essential requirement in the RFRF for the National Government to authorize the contracting of new debt by the provinces. Risks therefore remain in terms of non compliance with rule 4 in 2005 if primary expenditures were large enough to eliminate the primary surplus in one or more ofthe participating provinces.

17. Monitoring of provincial fiscal results under the RFRF. The RFRF and its regulatory decree provide for monitoring and evaluating compliance with the law by those provinces that have adhered to it, through the Federal Council on Fiscal Responsibility. This Council is composed of the Ministers of Economy/Finance of the National Government and those provinces that have adhered to the RFRF. Adhered provinces are required by the RFRF’s regulatory decree to submit to the Council the relevant quarterly and annual information on budget execution, debt stocks and debt service, and level of public employment. Quarterly information is to be evaluated by the Council within 30 days of the end of each quarter, while annual data is evaluated during the second quarter of the following fiscal exercise.20 The Council is also empowered to apply sanctions to those adhered provinces that are not in compliance with the RFRF.

l9The sanctions as outlined in the RFRF may include, but are not limited to: restriction ofvoting rights in the Council; restrictions on the granting of additional national tax benefits for the private sector in the affected province; limitations on the financial guarantees granted to the province by the Federal Government; denial of new indebtedness authorizations; limitation ofbudgetary transfers from the Federal Government (not those originating from “co-participated” taxes); and the announcement of non-compliance on provincial websites. 2o Required data on the level ofpublic employment relates to levels on June 30 and December 3 1 of each year.

131 .-p e pi

c

* 0N

s 2 V

8N N.. Annex 13: Project Preparation and Supervision ARGENTINA: Urban Flood Prevention and Drainage APL 2

Key institutions responsible for preparation ofthe project:

UEC Unidad Ejecutora Central (Central Executing Unit) SUEP Sub Unidades Ejecutoras Provinciales (Provincial Executing Sub-Units)

Bank staff and consultants who worked on the project included:

133 Luiz Gabriel Azevedo Peer reviewer ECSSD Cristina Velazco-Weiss Language Program Assistant LCSFU Ana Daza Language Program Assistant LCSFU Patricia Acevedo Language Program Assistant LCSFU

Bank funds expended to date on project preparation: 1. Bank resources: US$191,304.45 2. Trust funds: US$8,746.70 (TF051001) 3. Total: US$200,05 1.15

Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$5,000 2. Estimated annual supervision cost: US$80,000

134 Annex 14: Documents in the Project File ARGENTINA: Urban Flood Prevention and Drainage APL 2

Preparation Documents

Evaluacion del desempeio Ambiental del PPI y Propuesta de Manejo Ambiental para el PIDU; Environmental Impact Assessment, Environmental Management Plan, Fiches and Matrixes for each subproject; Carlos Sozzani, July 2005

Environmental Impact Assessment, English summary, 2005

Social Analysis, Irene Novacovski, May 2005;

Resettlement Framework; Government ofArgentina, September 2005;

Environmental manual, Carlos Sozzani, January 2006

Project Operational Manual, Government of Argentina, March 2006

Listado de Sub-proyectos, listado de subproyectos sustituos; listado por categoria y tip0 de proyecto, October 2005

Bank Assessment

Economic Analysis, basic documentation

Others

Regulation ofthe Alluvial Valley ofthe Paranh, Paraguay and Uruguay Rivers for Flood Protection, Halcrow, 1994.

135 Annex 15: Statement of Loans and Credits ARGENTINA: Urban Flood Prevention and Drainage APL 2

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 PO92836 2006 AR Inst. Strengthening - ANSES I1 TA 25.00 0.00 0.00 0.00 0.00 25.00 0.00 0.00 PO88220 2005 AR (APL1)Urban Flood 130.00 0.00 0.00 0.00 0.00 118.50 6.67 0.00 Preven&Drainage PO70628 2005 AR-Provincial Road InfrastructureProject 150.00 0.00 0.00 0.00 0.00 150.00 0.00 0.00 PO88032 2005 AR(CRL1)Buenos Aires Infrastr 200.00 0.00 0.00 0.00 0.00 199.00 21.00 0.00 SIDP(1APL) PO71025 2004 AR-Provincial Maternal-Child Hlth Inv 135.80 0.00 0.00 0.00 0.00 121.68 2.42 0.00 Ln PO78143 2004 GEF AR Enabling Act. Conv. Climate 0.00 0.00 0.00 1.14 0.00 0.52 0.56 0.00 Cha PO83982 2004 AR ECONOMIC RECOVERY 500.00 0.00 0.00 0.00 0.00 500.00 500.00 0.00 SUPPORT SAL PO88153 2004 AR National Highway Asset Management 200.00 0.00 0.00 0.00 0.00 168.78 108.99 0.00 PO72637 2004 AR-Prov. Maternal-Child Hlth Adj 750.00 0.00 0.00 0.00 0.00 150.00 150.00 0.00 PMCHSAL PO69913 2002 AR Santa Fe Provincial Reform 330.00 0.00 0.00 0.00 0.00 126.70 126.70 0.00 PO70374 2002 AR PROFAM LIL 5.00 0.00 0.00 0.00 0.00 1.58 1.58 1.58 PO57473 2001 AR INDIGENOUS COMMUNITY 5.00 0.00 0.00 0.00 0.00 2.46 2.46 1.26 DEVELOPMENT LIL PO64614 2001 AR- Second Secondary Education Project 56.99 0.00 0.00 0.00 0.00 9.74 9.74 0.00 PO68344 2001 AR Cordoba PRL5 303.00 0.00 0.00 0.00 0.00 75.00 75.00 0.00 PO49012 2001 GEF AR-Marn.Poll.Prevention 0.00 0.00 0.00 8.35 0.00 6.36 4.14 3.71 PO44447 2001 AR Catamarca Provincial Reform 70.70 0.00 0.00 0.00 0.00 24.30 25.00 0.00 PO55482 2000 AR-Pub. Hlth. Surveil. & Disease Ctrl. 52.50 0.00 0.00 0.00 0.00 5.77 5.77 1.36 PO57449 1999 AR State Modernization 30.30 0.00 0.00 0.00 0.00 17.03 17.03 -10.27 PO45048 1999 GEF AR-RENEWABLE ENERGY IN 0.00 0.00 0.00 10.00 0.00 8.90 8.73 -0.00 RURAL MARKETS PO06058 1999 AR-Social Protection 4 90.80 0.00 0.00 0.00 0.00 3.33 3.33 3.33 PO06046 1999 AR WATER SCTR RFRM 30.00 0.00 0.00 0.00 0.00 17.76 17.76 17.76 PO06043 1999 AR RENEW.ENERGY R.MKTS 30.00 0.00 0.00 0.00 0.00 25.00 25.00 5.43 PO39787 1998 GEF AR-BIODIVERSITY 0.00 0.00 0.00 10.10 0.00 5.75 5.58 3.78 CONSERVATION PO52590 1998 AR NAT HWY REHAB&MAINT 450.00 0.00 0.00 0.00 0.00 22.64 22.64 22.64 PO06041 1998 AR SMALL FARMER DV. 75.00 0.00 0.00 0.00 0.00 12.85 13.85 3.85 PO40808 1997 AR N.FORESTIPROTC 19.50 0.00 0.00 0.00 0.00 8.22 8.22 1.96 PO39584 1997 AR B.A.URB.TSP 200.00 0.00 0.00 0.00 0.00 36.31 36.31 36.31 PO06052 1997 AR FLOOD PROTECTION 200.00 0.00 0.00 0.00 0.00 14.01 14.01 -21.92 PO06010 I997 AR PROV AG DEVT I 125.00 0.00 0.00 0.00 0.00 37.43 35.77 12.87 PO05980 1997 AR PROV ROADS 300.00 0.00 0.00 0.00 0.00 20.76 21.92 21.92 PO37049 1996 AR PUB.INV.STRENGTHG 16.00 0.00 0.00 0.00 5.70 0.37 6.07 0.57 PO06040 1996 AR FORESTRYIDV 16.00 0.00 0.00 0.00 0.00 2.81 2.81 2.81 Total: 4,496.59 0.00 0.00 29.59 5.70 1,918.56 1,279.06 108.95

136 ARGENTINA STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions ofUS Dollars

Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2000 ASF 4.00 0.00 0.00 4.10 4.00 0.00 0.00 4.10 1998 AUTCL 3.64 0.00 0.00 0.00 3.64 0.00 0.00 0.00 2004 Aceitera General 50.00 0.00 20.00 30.00 50.00 0.00 20.00 30.00 1995 Acindar 2.54 0.00 0.00 0.00 2.54 0.00 0.00 0.00 1997 Acindar 4.52 0.00 0.00 2.24 4.52 0.00 0.00 2.24 1999 Acindar 9.60 0.00 0.00 0.00 9.60 0.00 0.00 0.00 1994 Aguas 18.36 0.00 0.00 13.97 18.36 0.00 0.00 13.97 1995 Aguas 18.82 0.00 0.00 44.63 18.82 0.00 0.00 44.63 1999 American Plast 0.00 0.00 1.oo 0.00 0.00 0.00 1.oo 0.00 2000 BACS 0.00 6.25 0.00 0.00 0.00 6.25 0.00 0.00 2004 BACS 25.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1999 Banco Galicia 61.61 0.00 0.00 41.15 61.61 0.00 0.00 41.15 2004 Banco Galicia 3.75 0.00 0.00 0.00 3.75 0.00 0.00 0.00 2005 Banco Galicia 40.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2000 Bco Hipotecano 1.oo 0.00 12.11 22.59 1.oo 0.00 12.11 22.59 1997 Bunge-Ceval 0.00 0.00 5.00 0.00 0.00 0.00 5.00 0.00 1995 CEPA 3.00 0.00 0.00 1.20 3 .OO 0.00 0.00 1.20 1994 EDENOR 3.75 0.00 15.00 0.00 3.75 0.00 15.00 0.00 1998 F.V. S.A. 3.75 0.00 4.00 0.00 3.75 0.00 4.00 0.00 1996 Grunbaum 2.50 0.00 0.00 3.33 2.50 0.00 0.00 3.33 Grupo Galicia 0.00 3.06 0.00 0.00 0.00 3.06 0.00 0.00 1998 Hospital Privado 8.20 0.00 0.00 0.00 8.20 0.00 0.00 0.00 1992 Huantraico 0.00 27.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Jumbo Argentina 0.00 40.00 0.00 0.00 0.00 40.00 0.00 0.00 LD Manufacturing 8.45 0.00 5.00 0.00 8.45 0.00 5.00 0.00 1992 Malteria Pampa 0.00 0.00 2.00 0.00 0.00 0.00 2.00 0.00 Milkaut 0.00 1.61 0.00 0.00 0.00 0.38 0.00 0.00 1997 Milkaut 5.54 0.00 9.81 1.49 5.54 0.00 9.81 1.49 1993 Molinos 0.00 3.52 0.00 0.00 0.00 3.52 0.00 0.00 1994 Molinos 0.00 1.01 0.00 0.00 0.00 1.01 0.00 0.00 2003 Molinos 20.00 0.00 0.00 20.00 20.00 0.00 0.00 20.00 1996 Neuquen Basin 0.00 26.40 0.00 0.00 0.00 0.06 0.00 0.00 1999 Neuquen Basin 0.00 5.00 0.00 0.00 0.00 0.00 0.00 0.00 1993 Nuevo Central 0.00 0.15 0.00 0.00 0.00 0.15 0.00 0.00 2005 PAE - Argentine 105.50 0.00 15.00 135.00 29.06 0.00 15.00 34.41 PCR 5.48 0.00 0.00 0.00 5.48 0.00 0.00 0.00 1998 Patagonia 1.76 0.00 1.oo 0.00 1.76 0.00 1 .oo 0.00 1998 Patagonia Fund 0.00 9.37 0.00 0.00 0.00 2.40 0.00 0.00 1999 S.A. San Miguel 4.44 0.00 0.00 0.00 4.44 0.00 0.00 0.00 2005 S.A. San Miguel 19.98 0.00 0.00 10.00 9.98 0.00 0.00 5.00

137 1995 SanCor 9.10 0.00 20.79 0.00 9.10 0.00 20.79 0.00 1995 Socma 0.94 0.00 0.00 15.00 0.94 0.00 0.00 15.00 1998 Suquia 0.00 0.00 10.50 0.00 0.00 0.00 10.50 0.00 1997 T61 4.44 0.00 5.00 7.50 4.44 0.00 5.00 7.50 1997 Terminal 6 4.44 0.00 0.00 3.25 4.44 0.00 0.00 3.25 1995 Terminales Port. 1SO 0.00 0.00 0.00 1SO 0.00 0.00 0.00 1995 Tower Fund 0.00 1.99 0.00 0.00 0.00 1.99 0.00 0.00 2000 Tower Fund 0.00 1.68 0.00 0.00 0.00 0.83 0.00 0.00 1995 Tower Fund Mgr 0.00 0.05 0.00 0.00 0.00 0.05 0.00 0.00 1996 Transconor 20.29 0.00 17.87 157.58 20.29 0.00 17.87 157.58 2001 USAL 9.27 0.00 0.00 0.00 7.27 0.00 0.00 0.00 1997 Vicentin 1.88 0.00 0.00 0.00 1.88 0.00 0.00 0.00 2003 Vicentin 30.00 0.00 0.00 30.00 30.00 0.00 0.00 30.00 2005 Vicentin 20.00 0.00 15.00 0.00 0.00 0.00 0.00 0.00 1993 Yacylec 0.00 2.52 0.00 0.00 0.00 2.52 0.00 0.00 Total portfolio: 537.05 129.61 159.08 543.03 363.61 62.22 144.08 437.50

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic. 2004 Banco Rio TFF 0.02 0.00 0.00 0.05 2001 Gasnor 0.02 0.00 0.00 0.02 2001 ITBA 0.01 0.00 0.00 0.00 2005 Vicentin Exp. 0.00 0.00 0.00 0.05 Total pending commitment: 0.05 0.00 0.00 0.12

138 Annex 16: Country at a Glance ARGENTINA: Urban Flood Prevention and Drainage APL 2

Argentina at a glance 4/20/06

Latin Upper- POVERTY and SOCIAL America mlddle- kgentina B Carlb. Income 2004 Development diamond' Population, mid-year (millions) 36.2 541.3 575.9 GNI per capita (Atlas method, US$) 3,720 3,600 4,770 Life expectancy GNI (Atlas method, US$ billions) 142 1.946 2,746 Average annual growth, 1887-2004 I Population (%) 0.9 1.5 0.6 T Labor force (56) 1.9 2.1 1.4 GNP Gross Most recent estimate (latest year available, 1995-2005) per primary capita enrollment Poverty (% of population below national poverty line) 34 Urban population (% of total population) 90 77 72 Life expectancy at birth (years) 74 71 69 1. Infant mortality (per 1.000 live births) 17 26 24 Child malnutrition (% of children under 5) 5 9 9 Access to safe water Access to safe water (% of population) 94 66 67 Illiteracy I% ofpopulation age 15+) 97 69 94 Gross primary enrollment (% of school-age populatlon) I19 122 106 -Argentina Male I20 124 106 Female 119 121 106 UpDer-mlddle-income QrouD I KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1884 1984 2004 2005 Economic ratios' GDP (US$ billions) 79.1 267.4 163.1 163.3 Gross domestic InvestmenWGDP 20.0 19.9 19.2 21.6 Trade Exports of goods and services/GDP 7.6 7.6 25.3 24.6 Gross domestic savings/GDP 22.6 16.9 26.3 27.0 Gross national savings/GDP 15.7 20.6 24.0 Current account balance/GDP -3.2 -4.3 2.1 2.9 Interest payments/GDP 5.6 1.5 6.4 3.6 Total debVGDP 61.6 29.2 113.1 79.6 Total debt service/exports 63.4 25.3 27.1 12.0 Present value of debWGDP Present value of debtiexports

1884-84 I89444 2004 2005 2005-08 Indebtedness (avg annual growth) GDP 2.4 0.3 9.0 9.2 5.0 Argentina GDP per capita 1.1 -1.0 7.6 8.0 3.6 Exports of goods and services 5.3 5.9 6.1 13.6 6.1

STRUCTURE of the ECONOMY 1984 1884 2004 2005 Growth of Investment and GDP (Oh) (% of GDP) Agriculture 6.3 5.5 10.4 9.4 I Industry 39.7 29.2 35.6 35.6 Manufacturing 29.7 19.5 24.1 23.2 Services 51.9 65.3 54.0 55.0 03 04 05 Private consumption 69.8 62.6 61.1 General government consumption 13.5 11.1 11.9 4.6 9.3 16.2 19.1 I Imports of goods and services -GDI -O-GDP I 1884-94 1994-04 2004 2005 (average annual growth) Growth Rate of Exports and Agriculture 1.9 1.7 -1.5 11.2 Imports (Oh) Industry 1.6 -0.4 13.4 9.3 Manufacturing I.3 -0.6 12.0 7.7 100 T Services 2.5 0.7 6.6 8.4 50 I Private consumption -0.2 6.7 6.9 General government consumption 0.6 2.7 6.2 Gross domestic investment 3.3 -3.2 34.4 22.7 Imports of goods and Services 13.6 -2.5 40.1 20.3 -Exports -O-lmports I

*The diamonds show four key indicators in the country (in bold) compared with its lncome-group average. if data are missing, the diamond will be incomplete.

139 Argentina

PRICES and GOVERNMENT FINANCE 1984 1994 2004 2005 Inflation Domestic prices (% change) 50 T Consumer prices 626.7 -100.0 4.4 9.6 40 I Implicit GDP deflator 606.7 2.8 9.2 8.9 30 Government finance 20 (% of GDP, includes current grants) 10 Current revenue 20.4 18.9 23.4 23.7 0 -3.1 2.6 3.9 3.6 Current budget balance (cash basis) -lo& 00 01 02 03 04 05 Overall surplus/deflcit (cash basis) -5.7 1.6 2.6 1.8 -GDP deflator -0-CPI TRADE 1983 1993 2004 2005 (US$ millions) Exports and Imports Total exports (fob) 13,269 34,550 40,013 (million U$S) Food 1,454 3,058 3,541 45,000 7 Meat 748 1,228 1,422 Manufactures 8.603 18,044 21,039 35,000 16,783 22,445 28,692 Total imports (cif) 25,000 Food Fuel and energy 1,003 1,543 15,000 Capital goods 5,331 7,092 5,000 Export price index (f993=fOO) 100 109 I09 QQ 00 01 02 03 04 05 Import price index (f993=fOO) 100 94 98 IIExports imports Terms oftrade (f993=fOO) I00 116 Ill

BALANCE of PAYMENTS 1984 1994 2004 2005 (US$ millions) Current Account BalancelGDP (%) Exports of goods and services 9,607 19,387 39,764 46,356 Imports of goods and services 5,961 27,305 28,191 35,308 Resource balance 3,646 -7,918 I1,573 11,048 I Net income -6,143 -3,559 -8,923 -6,312 Net current transfers 627 671 Current account balance -2,497 -10,979 3,277 5,407 Financing items (net) 2,469 10,979 -8,597 -13,845 Changes in net reserves 28 0 5,320 8,438 Memo: Reserves including gold (US$ millions) 1,243 14,327 18,884 18,884 Conversion rate (DEC, iocai/US$) 0.0 1.o 2.9 2.9

EXTERNAL DEBT and RESOURCE FLOWS 1984 1994 2004 2005 (US$ millions) Composition of Total Debt Total debt outstanding and disbursed 48,857 75,139 171,I 15 117,210 IBRD 503 4,109 7,447 6,881 (US$ m.) IDA Total debt service 6,281 5,771 14,518 7,420 IBRD 132 709 1,066 1,216 IDA 0 0 Composition of net resource flows Official grants 5 16 0 0 Official creditors -22 731 -2,269 -5,459 Private creditors 14 6,484 -1,612 2,567 Foreign direct investment 268 3,635 3,923 2,983 PorVoiio equity 0 3,116 -41 -9 1 World Bank program Commitments 100 1,590 1,036 495 F: 88,554 Disbursements 70 1,507 770 362 Principal repayments 40 334 832 928 A - IBRD E. Bilateral Net flows 30 1,173 -6 1 -566 B - IDA D .Other multilateral F. Private C-IMF G Short-term Interest payments 36 230 230 282 . Net transfers -6 943 -29 I -849

Development Economics

140

Annex 17: Letter of Development Program ARGENTINA: Urban Flood Prevention and Drainage APL 2 - - s3-.m-9-.L."4-l* A"- .. .-

MEMORANDO

PARA: COORDINADOR GENERAL ADJUNTO UCPyPFE DR. PABLO ABAL MEDINA

' DE: JEFE EJECUTNO DE LA SUCCE PPI - BIRF 41 17-AR ARQ. PEDRO TRINDADE

ASUNTO: Negociacibn del Programa de Prevencibn de Inundaciones y Drenaje Urban0 Segunda Fase (APL). Solicitud de financiamiento a1 BIRF. Carta de Politica Sectorial sobre la Prevencibn de Inundaciones. i

1. Entre 10s dias 5 y 7 de diciembre de 2005, se llevaron a cab0 las negociaciones entre representantes del Gobiemo Nacional y del BIRF, tendientes a la obtenci6n de un Prkstamo por USD 70 millones de dblares estadounidenses.

2. En el marco de dichas negociaciones se acordaron 10s documentos necesarios para la tramitacibn del prkstamo en el Banco, restando linicamente remitir a ese organism0 una carta de Politica Sectorial.

3. Adjunto a1 presente, se incluye un proyecto de Carta de Politica Sectorial sobre la Prevencibn de Inundaciones, que debera remitirse a1 Banco suscripta por el Senor Ministro de Planificacibn Federal, Inversibn Pliblica y Servicios, dado que constituye un requisito sine quonon para el procesamiento y aprobacibn del F'rkstamo en el Banco.

rpPE3R3 TRINDADI- Jefe EJPCU!IV~~SUCCE ?mos BIRF 4117 y 477VhP Jcr'VPm

141 ......

NOTA UCPyPFE No 81.16C BUENOS AIRES, 2 1 Ojc 2005

Ref.: Programa de Prevencibn de Inundaciones y Drenaje Urbano. Segunda Fase del Programa de Prevencibn de Inundaciones y Drenaje Urbano - APL.

SEROR SUBSECRETARIO:

Tengo el agrado de dirigirme a usted a fin de acompafiar adjunto a la presente, un modelo de Nota para su consideracibn y fma, mediante la cual se remite a1 Banco Internacional de Reconstruccibn y Foment0 (BIRF) la Carta de Politica Sectorial s6bre la Prevencibn de Inundaciones, requisito necesario para el procesamiento interno del Programa de la referencia.

Sin mas, saludo a usted atentamente.

n

SEROR SUBSECRETARIO DE RECURSOS HIDRICOS MINISTERIO DE PLANIFICACION FEDERAL, INVERSION PUBLICA Y SERVICIOS ING. HUGO AMICARELLI s 1 D

142 (. .. i. ' I

BUENOS AIRES,

Ref.: Programa de Prevenci6n de Inundaciones y Drenaje Urbano. Segunda Fase del Programa de Prevenci6n de Inundaciones y Dredaje Urbano - APL.

SERORPRESIDENTE:

Tengo el agrado de dirigirme a usted a fin de acompaiiar adjunto a la presente, la Carta de Politica Sectorial sobre la Prevenci6n de Inundaciones, requisito necesario para el procesamiento de la solicitud de financiamiento del Programa de la referencia, por ante el banco que Ud. preside.

SEROR I'RESIDENTE DEL BANCO MUNDIAL MR. PAUL WOLFOWITS S I D

143 . , . . . . .I ..

1 POLiTlCA SECTORIAL SOBRE LA PREVENCION DE INUNDACIONES

La Argentina, al igual que en otros paises de America Latina, ha registrado en las ultimas dbcadas un aumento sustancial de la poblacibn urbana. Esta tendencia se ha visto acentuada en 10s irltimos tiernpos como consecuencia de las dificultades por las que atraviesan las econornias regionales, y ha provocado la movilizacion de poblacibn hacia 'grandes centros urbanos provinciales y hacia el conurbano bonaerense en especial.

Este proceso socioeconbmico ha producido el crecimiento desordenado de las ciudades, sRndo 6ste efecto no deseado, rnds evidente en 10s sectores perifericos I de mayor densidad de poblacibn, provocando adernAs la ocupacion andrquica de :I las superficies perrneables disponibles y la consecuente falta de espacio para el I' manejo de 10s escurrimientos superficiales, con Io que las dificultades para lograr un drenaje eficiente de las lluvias se multiplican y la afectacion a la poblacion es 'I cada vez mayor. Otro de 10s factores que atenta contra esta situacibn es la deficiente recoleccibn ylo tratarniento de 10s residuos sblidos urbanos que aumenta la contaminacion y produce el atascamiento de 10s sistemas de drenaje pluvial, con el consecuente riesgo ambiental que estos problemas provocan.

La situacion descripta tiene una incidencia directa en la calidad de 10s recursos hidricos, tanto superficiales como subterrhneos de las Areas urbanas, en especial, 10s acuiferos libres, de 10s cuales la poblacibn no abastecida por redes de suministro pljblico, se she para bebida e higiene personal.

A estos factores hay que surnar el riesgo latente por inundaciones fluviales al que se encuentra expuesto este tipo de poblacibn

Para ello, el Estado Nacional esta desarrollando un Plan Estrategico cuyo objetivo principal es atender integralrnente la problemdtica de las inundaciones, mediante la irnplernentacion de acciones estructurales y no estructurales orientadas a reducir la vulnerabilidad de la poblacion expuesta al riesgo hidrico, tanto pluvial corno fluvial.

Dentro de ese Plan, el Proyecto de Prevencibn de lnundaciones y Drenaje Urbano, e como meta desarrollar y consolidar la concepcibn preventiva, tanto a nivel

144 ,' I . .

provincial como municipal, haciendo hincapi6 en la identificacibn de 10s riesgos por inundaciones a 10s que estan sometidas las poblaciones, constituykndose en una progresibn lbgica del Programa de Asistencia del Banco Mundial a la Repirblica Argentina, que se inicio como respuesta a emergencias causadas por inundaciones fluviales.

En tal sentido, cada Provincia desarrollara dentro de 10s componentes de Medidas Estructurales y No Estructurales, un plan de reduccibn del riesgo por 1 .. inundaciones. En lo relacionado con las Medidas Estructurales, el mismo incluira ' objetivos de conservacion de las obras, acciones para mantenerlas en condiciones de operatividad que se practicaran mediante la instrumentacibn de un plan de mantenimiento que estarh a cargo de las areas de obras pDblicas de instituciones provinciales o municipales. Para el cumplimiento de dicho plan cada provincia o municipio debera generar 10s recursos presupuestarios correspondientes Respecto a las Medidas No Estructurales, el plan comprendera objetivos instrumentales, acciones a desarrollar, herramientas a utilizar, instituciones a cargo de su implementacibn, recursos humanos y financieros a emplear, etc.. El citado plan pasara a formar parte de 10s Convenios Subsidiarios a suscribirse entre la Nacibn y las Provincias participantes del Prograrna de Prevencibn de lnundaciones y Drenaje Urbano.

Argentina dentro del context0 mundial, se encuentra entre 10s catorce palses mas afectados por cathstrofes por inundaciones, alcanzando perdidas superiores al 1,I % del PBI nacional. La frecuencia de la afectacion es elevada, est& por encima de un evento importante cada 10 aAos. Desde 1957 han ocurrido 11 episodios importantes (uno cada cuatro aiios), ocasionando muertes y elevadas perdidas en: la infraestructura, produccibn agropecuaria, bienes privados, actividades , \ economicas, financieras, y psicosociales elevadisimas. I. Se puede clasificar en cuatro 10s principales tipos de inundaciones en el pals: 1. En 10s valles de 10s grandes rios (por fuertes crecientes); 2. En el piedemonte andino (por repido deshielo de nieves); 3. lnundaciones relampagos ("flash floods") en ciudades y zonas rurales I (por fuertes tormentas); e I 4. lnundaciones en llanuras cerradas (por fuertes tormentas per0 muchas veces asociado a inadecuado drenaje y manejo del suelo asi como a caminos rurales deficientes).

145 De estos cuatro tipos, 10s de valles de 10s grandes rios de la Cuenca del Plata son 10s mas importantes, por afectar las zonas mas desarrolladas en donde se genera mas del 76% del PBI y se ubica el 70% de la poblaci6n del pais y por tener permanencias elevadas que varian entre dos semanas y hasta mas de dos meses.

Desde hace tiempo se ha venido avanzando tanto en el planteamiento de la politica para enfrentar las inundaciones en el Litoral y Mesopotamia, como en su puesta en practica. Si bien las inundaciones han castigado con mas intensidad estas regiones, particularmente las riberas de 10s rios Parana, Paraguay y ' Uruguay, asi como algunos de sus principales afluentes, tambikn hay que considerar 10s problemas ocasionados en otras partes del pais, como por ejemplo: en el sudoeste (regibn de las lagunas encadenadas) y el noroeste de la provincia de Buenos Aires, y en el sur de las Provincias de Cordoba y Santa Fe.

El debate sobre 10s origenes profundos del incremento de crecidas o avenidas extraordinarias y 10s cada vez mayores datios adn continOan. Hay quienes lo atribuyen a la accidn depredadora del hombre, otros a un cambio climatico y un tercer grupo, a una ocupacibn del suelo que ha desconocido totalmente el comportamiento de las leyes de la naturaleza.

I Para enfrentar 10s problemas de inundaciones, la corriente de soluciones I tradicionales con base en estructuras ingenieriles exclusivamente, esta cediendo frente a la realidad de las crecientes dificultades para obtener financiamiento y las I evidencias de la falta de efectividad de las estructuras de control en algunos ejemplos dramaticos, tales como las inundaciones del Mississippi en 1992 y Nueva Orleans en 2005. !

La tendencia rnundial es ir complementando las soluciones tradicionales con medidas tie pronbstico y prevencidn, ordenamiento racional del us0 del suelo, zonificacibn para traslado de personas y ganado durante inundaciones extremas, construccidn de alcantarillas y vados con suficiente capacidad (en lugar de grandes puentes), para resolver de esa manera el paso del agua en las carreteras durante su vida Otil.

Argentina, se esta adaptando a esa tendencia con el objeto de mitigar daAos que puedan producirse por la ocurrencia de eventos similares a 10s acaecidos por la crecida extraordinaria del Rio Parana en 10s aiios 1982 y 1983, que inundaron 3,8 e-lones de hectareas y provocaron perdidas cuantificadas en U$S 1 790 millones ++++++

146 provincias beneficiarias de 10s prbstamos otorgados por el Banco Mundial, sobre un total de veinticuatro.

Por otra parte, el financiamiento puesto a disposicibn por el nombrado organism0 internacional de credito no result6 suficiente acorde a 10s requerimientos puestos de manifiesto por las provincias argentinas. En funcibn de ello y dado que, es responsabilidad del Estado atender la demanda global de la poblacibn, en este cas0 en materia de prevencibn de inundaciones y drenajes urbanos, resulta imprescindible contar con recursos de financiamiento externo, que complementen las inversiones que realiza el gobierno Nacional a traves del Fondo Hidrico Fiduciario en otras regiones del pals, no atendidas por el financiamiento del 10s 41 17-AR -P.P.I. y 4273-AR."EI Niiio".

147

Annex 18: Map ARGENTINA: Urban Flood Prevention and Drainage APL 2

148

NOVEMBER 2005 NOVEMBER 65 de Tucumán San Miguel

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such boundaries. any endorsement or acceptance of ntelglsau faytrioy or status of any territory, on the legal The World Bank Group, any judgment this map do not imply, on the part of n n te nomto hw on other information shown and any h onais oos denominations The boundaries, colors, Map Design Unit of The World Bank. 0 0 0 0 500 This map was produced by the 400 300 200 100 0

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THIS SOVEREIGNTY AND THE U.K. WHICH ADMINISTERS

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