Document of The World Bank
FOR OFFICIAL USE ONLY
Public Disclosure Authorized Report No 3993 1-BR
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF US$18.90 MILLION Public Disclosure Authorized TO THE
MUNICIPALITY OF PELOTAS
WITH A GUARANTEE EACH FROM THE FEDERATIVE REPUBLIC OF BRAZIL
IN SUPPORT OF THE FIRST PHASE OF THE US$66 MILLION
RIO GRANDE DO SUL INTEGRATED MUNICIPAL DEVELOPMENT PROGRAM (PDMI) Public Disclosure Authorized
December 10,2007
Sustainable Development Department Brazil Country Management Unit Latin America and 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 January 3 1,2007) CurrencyUnit = BRL BRL$2.14 = US$1 US$0.47 = BRL$1.00
FISCAL YEAR January 1 - December31
ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities APL Adaptable Program Loan BMLP Brazil Municipal Lending Program BNDES Brazil's National Development Bank BP Bank Procedures CAS Country Assistance Strategy CEF Caixa EconGmica Federal (a public sector bank) COFIEX Inter-ministerial Body Responsible for Approving External Credit Operations CORSAN Inter-ministerialBody Responsible for Approving External Credit Operations EA Environmental Assessment EMATER Empresa de Assist2ncia Te'cnica e Extenstio Rural (Technical Assistance and Rural Extension Company) FRL Fiscal Responsibility Law FMR Financial Management Report IDH Human Development Index IF1 International Finance Institution S IG/MI S Management Information System M&E Monitoring and Evaluation OP Operational Policies UGP Unidade de Gesttio do Projeto (Project Coordination Unit) PDMI Programa de Desenvolvimento Municipal Integrado (Integrated Municipal Development Program) PMAT Programa de Modernizaqtio da Administraqtio Tributdria e da Gesttio dos Setores Sociais Bbsicos (Program for Modernization of the Administration Tax and the Management of Basic Social Sectors) PPA Plano Pluri-Annual (Multi-year plans) SEAIN Secretariat of International Affairs SEBRAE Serviqo Brasileiro de Apoio as Micro e Pequenas Empresas (Brazilian Service to Support Micro e Small Companies) SENAC Sewiqo Nacional de Aprendizagem Comercial (National Service for Commercial Learning) SIL Sector Investment Loan wss Water Supply and Sanitation STN National Secretariat of Treasury, Ministry of Finance
Vice President: Pamela Cox Country ManagedDirector: John Briscoe Sector Director: Laura Tuck Sector Manager: Anna Wellenstein (Acting) Task Team Leaders: Jennifer Sara, Paul Procee, Juliana Garrido
1 FOR OFFICIAL USE ONLY BRAZIL RIO GRANDE DO SUL INTEGRATED MUNICIPAL DEVELOPMENT PROGRAM HORIZONTAL APL CONTENTS
Page
A . STRATEGIC CONTEXT AND RATIONALE ...... 3 B. PROGRAM DESCRIPTION ...... 8 C. IMPLEMENTATION ...... 16 1. Partnership arrangements ...... 16 2 . Institutional and implementation arrangements ...... 17 3 . Monitoring and evaluation of outcomeshesults ...... 17 4 . Sustainability ...... 18 5 . Loadcredit conditions and covenants ...... -19 D. APPRAISAL SUMMARY ...... 20 1. Economic. financial and fiscal analyses ...... 20 2 . Technical ...... 21 3 . Fiduciary ...... 22 4 . Social ...... 22 5 . Environment and Safeguard Policies ...... 24 6 . Policy Exceptions and Readiness ...... 25
Annex 1: Country and Sector or Program Background...... 26 Annex 2: Major Related Programs Financed by the Bank and/or other Agencies ...... 30 Annex 3: Results Framework and Monitoring ...... 31 Annex 4: Detailed Program Description ...... 35 Annex 5: Program Costs ...... 42 Annex 6: Implementation Arrangements ...... 44
Annex 7: Financial Management and Disbursement Arrangements ...... 51 Annex 8: Procurement Arrangements ...... 55
This document has a restricted distribution and may be used by recipients only in the performance of their official duties . Its contents may not be otherwise disclosed without World Bank authorization . Annex 9: Economic. Financial and Fiscal Analysis...... 63
Annex 10: Safeguard Policy Issues ...... 79
Annex 11: Program Preparation and Supervision ...... 84
Annex 12: Documents in the Program Files...... 86
Annex 13: Statement of Loans and Credit ...... 87
Annex 14: Country at a Glance ...... 91
Annex 15: Map BRA35554 ...... 93
Annex 16: Appraisal Document for Municipality of Pelotas ...... 94
... 111 BRAZIL RIO GRANDE DO SUL INTEGRATED MUNICIPAL DEVELOPMENT PROGRAM HORIZONTAL APL
Date: December 10,2007 Team Leaders: Jennifer Sara, Paul Procee, Juliana Country Director: John Briscoe Garrido Sector Manager: Anna Wellenstein (Acting) Sectors: General water, sanitation and flood protection Project ID: PO94199 sector, Sub-national government administration Lending Instrument: Horizontal Adaptable Program Themes: Access to urban services and housing, water Loan (APL) and sanitation, municipal governance
Program Financing Data [XI Loan [ ] Credit [ ]Grant [ ]Guarantee [ 3 Other: For Loans/Credits/Others: Total Bank financing (USsm.): up to $66M for the Program Proposed terms: To be determined by individual projects under the APL and reflected in projects’ PAD.
BORROWER Municipality of Bag6 4.40 0.00 4.40 Municipality ofPelotas 12.60 0.00 12.60 Municipality of Rio Grande (Phase 1) 5.40 0.00 5.40 Municipality of Rio Grande (Phase 2) 5.20 0.00 5.20 Municipality of Santa Maria 9.25 0.00 9.25 Municipality ofUruguaiana 4.59 0.00 4.59 Unallocated 1.56 0.00 1.56 Total Program 43.00 0.00 43.00 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Municipality ofBag6 6.60 0.00 6.60 Municipality of Pelotas 18.90 0.00 18.90 Municipality of Rio Grande (Phase 1) 8.10 0.00 8.10 Municipality of Rio Grande (Phase 2) 7.80 0.00 7.80 Municipality of Santa Maria 13.95 0.00 13.95 Municipality of Uruguaiana 6.83 0.00 6.83 Unallocated 3.82 0.00 3.82 Total Program 66.00 0.00 66.00 Total: 109.00 0.00 109.00 Borrower and Responsible Agency Municipality ofBag6 Municipality of Pelotas Municipality ofRio Grande Municipality of Santa Maria Municipality ofUruguaiana
1 Does the program depart from the CAS in content or other significant [ ]Yes [XINO respects? Re$ PAD A.3 Does the program require any exceptions from Bank policies? Re$ PAD D. 7 [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [XINO Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the program include any critical risks rated “substantial” or “high”? [ ]Yes [XINO Re$ PAD C.5 Does the program meet the Regional criteria for readiness for implementation? [XIYes [ ]No Re$ PAD D. 7 Program development objective Re$ PAD B.2, TechnicalAnnex 3 The program objective is to strengthen the capacity ofthe municipalities ofBage, Pelotas, Rio Grande, Santa Maria and Uruguaiana to provide selected infrastructure services and employment opportunities for their population. Program description [one-sentence summary of each component] Re$ PAD B.3. a, Technical Annex 4 The Program has been organized into three components:
Component 1 - Municipal Strengthening. The purpose ofthis component is to finance activities related to improving municipal capacity to plan, appraise, finance, implement, monitor and evaluate infrastructure and local economic development investments. Introducing World Bank project implementation, fiduciary, social and environmental practices are meant to strengthen municipal capacity in these areas and standardize procedures across all relevant secretariats ofthe municipal government.
Component 2 - Income and Employment Generation. This component will support municipal initiatives to generate income and employment opportunities, in addition to improving the quality ofjobs in both in urban and rural areas.
Component 3: Infrastructure Service Improvements. This component’s objective will be to assist the municipalities improve their ability to provide infrastructure services in an efficient, environmentally sound and sustainable manner. The specific investments were also prioritized for their effects on: improving access to services by the poor, contributing to the municipal growth agenda and/or for environmental benefits. The following infrastructure investments are included in this component: (i)Rehabilitation or pavement ofexisting urban streets and rural roads; (ii)Water supply, sanitation and drainage systems in urban and rural areas; (iii)treatment and final disposal of solid waste, waste recycling centers and support to waste packers; and (iv) Urban upgrading, housing and social improvements in poor neighborhoods, and areas of environmental risk.
Which safeguard policies are triggered, if any? Re$ PAD D. 6, TechnicalAnnex 10 The Program has received a World Bank Environmental Category A rating and triggers the following safeguards: Natural Habitats (OP 4.04), Cultural Property (OP 4.1 l),Involuntary Resettlement (OP 4.12). and Safetv ofDams (OP 4.37).
2 A. STRATEGIC CONTEXT AND RATIONALE
1. Country and sector issues
1, The State of Rio Grande do Sul (RS), located in the south-western corner of Brazil, has an area of 280,000 km2 (3.2% of Brazil’s total area) and a population of 10.5 million. The State produces about 8% of Brazil’s GDP, making it economically the fourth most productive state. With a population density of 36 inhabitants/km2, RS is more concentrated than the national average of 19.9 inhabitantsikm2. The State is also characterized by a large number of small municipalities - more than 60% of its 496 municipalities have less than 10,000 people. On the other hand, the State has a large number of medium-sized cities.
2. The economy of RS has been performing relatively well, with growth rates of more than 3% per annum during 1999-2003. The industrial sector contributes more than 36% of value added; the agricultural sector is responsible for about 13%, while the services sector accounts for the rest. However, the benefits of economic growth are very unevenly distributed across the population and particularly between the various regions in the State. Furthermore, regional disparities in wealth are increasing and these are resulting in significant poverty in certain areas of the State. In addition, the State government faces a very difficult fiscal situation and has the highest level of indebtedness of any state in Brazil. Net consolidated debt was R$ 33.8 billion in December 2006, or 254% of the state’s net current revenue (NCR), well above the ceiling of 200% set in the Fiscal Responsibility Law (FRL).
Addressing the Needs of the Southern Municipalities
3. The Rio Grande Do Sul Integrated Municipal Development Program (PDMI is its acronym in Portuguese) will be implemented in the five largest municipalities of the Southern half of RS, namely Bage, Pelotas, Rio Grande, Santa Maria and Umguaiana. This part of RS (“a Metade Sul”) is poorer than the northern part: it contains 25% of the population but only 19% of the GNP. The per capita income disparity between the south and north is even more striking at 6,787 reais versus 10,257 reais (source FEE 2004).
4. The five project municipalities cover an area of over 17,000 km2 (6% of the State’s total area), and have a total population of about 1,000,000 (9.5% of state total population). Additional information is provided in the Table 1.
3 Area Municipality (2005) --11" .I " i 1 I Bage I 120,544 1 15,018 I 105,526 1 4,095 1 Santa Maria 258,834 10,344 248,490 1,780 Pelotas 333,947 15,435 3 18,s 12 1,609 1 RioGrande I 197,793 I 5,843 I 191,950 1 2,814 1 Uruguaiana 133,525 6,683 125,842 5,716 Total 1,044,643 53,323 991,320 16,014 State 10,867,102 1,637,579 9,229,523 281,748
5. The municipalities of Bage, Pelotas, Rio Grande, Santa Maria and Uruguaiana present somewhat homogeneous socio-economic characteristics. Together, the five municipalities contribute to about 11% of the State GDP. As to the per capita GDP, with exception of the municipality of Rio Grande, the remaining municipalities are slightly above half of that of the State average and about 25% of the population is estimated to live below the poverty line. The high GDP of Rio Grande is due to the presence of an important port and manufacturing activities, such as fertilizers, oil refinery, petro-chemical and food-processing, Economic activities of the other four municipalities - Pelotas, Santa Maria, Bag6 and Uruguaiana - are mostly based on services, farming and cattle raising, as shown in Table 2.
Table 2: Total and Per Capita GDP and Gross Value Added ofthe municipalities r Total CDP Per capitu Gross Value Added (TO) --" ! Municipality -l--"--CDP I US$ 1,000. i Oh ((~Ji~1uuu) Agricult. Indust. Senice I I ---J I Bage 382,081 0.56 3,181 16.28 26.14 57.57 Pelotas 793,876 1.65 3,030 6.67 33.60 59.73 I Rio Grande 1 1,078,567 I 2.98 I 3,185 I 2.51 I 65.11 I 32.39 1 I Santa Maria I 1,736,668 I 1.21 I 8,962 I 7.09 I 22.87 1 70.04 1
Source, FEE ($1 US = 2.2 R$) - Econom) and Statistics Foundation of Rio Grande do Su112004.
6. In addition to the formal economic activities, a considerable part of the GDP of each municipality is based on micro-economic activities, which involve widespread 'informality' in the small business sector. Informality and unemployment have now become big issues in the region, since the predominant charque (sun-dried salted beef) industry started to face strong
4 competition from Uruguay, in the second half of the 20th century. Lack of appropriate technology, problems in adapting new more productive cattle breeds in the region, increasing labor costs and labor regulation contributed to successive crisis in the former dynamic regional charque industry. The southern part of the state has also suffered more recently from the closing of large manufacturing plants (e.g., food processing) which left behind numerous unemployed workers. A significant number of laid off workers entered the informal sector by engaging in activities such as small-scale commerce and manufacturing, handcrafts, and service sectors. These different groups face strong barriers to develop their businesses and move up to the formal economy. Difficulties range from low skills, insufficient training, limited operating scale, weak organization, shortage of capital, barriers to access new and larger markets, in addition to an unfriendly business environment.
7. State Development Plan - Rumos 2015: this recently-produced study, partially funded from a previous World Bank loan, sets forth a sustainable regional development plan, based on the territorial organization of the state, and with the objective of achieving a more balanced income distribution across regions. Nine regional planning units have been defined (COREDEs), as well as 6 strategic areas of thematic focus, as follows: State Competitiveness, Strengthening of Hub-Cities, Social Inclusion, Environmental Preservation, Participatory and Modern Governance and Regional Development Plans to Overcome Inequalities. As part of the Hub-Cities theme, the strategy emphasizes the fundamental role of medium-sized cities to promote regional development based on an increasingly urban and knowledge-driven economy.
8. As the most prominent Hub-Cities of the Southern Half of the State, the five municipalities included in PDMI need strategic interventions to overcome economic decline, enhance their competitiveness, and accelerate sustainable economic growth. This would require support to infrastructure, employment and income generation, in addition to institutional capacity building of the municipal governments. The strengthening of these hub-cities is an important development strategy, given the economies of scale for service provision and joint opportunities for business attraction.
9. Municipal Governance in Brazil: With its 1988 constitutional reform, Brazil has one of the most decentralized public sectors in Latin America. States and municipalities account for almost half of all public sector revenues and expenditures. Municipalities make up 19% of total public revenues (5.4% of GDP), 13% of public spending and 24% of gross investment. They are at the forefront of economic development and poverty alleviation of their population. Municipal governments are responsible for the provision of most basic services, such as urban drainage, water and sanitation, solid waste management, rural roads, and public transport. Additionally, municipalities share the responsibility with their respective State Governments for the provision of health, education and social infrastructure. However, there is a mismatch between the municipal responsibilities and their access to financial resources to meet them.
10. Municipal management has improved significantly in recent years, largely as a result of federal measures to control inflation implemented in the mid-1990s and the passing of the Federal Fiscal Responsibility Law (LRF) in 2000. In 2001, 68.5% of the municipalities achieved fiscal surpluses, against only 13% in 1995. Municipal debt is well under control, but municipalities have very limited access to sources of borrowing due to the restrictions placed by
5 the National Monetary Council to restrict municipal borrowing to levels much lower than allowed in the LRF. However, the LRF also allows for municipalities that receive approval from the Ministries of Planning and Finance (through the COFIEX process) to borrow from IFIs, including the World Bank.
11. Project Origin and the Consolidated Program: The initial request for World Bank borrowing was submitted by each municipality to SEAIN for COFIEX approval in December 2003. At that time, the federal government requested the five municipalities to join efforts to create a common development program. The municipal governments spent much of 2004 negotiating with COFIEX the program content and counterpart obligations. This resulted in an agreement of a joint preparation of the five municipal projects under an umbrella program entitled Rio Grande do Sul Integrated Municipal Development Program (Programa de Desenvolvimento Municipal Integrado - PDMI). Project preparation started in 2005, supported by a PHRD Grant, and the original PCN meeting was held in May 2006. An integrated program across the five municipalities can bring important benefits, as they share a common regional and territorial development vision, and are striving to address very similar development challenges, including that of improved municipal governance, addressing rural and urban poverty and improvement of infrastructure service provision, in order to lead to a greater participation of the municipalities in the State’s economic growth agenda.
2. Rationale for Bank Involvement
12. There are several reasons for the Bank to support the proposed program: (a) to continue our long-standing engagement in the State to address the needs of poorer constituents, (b) to work on a complex multi-sectoral development agenda in five municipalities that are critical to the development ofthe southern half ofthe state, and (c) to further advance the Bank’s municipal development strategy for Brazil and draw lessons from the process. In terms of continuing to work with the State, this is important as we have a positive history of engagement and a continued demand for our support. Two recently completed projects (Road Rehabilitation and Rural Development); both rated as satisfactory, contributed to the preparation of the State Development Strategy, which sets directions for the economic development of the five municipalities. The new State administration has requested renewed Bank assistance in the form of a DPL to support a reform program that will help it come into compliance with the LRF.. The ability of the Bank to work directly with five important municipalities in the southern half of the State provides continuity in our engagement as well as a means to test news forms of working at the sub-national level in important municipalities.
13. Brazil is one of the few countries where municipalities are allowed to borrow directly from IFIs, as long as they receive a federal guarantee. Over the past several years, the Bank has developed its capacity to lend directly to municipalities. Since municipalities have so little access to credit markets, at the beginning ofthis CAS period, the Bank started to receive a large number of borrowing requests from municipalities across Brazil of differing sizes and for a range of themes. The Bank worked with the Federal Government to clarify the eligibility criteria that would be applied for municipal lending to ensure that it was selective and strategic. The following requirements were put forward: (a) projects would need to address difficult and cross-
6 sectoral development challenges, (b) municipalities larger than 100,000 people would be eligible, (c) cross-municipal partnerships would be promoted and (d) flexible lending terms using either Reais or hard currency. The municipalities included in the PDMI are some of the first ones to meet these criteria.
14. The Bank strategy for supporting municipal development in Brazil emerged from these eligibility criteria and is based on our comparative advantages of addressing complex development challenges from a multi-sectoral perspective. The strategy has four pillars: (a) improving municipal fiscal and administrative management, (b) increasing the competitiveness of the municipality through local economic development, (c) supporting partnerships across municipalities and with others and (d) strengthening municipal capacity to deliver key services. PDMI provides an opportunity to put all four pillars into practice while also fostering the inclusion of environmental and social safeguards in municipal projects. Finally, these projects are being supported by a new line of analytical work, started in FY07k which studies Brazilian and global best practice on local economic development as a means to improve city competitiveness.
15. In addition to responding to the development challenges of municipalities, the Bank’s municipal lending program in Brazil is helping to lay a foundation for market-based approaches to financing municipal development, as the federal government works towards developing an effective and sustainable municipal credit system. The cornerstone of this program is the $240M Brazil Municipal Development Program APL (BMDP) approved by the Board in May 2007. The PDMI continues to move in this direction of a more consolidated program of municipal support. The PDMI would be different from other municipal lending in two aspects: (a) it would be the first set of municipal loans to support the development of the entire municipal territory, covering both the urban and rural population and not just the municipal capital and (b) the five loans are being prepared and appraised as one common program expected to be implemented simultaneously (subject to the authorization to negotiate each loan by the federal government) under a common operational and learning framework.
3. Higher level objectives to which the program contributes
16. Brazil’s 2004-2007 multi-year plan (Plano Plurianual), on which the Bank’s CAS is based, sets forth a development strategy that emphasizes: (i)social inclusion and universal access to high-quality public services, (ii)macroeconomic stability and job and income growth, (iii)greater equity among the regions through regional and local development, (iv) greater integration between development and the environment, and (v) the promotion of civil society participation in decision making. The Board approved a CAS Progress Report in May 2006 which confirmed the strategic directions of the original 2004-2007 CAS in support of four program pillars: equity, sustainability, competitiveness, and macro economic stability. The CAS Progress Report further states that sub-national lending would continue to be an important part of the Bank’s program, but would be substantially more selective and oriented toward sustainable growth.
7 17. The PDMI would contribute to the objectives of the CAS and directly support the competitiveness and sustainability pillars by helping the five municipalities improve their business environment and support priority economic development clusters, while at the same time building their capacity to deliver sustainable and environmentally sound infrastructure services. In addition, the PDMI will bring together five municipal governments to work in a synergistic manner in developing an adaptive and learning-based approach to local economic development issues that can be replicated in other municipal development projects throughout Brazil and provide lessons for the dialog at the federal level.
B. PROGRAM DESCRIPTION
1. Lending instrument
18. The program is designed as a horizontal APL, comprised of individual loans to each of the five participating municipalities of Bage, Pelotas, Rio Grande, Santa Maria, and Uruguaiana with a common focus on strengthening municipal capacity to promote income generation and employment (thereby improving their competitiveness) and improving the quality of selected infrastructure services in a fiscally and environmentally sustainable manner. The Rio Grande project has been approved by COFIEX in two-phases as part ofthe overall PDMI program.
19. The purpose of using an APL is to:
(a) Promote a ripple effect of economic development: All five municipalities contain important hub-cities and are the economic drivers of the southern half of the state. Assisting the five of them improve their economic power and dynamism as a joint effort should cause a positive ripple effect on the whole southern region, including in the neighboring smaller municipalities. (b) Contribute to establishing common development priorities across the five municipalities: in response to the economic potentials identified in Rumos 2015, while strengthening the autonomy and capacity of each municipal government to implement an externally funded program of this magnitude. The five municipalities are preparing a letter of development policy which sets forth their common agenda. (c) Promote an increased focus on results-orientation by having common project components and, where relevant, similar results indicators across the 5 municipalities. (d) Capture economies of scale across the municipalities through common program implementation procedures, technical assistance, learning and sharing of best practices, (e) Provide a flexible timeline for project approvals in case STN does not allow all five municipalities to proceed with negotiations at the same time. (f) Contribute to the municipal learning agenda that the Bank is seeking to establish with federal authorities as a means to inform policy making based on practical experience. It is expected that this experience will be replicable in other municipalities.
20. Municipal Selection and Eligibility Criteria: The five municipalities were selected to participate in the PDMI on the basis of the following characteristics: (i)they are the main economic centers of the southern portion of the State of Rio Grande do Sul; (ii)the municipalities are in compliance with the Fiscal Responsibility Law and have been authorized by
8 the Federal Government (COFIEX) and by the respective municipal legislature to prepare projects for World Bank financing, and (iii)they are committed to working together, and sharing experiences and knowledge thus providing opportunities for economies-of-scale.
21. Individual lending operations under the PDMI would have to meet the following eligibility criteria: the project design is structured to respond to the program objective of promoting municipal competitiveness and improving infrastructure services in a environmentally and fiscally sound manner; 0 the municipality agrees to be a member of the program coordination structure (Conselho Superior and Conselho TCcnico) and contribute its share to the costs of the functioning of the Unidade de Articulaqiio do Programa (UAP);
0 each project meets all appraisal criteria and the municipality agree to abide by the common Program Operational Manual; and
0 prior to negotiations, the municipality must receive an additional authorization from the Secretaria do Tesouro Nacional (STN) to allow borrowing and receiving a federal guarantee.
22. The five projects comprising the PDMI have been prepared and appraised simultaneously. Invitations to negotiate will also be sent to all five municipalities at the same time, and ideally these negotiations would take place jointly. However, since each municipality will first need to receive a new authorization from STN and SEAIN (Ministry of Planning) to proceed with negotiations, the timing of the individual loan negotiations may end up being sequenced over a 12-18 month period. The APL design will allow for a more flexible response to the potentially differing municipal approval timetables.
23. This Umbrella PAD is being presented to the Board together with the individual loan package for the Municipality of Pelotas. Management is seeking (i)support for the PDMI through the Horizontal APL, and (ii)approval of the first loan of the APL. Subsequent loans would be presented when eligibility criteria have been met and projects have been negotiated. In accordance with the Bank’s streamlined procedures for horizontal APLs, each subsequent loan package would be circulated to the Board for information after approval in principle by Management. In the absence of requests from three or more Executive Directors for Board consideration of the loan, Management approval would become effective ten working days after circulation ofthe documents to the Board.
2. Program Objective and Phases
24. The program objective is to strengthen the capacity of the municipalities of Bag& Pelotas, Rio Grande, Santa Maria and Uruguaiana to provide selected infrastructure services and employment opportunities for their population. In addition, the five municipalities will have benefited from improved partnerships and enhanced capacity strengthening by working together on common development priorities. Finally, the cumulative impact ofprogram implementation is expected to have a positive spill-over effect on economic development in other municipalities in the southern half of the State.
9 25. The size of each loan and corresponding project amount under the APL, as approved by COFIEX, is presented in Table 3 as follows:
Table 3: Proiect Cost bv MuniciDalitv I APL: Borrosrer IBRD Borrower 'futal i USSM USSM US;Y;M I Municipality of Bag6 1 6.60 I 4.40 I 11.00 I I Municipality of Pelotas I 18.90 I 12.60 I 31.50 I Municipality of Rio Grande (Phase 1) 8.10 5.40 13.50 Municipality of Rio Grande (Phase 2) 7.80 5.20 13.00 Municipality of Santa Maria 13.95 9.25 23.20 Municipality of Umguaiana 6.83 4.59 1 1.42 Unallocated 3.82 1.56 5.38 Total Program 66.00 43.00 109.00
26. Phasing of the Rio Grande Project. The Rio Grande Project would be implemented as a two-phase APL within the broader PDMI. This is in accordance with the December 2004 COFIEX recommendation that the World Bank finance 60% of the project amount of US26.5 million and that the project be implemented in two phases as shown in Table 3.
27. The trigger defined by COFIEX for moving to the second phase loan is that at least 50% of the 1'' phase loan has been disbursed. The municipality of Rio Grande expects to move to the second phase of the loan by year three. World Bank participation in the second phase will also require that the project have made significant progress in implementation, to be measured by the completion of 80% of the physical results expected by end of year 2. It is anticipated that both phases will be im lemented over the time span of 5 years, subject to a prompt approval by COFIEX ofthe 2" dpPhase.
3. Program components
28. Each of the five projects making up PDMI will have the same three components: (a) municipal strengthening, (b) local economic development and (c) infrastructure service improvements. A common set of result indicators will be implemented across the five municipalities, although the specific investment plans and activities are customized to meet the respective development plans of each municipality. On overview description of each component is provided below and Table 4 presents a summary overview of the investment program in each municipality. Component 2, given its innovative features, is further detailed in Annex 4. In addition, each project PAD provides the detailed project description and summary of the investment plans that are to be financed in each municipality.
Component 1 - Municipal Strengthening
29. The purpose of this component is to finance activities related to improving municipal capacity to plan, appraise, finance, implement, monitor and evaluate infrastructure and local
10 economic development investments. Introducing World Bank project implementation, fiduciary, social and environmental practices are meant to strengthen municipal capacity in these areas and standardize procedures across all relevant secretariats of the municipal government. In addition, Rio Grande, Santa Maria and Bage have ongoing and more encompassing public sector management improvement programs (PMAT funded by BNDES) focused on improved fiscal management, cadastre and tax collection and these efforts will be further supported by PDMI. In Bage and Pelotas, the municipal governments will use PDMI resources to improve the overall management oftheir municipal water and sanitation service providers.
30. Furthermore, to promote learning across the five municipalities and capitalize on the horizontal APL approach of the PDMI, each municipality will include in this component resources for its project management arrangements and to cover its contribution to the cost of the Unidade de Articulaqgo do Programa (see partnership arrangements).
3 1. The types of activities funded under this component include: information systems, consultants, human resource developmentkraining, studies, equipment, office space improvements and incremental operating costs.
Component 2 - Income and Employment Generation
32. Although not the largest program component in terms of cost, this is the more innovative and strategic part of PDMI as it will support municipal initiatives to generate income and employment opportunities, in addition to improving the quality ofjobs in both in urban and rural areas. Some of the interventions would directly target the poor (e.g. street vendors, informal businesses) with instruments such as incentives to move into the formal sector, measures to facilitate access to micro credit, provision of appropriate commercial space, focused training and capacity enhancement activities. Another set of interventions would be geared towards selected SME clusters with growth potential (pre-identified clusters include fruit and vegetables in Bag& Uruguaiana and Pelotas; tourism in Rio Grande; waste recycling in Santa Maria, Rio Grande and Uruguaiana, etc). Actions would be to support the social capital formation of the cluster, prepare business plans, identify new markets, etc. A third area of work includes initiatives in Santa Maria and Pelotas to stimulate local potential to produce high value-added products, via access to the knowledge economy based on existing and new R&D efforts, coordinated across universities and private sector firms. Finally, support will be provided to all five municipalities to improve the overall business climate to reduce administrative barriers, time, effort and cost of dealing with excessive business regulations.
33. The types of investments to be funded under this component include: studies for preparing local economic development strategies and cluster business plans; training, cluster organization, facilitation of access to micro-credit programs and productive infrastructure for SMEs; and technology park and R&D center
11 Component 3: Infrastructure Service Improvements
34. This component will comprise the bulk ofthe investment ofthe PDMI (between 65% and 75% of each project cost). The objective will be to assist the municipalities improve their ability to provide infrastructure services in an efficient, environmentally sound and sustainable manner. Careful analysis was undertaken during project preparation to help the municipalities consolidate their infrastructure investments in a few priority areas to maximize impact. The specific investments were also prioritized for their effects on: improving access to services by the poor, contributing to the municipal growth agenda and/or for environmental benefits. The following infrastructure investments are included in this component:
A, Rehabilitation or pavement of existing urban streets and rural roads, including rehabilitation of small bridges, improvements to public transport services, bicycle paths, landscaping and long-term maintenance strategies. While this will be the priority investment area for Pelotas, the other four municipalities also include investments in urban transport. In addition, the selected urban roads either provide public transport access to low-income neighborhoods or are important transport access corridors for the city. Rio Grande, Pelotas and Santa Maria include road improvements in rural areas. The rural road investments are focused on the core network that provides access to rural areas.
B. Water supply, sanitation and drainage systems in urban and rural areas. Expanding the WSS system and improving performance of the municipal WSS department (DAEB in Bage and SANEP in Pelotas) will be the priority investments in these two municipalities. In Uruguaiana and Santa Maria, where CORSAN, the State WSS Company, has a concession, parallel investments will be made by CORSAN to complement the urban upgrading efforts being made in specific neighborhoods. These types of investments will target access to services by the poor and also have positive impacts on water resource protection and the environment.
C. Treatment and final disposal of solid waste, waste recycling centers and support to waste packers. The priority investment in Uruguaiana is to close its unsanitary landfill, open a new one, improve the overall management of its solid waste and address livelihoods ofthe waste-pickers. Actions to support waste-pickers and recycling will also be supported by Component 2 in Rio Grande and Santa Maria. These investments are important in addressing key environmental and social problems in these cities.
D. Urban upgrading, housing and social improvements in poor neighborhoods, and areas of environmental risk. Rio Grande and Santa Maria will make large investments in critical environmental areas that have been invaded by informal settlers over the past few years. The municipalities have been working to adopt the more holistic and integrated approach of the World Bank to slum upgrading that focuses on the socio- economic reintegration of affected families, a participatory and fair resettlement policy and immediate physical use of the space in the environmentally protected areas where slums have been removed. The rehabilitation of these areas is very important in
12 protecting key environmental resources in these cities and developing policies to better address problems with informal settlements.
Table 4: Project Components by Municipality (bold indicates priority area of intervention) Municipality Project objective and key components Bag6 Municiual Strengthening 0 Water and sanitation master plan, geo-reference system and user cadastre
0 Project and program management Income and EmDlOVment Generation 0 Capacity building and micro-credit program for micro-enterprises Support to small-scale hitand vegetable farmers in rural areas Infrastructure Service Imurovements 0 Rehabilitation of road infrastructure and urban landscaping 0 Expansion of urban water supply system and waste water network and treatment Pelotas Municipal Strengthening 0 Modernization of Public Services, drainage master plan and WSS management Plan
0 Project and program management Income and Emplovment Generation 0 Capacity building and micro-credit program for micro-enterprises 0 Processing center for vegetables and fruits and formalization of market space
0 Technology Park Infrastructure Service Improvements 0 Rehabilitation of rural and urban road infrastructure and urban landscaping Expansion of WSS and drainage systems Rio Grande Municiual Strengthening Modernization of Public Service and Citizen Education Program
0 Project and program management Income and Emulovment Generation 0 Capacity building and micro-credit program for micro-enterprises 0 Reorganization and improvements in the tourism sector and waste recycling Infrastructure Service Improvements 0 Rehabilitation of urban and rural road infrastructure and urban landscaping 0 Environmental recuperation and urban renewal of the Orla dos Patos 0 Implementation of a housing program (Programa Alianqa) Santa Maria Municipal Strengthening
0 Modernization of Public Services
0 Project and program management Income and Emulovment Generation Capacity building, micro-credit and citizen education 0 Support recycling cooperatives, commercial and Social Inclusion Center 0 Business Incubator a Technology Park Infrastructure Service Imurovements 0 Rehabilitation of urban and rural road infrastructure and urban landscaping 0 Environmental renewal of Arroio Cadena Cancela and Vacacai Mirim River
13 Uruguaiana Municipal Strengthening Modernization of Public Services Project and program management Income and Emplovment Generation 0 Capacity building and micro-credit program for micro-enterprises Community vegetable gardens and support to rural production Infrastructure Service Improvements Public Rehabilitation of urban road infrastructure and urban landscaping Integrated municipal solid waste management and socio-environmental education Sewerage and drainage systems in low income neighborhoods
35. The following lessons were considered:
0 Project Focus: each of the original carta consultas submitted by the municipalities had over 30 discrete activities and five components to be supported. A key lesson from municipal development projects in Brazil and other countries show that more impact can be had by providing much more targeted support to a fewer number of areas. To this effect, several components were consolidated during project preparation and a decision was made to focus the interventions of Component 1 solely on building the municipal capacity to deliver the other two project components, rather than embarking on a broad program of municipal and fiscal reform. Under Component 3, a couple of sectoral interventions were prioritized to promote a more meaningful impact in improving infrastructure services.
0 Support to informal business requires a combination of instruments beyond access to finance, such as training, organization and infrastructure. In terms of micro-credit, financial resources for micro credit programs are very abundant in Brazil given the federal law requiring that 2% of all deposits in the commercial banking system be channeled to credit programs targeting the low income population. In addition, the Bank has been supporting through Banco Nordeste, one of the global best practice micro credit programs known as CrediAmigo. Hence, during PDMI preparation, municipalities and the Bank team decided not to allocate program resources to fund micro credit operations- as was initially planned-- and alternatively, encouraged Banco Nordeste to expand CrediAmigo to these five municipalities as an entry-point to operations in the Southern part of the country. PDMI resources are therefore focused on other instruments that could boost access to and impact of credit provision.
Cluster Development: in order to support micro and small firms, PDMI focuses on strengthening clusters, rather than on isolated firms. This strategy draws on global and Brazilian experience for allowing groups of firms to reach economies of scale (e.g. purchase of inputs, sales of products etc), informationhowledge sharing, to foster innovation and cluster competitiveness. Cluster identification and strategy design is supported in each municipality by analytical work. Contributions from the RedeNos experience in Northeast Brazil as well as methodologies for preparing business plans from the US Small Business Association (www.sba.gov/smallbusinessplanner) were very relevant.
14 8 Sustainable infrastructure service delivery and not just works. Projects which focus solely on implementation of infrastructure works are often unsustainable. Bank experiences show the importance of identifying institutional, social and financial barriers to sustainable service delivery and address these as an integral component of works design and provision. In addition, municipal infrastructure needs to respond to sound sectoral investment plans, rather than investments made in an ad-hoc manner in response to emergency situations (usually arising from inadequate preventive maintenance) or when funds are available. The costs and management arrangements for operation and maintenance need to be considered upfront, respond to citizen willingness to pay and municipal fiscal and institutional capacity. The PDMI program was designed taking this lesson into consideration and especially in the transport and WSS sectors by working closely with each implementing agency to identify priority interventions in light of a longer-term investment plan, service delivery and cost recovery options and ways to guarantee long-term sustainability.
8 Improving Environmental Quality and Mainstreaming in planning process: there is a strong need to mainstream environment in the design and implementation of infrastructure projects. The program will assist environmental agencies to become fully integrated with the Municipal Planning and Technical Secretariats in the decision making and planning process. Constructive collaboration not only increases the positive impact of investments on the environment, but also makes these investments more cost effective and sustainable. PDMI has mainstreamed environmental issues into its design and will build the capacity of municipal staff, as well as design clear procedures and tools to be used during project implementation and beyond.
36. Four project alternatives were considered:
Stand-Alone SILs: The option of stand-alone Specific Investment Loans to each of the municipalities was rejected because the relative small size of each individual loan would make this operation very costly for the Bank to prepare and supervise, while the transaction costs would also be high for the borrowers. In addition a stand-alone SIL would not allow for the cross-municipal learning.
Using an Intermediary Entity: The possibility of using an intermediary financing entity as a sole borrower could have reduced Bank transaction costs At the federal level either the Caixa Econbmica Federal or Banco do Brasil could have been an option, while a State-level Bank, Banrisul, could also have been considered. However, all of these banks face lending exposure restrictions (45% to public sector borrowers) and each individual transaction is subject to time-consuming approval processes by the federal government. These potential delays make the payment of Bank commitment fees unattractive to the intermediaries. In addition, none of the financial intermediaries supporting the municipal sector is Brazil has the experience of supporting multi-sector loans to municipalities, as they just work under the modality of project finance for specific investments. In the longer term, the Bank municipal strategy in Brazil is to help develop an efficient credit market for municipalities.
A regional development program for the Sothern half of the State: an early version ofthe program design called for a common regional development agenda to which each
15 municipality would contribute. This could involve, for example, identifying common infrastructure and productive investments that would serve the interests of several municipalities at once. However, given the non-contiguous nature of these municipalities, the very localized and differentiated productive potentials, and site specific infrastructure improvement needs, it was determined that each project needed to be customized to respond to the specific development plans of each municipality. Also, the uncertainties associated with the timing of the issuance of borrowing and guarantee approvals from STN posed an additional risk for municipalities to commit to activities that would have required cost- sharing and joint implementation.
0 A grow lending amroach through an APL was therefore determined to be the best option, given the interest of the federal government and the municipalities to move ahead with a program of Bank assistance in these five municipalities. The APL, especially through its proposed knowledge sharing activities, also allows the piloting and consolidation of standard methodologies and approaches that would be valuable under a possible future wholesaling mechanism.
C. IMPLEMENTATION
1. Partnership arrangements
Although each municipality will be responsible for implementing its respective project, the integrity of the programmatic approach will be guaranteed through the establishment of a high level coordination body and a technical council comprising representatives of the five municipalities as well as through the joint hiring by the five municipalities of a Unidade de Articulaqilo do Program (UAP).
0 The Superior Council (Conselho Superior) will be established through an inter-agency agreement signed by the five municipalities. It will serve as PDMI’s top decision-making body and will consist of the Mayors of the five municipalities. The Presidency of the Superior Council will be exercised by one of the Mayors on an annual rotating basis and quarterly meetings would be held.
0 The Technical Council (Conselho Tecnico) will be the operational arm of the Superior Council and consist of 10 members: the Secretaries of the Municipal Planning Secretariats and the Project Coordinators of each municipality. The Technical Council will: (a) act as a liaison body, ensuring that the five municipalities develop joint and common actions between them and share experiences; (b) supervise the UAP; (c) evaluate PDMI performance and identify any problems arising in the course of implementation; (d) review the physical-financial progress indicators and the joint Annual Progress Report and (e) define common requirements for technical assistance and support the UAP in contracting and supervising consultants.
0 The UAP will be hired under a common contract paid by the municipalities involved in PDMI and will primarily be responsible for the capacity building and technical assistance to the municipal teams and for liaising between the municipalities for exchanges of
16 experiences. The Unit will also act as an information collector and interface between the World Bank and the municipalities and will serve to coordinate Bank supervision and PDMI monitoring activities. In addition, the UAP will provide necessary guidance to the municipalities on specific technical issues, starting in year one with the application of Bank fiduciary and safeguard procedures.
2. Institutional and implementation arrangements
37. The respective municipal governments will be the implementing agency for each project. Each municipality will work through its existing administrative structure and use the project to strengthen its capacity in the areas of project management, procurement, application of social and environmental safeguards and financial management.
38. Each municipality will put in place either a fully-integrated or partially-integrated project coordination unit (Unidade de GestZio do Projeto - UGP), located in an existing municipal structure (usually the Secretariat of Planning) and duly accountable to it. The UGP will be staffed with qualified municipal civil servants seconded from other secretariats with support from consultants, as needed. The justification of using an UGP is to address the coordination challenges of a multi-sectoral project that involves numerous municipal agencies for its implementation. The UGP will coordinate project implementation across the different municipal secretariats that are responsible for implementation, while ensuring compliance with WB fiduciary and safeguard norms (which are quite complex for small municipalities to implement). Care will be taken to make sure the institutional strengthening objectives of the other municipal secretariats are achieved and they build capacity to implement the improved project management, fiduciary, environmental and social processes being introduced through the PDMI. To this effect, suitable progress indicators will be developed and tracked in the M&E system.
3 9. Appropriate and detailed implementation arrangements have been developed for each municipality and appraised by the Bank. These are described in more detail in the Annex 6, as well as in the respective municipal PADs.
3. Monitoring and evaluation of outcomeshesults
40. Although a common Results Framework has been prepared for PDMI, each project has a customized set of end-of-project outcome and intermediate indicators to reflect the specific nature of its investment plan. These are reflected in the respective municipal PADs. A core set of common indicators has been established for the institutional strengthening and local economic development components and will be tracked across all municipalities. However, indicators for the improved infrastructure services respond to the specific investment plans of each municipality, and in every case, at least one major infrastructure service delivery improvement will be measured in terms ofimproved coverage, efficiency and sustainability.
41. The municipalities, as project implementing agencies have the main responsibility for data collection and reporting on project results. The UAP has as part of its function the
17 establishment of a simple computerized Management Information System to help each municipal manage data. Annex 3 contains more details on how the PDMI will implement M&E.
42. The key indicators for measuring the success of each project in the PDMI are:
Improved Municipal Management Capacity 0 Number of municipal projects institutionalizing improved evaluation, social and environmental management processes in the municipal government of Pelotas
0 Percentage of citizens satisfied with quicker and more user-friendly access to client services provided by the municipality
0 Number ofgood practices or innovations replicated from other municipalities
Increased local economic development opportunities 0 The net percentage increase in formal jobs is higher (or its decrease is lower) among the beneficiaries of the project than in the municipal economy as a whole 0 The net percentage increase in formal firms is higher (or its decrease is lower) among the beneficiaries ofthe project than in the municipal economy as a whole
Improved Infrastructure Services (the indicators are customized to each project objective and could include): Coverage, quality and sustainability ofwater supply, sanitation and drainage services Reduction in travel times in urban and rural areas 0 Reduction in number of people living in environmentally risky and protected areas 0 Satisfaction ofpopulation with quality of infrastructure services
4. Sustainability
43. Financial sustainability: The economic and financial analysis confirmed that the project is expected to generate positive returns. Investments in water, sanitation and solid waste management are expected to be recovered and sustained as much as possible through user fees. The urban upgrading and transport investments will also be partially recovered by the municipality via increased property tax collections.
44. Environmental sustainability The project is expected to have an overall positive impact on the environment, especially with respect to the rehabilitation and protection of environmentally risky areas, improved water quality and waste water treatment, proper solid waste disposal, and improved overall quality of life and environmental health. Under the institutional strengthening program, the project will develop the municipal capacity to manage and monitor environmental and social aspects of the project, deliver sanitary education program, manage water resources and solid waste, and protect river basins and other environmentally sensitive areas.
Risks Risk Mitigation Measures Risk Rating with
18 Mitigation Municipalities may have The structuring of counterpart funds in the project cost Moderate difficulty providing adequate tables responds to the availability of financing in each counterpart funding to the municipality based on its ongoing investment projects. programs. Project preparation has included a detailed fiscal analysis which is subject to STN review as a condition for authorizing negotiations. Exchange rate risk may cause Borrowers will have the opportunity to choose a Low municipal local currency debt lending instrument that allows swapping repayments burden to be higher than into local currency. expected. Inexperience of municipalities The project includes specific activities to build the Moderate with the Bank’s financial capacity of the municipalities in financial management. management rules may cause The APL approach and presence of UAP will provide a difficulties in implementation cost-effective manner to build capacity. and pose fiduciary risks. Lack of capacity and The UGP is required to assign at least one procurement Moderate to High* inexperience of municipalities point person who will verify application of Bank with the Bank’s procurement procedures. An appropriate mix of ex-ante and ex-post rules may cause difficulties in reviews by the Bank would be used throughout the life implementation and pose ofthe projects. The APL approach and presence of fiduciary risks. UAP will provide a cost-effective manner to build capacity and share lessons across municipalities. Municipal elections may bring Given that the project will represent the bulk of Moderate in new authorities who do not municipal investment for the next 5 years, the Bank support the project. team will have to maintain an open communication and be responsive to the priorities of the elected mayors. Given that the project responds to the PPA which reflects citizen demands, no major changes in investment priorities are expected. Projects that include Resettlement frameworks conforming to Bank policy Moderate resettlement of families from are being prepared for all projects that need them. environmentally risky areas Land acquisition and community participation will be could experience delays in land carried out in parallel to project design and engineering acquisition and processes of and would be carefully phased to coincide with works community participation. implementation. Investments under Component 2 Given the local economic development component is Moderate fail to lead to sustained the more innovative one, the Bank will pay close increased employment and attention to it during PDMI implementationand link income results to complementarily Bank analytical work on citv comDetitiveness. Little private sector demand for A business plan and partnership agreements will be Moderate technology parks in Santa Maria required to be signed, which specify the contributions and Pelotas of all parties, including the private sector Overall Program- Risk Moderate as high and Rio Grande and Santa Maria as modertae
5. Loadcredit conditions and covenants
19 45. Each operation has met the Bank’s criteria for readiness by resolving all substantive design issues (e.g., the content ofthe operational manual is well advanced). For negotiations the following will be required: (a) law passed by each municipal council to establish the UGP, (b) the finalization and posting on the PDMI website of the Operational Manual containing the following framweworks: Results, Monitoring and Evaluation; Environmental and Social Management; and Resettlement; (c) program letter sent to the Bank with interganecy agreement signed by the five mayors; (d) TOR for the Superior Council, Technical Council and UAP endorsed by all 5 mayors; and (e) activities listed in procurement action plan (Annex 8) are implemented.
46. Loan Covenants include:
0 Within two months of each project effectiveness, the UGP must be fully staffed 0 When at least three ofthe municipal loans have been declared effective, the UAP contract must be established. 0 Business Plans are required for all productive subprojects of Component 2. These include partnership agreements, as needed, for Technology Park and Business Incubator. 0 Relevant resettlement plans in compliance with social and environmental safeguard framework must be submitted for Aroio Cadena in Sta Maria and Orla da Lago dos Patos in Rio Grande.
D, APPRAISAL SUMMARY
1. Economic, financial and fiscal analyses
Economic and financial
47. The proposed activities will provide substantial economic benefits in the long term due to lower transport costs and reduction in travel time in Uruguaiana, Pelotas, Rio Grande and Santa Maria, and to improvements in water supply and sanitation services in Bage and Pelotas. Furthermore, project investments will provide economic benefits due to avoided impacts and real estate valuation in areas of urban upgrading. Component 2 is also expected to provide an increase in employment and income which should have a positive spill-over effect on the local economy.
48. The economic appraisal of the PDMI was divided into two phases targeting: (i) interventions to be implemented during the first 18 months of each project, and (ii)interventions planned for the following 18 months of these projects. The total economic costs and benefits of each of the components were estimated in terms of NPV and IRR. An appraisal period of 20 years was established for evaluating the costs and benefits, with a discount rate of 12% a year.
49. The appraisal results relating to the first phase of the PDMI is covered in Annex 9. Individual project results in the transport sector showed IRR ranging from 17% to 40% and from 13% - 17% for investments in sanitation and solid waste management. All productive projects under Component 2 will have to show positive cash flows to be eligible for financing.
20 50. When project implementation gets underway in each municipality, appraisal studies related to the interventions planned for the second phase of the project will commence. The appraisal methodology for the second phase is detailed in PDMI Operational Manual and municipal staff has been trained in its application.
Fiscal Analysis
51. The State of Rio Grande do Sul faces a very difficult fiscal situation and has the highest level of indebtedness of any state in Brazil. Net consolidated debt was R$ 33.8 billion in December 2006, or 254% of the state’s net current revenue (NCR), well above the ceiling of 200% set in the Fiscal Responsibility Law (FRL). On the other hand, as municipalities in Brazil are independent entities from the federal and state governments, the fiscal situation of RS does not affect the creditworthiness of the municipalities located in the state. As independent entities, they are evaluated individually and therefore their access to credit operations is only conditioned by their own accomplishment of the FRL regulations. Also, as international credit operations require a federal guarantee, the concession of sovereign guarantees for credit operations to municipalities depends only on the federal government.
52. The fiscal situation of the five municipalities included in the PDMI was appraised during program preparation and is considered to be comfortable. The five municipalities have complied with all fiscal requirements established by the Fiscal Responsibility Law (FRL), keeping the key fiscal indicators below the FRL maximum levels. Annex 9 provides a snapshot of the fiscal situation of each municipality.
2. Technical
53. All works to be financed under PDMI will meet the relevant technical norms as mandated by Brazilian legislation. Project preparation included technical studies in each municipality on different types of infrastructure investment: roads and urban transport (in all 5 municipalities); water supply and sanitation (Bage and Pelotas); solid waste management and sanitary landfill siting (Uruguaiana); and upgrading urban settlements located in environmentally protected areas (Santa Maria and Rio Grande). The background studies assessed technical options for designing the most adequate intervention taking into account costs, technical soundness, environmental and social concerns and long-term operations and maintenance. The Bank team reviewed these studies and the detailed municipal investment plans and in some cases worked with the municipalities to develop lower cost alternatives. In particular, modifications were made to the proposed investments, for example: to reduce unaccounted for water and achieve 100% of metering in BagC’s WSS system, water treatment options and site location in Pelotas and optimizations to the Uruguaiana landfill design. Prior to making any investment, each municipality has procedures in place that requires the preparation of a detailed projeto bdsico which lays out all technical specifications and project costs, and these are included in the PDMI Operational Manual.
21 3. Fiduciary
54. A financial management risk assessment was carried out in each municipality in accordance with OP/BP 10.02 and the Financial Management Arrangements in World Bank Financed Investment Operations’ Manual, dated November 3, 2005. The purpose of the assessment was to determine whether the municipal Implementing Agency has or will have by effectiveness acceptable financial management and disbursements arrangements in place to adequately control, manage, account and report about the funds to be allocated to its respective Project. These arrangements include, but are not limited to its capacity to: (a) properly manage and account for all Project’s proceeds, expenditures and transactions, (b) produce timely, accurate and reliable financial statements and reports, including Interim Financial Report (IFRs) for Project Management and other Bank purposes, (c) safeguard the Project’s assets, and (d) disburse Bank funds in the most efficient way, in accordance to applicable Bank rules and procedures.
55. This assessment was carried out in each municipality visited - Pelotas, Santa Maria, Bage, Uruguaiana and Rio Grande and included work sessions with staff from the Secretariats of Planning and of Finance. The conclusion ofthe FM assessment is that the financial management arrangements as set out for these projects satis@ the Bank’s minimum requirements and that financial management arrangements are in place that can provide with reasonable assurance, accurate and timely information on the progress of project implementation. The financial management risk associated with the program has been assessed as high (and the mitigated risk moderate), which is usual for first time borrowers from the Bank Annex 7 describes the generic financial management procedures to be adopted by each municipality and each municipal PAD provides more specificity.
56. A procurement assessment: The capacity of each municipality to implement procurement actions for the PDMI was carried out during project preparation. The assessment reviewed the organizational structures for implementing the project in each of the five municipalities and the interaction between the staff responsible procurement (bidding committees) and the relevant central unit for administration and finance. The bidding committees, the contract and the legal advice departments (Consultoria Juridica) are not familiar with the Bank’s Guidelines, nor the respective methods, procedures, and bidding documents. The overall risk assessment for three municipalities was rated as high and moderate for the two others.
4. Social
Citizen Participation in Settinv Municipal Priorities
57. Project design in each municipality has been largely based on priorities defined in each Municipal Multi-year Plan (Plan0 Plurianual) and corresponding Planos Diretores for the urban areas, which were drawn up between 2003 and 2005. The drawing up of these plans involves numerous consultation processes by the municipal authorities with the population in both urban and rural areas. To ensure consistency in the application of these regular participatory planning processes of each municipality, the Program Operational Manual requires that all Projects be included in the PPA. In addition, during program implementation, stakeholder participation
22 would be sought for the design and implementation of the specific investments that directly effect the beneficiary population. Specific consultations implemented by each municipal government as part ofproject preparation are as follows:
0 In Pelotas a “City Conference” (Congresso da Cidade) was held, in which approximately 400 leaders from governmental and non-governmental organizations participated. The event resulted in the creation of the pillars for municipal planning in urban and rural areas, and the identification of priority investments. A public opinion survey was also carried out to assess the community’s acceptance of the prioritized projects. In drawing up the city’s new Master Plan (Plano Diretor), 17 public forums were held, with an average participation of 200 community leaders and technical specialists in each event. During these forums proposed investments for the Municipal Project were defined.
0 In BagC, a number of community participation activities were carried out to identify priorities, including 14 City Conferences with 660 participants. Contributions to the new Master Plan were generated through 5 public forums (with 280 participants), various community meetings in rural and urban areas, and a Municipal Conference on the environment. These events were fundamental in the identification of problems, objectives, indicators and goals for the Project.
0 In the municipality of Uruguaiana, investments for the local Project were identified during the elaboration of the Multi-Year Plan (Plano Plurianual, PPA), which entailed 34 community meetings with 770 participants and 4 public forums with 325 participants. In order to adapt the outcome to the Master Plan, 2 City Conferences were held with 173 community leaders and representatives from governmental and non-governmental organizations.
0 In Santa Maria all proposed activities to be financed by the project were taken from the Master Plan for Environmental Urban Development (Plano Diretor de Desenvolvimento Urbano Ambiental (PDDUA). The participatory process included 3 17 meetings with about 30,000 participants in the 10 regions and 5 1 “microregions” of the municipality. In addition, 40 public forums were held locally elected officials (CBmara de Vereadores), with an average participation of 150 persons per event. Other participating groups in the identification of Project priorities were monthly meetings of 32 municipal boards, and district boards ofthe 9 rural districts that comprise the rural area ofthe municipality.
Every four years, the population of Rio Grande is invited, through mass media and neighborhood associations, to participate in meetings held at public schools of each region of the municipality (there are 19 total regions). Investment priorities are determined during these meetings, in which the administration and its team of secretaries work with the community. The priority setting process in Rio Grande began with the creation of the first Multi-Year Citizen Plan in 2001, during which 13 meetings were conducted. In 2006, 11 meetings were held. This process is ratified each year, in the public forums under the Budget Directives Law (Lei de Diretrizes Orqamentdrias (LDO).
23 Social Benefits and Impacts
58. The PDMI is expected to have positive impacts on living standards of the population as it aims to improve transport access, quality of basic infrastructure, and promote economic growth in selected municipalities. Basic sanitation, drainage and road paving and rehabilitation works are to be carried out within the existing right of way of well established streets and rural roads and for this reason impacts on the local population are expected to cause temporary reversible impacts consisting mainly of disruption and nuisance during the construction phase. Partial land acquisition is possible, and will follow the guidelines established in the Operational Manual. Potential long-term negative impacts are the result of unplanned growth and increased traffic impacts due to increased speeds and volumes of traffic on improved roads and streets. Technical assistance and training will be provided to municipalities to address these cumulative impacts.
59. The investments that are expected to have the most significant social impacts are the rehabilitation of environmentally degraded areas in Rio Grande and Santa Maria and the closing of the open dump in Uruguaiana. These projects will require the resettlement of slum dwellers currently living in environmental protection and flood prone areas and affect the livelihood of waste pickers currently working or living on the dump. These investments will improve the quality of life of affected population, and careful planning and implementation of a resettlement plan will aim at minimizing and mitigating potential impacts and assist in socio-economic integration of the population. A resettlement framework was prepared and is included in the Operational Manual and will be applied to all relevant projects being prepared during the first year ofprogram implementation. No projects involving resettlement will be implemented during the first year ofthe program.
5. Environment and Safeguard Policies
60. The PDMI includes a series of environmental and social considerations that were developed during preparation, with the objective to ensure socio-environmental sustainability, and compliance with state and municipal environmental regulations as well as World Bank Safeguard policies. A common framework for environmental assessment and management was developed for all municipal projects and forms part ofthe Operational Manual. In addition, many of the infrastructure projects have the direct objective of improving the environmental quality of each municipality.
61. Based on the screening and assessment of the projects included in the PDMI, the program has been rated as a category B environmental rating pursuant to the policies of the World Bank. All of the infrastructure the projects would be expected to trigger the policy on Environmental Assessment (OP 4.01). The following safeguard policies may be triggered depending upon the specific investments in each infrastructure project: (i)Natural Habitats (OP 4-04), (ii)Cultural Property (OP 4.1 l),(iii) Involuntary Resettlement (OP 4.12), and (iv) Safety of Dams (OP 4.37). Each project will be assessed by the responsible municipal secretariat with oversight from the project management unit (UGP) to determine the specific safeguards triggered, the level of analysis required, and the means to fully address risks. The municipality will comply with the requirements of the Operational Manual, the Environmental and Social Management Framework and the Resettlement Framework.
24 6. Policy Exceptions and Readiness
62. All five projects in the PDMI meet the Bank’s readiness standards and are not expected to require any policy exceptions.
25 Annex 1: Country and Sector or Program Background BRAZIL: NOGRANDE DO SUL INTEGRATED MUNICIPAL DEVELOPMENT PROGRAM
The State of Rio Grande do Sul, located in the most southern part of Brazil, has a total population of 10,867,102 inhabitants (6% of the total for Brazil), and with its 281,748.5 km2, occupies 3.32% of the Brazilian territory. The State GDP of nearly US$69,415 million (7.8% of that of Brazil’s) places the State as the fourth national economic power. The GDP per capita has been on the rise in the last few years and is higher than the Brazilian average, reaching US$ 6,400.00 in the year of 2005, while the National average was US$ 4,422.00 in 2004 (Table 1).
Table 1 - Gross Domestic Product, total and per capital. Participation of the State in the National GDP and growth rates in Brazil and in Rio Grande do Sul - 1994/2005
1 2000 I 38,698.88 I 3,773.42 I 4.38 I 3.21 I 7.73 I 500,570.49 I 2,922.53 I 4.4 I 2.8 I
Source: Fundaqao de Economia e Estatistica (FEE)
While being Brazil’s fourth largest economy, the State of Rio Grande do Sul replicates Brazil’s regional economic disparities, by which the country’s northern region lags behind the most developed south. In Rio Grande do Sul, the reverse occurs, as the northern region is the one leading the State economy, while in the southern region, economic growth has been more modest, mainly due to a lower industrialization rate,
The two regions (known as the Southern Half and the Northern Half) are divided by the Jacui and Ibicui Rivers. In the Southern Half, the economy is mostly based on primary sectors, with rice and cattle raising prevailing in medium and large rural properties, while corn and dairy cattle are predominant activities in small properties. In the Northern region, small and medium rural properties prevail and concentrate on production of soy beans, corn, and wheat, in addition to dairy cattle, poultry and swine. Manufacturing industry is concentrated in the Northern region
26 and involves metal-mechanical industry (oriented towards the production of agricultural machinery and appliances), transport, chemical, furniture, apparel, leather footwear and agro- food products. The North is also home of the Port0 Alegre-Caxias Pole which encompasses large urban agglomerations and concentrates a large portion of the State manufacturing production.
Currently the lagging region, the Southern Half has once been a prominent zone. During the middle of the 19th Century, the economic activity in the Southern Region was largely based on the jerked beef industry, mainly consumed in Brazil’s emerging regions mostly by the low- income population and slaves. The jerked beef production, concentrated in the municipality of Pelotas, was supplied by cattle farms located in the neighboring Campanha (Bage) region and exported through the Rio Grande port, hence bringing economic dynamism to the Southern part of the State. Main urban centers developed in the region, as population grew in response to booming businesses and increasing job opportunities, while rural property became more concentrated. During the mid-20th century, the former dynamic regional jerked beef industry faced successive severe crises, due to lack of appropriate technology, problems in adapting more productive cattle breeds in the region, increasing labor costs and labor regulation, as well as strong competition from Uruguayan production. Informality and unemployment have since become big issues in the region. In contrast, the colonial society, located in the Northern region experienced rapid growth and diversification of its agricultural production while also receiving massive European migration. Population growth during the last century reflects the shift of dynamism from the Southern to the Northern part of the state (Table 2).
Table 2 - Total population and percentage share of each Half in the total of the State of Rio Grande do Sul 1890 - 2000
1920 1,142,268 851,100 57.30 42.70 1950 2,755,862 1,408,959 66.17 33.83 1970 4,730,042 2,025,416 70.02 29.98 2000 7,O 12,367 3,169,382 68.87 31.13
The declining Southern Half has never overcome its past economic crisis. More recently, the informal sector has been growing strongly due to the closing down of large manufacturing plants (e.g., food processing) which left behind masses of unemployed workers. A significant number of laid off workers entered the informal sector by engaging in activities such as commerce, handicrafts, and small shops operating in manufacturing and service sectors. These different groups face strong barriers to develop their businesses and move up to the formal economy. Difficulties range from low skills, insufficient training, limited operating scale, weak organization, shortage of capital (operating and investment), and barriers to access new and larger markets, in addition to an unfriendly business environment. Table 3 shows the major difference in per capita income between the poorer northern half and the North.
27 Table 3 - Area, Population (2002), Total GDP (2001) and GDP per capita of the Northern Half and Southern Half ofthe State of Rio Grande do Sul
Source: FEE, 2004.
The municipalities of Bage, Pelotas, Rio Grande, Santa Maria and Uruguaiana are characterized as Hub-Cities of the Southern Half. To a certain extent, the five municipalities present somewhat homogeneous social-economic characteristics. As to the per capita GDP, with exception of the municipality of Rio Grande, the remaining municipalities feature slightly above half of the State average. Among the five, Rio Grande has the highest GDP due to the presence of an important port and manufacturing activities (65.11% of Gross Value Added), such as fertilizers, oil refinery, petro-chemical and food-processing. Economic activities of the other four municipalities - Pelotas, Santa Maria, Bag6 and Uruguaiana - are mostly based on services, fanning and cattle raising, as shown in Table 4.
Table 4 - Population, Total GDP and Gross Value Added ofthe municipalities
As for social indicators, the Human Development Indexes-HDI of the five municipalities compared to the State and rank above the national index. Among the five municipalities, Santa Maria presents the highest indexes, while Uruguaiana ranks lowest for income and education, in addition to showing a longevity index below national average (Table 5).
28 Table 5 - Municipal IDH, Education, Income and Longevity 2000.
As the Hub-Cities of the Southern Half, the five municipalities need strategic interventions to overcome economic decline, enhance their competitiveness and accelerate sustainable economic growth. This would require support to infrastructure, employment and income generation, in addition to institutional capacity building of the municipalities. Consistent with this, a development program (“Rumos 20 15”) formulated by the State Government suggests strengthening Hub-cities as a development strategy, given the economies of scale for service provision and business attraction.
The PDMI is consistent with the State’s development plan and the Bank’s municipal strategy. As it will support the five municipalities to improve management capacity and service provision to their citizen, formulate and implement initiatives to generate jobs and income and provide priority infrastructure services. While supporting these initiatives, PDMI will focus on the longer term development strategy for the municipalities. All in all, PDMI responds to the four thematic areas making up the Bank’s municipal development strategy in Brazil: (a) improving municipal fiscal and administrative management, (b) increasing the competitiveness of the municipality through local economic development, (c) supporting partnerships across municipalities and with others and (d) strengthening municipal capacity to deliver key services.
29 Annex 2: Major Related Programs Financed by the Bank and/or other Agencies BRAZIL: RIO GRANDE DO SUL INTEGRATED MUNICIPAL DEVELOPMENT PROGRAM
I Sector Issues Prajeets Latest Supervision (ISIUICR) Ratings 1mplenientatiori Developnien t Progress Objective Bank Financed Projects I Brazil Municipal BR-PE-089011 Uberaba Municipal S S Development Lending Program APL Program APL Urban and Municipal BR-PE-049265 Recife Urban MS MS Upgrading Project (Prometropole) BR-PE-081436 Bahia Integrated Urban S S Development (Viver Melhor 11) BR-PE-089440 - Brasilia Sustentavel MS MS BR-PE-082328 - Betim Integrated S HS Municipal Project Infrastructure BR-PE-034578 - RS Highway S MS Management Project I Rural BR-PE-043868 - RS Natural Resources S S & Rural Poverty Alleviation Other Development BR- Municipality of Belo Horizonte Agencies DRENURBS (IDB) PROCIDADES (IDB)
BR- Municipality of Port0 Alegre Environmental Rehabilitation (IDB)
30 Annex 3: Results Framework and Monitoring
BRAZIL: RIO GWNDE DO SUL INTEGRATED MUNICIPAL DEVELOPMENT PROGRAM
Program Development Outcome Indicators Use of Outcome Objectives (Indicators will be used as Information relevant in each project) Improve the capacity of the Improved Municipal Management Monitoring, evaluation and municipalities of Bag& Pelotas, Capacity adjustment of each municipality’s Rio Grande, Santa Maria and Number of municipal projects policies, management and programs Uruguaiana to provide institutionalizingimproved evaluation, infrastructure services and social and environmental management employment opportunities for processes in the municipal government their population. of Pelotas Percentage of citizens satisfied with Enhance cross-municipal quicker and more user-friendly access learning and knowledge sharing to client services provided by the of the municipalities municipality participating in the program. Number of good practices or innovations replicated from other municipalities
Increased local economic development opportunities The net percentage increase in formal jobs is higher (or its decrease is lower) among the beneficiaries of the project than in the municipal economy as a whole The net percentage increase in formal firms is higher (or its decrease is lower) among the beneficiaries of the project than in the municipal economy as a whole
Improved Infrastructure Services Coverage, quality and sustainability of water supply, sanitation and drainage services Reduction in travel times in urban and rural areas Reduction in number of people living in environmentally risky and protected areas Satisfaction of population with quality of infrastructure services
31 Intermediate Results Intermediate Results Indicators Use of Intermediate Results (Indicators will be used as relevant in each project) Municipal Capacity Number of municipal administrative Monitoring of project facilities physically and functionally implementation and timely improved and of information systems intervention with corrective implemented or improved measure as needed Number of municipal staff trained Percentage of annual work program delivered on time Income and Employment Number of beneficiaries of training Generation and/or technical assistance Number of micro-credit loans reaching target population Number of productive infrastructure installed Infrastructure Services Physical progress of infrastructure improvements in urban and rural transport, water supply, sanitation and drainage, urban upgrading and environmental recovery Effective community participation and timely implementation of resettlement or other projects that require community participation
Arrangements for results monitoring
Institutional issues and reporting: A monitoring system will be established in each of the municipalities and the results, experiences and lessons learned will be shared across the PDMI participants.
In each municipality, the UGP will be responsible for: (a) monitoring the activities implemented by the Executing Entities (other municipal secretariats or departments); (b) preparing the Monitoring and Evaluation Plan in order to monitor and evaluate the progress and achievements of the various subprojects on the basis of the outcome and impact indicators of the Results Framework; (c) building a database which will supply data, including monitoring indicators, for the different decision-making levels; and (d) preparing technical progress and evaluation reports on the various projects.
The UAP will provide necessary guidance, standardize information collection procedures and assist to compile reports, review pertinent documents and other material in support of the shared actions of the five municipalities. The UAP’s specific functions include the analysis oftechnical reports prepared by the UGPs in order to identify and increase the adoption of good practices; assume a leading role in the ongoing monitoring and evaluation processes of the Program, beginning with the establishment of the baseline; and the compilation and coordination of technical reports for the Federal Government and the World Bank.
32 The following steps will be taken to operationalize the M&E process during project implementation:
(a) Project Launch Seminar A seminar will be carried out at the beginning of project implementation in each municipality to inform the participating entities and project beneficiaries ofthe project objectives, procedures, expected results and monitoring indicators.
(b) Definition of baseline numbers: The baseline for progradproject outcomes and intermediary indicators will be defined by the UAP in coordination with each UGP. As part of this process, to take place during the first 6 months of PDMI initiation, agreement will be reached on procedures, sources of information, database structure and methodology for tracking ofthe subsequent progress indicators.
(c) Day-to-day monitoring and information dissemination of the projects: The monitoring process will commence from the baseline and at the beginning of PDMI execution. Information will be collected on a periodic basis. The relevant information will be disclosed through bulletins, pamphlets, radio, television, program website and a variety of different events for the benefit of the community. Dissemination of information about the project will also assist the generation of knowledge and encourage commitment and social awareness by local people.
(d) Semi-annual reports: The UGP will be responsible for obtaining information from participating municipal secretariats to draw up technical progress reports every six months, with the content as defined in the Operative Manual.
(e) Regular seminars: A number of municipal and regional seminars will be organized to provide information on PDMI progress and to give an opportunity for technical teams, civil society and government to discuss and evaluate PDMI results. These seminars may also be thematic to discuss progress with specific components.
(f) Official evaluations:
The mid-term evaluation will provide details of the progress and results of each project and the program, and evaluate compliance with the objectives. This evaluation will also point to the need for possible adjustments to the Program to ensure its continued efficacy. Furthermore, the evaluation will emphasize the need to comply with the implementation deadlines and identify any areas and components requiring adjustment. Moreover, it will draw attention to any lessons learned that might be useful for guiding actions during the final phase of the program and for the possible incorporation of such lessons into the design offuture projects.
The Final Evaluation at the conclusion of the PDMI will contribute to the Completion Report. It will focus on the same questions and evaluation indicators raised in the mid-term evaluation. The evaluation will seek to identify the impact and sustainability of the results and assess the progress made towards the long-term objectives. The Final Evaluation will also aim to indicate future actions needed for ensuring continued local commitment and awareness in the context of the longer-term development ofthe municipalities.
33 Institutional capacity and data collection Component 1 of the PDMI includes activities to improve the management capacities of the five municipal administrations to, among others, establish mechanisms related to monitoring and evaluation of the actions planned, as well as assess the level ofknowledge sharing across the five municipalities. This component will also assist in the definition of the baseline indicators (through the UAP), and the data sources for obtaining the indicators. In most cases, the data is available in different government sources and needs to be better compiled to facilitate the daily monitoring work. In addition, the component will support the dissemination of project information and the preparation ofprogress and evaluation reports.
34 Annex 4: Detailed Program Description
BRAZIL: RIO GRANDE DO SUL INTEGRATED MUNICIPAL DEVELOPMENT PROGRAM
The detailed description of each project is provided in its respective PAD. Due to the innovative, and somewhat experimental, nature of Component 2, the generic approach being proposed in all 5 municipalities is given more detail below.
Each of the five projects making up PDMI will have the same three components: (a) municipal strengthening, (b) income and employment generation and (c) Infrastructure Service Improvements. A common set of result indicators will be implemented across the five municipalities, although the specific investment plans and activities are customized to meet the respective development plans of each municipality.
Component 1 - Municipal Strengthening
The purpose of this component is to finance activities related to improving municipal capacity to plan, appraise, finance, implement, monitor and evaluate infrastructure and local economic development investments. Introducing World Bank project implementation, fiduciary, social and environmental practices are meant to strengthen municipal capacity in these areas and standardize procedures across all relevant secretariats of the municipal government. In addition, Rio Grande, Santa Maria and Bage have ongoing and more encompassing public sector management improvement programs (PMAT funded by BNDES) focused on improved fiscal management, cadastre and tax collection, and these efforts will be further supported y PDMI. In Bag6 and Pelotas, the municipal governments will also use PDMI resources to improve the overall management oftheir municipal water and sanitations service providers.
Furthermore, to promote learning across the five municipalities and capitalize on the horizontal APL approach of the PDMI, each municipality will include in this component resources for its project management arrangements and to cover its contribution to the cost ofthe UAP.
The types of activities funded under this component include: information systems, consultants, human resource developmenthraining, studies, equipment, office space improvements and incremental operating costs.
Component 2 - Income and Employment Generation
This component was designed based on a careful analysis of the productive potential of each municipality. Four sub-components are proposed:
A. Planning for Local Economic Development
35 B. Improving the Municipal Business Environment C. Support to Informal Businesses D. Innovation and R&D for Higher Value Businesses
A. LED Planning - This subcomponent will focus on enabling municipalities to more effectively promote sustainable growth by devising plans and strategies to build on local productive assets.
Municipal LED Strategy: Local governments in Brazil have often not been instrumental in promoting growth but rather relied on state and federal policies to attract investments and create jobs at the local level. However, both national and international experiences have shown the importance of municipalities devising strategic interventions to effectively promote investment and business development, in participatory and environmentally sustainable ways. The role of the municipal government needs to be clearly identified vis-&vis the other state agencies that promote employment (such as SEBRAE, EMATER, etc), to avoid duplication of effort and ensure complementarities and synergies.
Through this subcomponent, each municipality will prepare a LED strategy based on identification of its productive potential, comparative advantages, competitive niches and possible clusters. The analytical work produced as part of the State Development Plan (Rumos 2015) will contribute to this effort. Expected results would be improved municipal capacity to promote LED and jobs. The strategy will also be used to set targets and indicators to monitor project implementation.
Cluster Development: Through this sub-component, PDMI will finance the preparation of cluster organization and growth strategies; business plans; identification and delivery of demand-driven training and technical assistance; establishment of businesses alliances and private-public partnerships (social capital), provision of selective productive infrastructure and access to finance. Fieldwork done during project preparation pointed out a list of potential clusters such as tourism (Rio Grande), fruits and vegetables (Bage, Pelotas, Uruguaiana, Santa Maria), fishing (Rio Grande), knowledge-based activities (Pelotas and Santa Maria), and recycling (Santa Maria, Uruguaiana, Rio Grande). Expected results would include greater cluster competitiveness and more sustainable jobs.
B. Improving Municipal Business Environment
This subcomponent will identify measures to facilitate business development in the municipalities (administrative streamlining) and promote local entrepreneurship.
Administrative streamlining: Excessive regulation, multitude ofrequirements, high cost of compliance and complex procedures to open, register, operate and close a business has often been a barrier for investment expansion, capital attraction and business growth. PDMI projects have put high priority in streamlining administrative procedures to make it easy to do business in respective municipalities. A general intervention will focus on
36 improving the municipal business environment focusing on reducing time, effort and cost to deal with excessive business regulation and to encourage productive activities to grow and become formal. The starting point for this would be an assessment of municipal laws and regulations that affect cost of doing business (e.g. indicators of entry and exit barriers, required time to register a business, number of required licenses), land use and zoning regulation, municipal tax policy, local policies that affect productive factors (labor, capital, infrastructure, logistics, information, technology), and efficiency of local institutions, including the judiciary. The assessment will also propose measures to address administrative barriers for business development. Expected results include simplification of business registration procedures and requirements to obtain construction permits, both in terms of costs and complexity.
Citizen Entrepreneurship: The public education system in the PDMI municipalities lacks mechanisms to train citizens on how they can identify and build on local economic potential in a sustainable manner, hence creating new productive undertakings, jobs and income-generating activities. This intervention, to be spear-headed in Santa Maria, will support public education programs to incorporate content related to local development potential, entrepreneurial skills, and a context for students to make more informed decisions about opportunities to position themselves in the market economy. The strategy will encompass delivery of training activities for school teachers and students, use of IT for training delivery and for data gathering, preparation of content on local productive assets, environmental resources and related issues, tourism resources, and urban development. Types of activities to be financed include specialized consulting services, improvement of facilities, IT and laboratory equipment in schools and production of printed material for public dissemination. Expected results would be increased awareness of entrepreneurship and creation of new businesses and jobs.
C. Support to Informal Businesses
This subcomponent will focus on assisting informal businesses to become formal, expand operations and enhance profitability.
Access to Micro-credit: Informal businesses often face barriers to access cost-effective and appropriate finance (lack of collateral, high mortality rate, small scale loans etc). Micro-credit initiatives have emerged as a sound solution to finance both working capital and capital investments especially for - often informal - micro-businesses. Given the significant availability of micro-credit lines in Brazil, PDMI will support potential micro- credit clients to have access to such finance. That is, rather than using WB loan money to fund a micro-credit program, the PDMI will enable potential clients to apply and reach micro-credit lines already operating in the market. Initiatives will include public dissemination of micro-credit lines, consulting services to assist in the preparation of simplified business plans, provision of office space and equipment for credit agents to operate, in addition to delivery of training and focused technical assistance to support business development and contribute to reduce operational risk involved in credit provision.
37 During project preparation, municipalities were assisted to identify potential micro-credit programs with which they could coordinate in order to increase access of local informal activities to micro-credit, while also improving impact of credit provision by providing complementary support (e.g., training, technical assistance). The preferred alternative identified is that of CrediAmigo, operated by the Federal Bank of the Northeast (Banco do Nordeste) and partially funded by a Bank loan.
The five municipalities are currently signing an agreement with Banco do Nordeste to allow the former to expand CrediAmigo to the PDMI region. This will be an interesting arrangement as, on the one hand, provision of micro credit will boost PDMI initiatives to support the informal sector, as access to appropriate funding is often a significant constraint faced by informal firms. At the same time, PDMI municipalities will not need to allocate WB loan money to fund a micro credit program. On the other hand, Banco do Nordeste will use this expansion as an entry-point to expand CrediAmigo in Brazil’s South.
In order to have the CrediAmigo solution introduced into the municipalities, the municipal governments have agreed to share part of the initial expansion cost which will include a market survey, adaptation of the control system, support to publicize the program in local communities, office facilities in the five municipalities and initial (first two months) supervision costs. According to the agreement being designed, all funding to be used for CrediAmigo operations will be from Banco do Nordeste which will also assume all commercial risk associated with each micro credit contract. As such, Banco do Nordeste will assume full responsibility for operation analysis and decisions about credit approval. As previously explained, PDMI will complement credit provision with additional training and technical assistance to beneficiaries. Also, as Banco do Nordeste does not have agencies in the South, it will partner with the state-owned bank of Rio Grande do Sul, Banrisul, or another local partner, in order to make micro credit disbursements and collect loan payback from CrediAmigo clients.
Solid Waste Picking and Recycling: Within the support to informal businesses, three municipalities have requested PDMI support to work with some of the poorest members of their cities - the waste pickers. The project will finance interventions aimed at improving the quality of jobs, working conditions and productivity as well as means to increase recycling in the municipality. Investments will focus on construction of recycling facilities, provision of work equipment, training activities, organization, public information campaigns and consulting services. Expected results include improved working and health condition of waste pickers, reduced informality, expanded productivity and income of beneficiaries, in addition to environmental gains due to increased recycling, improved solid waste processing, and reduction of environmental costhmpacts of uncontrolled waste disposal
Provision of Productive Infrastructure: Informal businesses often lack appropriate productive space to operate and are limited to perform their activities in the streets or in other precarious locations. In two of the municipalities (Santa Maria and Pelotas), the project will invest in the upgrading of appropriate commercial facilities to enable street
38 vendors to improve business operation, reach a larger client base, achieve economies of scale and face greater incentives to become organized. In addition, such facilities would decrease urban congestion, especially as urban commercial areas are currently taken over by invasive informal businesses. Beneficiaries of such facilities are expected to bear the rental cost, which should cover both investment pay-back and administrative expenses. The management of these facilities would be overseen by the municipal government, though run by a private entity, with representation of beneficiaries. A required business plan will indicate cost recovery strategy, financial feasibility, economic impacts, as well as management arrangements.
Sub-component D. Technology Parks and R&D
Under this sub-component the PDMI will support two municipalities to improve their access to the knowledge economy by strengthening local potential for R&D efforts, both from universities and private sector firms. Initiatives involve establishment of technology parks, associated with business incubators and R&D facilities.
Technology Park: In Pelotas and Santa Maria, there are significant resources to develop high value-added innovative products and services, considering the availability of highly qualified human capital (due to the universities), sound research capabilities and technology development. Areas of expertise range from biotechnology, metal-mechanics and IT in Santa Maria; and industrial design, IT, medical instruments and biotechnology in Pelotas.
In the two municipalities, the PDMI will finance the implementation of technology parks to host knowledge-based innovative firms, including incubated ones. The vision is that agglomeration of knowledge-based companies will tend to produce synergies and collective initiatives, thus fostering information sharing, shared projects and further innovation. Parks would be a joint initiative of private firms, municipalities, universities and R&D institutions operating at the local level. Facilities would be managed on a cost recovery-basis by a private entity to be created by beneficiaries, under municipal supervision. Financing ofthe technology parks would be contingent on presenting a solid business plan approved by the Bank.
Internet Access: As a complementary initiative, some of the municipal governments plan to expand IT infrastructure to connect all municipal agencies to the internet, in order to reduce cost, improve municipal government efficiency and service provision. The network will also allow for establishment of internet kiosks to encourage the local population, including the informal business community to access and use internet service.
Expected outcomes of the investment are expansion of knowledge-based businesses and jobs and increased value-addedhncome generated in the municipality.
39 Component 3: Infrastructure Service Improvements
63. This component will comprise the bulk of the investment of the PDMI (between 65 and 75% of each project cost). The objective will be to assist the municipalities improve their ability to provide infrastructure services in an efficient, environmentally sound and sustainable manner. Careful analysis was undertaken during project preparation to help the municipalities consolidate their infrastructure investments in a few priority areas to maximize impact. The specific investments were also prioritized for their impact on: improving access to services by the poor, contributing to the municipal growth agenda and/or for environmental benefits. The following infrastructure investments are included in this component:
A. Rehabilitation or pavement of existing urban streets and rural roads, including rehabilitation of small bridges, improvements to public transport services, bicycle paths, landscaping and long-term maintenance strategies. While this will be the priority investment area for Pelotas, the other four municipalities also include investments in urban transport. Rio Grande, Pelotas and Santa Maria also include road improvements in rural areas. The selected urban roads either provide public transport access to low-income neighborhoods or are important transport access corridors for the city. The rural road investments are focused on the core network that provides access to rural areas.
B. Water supply, sanitation and drainage systems in urban and rural areas. Expanding the WSS system and improving performance of the municipal WSS department (DAEB in Bage and SANEP in Pelotas) will be the priority investments in these two municipalities. In Uruguaiana and Santa Maria, where CORSAN, the State WSS Company, has a concession, targeted investments will be made by CORSAN to complement the urban upgrading efforts being made in specific neighborhoods. These types of investments will increase access to services by the poor and also have positive impacts on water resource protection and the environment.
C. Treatment and final disposal of solid waste; waste recycling centers and support to waste packers. The priority investment in Uruguaiana is to close its unsanitary landfill, open a new one, improve the overall management of its solid waste and address livelihoods of the waste-pickers. Actions to support waste- pickers and recycling will also be supported by Component 2 in Rio Grande and Santa Maria. These investments are important in addressing key environmental and social problems in these cities.
D. Urban upgrading, housing and social improvements in poor neighborhoods, and areas of environmental risk. Rio Grande and Santa Maria will make large investments in critical environmental areas that have been invaded by informal settlers over the past few years. The municipalities have been working to adopt the more holistic and integrated approach of the World Bank to slum upgrading that focuses on the socio-economic reintegration of affected families, a
40 participatory and fair resettlement policy and immediate physical use of the space in the environmentally protected areas where slums have been removed. The rehabilitation of these areas is very important in protecting key environmental resources in these cities and developing policies to better address problems with informal settlements.
41 Annex 5: Program Costs
BRAZIL: FUO GRANDE DO SUL INTEGRATED MUNICIPAL DEVELOPMENT PROGRAM
ProiectY Costs bv MuniciDalitv and ComDonent
Bag6 1. Municipal Strengthening 0.52 0.55 1.09 2. Income and Employment Generation 0.28 0.04 0.32 3. Infrastructure Service Improvements 5.73 3.79 9.52 4. Unallocated 0.07 0.00 0.07 Total Bag6 6.60 4.40 11.00 Pelotas 1. Municipal Strengthening 1.74 2.57 4.3 1 2. Income and Employment Generation 1.64 0.54 2.18 3. Infrastructure Service Improvements 14.77 9.49 24.26 4. Unallocated 0.75 0.00 0.75
18.90 12.60 31.50 Total Pelotas Rio Grande 1. Municipal Strengthening 1.18 1.89 3.07 (Phase 1&2) 2. Income and Employment Generation 0.59 0.24 0.83 3. Infrastructure Service Improvements 13.52 8.26 21.78 4. Unallocated 0.6 1 0.00 0.61 Total Rio Grande 15.90 IO. 60 26.50 Santa Maria 1. Municipal Strengthening 1.62 0.80 2.42 2. Income and Employment Generation 3.69 0.86 4.55 3. Infrastructure Service Improvements 7.39 7.59 14.98 4. Unallocated 1.25 0.00 1.25 Total Santa Maria 13.95 9.25 23.20 Uruguaiana 1. Municipal Strengthening 0.65 0.19 0.84 2. Income and Employment Generation 0.63 0.56 1.19 3. Infrastructure Service Improvements 5.47 3.84 9.3 1 4. Unallocated 0.08 0.00 0.08 Total Uruguaiana 6.83 4.59 11.42
*.I _. 'Total Project 62.18 41.44 103.62
42 Bag6 11.00 o..oo 1 1.oo Pelotas 3 1.48 o..oo 3 1.48 Rio Grande (Phase 1 & 2) 26.50 o..oo 26.50 Santa Maria 23.20 o..oo 23.20 Uruguaiana 11.42 o..oo 11.42 Total Project 103.60 0.00 103.60
43 Annex 6: Implementation Arrangements
BRAZIL: RIO GRANDE DO SUL INTEGRATED MUNICIPAL DEVELOPMENT PROGRAM
Overall Responsibility for Project Implementation
The Municipal Governments of Bag6, Pelotas, Rio Grande, Santa Maria and Uruguaiana will be the borrowers and responsible for authorizing expenditures and implementing their respective projects. In addition, a coordination structure will be put in place across the five municipalities to provide a mechanism to undertake activities linked to the programmatic aspects of the PDMI. Each municipality will sign a loan agreement with the World Bank with a guarantee from the Federal Government of Brazil. Each municipality will work through its existing administrative structure and use the project to strengthen its capacity in the areas of project management, financial management, procurement, and application of social and environmental safeguards. The generic organizational structure and responsibilities for project implementation in each municipality are described in this annex, with site specific details included in each municipal PAD.
Program Coordination To respond to the programmatic and learning nature of the PDMI, a program coordination structure is being put in place across the five municipalities. The structure will include the Superior Council, the Technical Council, the Unidade de Articulaqtio do Programa (UAP) and the 5 Municipal Project Implementing Agencies. The Superior and Technical Councils will be established through an inter-agency agreement signed by the mayors ofthe five municipalities.
Figure 1 - PDMI Structure .--_------__ -. I Superior ‘t1 I \ Council ,I “----I----=
Uruguaiana Rio Grande Santa Maria
44 Project Implementation Agencies
(a) The Superior Council The Superior Council (Conselho Superior), PDMI’s top decision-making body, will consist of the Mayors of the five municipalities. The Presidency of the Superior Council will be exercised by one of the Mayors on a rotating basis for a term of one year. An Ordinary Meeting of the Superior Council will take place on a quarterly basis and Extraordinary Meetings will be called whenever necessary. The responsibilities of the Superior Council are to: (i)serve as a forum for ensuring integration of the program across the five municipalities; (ii)approve the Annual Program Progress Reports and any modifications to the Operational Manual; (iii)oversee the Program as a whole and suggest ways in which it might be improved.
(b) Technical Council The Technical Council (Conselho TCcnico) will consist of 10 members: the Secretaries of the Municipal Planning Secretariats (or equivalent as nominated by the Mayor) and the Project Coordinators of each municipality. The head of this council will be exercised by the Technical Council representative from the same municipality as the President of the Superior Council. Meetings of the Technical Council will take place on a bimonthly basis and Extraordinary Meetings will be called whenever necessary. The Technical Council will provide management support and undertake the following tasks: (i)serve as a forum for discussing PDMI strategies and results; (ii)act as a liaison body, ensuring that the five municipalities develop common actions between them and share experience; (iii)select and supervise the UAP, (iv) evaluate PDMI performance and identify any problems arising in the course of implementation; (v) review the physical-financial progress indicators and the joint Annual Progress Reports; (vi) advise the Superior Council on the adjustments and modifications needed in the Operational Manual (subject to Bank approval); and (vii) define common requirements for technical assistance and support the UAP in contracting and supervising consultants.
(c) Program Articulation Unit The Project Articulation Unit (UAP) will be responsible primarily for capacity building and technical assistance to the municipal teams and for liaising between the five municipalities on a range of issues related to exchange of experiences, information management and program monitoring. The UAP will help municipalities standardize monitoring activities and provide necessary guidance, compile reports, review pertinent documents and other material in support ofthe shared actions ofthe five municipalities.
The UAP will be a small team, comprising a Coordinator and one or two additional members, and will be staffed by the employees of a company or members of an institution contracted by the five municipalities specifically for this purpose. The UAP will be responsible for the following functions:
0 Training ofthe municipal teams, with particular emphasis on fiduciary procedures (financial management and procurement) and the application of World Bank safeguards;
45 Provision of support for planning activities and to oversee execution of the series of actions common to the five municipalities; Pro-actively encourage information exchanges across the municipalities by constructing and managing the PDMI database and website, encouraging virtually knowledge sharing and organizing periodic meetings. Coordination of the monitoring and evaluation processes of the PDMI, beginning ’ \, with the establishment of the base line; Compilation and coordination of technical and financial reports for the Federal Government and the World Bank and identification of good practices; Provision of liaison support to the various events organized to disseminate and promote the PDMI; Facilitation and liaison support for World Bank missions.
The costs of this UAP are anticipated to be $150,000 per year and will be shared equally across the five municipalities. Each municipality has therefore included $30,000 in its project budget to cover its portion of the cost of the UAP. The UAP would start functioning as soon as three municipal projects have become effective. In the event less than two municipalities start project implementation prior to the establishment of the UAP, they would be expected to use their $30,000 budget allocation to acquire technical assistance, as needed, and collect baseline date for project M&E. In the case that the UAP starts to function with only 3 municipalities, its geographic coverage would be scaled back to work only in the municipalities actively engaged in the PDMI so that the cost would not exceed the $30,000 cost ceiling contribution established per municipality.
Organization of the Municipality for Project Implementation Each municipality involved in the PDMI has a distinctive organizational structure consisting of Municipal Secretariats and divisions or departments. The municipal government has nominated one Secretariat as the lead agency for project implementation, and this is where the Unidade Gestora do Projeto (UGP) will be housed. In Pelotas, Uruguaiana and Rio Grande, the Secretary of Planning will have this function, in Bag6 it will be the Secretariat of Government and Santa Maria the Escritorio da Cidade.
Figure 1 - Typical Project Implementation Arrangement Mayor’s Office I
Finance Planning Works Agriculture Environment Development Secretariat Secretariat Secretariat Secretariat Secretariat Secretariat fIJGP1
46 The following is a list of the Municipal Secretariats that will be directly involved in the project (the Secretariats are known by different titles in each of the municipalities and their specific role is detailed in each PAD):
(a) The Municipal Finance Secretariat will play an important role in the various bidding processes and financial arrangements in general and will be responsible for analyzing the reports submitted by the firms contracted, for releasing resources in accordance with the relevant physical-financial schedules and for the inspectiodsupervision ofthe proper application of resources, etc.
(b) The Municipal Planning Secretariat will be in charge of the general planning and coordination of the implementation of project actions and will be responsible for contributing to the preparation of the Annual Operational Plan (AOP) and all progress reports and for approving the release of counterpart funds, jointly with the Finance Secretariat.
(c) The Municipal Works Secretariat will be directly involved in the preparation, analysis and approval of the executive projects of the different infrastructure works, in the selection of firms, in the supervision and inspection ofworks and related services, and in the analysis and approval of technical reports submitted by the firms undertaking the works.
(d) The Secretariat for Agriculture will play a key role in all the activities connected with rural development and income generation in rural areas and will be responsible for coordinating and supervising the technical assistance activities.
(e) The Environmental Secretariat will be responsible for coordinating the environmental and social screening processes, provision of environmental licensing and implementing the activities connected with environmental improvement and environmental education activities in general.
(0 The Secretariat for Economic Development will be charged mainly with the activities concerned with employment, income generation and social assistance.
(g) The Municipal Water and Sanitation Department: in Pelotas this Secretariat is known as SANEP and in Bag& DAEB. In these two municipalities the WSS utility will be responsible for investments in this sector and implementing related institutional strengthening programs.
The Municipal Secretariats will implement their respective activities in close liaison with the UGP and will forge a partnership with relevant state bodies, as required.
The State Agencies that could have a role in project implementation are listed below:
(a) CORSAN - the State Water and Sanitation Company is responsible for WSS service provision in Rio Grande, Santa Maria and Uruguaiana. CORSAN will finance works
47 included in the project scope as counterpart funds in Santa Maria and Uruguaiana and the municipalities will enter into agreements (conv2nios) specifying responsibilities.
(b) CEEE - the State Electrical Energy Company will provide guidance and be responsible for ensuring compliance with the technical norms governing the installation of public lighting systems. In Pelotas they will contribute 100% counterpart funding to measures to improve energy efficiency in SANEP. They will not manage project funds.
(c) EMATER - the State Development, Technical Assistance and Rural Extension Association has ongoing cooperation agreements with Municipal Secretariats for Agriculture and Environment. This same framework agreement will guide the coordination that will be used for implementing productive projects related to the production, processing and marketing of agricultural products in all five municipalities. EMATER will not manage any project funds.
(d) FEPAM - the State Environmental Foundation, in addition to providing guidance to the municipalities on all the aspects related to environmental legislation, will be responsible for issuing the corresponding permits and licenses for the execution of any activities liable to have negative environmental impacts, corresponding to state-level approval. FEPAM will also evaluate and approve any proposed mitigating measures and inspect the execution of the works pending their authorization and release. FEPAM will not manage any project funds.
When the actions of the project require the various bodies to undertake tasks which are likely to exceed their attributions and routine obligations, inter-agency agreements (conv2nios) will be signed between these entities and the Municipal Governments in order to guarantee execution of the activities according to plan prior to beginning implementation.
Project Coordination Unit (Unidades de Gestfio do Projeto)
Each municipality will put in place either a fully-integrated or partially-integrated project coordination unit (Unidade de Gestao do Projeto - UGP), based in an existing municipal structure (usually the Secretariat of Planning) and duly accountable to it. The UGP will be staffed with qualified municipal civil servants seconded from other secretariats with limited support from consultants, as needed. The justification of using an UGP is to address the coordination challenges of a multi-sectoral project that involves numerous municipal agencies for its implementation. The UGP will coordinate project implementation across the different municipal secretariats responsible for implementation, while ensuring compliance with WB fiduciary and safeguard norms (which are quite complex for small municipalities to implement). Care will be taken to make sure the institutional strengthening objectives of the other municipal secretariats are achieved and they build capacity to implement the improved project management, fiduciary, environmental and social processes being introduced through the PDMI. To this effect, suitable progress indicators will be developed and tracked in the M&E system.
48 The specific functions of the UGP vary slightly in each municipality but can be itemized as follows:
0 Prepare and coordinate the execution of the municipal project implementation and procurements plans in conjunction with respective implementing municipal secretariats or departments. The procurements and implementation plans must be updated whenever necessary and at least once a year; 0 Ensure the correct application by the Implementing Secretariats of all of the procedures included in the PDMI Operational Manual, with a special emphasis on the fiduciary, environmental and social aspects; 0 Sequence and coordinate the execution of the works, services and procurement of goods set forth in the Project Implementation Plan; 0 Prepare the Monitoring and Evaluation Plan in order to track progress and achievements of the outcome and impact indicators included in the Results Matrix; 0 Construct a database which will supply data for the different decision-making levels, starting with the baseline indicators; 0 Prepare technical and financial progress reports on the various project activities; 0 Be responsible for financial management, payment approval and generation of the respective financial reports in order to ensure that all expenditure conforms to World Bank fiduciary and eligibility criteria. The financial management report system will be interlinked with the normal procedures employed by the municipality; 0 Maximize the utilization of existing funds and resources and seek new funding sources; 0 Promote the dissemination of information on the project and its results to the community in general; 0 Provide information as required to the Conselho Tecnico and Conselho Superior.
Profile of the team comprising the UGP
The UGP has a slightly different composition in each municipality and will be made up by staff seconded from other municipal departments and consultants, as needed. The staff would be expected to work on the project on a full-time basis.
General Coordinator: with experience of at least five years in project management and with recognized skills in bringing together and leading multidisciplinary teams. The General Coordinator will be a full-time member ofthe UGP and respond to the Secretary of Planning (or equivalent). He or she will be directly responsible for the handling of information to guarantee the proper functioning ofthe monitoring exercises and database in the interests of the efficient management of the project.
Infrastructure Coordinator: an experienced professional engineer or architect with knowledge of the planning and execution of urban and general infrastructure projects. This coordinator will need to demonstrate an ability to supervise technical works in the
49 specific area(s), to evaluate works and projects from a technical perspective, to analyze technical reports and to issue technical opinions as necessary. The Infrastructure Coordinator will have to become complete conversant in WB procurement procedures. The Coordinator will work closely with the Works Departments, SANEP, DAEB and other relevant Municipal Secretariats.
Economic Development Coordinator: a professional with proven experience of economic development projects covering activities related to employment enhancement and income-producing opportunities. This coordinator will be required to be familiar with the on-the-ground situation in the municipalities, of the various opportunities available and of the production systems covered by the project. S/he will also be required to demonstrate an ability to supervise and evaluate projects, analyze and approve technical reports and issue opinions. The coordinator will work closely with the Secretariats for Economic Development and Rural Development.
Environmental Coordinator: a professional with proven training and experience in the environmental area. This adviser will be familiar with the legislation and procedures involved in environmental licensing and assessment in the municipality. The coordinator will also be required to have experience in the preparation and analysis of projects, technical reports and the issuing of technical opinions. The Coordinator will work integrally with the relevant Municipal Secretariats dealing with environmental issues.
Social Assistant: a professional in the social assistance area, fully familiar with family resettlement policies, with experience in the preparation and analysis of projects, technical reports and be competent to issue opinions. The social assistant will also manage the communication and public outreach strategy ofthe project.
Administrative-Financial Adviser: this adviser will be a professional in the area of administration, with experience and knowledge of administrative and financial procedures, rules and regulations, national legislation and other relevant procedures. Acknowledge of physical-financial follow-up systems related to projects is also a key requirement. This position will be one ofutmost trust and will need to work closely with the Municipal Secretariat of Finance.
An Information Specialist: a professional specialist in Information and Communication Management. Knowledge of information technology and familiarity with the internet and computer programs such as Word and Excel are required for this position, as well as proven skills in administrative organization and procedures in general.
A Procurement Coordinator: Some UGPs will have a full-time staff member dedicated solely to procurement, whereas in other municipalities one of the Technical Coordinators will assume this function.
50 Annex 7: Financial Management and Disbursement Arrangements
BRAZIL: RIO GRANDE DO SUL INTEGRATED MUNICIPAL DEVELOPMENT PROGRAM
Background: The Rio Grande do Sul Integrated Municipal Development Program consists of parallel projects being implemented concurrently in five municipalities under an overall programmatic approach. PDMI supports the development of each municipality in the area of institutional strengthening, local economic development and improved infrastructure services. The program will be supported through loan agreements signed between the WB and each municipality, with a sovereign guarantee provided by the Federal Government of Brazil. Project preparation is currently being financed by a Japanese PHRD Grant. Financial Management Assessment: A financial management risk assessment of the PDMI was carried out in each municipality in accordance with OP/BP 10.02 and the Financial Management Practices in World Bank Financed Investment Operations’ Manual, dated November 3, 2005. The purpose of the assessment was to determine whether the IA (Implementing Agency) has acceptable financial management and disbursements arrangements in place to adequately control, manage, account and report about the funds to be allocated to this Project. These arrangements include, but are not limited to its capacity to: (a) properly manage and account for all Project’s proceeds, expenditures and transactions, (b) produce timely, accurate and reliable financial statements and reports, including Interim Financial Report (IFRs) for Project Management and other Bank purposes, (c) safeguard the Project’s assets, and (d) disburse Bank funds in the most efficient way, in accordance to applicable Bank rules and procedures. This assessment included work sessions locally with the UGP staff and with Secretary ofPlanning and Budget at municipal level.
The conclusion of the FM assessment is that the financial management arrangements as set out for this Program satisfy the Bank’s minimum requirements and that financial management arrangements in place can provide with reasonable assurance, accurate and timely information on the progress of project implementation. The financial management risk associated with the PDMI has been assessed as high, which is usual for first time borrowers from the Bank. However, with the implementation of the listed mediation actions in each municipality, the remedial risk is rated as Moderate. There are no FM- related conditions ofeffectiveness.
An action plan for each municipality has been agreed, and once implemented, will enable the respective municipalities to provide relevant, timely and reliable information of each project and for the program. Given the program design, and seeking effective and efficient Program FM management, each borrower has its own specific FM arrangements, and it is not possible to consolidate the FM information in a safely manner, so it was agreed that the format of the IFRs, internal control reviews, operational manual, external auditing TOR and supervision schedule will follow the same design with some adjustments specified at the respective loan agreements.
51 A central unit will be created in Port0 Alegre under the name of “Unidade de ArticulaqBo de Programa” (Program Articulation’s Unit- UAP) and will have the main responsibilities for: (a) technical assistance to the Project Implementation Units (UGP); (b) coordination across the five municipalities to facilities World Bank supervision; and (c) information sharing and support to evaluation activities to ensure program quality and effectiveness. The Project Articulation Unit will have no role in Project implementation.
Implementing entities: Each project forming part ofthe program will be implemented by a municipality of the state of Rio Grande do Sul. The municipalities are Bage, Santa Maria, Uruguaiana, Pelotas and Rio Grande. Each municipality will put in place a Project Management Unit (Unidade de GestBo do Projeto - UGP) established by Laws of Executive Decrees from local Mayors, not later than 60 days after negotiations. The UGP will have jurisdiction for coordination ofthe execution ofplans and decisions made in the program framework as well as capacity to carry out the Financial Management responsibilities ofthe project. Civil servants will be relocated under this decree to the UGP and will be complemented with consultants as needed. The UGP will be responsible for all FM and disbursement aspects related to the implementation ofthe municipal project. Each UGP will prepare IFRs (Interim Financial Report) for reporting purposes and annual financial statements for auditing.
The Operational Manual will be prepared by negotiations and include details of financial management implementation arrangements to be followed by all municipalities, including but not limited to: organizational charts, flow of funds charts, staffing arrangements, functions and routines, sample of disbursements forms and IFRs, internal control specificities, TOR for the external auditors. The Operational Manual should be kept updated during project implementation.
Staffing: The UGP will be responsible for all FM and disbursement aspects related to the implementation of the project, in coordination with the respective Secretariats which the UGP is subordinated. The Financial Management staff will consist of a financial coordinator (accountant, usually seconded from the Secretariat in charge of overseeing financial management matters under the proiect, with financial management functions undertaken through UGP’s procedures) and an administrative assistant. As it is foreseen that a large number of commitments will be required, an extra person may be necessary. The Financial Management Assessment confirmed that each municipality had staff capable to respond to project implementation.
Financial Management System: Financial management systems currently in place within each municipality include budgeting, accounting and payments. Each payment for the respective municipal project will be managed through municipal systems and specific cost centers will be opened for the project’s accounting in each system which facilitates project expenditure reporting. All systems were developed to comply with the National Regulation regarding budget execution’ and to provide financial information of project execution by components and source of funds.The system in place in all municipalities
I Law 4320164 , acceptable for the Bank.
52 meets the minimum requirements for a sound monitoring of project implementation in terms ofreporting framework.
Reporting: The UGP will prepare quarterly IFRs for management and reporting purposes. The following IFRs will be issued:
1. IFR 1A - Source and application of funds by cost category as per Project Agreement, 2. IFR 1B - Statement ofInvestments by Components and activities,
All IFRs will be in local currency (R$), and expenditures figures will be stated by quarter and accumulated for the project. IFRs will be submitted to the Bank up to 45 days after the closing of each quarter. Project-end IFRs will be used as the project’s financial statements for external auditing purposes. In addition to IFRs each municipality will be responsible for producing physical implementation progress, procurement and contracting reporting. The contents and the formats of the reports have been discussed within each municipality. Each UGP will also provide annual financial statements for auditing purposes that reflect the activities of the operation supported by the Bank loan, prepared in accordance with accounting standards acceptable to the Bank.
The UAP will not have the role to produce any consolidated IFR or technical report as required by the Loan Agreement. However, since it will have an information sharing profile, it will be responsible for providing data to all municipalities for the evaluation of the implementation of the program.
Internal audit: Currently each municipality has an internal control department that has an operational internal audit function in place. It will assist in project implementation, by preparing and forwarding to the Bank its’ yearly project audit review by the end of each calendar year This will be used as a Financial Management Tool which jointly with the audit report and the IFRs will provide information to mitigate associtated risks.This is described in more detail in each municipal PAD.
External audit: External audit will follow Bank’s new audit policy and guidelines issued by the FMSB on June 30, 2003. Project’s accounts and Financial Statements will be audited by an independent audit firm, selected from a pre-approved short list of three to six candidates, and under Terms of Reference previously reviewed and approved by the Bank. It is recommended that the hiring process starts right after the signature of the Loan. The auditors report will express a single opinion on Projects’ financial statements which would include the Designated Account, IFRs and SOEs, and a management letter identifying any internal control weaknesses and areas of improvement, and a note on contractual clauses. Terms of reference for the audit will also cover all retroactive financing and should be included in the Operational Manual. The scope of the audit TOR should cover but not be limited to: (i)Fully reviewing of the financail management arrangements included in this PAD, Operational Manual and loan agreements, as well as in any other official Bank documentation, (ii)Proper use of FM systems, (iii)the IFRs issued at the end of Project implementation period with cumulative figures, (iv) Internal
53 Control arrangements; and (v) timely availability of counterpart funds. The auditors’ report must be submitted to the World Bank no later than six months after the end of each calendar year. Each municipality will be responsible for hiring an external audit firm.
The external auditing costs are included in each ofthe project costs as Bank funding, thus allowing for the use of Bank’s guidelines - QCBS - Quality and Cost based. If the audit cost will be financed by the counterpart funds only it would be used local law to contract the firms (lei 8/666/93).
Flow of funds and disbursement: A designated account in dollars will be opened at a commercial Bank in each municipality and an operational account in R$ will be opened in a commercial bank. Payments for works, goods and services will be made directly from this account. Disbursements will be transactions based. SOEs will be prepared on basis of payments*.actually made through bank payment orders issued by Finance Secretariat under instructions from the UGP. Reports will be drawn from the municipalities FM systems. SOEs thresholds will be confirmed with Procurement thresholds for consulting services and for goods and works.
Supervision: During the first year financial management supervision will take place every six months and include: (a) reviewing of quarterly IFRs; (b) reviewing of the auditor’s report and follow-up of issues raised by auditors in the management letter, as appropriate; (c) participation in project supervision, following up on any financial reporting and disbursement issues, (d) following up on internal control audit report, (e) following up on respective action plans. By the end of the mission, a financial management supervion report should be prepared, discussed with the borrowers and forwarded to the project team leader together with the ISR.
for eligible payments to suppliers and contractors for subproject expenditures similar to other expenditures
54 Annex 8: Procurement Arrangements BRAZIL: RIO GRANDE DO SUL INTEGRATED MUNICIPAL DEVELOPMENT PROGRAM
A) General
Procurement for the PDMI will be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits”, published in May 2004 and revised in October 2006; and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers’’ published in May 2004 and revised in October 2006); and the provisions stipulated in the Loan Agreement. The general description of various items under different expenditure categories is described below. For each contract to be financed by the respective municipal Loan, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team 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.
ICB Procurement of Goods, Works, and Non-consulting Services
ICB procurement would be done in accordance with Sections Iand I1 of the Guidelines, using the Bank’s Standard Bidding Documents (SBD). All ICBs would be subject to the Bank’s prior review.
Procurement of Works: Works to be procured under the PDMI include: urban upgrading, road improvements and paving, water supply, drainage, sewage, construction of houses and small buildings. ICB for the procurement of works is mandatory for all contracts estimated to cost the equivalent of US$10,000,000 or more. The SEAIN’s SBD agreed with the Bank for all NCBs shall apply. For small value civil works, shopping would be used.
Procurement of Goods: Goods procured under the PDMI would include IT equipment and software, vehicles, office equipment and furniture, materials for producing asphalt, water meters, and equipment for small productive projects. ICB for the procurement of goods and non-consulting services is mandatory for all contracts estimated to cost the equivalent of US$500,000 or more. The SEAIN’s SBD agreed with the Bank for all NCBs shall apply. For small value goods, and procurement of construction materials to carry out small improvement civil works on roads, office buildings, etc. will follow shopping procedures but the actual construction services will be done by Prefeituras themselves. Procurement of goods may also be carried out in accordance with the method known as ‘preglio eletr6nico”, as provided in the Brazil’s Pregilo Law No. 10,520, of July 17,
55 2002, under “COMPRASNET”, the procurement portal of the Federal Government, for contracts estimated to cost less than $500,000. Scattered printing services, small technical services, computer equipment and peripherals, office equipment and furniture, sundry items, air tickets and logistics for training events and workshops have been identified to be procured under this method.
Procurement of non-consulting services: Non-consulting services procured under these projects would include logistics and transportation for seminars and workshops, printing services, training material, video production, communication campaigns, and telecommunication costs. The procurement would be done using (a) Bank’s SBD for all ICB and (b) SEAIN’s SBD agreed with the Bank. For small value services, shopping procedures and/or prega“o eletrsnico may be used.
Selection of Consultants: In each municipality, the project would finance consultant services by firms and individuals to conduct the following tasks: support to project implementation; studies on local economic development strategies, cluster business plans, masterplans for WSS, drainage, solid waste management and transport organization; engineering designs and construction supervision; design and implementation of training and facilitation of access to micro-credit programs and productive infrastructure for small and medium enterprises; infrastructure management studies; environmental management plans and social work with resettled families. The selection and employment of consultants will be carried out under arrangements acceptable to the Bank using the Bank’s Standard Forms and Contracts. Short lists of consultants for services estimated to cost less than $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. Consulting services estimated to cost US$200,000 or more would follow QCBS procedures. Single source selection may be used, with the Bank’s prior approval, and in exceptional circumstances, as provided for in the Guidelines and as approved by the Bank.
During project preparation, the municipalities have identified their intention in engaging local universities, government research institutions and public training institutions in specific technical assistance and capacity building activities. The identified institutions and the activities for which they will be contracted are listed in each separate Mini PAD. The institutions may be contracted using the single-source selection method in accordance with the Bank’s Guidelines.
Project Incremental Operating Costs: Identification of suppliers of sundry items and minor services will be made through market inquiries in the local market as in shopping. Once the suppliers are established (generally those offering the lowest cost of lists of items), a purchase order will be issued using regular administrative procedures of each municipality. The market inquiries will be updated periodically. Internal travel may be procured through administrative procedures acceptable to the Bank.
56 B) Assessment of the agency's capacity to implement procurement The PDMI consists of five projects, each one implemented by the municipal government of Bag& Pelotas, Rio Grande, Santa Maria or Uruguaiana. Each municipality is responsible for implementing its respective project, the coordination of which will be done with support by a management unit (Unidade de GestZio do Projeto - UGP), located in an existing municipal structure (Secretariat of Planning or Secretariat of Administration). The UGP will plan, implement, supervise and monitor all procurement tasks carried out by the respective ComissZio de LicitaqZio under the project. In addition, the integrity of the programmatic approach will be guaranteed through the establishment of a high level coordination body and technical council comprising representatives of the all five municipalities as well as through the joint hiring of a Unidade de ArticulaqBo do Program (UAP).
Procurement activities will be coordinated and overseen out by the UGPs within their Secretariats (Planning and/or Administration). The UGPs will second or employ staff to work on procurement, who will take on the function of procurement coordinator and will be the point person in ensuring that procurement planning, implementation and monitoring is done in accordance to approved Bank procedures stipulated in the Loan agreement and PDMI Operational Manual. If necessary, due to the complexity and volume of procurement, an assistant would be added. In addition, a procurement specialist with experience in Bank-financed contracts will be hired for the UAP, and will be responsible for training, and quality enhancement of the work carried out by the procurement coordinators in each participating municipality. The UAP procurement specialist can be hired as an ad hoc consultant to work mainly on specific complex contracts or on a full-time basis (Activity 2 ofthe Action Plan).
The overall risk assessment for three municipalities (Bage, Pelotas and Uruguaiana) is rated as high and two municipalities (Rio Grande and Santa Maria) is rated average. Remedial actions have been identified in the attached Action Plan, and these were to be made effective in each municipality, to mitigate procurement risks
The key issues and risks concerning the procurement component for implementation of the projects have been identified and are summarized below:
Procurement Cycle Management: The technical teams for each project will be located in their respective Municipal Secretariats and supervised by UGP. Once the technical documents are ready, the relevant Municipal Secretariat supported by the UGP and/or bidding committee (Comiss8es de Licitaqaes), prepares the bidding documents. The Municipalities do not have standard bidding documents for each procurement method, with the exception of Rio Grande. None of the bidding committees in the municipalities report that they are currently involved in procurement planning, but rather work in response to demand. For PDMI implementation, the Comiss8es de LicitaqGes and the UGP staff will therefore have to be trained in preparing procurement plans.
57 0 Support and Control Systems: Only Rio Grande, and perhaps Santa Maria, has adequate information systems that can easily be adapted to produce PMRs and procurement reports. In any case, the ‘adaptation’ and/or improvement of all municipal systems will be required.
Record-keeping: The team noted that the availability, quality, security and completeness of procurement records and files do not meet good standards, with the exception of Rio Grande. All other bidding committees suffer from a lack of space and cabinets to file procurement documentation in an orderly manner. Activities 3 and 4 of the Action Plan list the required actions in this respect.
0 Procurement Information System: There is a need to upgrade the existing client Information Systems Activity in order to include a module for reporting the procurement plan and other procurement actions reflected in Activity 5 of the Action Plan.
Staffing: Each bidding committee of the five municipalities has full-time staff. The teams are knowledgeable on procurement but none have any experience with Bank-financed contracts. Also, the UGP does not have yet the necessary human and equipment resources to carry out procurement for the proposed project. (refer to Activity 2 of the Action Plan) Furthermore, Activity 3 of the Action Plan foresees the availability of required equipment for the procurement staff. The UGP will need to assign a responsible person to monitor and supervise the procurement management system (Activity 5 of the Action Plan).
To compensate for the increased ICB/NCB thresholds from the Bank’s regulations for high risk agency, the following measures would be taken to overcome the identified risks:
Activity No. Action Plan Timeframe 1 Include in the PDMI Operations Manual the design of the Before appraisal entire procurement cycle and arrangements including clearances and approvals and description of the roles of all participant agencies. This document forms part of the Loan Agreement
2 (i) UGP to second or employ staff to work with Before effectiveness procurement to work as procurement coordinator;
3 Make available equipment for the procurement staff of Before effectiveness UGP, and Comissdes de Licitacdes including: (a) computer
58 equipment with internet access; (b) printer; (c) necessary software; (d) office furniture and file cabinets
4 Provide an ample office space for the Comissdes de Before effectiveness Licitaqdes and the procurement staff at the UGP, and a reserved area for the bidding opening ceremonies. The office spaces should consider the privacy that any bidding committee required.
Finalize the procurement plan for at least the first eighteen Before negotiations months of project implementation and put in place a computerized procurement management system that shall be able to produce reports, including the procurement plan.
WB to train of UGP staff on Bank-procurement policies. After effectiveness
C) Procurement Plan
The implementing municipalities are preparing their procurement plans for the activities to be carried out during the first 18 months of PDMI implementation. Upon completion, these plans will be approved by the Bank and filed in the project files, and will also be available in the PDMI database and in the Bank’s external website. The procurement plans should consist of: (i)goods, works and non-consulting services, including contract packaging, applicable procedures and process scheduling; and (ii)a consultant and training provider’s selection process plan for the projects’ training and consultant services, including contract packaging, applicable procedures, and selection criteria. The procurement and consultant selection process plans will be updated periodically, and shall be submitted to the Bank in the first quarter of December of each year. Such updating shall include the (i)list of contracts completed, under execution, under procurement, to be procured in the upcoming calendar semester and, tentatively in the subsequent semester; (ii)costs of completed and under execution contracts, estimated costs for upcoming contracts; (iii)schedule of bidding; and (iv) particular methods of procurement of goods, works and non-consulting services or selection of consultants in accordance to a format agreed with the Bank. The working instructions shall be detailed in the Operational Manual indicating the standard bidding documents and request for proposals to be used, the samples for reporting on procurement, forms of contract, timetables, model of TOR and any other relevant information related to procurement for each particular operation.
The Procurement Plan is required to reflect the actual project implementation needs and improvements in institutional capacity. It is expected that the procurement plan will be approved and will be part of the clearance of the final package before each project negotiation (Activity 5).
D) Procurement Implementation
59 Procurement Reviews: The Bank's review of selection of consultants will be in accordance with Appendix 1 of the Guidelines for Selection and Employment of Consultants and the provisions stipulated in the Loan Agreement. The size of the sample for post-review will be 1 .in 5 in all cases. This ratio may be adjusted during project implementation depending on the performance of the municipalities and the results of the reviews. The procurement supervision plan should recommend that independent post reviews of procurement be carried out, if appropriate, giving the number and scope of such reviews, and propose whether the supervision plan should include special missions for procurement supervision at critical points of project implementation. In order to mitigate the high risk of this proposed project, besides the post reviews, a yearly procurement audit will be required.
Prior Review. The Bank's regulations establish that a high risk agency should not have thresholds exceeding $250,000 for goods, $1 million for works, $ 250,000 for consulting services with firms and $50k with individual consultants. This assessment proposes the the following thresholds for prior review by the Bank. In all cases of single-source selection (contracts with firms or with individual consultants) the Bank should give the "no objection" to the proposed assignment.
Table 8.1: Thresholds Summary
Expenditure Contract value Procurement category threshold method Contracts subject to prior review (US$ thousands) I Works > 10,000 ICB All processes >500 <10,000 NCB First one and all processes above $1,000,000 GOO Shopping First three processes Goods >500 ICB All processes > 100 GOO NCB First one and all processes above $250,000 >loo QCBSI QBSI LCS/ All processes Consulting CQS (filTlS) 60 Advertising. A General Procurement Notice for hiring of consultant services, and the ICB for goods and works should be published in the United Nations Development Business-UNDB and dgMarket. Specific Procurement Notices and Request for Expressions of Interest would be advertised in accordance with the provisions of the Guidelines. E) Frequency of Procurement Supervision In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Municipalities has recommended twice a year supervision missions to visit the field to carry out post-reviews of procurement actions. Also, a yearly an independent procurement audit will be required. Ex-Post Reviews: All bidding processes regardless of their value are subject to ex-post procurement review. All documentation included but not limited to: terms of reference, bidding documents and request for proposals, bids or proposal received, correspondence on all bids either prior or following ofaward of contract and any subsequent amendments should be maintained until at least two years following the closing ofthe projects. The Bank's review of selection of consultants will be in accordance with Appendix 1 of the Guidelines for Selection and Employment of Consultants and the provisions stipulated in the Loan Agreement. Consultant contract documents to be reviewed will include TORS, shortlists, evaluation reports, and contract forms. A review process similar to individual consultants, will apply to training and workshops. Attachment 1 Details of the Procurement Arrangement involvinn international competition. 1. Consulting Services Ex peetcd Estimated He\ iew Uesvription of Selection Proposals cost Coni m ents Assignment Submission Muniripality Nu, (US$) (prior / post) Datu -...... -.--.-I....----.--. _I.I___ ..^I.._ . ^_I...^...^__ ...... " .. . Bage NIA NIA NIA NIA NIA NIA NIA Pelotas 01 Plano Diretor de 200,000. QCBS Prior 21 Sep 07 NIA Drenagem Rio Grande NIA NIA NIA NIA NIA NIA NIA Santa Maria 01 Plano Diretor de 3 10,000, QCBS Prior 15 Nov 07 Mobilidade Urbana Urueuaiana NIA NIA NIA NIA NIA NIA NIA (a) All consultancy services estimated to cost above $100,000 per contract, all individual consultancy services estimated to cost above $50,000 per contract and all Single Source selection ofconsultants (firms) would be subject to prior review by the Bank. 61 (b) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than $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. 62 Annex 9: Economic, Financial and Fiscal Analysis BRAZIL: RIO GRANDE DO SUL INTEGRATED MUNICIPAL DEVELOPMENT PROGRAM 1 - INTRODUCTION The economic appraisal of the Integrated Municipal Development Program is divided into two phases targeting: (i)interventions to be implemented during the first 18 months of each project and (ii)interventions planned for the following 18 months of these projects. The appraisal relating to the first phase of the PDMI is covered by the present document. When project implementation gets underway in each municipality, appraisal studies related to the interventions planned for the second phase of the project will commence. The appraisal methodology for the second phase is detailed in PDMI Operational Manual and municipal staff trained in its application. In early December 2006 a training course on Economic Appraisal was held in the city of Santa Maria, attended by two technical staff members from each of the municipal prefectures. The aim of the training session was to upgrade the skills of the permanent technical staff employed in the prefectures in order to enable them to develop activities concerned with the economic appraisal of social projects. In addition to training in the theoretical aspects ofthe methods normally employed in economic appraisal, a case study was also presented to the participants, together with a presentation of the Highway Design and Maintenance Standards Model (HDM) and a point analysis of each of interventions proposed for the five cities. 2. BENEFIT OF PDMI 2.1. POPULATION The number ofpeople expected to benefit from the interventions to be undertaken are: Municipality Population (in 1000s) Pelotas 335 Rio Grande 193 Santa Maria 258 Uruguaiana 132 Bage 120 Source: FEE - 2004. 63 2.2. MAIN BENEFITS EXPECTED The principal identified benefits include the following: (i)Greater efficiency and efficacy of public services provided to the population by the municipal administrations; (ii)Upgrading of urban space in order to provide better facilities for the population in terms ofaccess to services, commercial facilities, tourism and leisure amenities; (iii)Improved road access and upgrading ofwater resources in rural areas; (iv) Restructuring of the micro economy as a result of skills upgrading, provision of financial resources, modernization of agricultural ands other production systems, with incentives being provided for new methods of production, including technical innovations through the introduction of new production techniques and by attracting and creating technology-based firms; (v) Rehabilitation of degraded ecosystems and the establishment of better mechanisms and processes for managing water, sewerage and solid waste in order to ensure improved sanitary conditions for the population. 3. ECONOMIC BENEFITS The economic analysis of each of the project components was based upon an analysis of benefits and incremental costs reflecting the principle governing maximum social return on the investments. In other words, the Present Value of the total benefits generated by the Project should be greater than the Present Value of all the costs employed for its implementation and subsequent functioning (assuming an identical discounted rate for both). The total economic costs and benefits of each of the components was estimated and the calculations involved the following indicators: w Net Present Value (NPV) w Internal Rate of Economic Return (IRR) An appraisal period of 20 years was established for evaluating the costs and benefits, with a discount rate of 12% a year. 64 3.1 METHODS ADOPTED Component 3: Infrastructure Service Improvements Road Upgrading All municipalities have included investments in road upgrading in their projects. The Highway Design and Maintenance Standards Model (HDM) was adopted as the basis for analyzing the feasibility of these road improvements. The HDM I11 version was employed, based on a 20-year period and the related strategies involved in construction, surfacing and post-works operation. Information about traffic flows was obtained on the basis of volumetric traffic counts carried out in the relevant municipalities. The counts were undertaken at three different sampling sites. The traffic study aimed to determine the volume and types of traffic, both current and future, for the projects under consideration. The HDM model produces an economic appraisal on the basis of a comparative analysis of costs between the present "Without Project" situation and a future "With Project" situation. Processing the HDM model produced the feasibility indicators. The savings arising from vehicle operating costs (VOC) are one of the principal sources of economic benefit. Operating costs per unit of distance are calculated on the basis of the types of vehicles covering the distances - light vehicle, light and heavy trucks, bus, long bus and articulated bus. The operating costs of vehicles were determined on the basis of the Vehicle Operating Costs methodology (VOC-HDM) designed by the World Bank. The types ofvehicles used in the HDM model are the following: b Automobile; b Pickup truck; b Bus; b Light truck; b Medium truck; b Heavy truck; b Trailer and semi-trailer. The benefits arising from reductions in travel costs were incorporated in the analyses. Travel costs consist of two components - the vehicle operating costs (VOC) and journey time costs (JTC). These are the most direct benefits and are comparatively easy to quantify. Although other benefits, such as the price appreciation of property and the accelerated development of a region, can flow from a road improvement project in addition to these direct benefits, these were not the concern ofthis particular analysis. In order to estimate average daily traffic volumes (AADT), a 24-hour volumetric count, undertaken by the respective Municipal Transport Secretariats, was used as a reference 65 threshold to provide the volume expansion factors. In the course of the traffic study it was considered relevant to determine the inflow/outflow capacities and to calculate the end-user service levels of different stretches of road, taking into consideration the current situation and the introduction of the improvements proposed to benefit the existing infrastructure. In order to understand the importance of these calculations it is worth highlighting that the appraisal identified the bottlenecks in the road segments studied and made an analysis of the effects of these on service levels. This appraisal was in conformity with the guidelines and methodology recommended in the Highway Capacity Manual (HCM)3. It was necessary to define the rate of growth for each type of vehicle in the classification scheme utilized. The results of economic analysis normally are less sensitive to the future growth oftraffic than for initial volumes and diverted traffic. During the analysis of the research data it was apparent that motorcycle traffic had increased substantially on all the routes, with motorcyclists obviously aware of the advantages of greater mobility at lower cost in terms of fuel. It was also apparent that the number of bicycles used had also grown significantly, although less than in the case of motorcycles. While the use of bicycles has grown steadily and consistently the road systems ofthe targeted cities are not designed to absorb this mode oftransport and ensure the safety of cyclists. The volume distribution over the peak hours was fairly uniform: the volume of traffic recorded over 15 minute intervals at times of peak traffic flow remained practically constant. The method recommended by the Highway Capacity Manual was adopted for analyzing the capacity of the road system. This consisted of determining the maximum possible rate of flow on a section of road during a particular period under prevailing road and traffic conditions, taking into account traffic control elementddevices. Determining the capacity and service level4 of the components of the road system was a fundamental step towards evaluating the impacts of traffic congestion. Precautions were taken to avoid incorporating benefits arising from traffic that exceeded the capacity of the routes studied. The cost and execution timeframes of the interventions were obtained on the basis of the physical-financial chronogram provided by each municipality. The following costs were taken into account: construction costs, operating costs of the vehicles and the journey time costs ofpassengers. The maintenance policy considered for the period following the execution of the interventions covered the following: patching, routine conservation (cleaning, signaling HIGHWAY CAPACITY MANUAL - published by the Highway Research Board, USA. 4 Service Level - a qualitative measure which describes the service provided to drivers using a particular road or route. The measure consists of six different bands, from A to F, where A is the “best” and F is the “most critical” (representing total congestion). 66 and conservation of works of art) and repaving stretches 15 years after completion of the civil works program. The average distribution of the benefits consisted of gains obtained from the reduction of operating costs of the vehicle fleet and gains obtained from the reduction of journey times. The basic data inputs were collated for the group of five cities, as can be seen from the following table: Basic Data Driver-Hour (US%) Economic 1,85 3,68 2,63 2,63 2,63 3,42 Conversion Factor 0,90 0,90 0,90 0,90 0,90 0,90 15,04 15,04 27,74 27,74 27,74 27,74 27,74 Hourly Cost Of Market Maintenance (US%) Economic 14,44 14,44 26,35 26,35 26,35 26,35 26,35 Conversion Factor 0,96 0,96 0,95 0,95 0,95 0,95 0,95 11,6l 4,15 3,36 1,78 1,78 1,78 Passenger Market 1,78 Hour (US%) Economic 6,39 3,20 1,28 1,14 1,14 1,14 1,14 Conversion Factor 0,55 0,77 0,38 0,64 0,64 0,64 0,64 Rate Of Benefit (YO) 12 12 12 12 12 12 12 I,27 Gasoline Market (US%/L ) Economic 0,76 Conversion Factor 0,60 0,86 Diesel Market 0,65 (US%IL) Economic Conversion Factor 0,75 Market 4,09 Lubricants 3,40 (US%/L) Economic Conversion Factor 0,83 Features Of Vehicles Gross Weight 1,030 1,800 12,300 5,600 14,800 20,800 34,700 Axel Equivalence Factors 0,60 0,05 1,50 4,05 9,4? Axles / Vehicle 2 2 2 2 2 3 5 Tyres Vehicle 4 4 6 6 6 IO 18 PassengersNehicle 1,80 0,90 17,90 0,80 0,80 0,40 0,40 Vehicle Usage Useful Life (1000 Krn ) 234 390 960 500 715 925 925 Service Life (Years) 7 8 IO 9 9 IO 6 Annual Krn 33,429 48,750 96,000 55,556 79,444 92,500 154 167 Hours Used Annually 760 2,120 2,400 1,462 2,563 2,984 3,504 67 Water Supply and Sanitation Investments in water supply and sanitation improvements will be undertaken in Pelotas and Bage, which have municipal water departments responsible for service delivery, and in specific neighborhoods as part of urban upgrading projects in Santa Maria and Uruguaiana. As part of project preparation, the economic appraisal of the several projects was undertaken as follows: Water supply system in the rural area of Pelotas: the following benefits were considered: 0 The tariff revenue generated as the result of implementation ofthe system; 0 The reduction of hospital admissions in the medical posts of the region as well as a reduction of the costs involved in purchasing medicines following the introduction ofthe treated water supply; 0 The reduction of odontological consultations and related costs. Sewerage system in urban Pelotas: the following were considered as benefits: The tariff revenue generated as the result of implementation of the systems proposed; 0 The reduction ofhospital admissions as well as ofthe cost of medicines following the introduction ofcollection and treatment of sewerage; 0 Price appreciation of properties in the region according to the criteria used by the property rating valuation roll (IPTU). Drainage System in Uruguaiana: The benefits considered were those arising from property price appreciation in the region following the introduction of flood control measures, taking as a reference the valuation ofIPTU currently in force in the city. Component 2: Generation of Employment and Income The aim of the different actions under this component is to increase the profitability of local economies by upgrading micro businesses, encouraging the creation of new innovative technology-based firms and seeking new income-generating opportunities. In this respect, the appraisal methodology dealt with the business viability and sustainability over the medium to long-term based upon a feasibility analysis that was focused on a business plan for each ofthe actions proposed, starting with the planning of a cash flow mechanism. An incremental cash flow plan was determined based on the incremental income and expenditure arising from the implementation of the various activities. 68 Santa Maria The following were considered to be benefits in the appraisal ofthis Commercial Center: 0 Receipts generated by leasing the spacedstalls and the monthly income raised from the condominium charges; 0 Receipts generated by letting publicity space inside the Commercial Centre. Uruguaiana 0 Support for rural producers: the additional income generated for rural producers was considered as a benefit in this component. 0 Solid wastes: the benefit was considered to be the generation of income from marketing recycled products. 4. ECONOMIC COSTS Market prices were converted to reflect the social values on the basis of economic prices. The economic costs correspond to the value to the community ofthe resources needed to develop a project. This value corresponds to the market price that inputs used by the project would have if these were not subject to distortions such as taxes or subsidies. All the costs ofthe PDMI components were included in the analysis, including the urban infrastructure activities, institutional strengthening and the support provided for management and supervision ofthe works, projects and other complementary actions. Conversion factors were applied in the conversion of market prices to economic prices. The factors used in the economic appraisal study undertaken under the aegis of the Sanitation Sector Modernization Project (PMSS-11) funded by the IBRD were adopted for this purpose. These are presented below: CONVERSION FACTOR Standard 0.94 Skilled labor 0.81 Unskilled labor 0.46 Brazilian and imported materials 0.88 Brazilian and imported equipments 0.80 Chemical products 0.83 Electrical energy 0.97 The standard conversion factor (SCF) was applied to land, materials, equipment, chemical and other products. For the application ofthese factors, the investments and costs ofoperation, administration and maintenance necessary for the proposed interventions to provide the desired benefits 69 were disaggregated into skilled labor, unskilled labor, materials and equipment and BDI. In the specific case of operating costs, the costs involved in electrical energy were also highlighted. 5. RESULTS OF THE COST BENEFIT ANALYSIS The present analysis focused on the interventions planned for the first 18 months of PDMI implementation and the results are presented below. Subsequent interventions will be appraised by municipal staff using the methods described in the Operational Manual. Paving roads in Industrial District 5.766.000 42.16 Av. Leopoldo Brodi 2.472.000 22.64 Av. Salgado Filho 3.294.000 49.48 Paving and Signing 37.557.000 28.30 Rua Pe. Anchieta I 1.273.000 I 25.19 Rua Ssio Paulo I 1.244.000 1 35.21 I Rua Armando Famndes I 1.266.000 I 37.56 I Rua Almirante Barroso I 2.1 18,000 I 40.48 Rua Marechal Deodoro I 2.949.000 1 37.17 I Rua Dom Pedro I1 I 1.663.000 I 20.96 1 Rua Santos Dumont 1.232.000 19.31 Rua Caetano Gotuzzo 1.203.000 33.14 Rua Volunthrio da Phtria 1.2 19.000 36.49 70 Lot 4 (Dr. Romano, Silveira Calheca e Dr. Cassiano) 1.214.000 27.67 Lot 5 (General Abreu e Lima, Dr. F. Ferrari, M. Mendonpa e Hitta Porres) 1.372.000 23.54 Treatment 2.293.000 29.18 Urbanistic upgrading of Orla 1S70.527 37.30 Urban Mobility Project - PRO-MOB 374.838 38.65 Maintenance and improvements of rural roads 1.879.000 18.22 Construction of Water Supply System 154.504 34.43 Construction of Water Supply System - Rural Area 169.128 ] 15.93 Santa Maria 1.799.692 29.78 Component 2 Commercial Center 729.916 29.56 Component 3 Upgrading of public roads 1.069.776 29.81 TOTAL 65.338.533 29.24 The analysis of the proposed interventions under Component 2 for the cities of Umguaiana and Santa Maria was based on the sustainability of the business using the planned incremental income and expenditure flow. 5.1 APPRAISAL METHODOLOGY 2ND PHASE The following appraisal methodologies will be applied to future year projects: 1st 2nd phase phase Appraisal methodolopy 71 3.3.3. Preservation of the Atlantic Forest and containment of erosion x Contingent appraisal Rin Grande furniture Santa Maria I 3.1. Urban immovements I I I I 3.1.1 Establishment of urbanized plots and housing units x Contingent appraisal 3.1.22 Upgrading of public roads and urban firniture X HDM 3.2. Rural immovements 3.2.1. Construction of water supply systems in the rural area I I x I Contingent appraisal 3.3. Environmental improvement 3.3.1 Integrated management of urban solid wastes X Sustainability 3.3.2. Laying down sewerage facilities in low income Contingent appraisal neighborhoods X 3.3.3. Construction of storm water gallery x Contingent appraisal Bag6 72 3.1. Urban improvements 3.1.1.2 Upgrading of public roads and urban fbrniture HDM 3.1.2 Extension and restructuring of the water supply system Contingent appraisal 3.2. Rural improvements 3.2.1. Maintenance and improvement of rural roads HDM 3.3. Environmental improvement 3.3.1. Extension of the sewerage system Contingent appraisal 6. FINANCIAL ANALYSIS The main objective of the financial analysis is to investigate strategies and propose efficient mechanisms to ensure the financial sustainability of the projects, taking account the potential for generating incremental resources. The financial appraisal considered the incremental income and expenditure arising from Project implementation. The task involved detecting the capacity for cost recovery of the interventions by identifying the specific financial inputs arising from each component. It is important to note the set of variables comprising the financial equation of the Project: the implementation of sustainable infrastructure, the constrained investment capacity of the public sector and financial limitations of beneficiaries to pay taxes and user charges. Sustainability of the water and sanitation investments will recover by tariffs while other urban and transport improvements will be covered by municipal tax revenues. Component 1 of the project is helping the municipalities update cadastres, modernize tax collection processes and review property taxes (IPTU) which in many cases need to be increased to reflect the higher level of services provided. 7. ANALYSIS OF SENSITIVITY AND RISK The variables considered in the economic appraisal can present some degree of uncertainty, which makes it important to be aware ofthe influence that some of them can have on the returns from the Project. These variables, based on the assumptions at the time of the analysis, could undergo alterations at the time of actual implementation and puts the expected return at risk. In these circumstances, by first identifying the visible variables that are likely to have the greatest influence on NPV and IRR, it is possible to achieve greater control over them with a view to consolidating the desired results. Crystal Ball software was employed in order to increase the precision of the economic analysis by incorporating real world uncertainties. With this software it is possible to measure the extent of the various risks and the effects on the project, modeling a probability distribution for each risk variable and the final result. Based on a Monte Carlo simulation of 1000 trials, the model recalculates the results of the economic analysis by changing all the principal risk variables at the same time. 73 With the probabilistic distribution, providing information for deciding between the variables possessing different degrees of risk, it was possible to calculate the chances of the Project becoming unviable. In the light of the above, we simulated the impact of the investments on the IRR on the entire project, the results ofwhich are as follows: Investments + IRR In the event ofa variation of more or less than 1O%, the IRR would remain at above 12%, as demonstrated in the following illustrations. Forecast: TIETOTAL PROJETO 1.000Trials Frequency Chart 992 Eisplapl I 13, m/o 21,4!% 3q 6wo 44 27% 74 Trend chart 55, Wh Benefits + IRR In the event of a variation of more or less than lo%, the IRR would remain at above 12%, as demonstrated n the following illustrations. I Forecast: TIRE TOTAL PFQJETO 1.ooO Trials Frequency Chart 989 Displa)ed 1- 29 I 20,l Ph 28,Wh XO1% I 75 8. FINAL CONSIDERATIONS The economic benefits generated are extremely significant. All the indicators analyzed presented levels of certainty that confirm the robustness of the values obtained. The general conclusion is that the PDMI will continue to present positive and robust viability indicators even if suffers variations in the principal premises (investments and benefits) utilized. Fiscal Analvsis Rio Grande do Sul faces a very difficult fiscal situation and it has the highest level of indebtedness of any state in Brazil. Net consolidated debt was R$ 33.8 billion in December 2006, or 254% ofthe state's net current revenue (NCR), well above the ceiling of 200% set in the Fiscal Responsibility Law (FRL). Other FRL indicators, as debt service and personnel expenditures to net current revenue ratios are also above the FRL limits. On the other hand, as municipalities in Brazil are independent entities from the federal and state governments, the fiscal situation of Rio Grande do Sul does not affect the creditworthiness of the municipalities located in the state. As independent entities, they are evaluated individually and therefore their access to credit operations is only conditioned by their own accomplishment of the FRL regulations. Also, as international credit operations require a federal guarantee, the concession of sovereign guarantees for 76 credit operations to municipalities depends on the federal government acceptance to concede these guarantees and not on the state government The fiscal situation of the five municipalities could be considered as comfortable. The five municipalities have complied with all fiscal requirements established by the Fiscal Responsibility Law (FRL), keeping the key fiscal indicators below the FRL maximum levels. In addition, since 2004 most of the municipalities have generated positive primary and current fiscal balances which indicate reasonable debt repayment capacity. The continuity of the good fiscal performances would guarantee the ability to finance investment needs and the counterpart contributions to the loan from the World Bank, without put under risk their fiscal health and to comply with the Fiscal Responsibility Law obligations. In terms of indebtedness, with the exception of Pelotas, the municipalities’ indebtedness ratios are far below the Fiscal Responsibility Law ceiling of 120% ofnet current revenue. Therefore, four municipalities have a large room for further indebtedness. In the case of Pelotas, while this ratio is relatively high and could bring some difficulties in the approval of the National Treasury Secretariat (STN), it fell strongly, from 89% in 2005 to 80% ofnet current revenue in 2006. Other FRL indicators are well below the legal limits: credit operations have not surpassed 5 percent of net current revenues (against the FRL ceiling of 16 percent of the net current revenue); given the low indebtedness, debt services have fluctuated around 6 percent (against the FRL ceiling of 11.5 percent of the net current revenue). The average of personnel expenditures has been 50 percent (against the FRL ceiling for personnel expenditures of 60 per~ent)~. Bage, Santa Maria and Pelotas have been able to generate positive and significant primary and current account balances, to finance its investment expenditures and to cover part of its financial obligations. Therefore, in terms of repayment capacity the three municipalities have considerable debt repayment capacity. On the other side, Rio Grande and Uruguaiana have obtained mixed results in the last three years which suggest the need for guaranteeing continuity in the fiscal discipline efforts to enhance their debt repayment capacity. Despite being below the FRL ceiling, personnel expenditures constitute the major source of risk and rigidity for municipal finances. A small increase of personnel expenditures would put under risk FRL compliance and reduce the municipalities’ ability to generate positive primary and current balances. In particular, social security obligations would exert strong pressure on municipal finances. This indicates the need for a stricter control The FFU requirements for disaggregated personnel expenditures by Executive and legislative branches have been also accomplished. 77 over personnel expenditures in the future to compensate the expected increase in social security obligations6. Actually, a good part of municipal debts consists in social contributions in arrears to the National Social Security Institute that were not paid by municipal indirect administration entities. 78 Annex 10: Safeguard Policy Issues BRAZIL: RIO GRANDE DO SUL INTEGRATED MUNICIPAL DEVELOPMENT PROGRAM Introduction This annex summarizes the key issues related to the Bank’s environmental and social safeguard policies triggered by the program and projects in each municipality and explains how these issues have been or are proposed to be addressed in the program. Each project in the program consists ofthe following components: Component 1 - Municipal Strengthening (about 13% program total, $13M): this component will focus on improving the capacity of the municipal government in fiscal management, strategic planning and budgeting, project management (including safeguard aspects), delivery of selected infrastructure services, promote income generation and cross-municipal partnerships and knowledge exchange. No physical infrastructure investments are proposed under this component, except for some in-situ improvements in networks and equipment. Component 2: Income and Emplovment Generation (about 18% ofprogram total, $18M). This component would support initiatives to generate employment and income in both urban and rural areas. Special emphasis is given to direct project interventions to benefit the poor (such as facilitating access to micro-credit), but support will also be provided to address key obstacles to growth faced by the larger and/or with greater potential productive sectors. The potential environmental and social impacts ofthis component are related to the construction and enhancement of physical space for street vendors and technology parks and indirectly to the promotion of economic development and productivity in selected sectors. Component 3 : Infrastructure Service Improvements (about 70% of program total, $70M) will assist the municipalities improve their ability to provide priority and selected infrastructure services to all inhabitants in their jurisdiction in an efficient and sustainable manner within the framework of a longer term development strategy. The following infrastructure investment are included in this component: (i)rehabilitation or pavement of existing street and rural roads, including rehabilitation of small bridges and maintenance services; (ii)water supply and sanitation systems, drainage systems and treatment and final disposal of solid waste; (iii)urban upgrading, housing and social improvements in poor neighborhoods; and (iv) rehabilitation of environmental protections and flood prone areas. 79 Environmental and Social Assessment The program is expected to have positive environmental and social impacts in the long- run, since it aims at rehabilitating environmentally degraded areas and improving the quality of sanitation services, public transport and non-motorized transport systems. The proposed works under the road projects will follow the alignment of existing roads and right-of-ways and alternatives will be sought to prevent potential impacts, especially to avoid involuntary resettlements. The project will incorporate strategies to increase safety and incentives to reduce air pollution. The project will also address population at risk living in flood plains and along the shoreline of urban lakes and rivers. The recovery of these environmental protection areas will improve environmental sustainability and quality of life ofthe affected population. The main direct impacts are expected to occur during construction and cause localized negative environmental impacts. Such impacts are expected to consist essentially of noise, vibration, dust, and traffic disruption. Additional negative impacts during construction will occur due to haulage and final disposal of materials. Most of these impacts can be mitigated by proper designs and environmental and social manuals that have to be followed. During project preparation, environmental screening was undertaken for all investments that will be financed during the first 18 months of the project. City governments were involved in the screening of proposed investments. Given the interrelation between the social end environmental aspects, both dimensions were integrated into a comprehensive approach and municipal team consisting of environmental staff and social workers were trained to do the environmental screening of project investments and assess the needs for further environmental assessments. A consultant coordinated and supported the environmental and social assessment and screening process. An independent consultancy was contracted to prepare environmental assessments of the largest interventions in selected municipalities. The following projects were subject to a comprehensive assessment: (i)the environmental rehabilitation and social integration of informal settlement at Henrique Pancada in Rio Grande; (ii) the environmental rehabilitation and social integration of informal settlement in the flood plain of the Arroio Cadena in Santa Maria, (iii)the construction of a water drainage system in Uruguaiana. Another consultancy prepared an assessment ofthe integrated management of solid waste in Uruguaiana, focusing on final disposal alternatives. These studies included proposed measures to prevent, minimize and mitigate potential impact. During the first year of project implementation, a detailed strategy will be prepared with the cities for the environmental rehabilitation of these areas and socio-economic integration of affected population. During project preparation, meetings were organized with local communities and environmental and social staff from municipalities to assess local concerns and develop mitigation plans. Other municipal departments responsible for road safety, environmental 80 management and social issues were consulted as well. Before start of the works, public consultations will be held with affected population and information will be available at the municipalities and on a Project website. During project preparation, the screening of the different project sites confirmed that no indigenous people are living in the project area and a letter was received from FUNAI (the National Foundation for Indigenous People), confirming the non-existence of indigenous groups in the 5 municipalities. In Bage and Pelotas, existing dams will be used for the supply ofwater systems which will be expanded with project support. Preliminary screening was done on the dams and an evaluation ofthe safety ofthese dams has been contracted, with TOR approved by the Bank. Approval by the Bank ofthe final report of the specialized consultants will be a condition for contracting the works The final recommendations to improve dam safety will be included in the project as part of the financing plan as a means to ensure sustainability ofproject investment. The income-generating activities focusing on the agricultural sector might increase to a limited extent the use ofpesticides, although the scope and types of investments are not defined at this point. However, the funds invested in these activities are relatively small. If necessary, the project will include provisions to avoid using highly toxic pesticides and ensure that proper handling, storage and disposal techniques are applied. The project includes the restoration of historic buildings, financed through counterpart funds in the municipality of Pelotas. These investments are funded through a federal program (Programa Monumenta) by the Ministry of Culture and managed by IPHAN (the National Institute for Protection of Historical and Archeological Sites), a foundation for state and municipal bodies devoted to the protection of cultural heritage. The objectives ofthe Monumenta Program are to preserve priority urban historical and cultural sites and to increase citizens’ knowledge and appreciation of its heritage. The Environmental Screening of the sites confirmed that the Program will have substantial benefits in preserving these buildings and negative environmental impacts will be minimal and temporary. The PAD of each city and the ESMF include more detailed results ofthe assessment process in each city and proposed institutional framework. Environmental and Social Management Framework Based on the environmental and social assessment during project preparation, the ESMF was prepared. The ESMF contains: (i)institutional and regulatory framework of the State of Rio Grande do Sul and the 5 municipalities, as well as the Bank’s safeguard policies; (ii)explanation of the screening process during project preparation and main impacts identified; (iii)responsibilities of involved actors during project implementation; (iv) the Contractor’s Environmental and Social Manual with measures and procedures to 81 mitigate, prevent and manage environmental and social impacts associated with proposed works financed by the project; (v) a Public Participation and Consultation Guide; (vii) A Traffic Management and Safety Guide; (viii) a list of relevant national, state and local websites; (ix) Manual for Environmental Licensing in the State and, (vii) a Resettlement Policy Framework. The ESMF includes specific measures of environmental management for activities directly and indirectly related to the construction phase: design guidelines to minimize impacts, removal of vegetation and required arborization, management of traffic, selection of camping sites, material lending, asphalt plants, machinery, qualification of personnel, the required inputs to carry out proposed work, soil movement, crossings of water channels, civil works in general, pesticides, paintings and grease removers, handling and disposition of solid and liquid waste, etc., and abandonment phase. During project preparation, consultations were held with relevant stakeholders and population (see also Social Assessment Section in PAD). The Public Participation and Consultation Guide has been prepared to ensure close involvement of relevant stakeholders during all project phases (design, construction and operation). The Guide will further integrate public consultation and participation in the screening and environmental and social management process. It will also allow for improvements in the design of prevention, mitigation and compensation measures to address negative impacts and promote community participation and ownership. Given that final designs of most of the works are not completed now, a Resettlement Policy Framework was prepared for occasional resettlements. Capacity Building Over the last years, the State of Rio Grande do Sul has steadily decentralized environmental assessment and licensing responsibilities to the municipalities. This process has strengthened Municipal Environmental Agencies and, with the exception of Rio Grande, all municipalities are responsible for most of the licensing in State. This means that capacity exists and the Environmental Agencies, with support from Social Workers, have been assisting the local project coordination team in the environmental assessment and defining mitigation measures. Meetings were held with the municipalities and the State Environmental Agency (FEPAM) to discuss coordination of efforts and collaboration during project implementation. During implementation, the project will further strengthen the capacity and provide specific instruments to local Environmental Agencies and Social Workers to assess environmental and social impacts prepare plans and monitor implementation. Some municipalities have implemented excellent public participation and disclosure programs that will be shared with the others. Specific activities to strengthen the capacity of municipalities regarding environmental and social management and supervision are included in the Institutional Strengthening Components ofthe project. 82 The UGP will include staff to supervise the environmental and social aspects of the project. Additional technical assistance is expected to be provided by the UAP, where an environmental and social specialist could support municipalities in the environmental monitoring and reporting process during project implementation. Specific support will be required to help municipalities prepare the environmental rehabilitation interventions would require social integration, as is the case of Rio Grande and Santa Maria, and the closing ofthe open dump in Uruguaiana. Institutional Arrangements and Budget Task Responsibility Screening of the projectdworks Municipal Environmental Secretary Review of the screening Project Coordination Team Inclusion of the Manual in the Contract Clauses Municipal Executing Agency Environmental and Social Management Plan Contractors (based on Clauses) Supervision of the projects/works Municipal Environmental Secretary Overall coordination, reporting and quality Project Coordination Team control Public Consultation and Communication Social Workers, b/Municipal Project Tam The implementation costs of the environmental and social measures will be part of the overall project costs and municipalities will assign staff/specialists to ensure implementation of the environmental and social measures and activities, the UAP will coordinate activities with the municipalities and other stakeholders to ensure compliance. 83 Annex 11: Program Preparation and Supervision BRAZIL: RIO GRANDE DO SUL INTEGRATED MUNICIPAL DEVELOPMENT PROGRAM Planned Actual Appraisal 3/3 1/2007 06/26/2007 Negotiations 9/30/2007 11/21/2007 Board/RVP approval 0 1/ 1Y2008 Planned date of effectiveness of first 04/0 1/2008 operation Planned closing date of first operation 12/3 1/20 12 Planned closing date of last operation 06/3 1/20 13 Key institutions responsible for preparation of the project: Municipality of Bag6 Municipality of Pelotas Municipality of Rio Grande Municipality of Santa Maria Municipality of Uruguaiana Bank staff and consultants who worked on the program: Name Title Unit Jennifer J. Sara Sector Leader and Infrastructure LCSSD Specialist Paul Procee Environmental and Transport Specialist LCSEN Juliana Garrido Operations Analyst and WSS Specialist LCSFT Julia Conter Ribeiro Program Assistant LCSSD Karina de Souza Team Assistant LCSSD Marcelino Marta Molares-Halberg Lead Counsel LEGLA Susana Amaral Financial Management Specialist LCSFM Anemarie Guth Proite Procurement Specialist LCSPT Fernando Blanco Economist (Fiscal Analysis) LCSPE Adriana Weisman Operations Officer OPPCE Alan Carroll Lead Operations Adviser LCSQE Monica Alves Amorim Local Economic Development Specialist Consultant Rogerio Gerheim Economist Consultant Regis Cunningham Senior Finance Officer LOAFC Miguel Navarro-Martin Senior Financial OfficedDebt Capital BDM Mrkts & CBP Issam Abousleiman Principal Invest. OfficedDebt Capital BDM Mrkts & CBP Ming Zhang Peer Reviewer LCSUW Victor Vergara Peer Reviewer WBI 84 Lourdes Pagaran Peer Reviewer AFTQK Dan Biller Peer Reviewer EASUR 85 Annex 12: Documents in the Program Files BRAZIL: FUO GRANDE DO SUL INTEGRATED MUNICIPAL Background Studies funded under the Japanese Grant: - Technological Parks in Santa Maria and Pelotas - Agro industry in Santa Maria - Solid Waste in Uruguaiana - Micro business in all 5 municipalities - Public Sector Management in all 5 municipalities - Urban Transport in Santa Maria and Pelotas - Water and Sanitation in Bag6 - Economic Evaluation in all 5 municipalities - Environmental Studies of 9 projects Operational Manual - Environmental and Social Management Framework Documents - Abbreviated Resettlement Policy Framework - Environmental Screening of projects from 1st 18 months Project Document for each municipality: Bage, Pelotas, Rio Grande, Santa Maria and Uruguaiana) Legal Agreements and Municipal Laws - Laws for the creation of the UGP in all 5 municipalities Procurement Plans for all 5 municipalities (BagC, Pelotas, Rio Grande, Santa Maria and Uruguaiana) Preparation Mission Aide Memoires PCN, QER and PAD Meeting Minutes PID and ISDS - Project Concept Note and Appraisal Stages Program letter signed by the five mayors Agreement for the creation of the Superior Council and Technical Council signed by the five mayors including the Terms of Reference for the contracting of the Program Articulation Unit (UAP). 86 Annex 13: Statement of Loans and Credit BRAZIL: RIO GRANDE DO SUL INTEGRATED MUNICIPAL DEVELOPMENT PROGRAM 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 P0 95 4 60 2007 BR-Bahia 1ntegr.Hway Mngmt. 0.00 0.00 0 00 0 00 100.00 0.00 0.00 PO8265 1 2007 BR APL 1 Para Integrated Rural Dev 60.00 0.00 0.00 0 00 0 00 60.00 0.00 0.00 PO8 1023 2006 BR- Sugar Bagasse Cogeneration Project 0.00 0.00 0.00 0 00 0 00 0.36 0.00 0.00 PO82523 2006 BR HD Technical Assistance Loan 8.00 0.00 0.00 0 00 0 00 7.98 3.82 0.00 PO82 142 2006 BR-Ceara Multi-sector Social Inclus Dev 149.75 0.00 0.00 0 00 0 00 35.09 -6,62 0.00 PO52256 2006 BR-MG Rural Poverty Reduction 35.00 0.00 0.00 0 00 0 00 31.32 3.35 0.00 PO81436 2006 BR-Bahia Poor Urban Areas Integrated 49.30 0.00 0.00 0 00 0 00 45.34 9.76 0.00 Dev PO66535 2006 BR GEF Amazon Aquatic Res - AquaBio 0.00 0.00 0.00 7 18 0 00 7.18 0.47 0.00 PO88543 2006 BR MG Partnership for Development 170.00 0.00 0.00 0 00 0 00 69.58 -0.43 0.00 PO89440 2006 BR-Brasilia Environmentally Sustainable 57.64 0.00 0.00 0 00 0 00 57.50 10.42 0.00 PO90041 2006 BR ENVIRONMENTAL SUST. 8.00 0.00 0.00 0 00 0 00 7.92 3.98 0.00 AGENDA TAL PO92990 2006 BR - Road Transport Project 501.25 0.00 0.00 0 00 0 00 501.25 0.00 0.00 PO50761 2006 BR-Housing Sector TAL 4.00 0.00 0.00 0 00 0 00 3.99 -0.01 0.00 PO93787 2006 BR Bahia State Integ Proj Rur Pov 54.35 0.00 0.00 0 00 0 00 10.62 -26.67 0.00 PO95675 2006 BR-2nd Progr. Sustn.& Equit Growth 601.50 0.00 0.00 0 00 0 00 601.51 601.51 0.00 PO82328 2005 BR-1nteg.Munic.Proj.-BetimMunicipality 24.08 0.00 0.00 0 00 0 00 9.43 -0.74 0.00 PO69934 2005 BR-PERNAMBUCO MTEG DEVT: 31.50 0.00 0.00 0 00 0 00 26.62 12.51 0.00 EDUC QUAL IMPR PO83533 2005 BR TA-Sustain. & Equit Growth 12.12 0.00 0.00 0 00 0 00 11.01 3.85 0.00 PO8771 1 2005 BR Espirito Santo Wtr & Coastal Pollu 36.00 0.00 0.00 0 00 0 00 30.77 23.55 0.00 PO75379 2005 BR GEF-RJ Sust IEM in Prod Landscapes 0.00 0.00 0.00 6 73 0 00 6.08 1.28 0.00 PO76924 2005 BR- Amapa Sustainable Communities 4.80 0.00 0.00 0 00 0 00 4.38 1.88 0.00 PO88009 2005 BR GEF-Sao Paulo Riparian Forests 0.00 0.00 0.00 7 75 0 00 6.43 1.50 0.00 PO80830 2004 BR Maranhao Integrated: Rural Dev 30.00 0.00 0.00 0 00 0 00 25.04 15.12 0.00 PO60573 2004 BR Tocantins Sustainable Regional Dev 60.00 0.00 0.00 0 00 0 00 56.32 36.32 2.22 PO83013 2004 BR Disease Surveillance & Control APL 100.00 0.00 0.00 0 00 0 00 63.20 28.90 0.00 2 PO877 13 2004 BR Bolsa Familia 1st APL 572.20 0.00 0.00 0 00 2 86 8 1.45 49.08 0.00 PO58503 2003 GEF BR Amazon Region Prot Areas 0.00 0.00 0.00 30 00 0 00 16.38 30.00 0.00 (ARPA) PO70827 2003 BR-2nd APL BAHIA DEV. 60.00 0.00 0.00 0 00 0 00 2.29 2.29 0.00 EDUCATION PROJECT PO80400 2003 BR-AIDS & STD Control 3 100.00 0.00 0.00 0 00 0 00 35.07 3 I.95 0.00 PO74777 2003 BR-Municipal Pension Reform TAL 5.00 0.00 0.00 0 00 0 00 4.38 4.38 4.04 PO54119 2003 BR BAHIA DEVT (HEALTH ) 30.00 0.00 0.00 0 00 0 00 16.73 12.98 0.00 PO76977 2003 BR-Energy Sector TA Project 12.12 0.00 0.00 0 00 0 00 12.00 1 1.60 0.00 PO49265 2003 BR-RECIFE URBAN UPGRADMG 46.00 0.00 0.00 0 00 0 00 42.55 26.81 1.97 PROJECT PO43869 2002 BR SANTA CATARMA NATURAL 62.80 0.00 0.00 0 00 0 00 25.63 9.1 1 0.00 87 RESOURC & POV. PO5 1696 2002 BR SA0 PAULO METRO LINE 4 209.00 0.00 0.00 0.00 0.00 88.22 88.22 43.28 PROJECT PO55954 2002 BR GOIAS STATE HIGHWAY 65.00 0.00 0.00 0.00 0.00 6.06 6.06 5.56 MANAGEMENT PO57653 2002 BR- FUNDESCOLA IIIA 160.00 0.00 0.00 0.00 0.00 63.93 -4.29 0.00 PO57665 2002 BR-FAMILY HEALTH EXTENSION 68.00 0.00 0.00 0.00 0.00 15.09 15.09 0.00 PROJECT I PO60221 2002 BR FORTALEZA METROPOLITAN 85.00 0.00 0.00 0.00 86.49 31.41 84.02 5.04 TRANSPORT PROJ PO661 70 2002 BR-RGN 2ND Rural Poverty Reduction 22.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 PO70552 2002 GEF BR PARANA BIODIVERSITY 0.00 0.00 0.00 8.00 0.00 3.71 7.83 0.00 PROJECT PO73192 2002 BR TA Financial Sector 14.50 0.00 0.00 0.00 4.57 4.18 8.75 8.15 PO73294 2001 BR Fiscal & Fin. Mgmt. TAL 8.88 0.00 0.00 0.00 0.00 5.29 4.99 3.3 1 PO50772 2001 BR LAND-BASED POVRTY 202.10 0.00 0.00 0.00 58.13 113.85 109.31 0.00 ALLEVIATION I(SIM) PO50875 200 1 BR Ceara Rural Poverty Reduction 37.50 0.00 0.00 0.00 0.00 18.67 -18.83 -18.83 Project PO50880 2001 BR Pernambuco Rural Poverty Reduction 30.10 0.00 0.00 0.00 0.00 30.63 0.63 0.63 PO50881 2001 BR BR-PIAUI RURAL POVERTY 22.50 0.00 0.00 0.00 0.00 22.50 0.00 0.00 REDUCTION PO59566 2001 BR- CEARA BASIC EDUCATION 90.00 0.00 0.00 0.00 0.00 20.69 20.69 5.68 PO39 199 2000 BR PROSANEAR 2 30.30 0.00 0.00 0.00 6.40 13.62 20.02 0.00 PO50776 2000 BR NE Microfinance Development 50.00 0.00 0.00 0.00 10.23 1.28 11.51 0.00 PO06449 2000 BR CEARA WTR MGT PROGERIRH 136.00 0.00 0.00 0.00 0.00 16.37 16.37 -9.72 SIM PO48869 1999 BR SALVADOR URBAN TRANS 150.00 0.00 0.00 0.00 32.00 32.95 64.95 0.00 PO38895 1998 BR FED.WTR MGT 198.00 0.00 0.00 0.00 40.00 50.00 40.00 -1.60 PO4342 1 1998 BR RJ M.TRANSIT PRJ. 186.00 0.00 0.00 0.00 0.00 21.04 21.04 21.04 PO43420 1998 BR WATER S.MOD.2 150.00 0.00 0.00 0.00 125.00 15.07 140.04 -0.67 PO06474 1998 BR LAND MGT 3 (SA0 PAULO) 55.00 0.00 0.00 0.00 10.00 12.40 22.40 3.95 Total: 4,955.79 0.00 0.00 59.66 375.68 2,602.36 1,560.75 74.05 BRAZIL 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. ABN AMRO REAL 98.00 0.00 0.00 0.00 15 77 0 00 0 00 0 00 2005 2005 ABN AMRO REAL 98.00 0.00 0.00 0.00 15.77 0.00 0.00 0.00 2001 AG Concession 0.00 30.00 0.00 0.00 0.00 30.00 0.00 0.00 2002 Amaggi 17.14 0.00 0.00 0.00 17.14 0.00 0.00 0.00 2005 Amaggi 30.00 0.00 0.00 0.00 30.00 0.00 0.00 0.00 2002 Andrade G. SA 22.00 0.00 10.00 12.12 22.00 0.00 10.00 12.12 2001 Apolo 6.04 0.00 0.00 0.00 3.54 0.00 0.00 0.00 1998 Arteb 20.00 0.00 0.00 18.33 20.00 0.00 0.00 18.33 2006 BBM 49.40 0.00 0.00 0.00 49.40 0.00 0.00 0.00 2001 Brazil CGFund 0.00 19.75 0.00 0.00 0.00 18.15 0.00 0.00 2004 CGTF 54.01 0.00 7.00 65.12 54.01 0.00 7.00 65.12 1994 CHAPECO 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 1996 CHAPECO 1.50 0.00 0.00 5.26 1.50 0.00 0.00 5.26 2003 CPFL Energia 0.00 40.00 0.00 0.00 0.00 40.00 0.00 0.00 1996 CTBC Telecom 3.00 8.00 0.00 0.00 3.00 8.00 0.00 0.00 1997 CTBC Telecom 0.00 6.54 0.00 0.00 0.00 6.54 0.00 0.00 1999 Cibrasec 0.00 3.27 0.00 0.00 0.00 3.27 0.00 0.00 2004 Comgas 11.90 0.00 0.00 11.54 1 1.90 0.00 0.00 11.54 2005 Cosan SA. 50.00 5.00 15.00 0.00 50.00 5.00 15.00 0.00 Coteminas 0.00 1.84 0.00 0.00 0.00 1.84 0.00 0.00 1997 Coteminas 1.85 1.25 0.00 0.00 1.85 1.25 0.00 0.00 2000 Coteminas 0.00 0.18 0.00 0.00 0.00 0.18 0.00 0.00 1980 DENPASA 0.00 0.52 0.00 0.00 0.00 0.48 0.00 0.00 1992 DENPASA 0.00 0.06 0.00 0.00 0.00 0.06 0.00 0.00 Dixie Toga 0.00 0.34 0.00 0.00 0.00 0.34 0.00 0.00 1998 Dixie Toga 0.00 10.03 0.00 0.00 0.00 10.03 0.00 0.00 1997 Duratex I .36 0.00 3.00 0.57 1.36 0.00 3.00 0.57 2005 EMBRAER 35.00 0.00 0.00 145.00 35.00 0.00 0.00 145.00 1999 Eliane 14.93 0.00 13.00 0.00 14.93 0.00 13.00 0.00 1998 Ernpesca 1.33 0.00 2.67 0.00 1.33 0.00 2.67 0.00 2006 Endesa Brasil 0.00 50.00 0.00 0.00 0.00 50.00 0.00 0.00 2006 Enerbrasil Ltda 0.00 5.50 0.00 0.00 0.00 0.00 0.00 0.00 2006 FEBR 12.00 0.00 0.00 0.00 12.00 0.00 0.00 0.00 2000 Fleury 0.00 0.00 6.00 0.00 0.00 0.00 6.00 0.00 1998 Fras-le 4.00 0.00 9.34 0.00 4.00 0.00 6.04 0.00 2006 GOL 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2005 GP Capital Ill 0.00 14.00 0.00 0.00 0.00 0.14 0.00 0.00 GP Cptl Rstrctd 0.00 2.22 0.00 0.00 0.00 2.16 0.00 0.00 200 1 GPC 0.00 0.00 9.00 0.00 0.00 0.00 9.00 0.00 GTFP BIC Banco 44.91 0.00 0.00 0.00 44.91 0.00 0.00 0.00 GTFP BM Brazil 4.22 0.00 0.00 0.00 4.22 0.00 0.00 0.00 GTFP Indusval 5.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 1997 Guilman-Amorim 18.08 0.00 0.00 14.37 18.08 0.00 0.00 14.37 1998 Icatu Equity 0.00 5.46 0.00 0.00 0.00 4.16 0.00 0.00 1999 lnnova SA 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 1980 Ipiranga 0.00 2.87 0.00 0.00 0.00 2.87 0.00 0.00 1987 Ipiranga 0.00 0.54 0.00 0.00 0.00 0.54 0.00 0.00 2006 Ipiranga 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2006 ltambe 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2000 Itau-BBA 12.86 0.00 0.00 0.00 12.86 0.00 0.00 0.00 2002 Itau-BBA 70.61 0.00 0.00 0.00 38.47 0.00 0.00 0.00 1999 JOSAPAR 7.57 0.00 7.00 0.00 2.57 0.00 7.00 0.00 2005 Lojas Americana 35.00 0.00 0.00 0.00 35.00 0.00 0.00 0.00 1992 MBR 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00 2006 MRS 50.00 0.00 0.00 50.00 0.00 0.00 0.00 0.00 2002 Microinvest 0.00 1.25 0.00 0.00 0.00 0.82 0.00 0.00 Net Servicos 0.00 10.93 0.00 0.00 0.00 10.93 0.00 0.00 2002 Net Servicos 0.00 1.60 0.00 0.00 0.00 1.60 0.00 0.00 2005 Net Servicos 0.00 5.08 0.00 0.00 0.00 5.08 0.00 0.00 1994 Para Pigmentos 2.15 0.00 9.00 0.00 2.15 0.00 9.00 0.00 1994 Portobello 0.00 0.59 0.00 0.00 0.00 0.59 0.00 0.00 2000 Portobello 4.28 0.00 7.00 0.00 4.28 0.00 7.00 0.00 2002 Portobello 0.00 0.90 0.00 0.00 0.00 0.90 0.00 0.00 2000 Puras 0.00 0.00 1.oo 0.00 0.00 0.00 1 .oo 0.00 2003 Queiroz Galvao 26.67 0.00 10.00 0.00 26.67 0.00 10.00 0.00 2004 Queiroz Galvao 0.60 0.00 0.00 0.00 0.08 0.00 0.00 0.00 2006 RBSec 22.83 1.51 0.00 0.00 0.00 1.51 0.00 0.00 Randon Imp1 Part 2.33 0.00 3.00 0.00 2.33 0.00 3.00 0.00 1997 Sadia 2.55 0.00 2.33 3.28 2.55 0.00 2.33 3.28 1997 samarco 3.60 0.00 0.00 0.00 3.60 0.00 0.00 0.00 1998 Saraiva 0.00 1.24 0.00 0.00 0.00 1.24 0.00 0.00 2000 Sepetiba 26.24 0.00 5.00 0.00 11.24 0.00 5.00 0.00 2002 Suape ICT 6.00 0.00 0.00 0.00 6.00 0.00 0.00 0.00 1999 Sudamerica 0.00 7.35 0.00 0.00 0.00 7.35 0.00 0.00 2006 Suzano petroq 50.00 0.00 10.00 140.00 39.50 0.00 10.00 110.50 2001 Synteko 11.57 0.00 0.00 0.00 11.57 0.00 0.00 0.00 2006 TAh4 50.00 0.00 0.00 0.00 17.00 0.00 0.00 0.00 1998 Tecon Rio Grande 3.55 0.00 5.50 3.71 3.55 0.00 5.50 3.71 2004 Tecon Rio Grande 7.87 0.00 0.00 7.76 7.59 0.00 0.00 7.48 2001 Tecon Salvador 2.95 1.oo 0.00 3.10 2.95 0.77 0.00 3.10 2003 Tecon Salvador 0.00 0.55 0.00 0.00 0.00 0.55 0.00 0.00 2004 TriBanco 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 2006 TriBanco 0.35 0.00 0.00 0.00 0.35 0.00 0.00 0.00 2002 UP Offshore 9.01 9.5 1 0.00 23.29 0.00 2.51 0.00 0.00 2002 Unibanco 16.89 0.00 0.00 0.00 16.89 0.00 0.00 0.00 Total portfolio: 1,164 15 253 88 14484 50345 70391 223 86 141 54 40038 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic 2000 BBA 0.01 0.00 0.00 0.00 1999 Cibrasec 0.00 0.00 0.00 0.00 2006 Ipiranga II 0.00 0.00 0.00 0.10 2002 Banco Itau-BBA 0.00 0.00 0.00 0.10 Total pending commitment: 0.01 0.00 0.00 0.20 90 Annex 14: Country at a Glance BRAZIL: FUO GRANDE DO SUL INTEG RATED MUNICIPAL DEVELOPMENT PROG WM Latin Lower- POVERTY and SOCIAL America middle. Jevelopment dlamond' Brazli h Carib. Income ZOO6 Population, mid-year (millions) 86.4 551 2,475 Life eqectancy GNIpercapita(Atlasmathod, US$) 3,460 4 008 198 GNI (Atlas method, US$ billions) 645.0 2 20 4,747 T Average annual growth, 1999-06 Population 14 14 10 (s/d Gross Laborforce (%) 18 22 14 Moat recent estlmate (latest year avallable, 1999-06) capita enrollment P overty (% of population below national po vertyline) Urban population (%of totalpopulation) 84 77 50 Life expectancy at birth (pars) 71 72 70 1 Infant mortality(per1OOO/ive births) 32 27 33 Childmalnutrition (%ofchildren unUer5) 7 t? Access to improved water source Access to animprovedwtersource (%ofpopulation) 90 91 82 Literacy (%ofpopulation age by 89 90 89 Gross primary enrollment (%of schooi-age population) ni rB in ----BfaZ/i Male 145 Pi t15 Lo wr-middle-income group Female 137 1.7 n3 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1986 1996 2004 2005 Economlc ratios' GDP (US$ billions) 222.9 704.2 604 0 794 1 Gross capital formationJGDP 8.2 22.3 213 193 Trade Exports of goods and seNices/GDP 0.2 7.7 80 22 7 Gross domestic savingslGDP 24.4 20.5 25 8 28 1 Gross national savingsiGDP 8.0 8.5 23 2 22 4 Current account balance/GDP -0.2 -2.6 19 25 Capital Interest payments/GDP 3.3 12 20 savings form atio n Total dabt/GDP 46.5 22.8 36 8 Total debt servIce/exports 39.1 38.1 47 8 Present value of debt/GDP 39 6 Present value of dabt/exports 2t? 9 1 Indebtedness 1986-96 1996-06 2004 2006 2006-09 (average annual gro Mh) GDP 17 21 49 2.3 3.5 -- Brazil GOP percapita 00 0.6 3.5 0.9 2.7 LOwr-m/ddle-/flcomeOrOUD Exports of goods and services 6.1 a.5 8.0 20.9 P.6 STRUCTURE of the ECONOMY 1985 1995 2004 2006 Growth of capltal and GDP (Oh) (%of GDP) Agnculture 115 90 a4 98 2o T I Industry 453 367 400 37 9 10 M anuiactunng 337 236 00 Services 431 543 496 52 3 0 Householdfinal consumption expenditure 658 599 554 58 4 .10 1 General gov't final consumption expenditure 99 86 88 I46 Imports of goods andservices 71 95 04 250 -GCF AGDP 1cP 198646 1996-06 Growth of exports and imports (%) (average annual gro ah) Agnculture 21 42 53 27 30T Industry 03 16 62 27 M anufactunng -11 13 services 23 08 -5 5 -60 Household final consumption expenditure 26 03 43 08 General gov't final consumption expenditure 13 37 07 56 Gross capital formation 23 02 143 -7 6 ---"€xports -Inports ImpOflS Of goods and SeNlCeS 90 07 143 88 ~ ~ ~~ ~~ ~ Note 2005 data are preliminary estimates This table was producedfrom the Development Economics LOB database 'Thediamonds showfourkey indicators in thecountry(in bold) comparedwithits income-group average If data aremissing thediamondwll be incomDlete 91 Brazil PRICES andGOVERNMENT FINANCE 1985 1995 2004 2005 inflation (Oh) Domestic prices (%change) I Consumer pnces 2000 660 66 69 Implicit GDP deflator 2317 776 8.2 72 Government flnance (./.of GDP, includes current grants) Current revenue 98 86 :i 00 01 02 03 04 I Current budget balance -07 -15 ~ -GDPdeflaloi &CPI Overall surplus/deficit -13 TRADE 1985 1995 2004 2005 Export and Import levels (US$ mill.) (US% millions) Totaleqorts (fob) 25,638 46,506 81,466 18 308 Iron ore, manganese 1,804 2,746 4,759 I Soyt~eans 2,545 3,820 5,395 100 000 Manufactures 0,356 29,720 52,948 71112 Total imports (cif) 0,153 49,972 62,809 75 965 Food 3,514 1058 50 000 Fuel and energy 6,176 2.587 0.317 Capital goods 2,480 8,891 12.02 25 114 0 98 00 01 02 03 04 05 Eqort pnce index (2000-WO) 78 03 a8 I17 Import pnce index(2000=WO) 47 85 90 97 [SEXPOIIS BlITOdS Terms of trade (2000=100) 67 121 120 I PO BALANCE of PAYMENTS 1986 1995 2004 2005 Current account balance to GDP (Oh) (US$ millions) Exports Of goods and SBNICeS 27.70 49,544 W9.059 142 955 Imports of goods and services 6,928 58,750 80,069 94 403 4T Resource balance 0,785 -9,206 28,990 48 552 Net income -n20 -12.741 -20,520 -28 980 Net current transfers 6 3,973 3,268 50 Current account balance -412 -17,973 11738 B 622 Financing items (net) -99 30,942 -15,377 -3 476 Changes in net reserves 511 -Q969 3,639 -6 146 Memo: RBSBNBS including gold (US$ millions) 11608 51,840 52,935 61715 Conversion rate (DEC, local/US$) 226E-9 09 29 24 EXTERNAL DEBT and RESOURCE FLOWS IS86 1995 2004 2005 Composition of 2004 debt (US$ mill.) (US$ millions) Total debt outstanding and disbursed 03,6t? 60,515 222,026 IBRD 5 274 6,038 8,668 8 083 G A C IDA 0 0 0 0 1 25267 Total debt Service ll.471 21576 53,70 IBRD 796 1868 1,843 2335 IDA 0 0 0 0 Composition of net resource flows Official grants 34 65 91 Official creditors 936 -1714 -2,938 Pnvate creditors 150 0.925 -4.6% Foreign direct investment (net inflows) 1,441 4,859 8.86 Portfolio equity(net inflows) 0 2,775 2,081 F Wodd Bank program Y4.454 Commitments 1525 404 1,215 A. IBRD E- EIldW3 Disbursements 765 838 1,447 773 E. IDA D. Other mltilB(er3 F. Private Pnncipal repayments 406 1377 1564 1029 C-IMF G- Short-l~ri Net flows 359 -539 -16 -255 Interest payments 391 491 280 307 Net transfers -32 -1,031 -396 -562 Note This table was producedfrom the Development Economics LDB database. 8/12/06 92 II b k I b h t. f t Ir a c k PDMI: Pelotas Project Appraisal Document Annex 16: Appraisal Document for Municipality of Pelotas BRAZIL: RIO GRANDE DO SUL INTEGRATED MUNICIPAL DEVELOPMENT PROGRAM Source Local Foreign Total BORROWER 12.60 0.00 12.60 IBRD 18.90 0.00 18.90 Total: 31.50 0.00 3 1.50 Borrower: Municipal Government ofPelotas, Brazil FY 8 9 I 10 I 11 I 12 I 13 1 Annual 3.90 6.00 4.50 2.25 1.50 0.75 Cumulative 3.90 9.90 14.40 16.65 18.15 18.90 Expected effectiveness date: March 24, 2008 Expected closing date: December 3 1,20 12 Program description [one-sentence summary of each component] Re$ PAD B.3.a, Technical Annex 4 The Program has been organized into four components: Component 1: Municipal Strengthening: This component will improve the municipality’s capacity to more effectively and efficiently execute projects, with a focus on fiduciary, environmental and social aspects, and improve the quality and efficiency of public services provided by the municipal government. Component 2: Income and Employment Generation: The project will support cross-cutting activities to improve the overall business environment, facilitate access to micro-credit, cluster development for street vendors and fruit and vegetable producers in urban and rural areas and a Technology Park to promote R&D. 94 PDMI: Pelotas Project Appraisal Document Component 3: Infrastructure Services Improvements. Sub-component 3.1. Rehabilitation of urban road infrastructure and landscaping: The sub-component will improve downtown road infrastructure and traffic planning, focusing on improved access by public transport, rehabilitation of downtown parks and landscaping, as well as renovation of historic buildings. Sub-component 3.2. Rehabilitation of rural road infrastructure and landscaping: This sub-component will help improve access and reduce transport costs in rural areas through improved public transport services and reduction in operational costs. The sub- component will also help establish better maintenance planning and operation to ensure long-term sustainability of investments. Sub-component 3.3. Urban Upgrading and Environmental Rehabilitation: This sub- component will finance the expansion of the water supply network in rural areas and reduce potential problems with lack of water supply in urban areas with the construction of additional water conveyance systems. The project will reduce environmental impact on the Canal Sa"o Gonqalo and connected water bodies with the implementation of a wastewater treatment facility near the city center. The investments will be supported by a WSS management plan (prepared under Component l),improved monitoring and maintenance of the sanitation network and improved management by SANEP. Which safeguard policies are triggered, if any? Ref: PAD 0.6, Technical Annex 10 The Program has received a World Bank Environmental Category A rating and triggers the following safeguards: OP 4.01 (Environmental Assessment); OP 4.04 (Natural Habitats); OP 11.03 (Protection of Physical Cultural Resources), and OP 4.37 (Safety of Dams). Significant, non-standard conditions, if any, for: Re$ PAD C. 7 Board presentation: none Loadcredit effectiveness: 0 Operational Manual has been adopted by the Borrower in form and substance satisfactory to the Bank. Covenants applicable to program implementation: Dated covenants 0 Maintain a project coordination unit (UGP) within its Secretariat of Coordination and Planning with the powers and responsibilities set forth in the Operational Manual; and no later than two months from the Effective Date have such unit fully staffed with personnel with experience and qualifications satisfactory to the Bank, including the following key staff a coordinator and experts to handle the technical, procurement, financial management and safeguard aspects of the Project. 0 The Borrower shall, together with the other Participating Municipalities and until completion of the Project, maintain the Superior Council and Technical Council with the structures, powers and responsibilities set forth in the Operational Manual. The Borrower shall prior to the award of the bid for the renovation of the commercial facility, for the agro-industrial sector activities and for the construction of the technology park, furnish to the Bank for its approval the respective Business Plan. Condition of disbursement 0 For payments made for water supply works expenditures under component 3, unless the 95 PDMI: Pelotas Project Appraisal Document Bank shall have approved the assessment and identified actions and measures for the safety ofthe Borrower’s dams and taken the actions and measures so identified. 96 PDMI: Pelotas Project Appraisal Document 1. Municipal Overview The city of Pelotas is located in the southeastern part of the State of Rio Grande do Sul, approximately 252 km from the state capital, Porto Alegre. Pelotas is the third largest city in the state with a population of around 335,000 inhabitants, of which 93% live in urban areas. The overall density is average, with around 196 inhabitants per Km2. At the end of the lSth Century, Pelotas started its first period of substantial growth as a result of cattle raising in and around the settlement of SBo Pedro de Pelotas. It became famous for the production of charque, or jerked beef. The work was usually done by slaves. Sales of beef and beef derivatives to the states of SBo Paulo, Rio de Janeiro and Minas Gerais prospered and by 1830, with the growing population, the town of Pelotas was awarded the status of “city,” with its own municipal government. Further expansion of cattle-raising activities in the area transformed Pelotas into the economic leader of the province. During the mid-20th century, the former dynamic regional jerked beef industry faced successive severe crises, due to lack of appropriate technology, problems in adapting more productive cattle breeds in the region, increasing labor costs and labor regulation, as well as strong competition from Uruguayan production. More recently, a number of large fruit-processing plants have closed down-after having operated for decades in the municipality-which eliminated thousands of formal jobs. Poverty, informality and unemployment have since become big issues in the municipality. Nearly 2 1.8% of the municipal population is considered poor (2000), almost double the corresponding figure for the state capital Porto Alegre (1 1.3%). Also, a recent survey indicates that 20.8 YOof the economically active population of the Pelotas region was unemployed, compared to 13.7% for the Porto Alegre Metropolitan Area.7 According to the State Statistics Agency (FEE), total value added municipal GDP in 2004 was nearly U$ 1.Billion and per capita GDP reached US$3,185, about half of the state’s average (US$ 6,054). Municipal GDP has experienced a slight decline over recent years, and Pelotas has been dropping in the economic ranking of the State. Nearly 85% of industrial GDP relates to traditional industries, such as food processing, leather, fertilizers and other inputs for agriculture. 7 Pesquisa de Emprego e Desemprego-PED, produced by DIEESE and the Federal Ministry of Labor (Nov 2006). 97 PDMI: Pelotas Project Appraisal Document Table 1. GDP- 2004 (US$ 1,000) Per capita GDP Agriculture Industry Service Total us1 Pelotas 64.399 333.983 609.615 1.007.996 3.185 State of RS 10.060.752 26.266.087 25.243.209 61.570.049 6.054 Source: FEE Over the years, Pelotas has become an important commercial center, attracting customers from neighboring regions to its nearly 7,500 commercial establishments (shops, banks, insurance firms, currency exchange bureaus and transport operators) that employ around 60% ofthe city’s labor force. Currently, the main economic activities in Pelotas are: (i) Agricultural sector (6.4% of GDP): rice, corn, beans, tomatoes, potatoes, oranges, peaches, beef, pork and poultry; (ii) Industrial sector (33% of GDP): food processing, nonmetallic minerals, metalworking, ceramics, chemical products, clothing, footwear and textiles; (iii) Commercial sector (60.5% of GDP): wholesale and retail trade and the transport sector. The Autonomous Water and Sewerage Service of Pelotas (SANEP) is responsible for collecting and treating sewage, providing water and urban drainage, and the collection and disposal of solid waste throughout the municipal area. SANEP distributes 86.5 million liters of potable water to 99% of the city’s population. The water supply network of 857km reaches 103,556 households. The system consists basically of three treatment stations, 20 reservoirs, feeder pipelines and distribution networks. The 349 km of sewer networks only serve 67% of the households and businesses in the city, and only 26% of the collected waste water is properly treated in two treatment plants. The lack of treatment and proper drainage, results in increasing problems with flooding, pollution of the water bodies, as well as odor problems. Regarding solid waste, 150 tons are collected daily and disposed in controlled landfills. The roads in the municipality are in poor state, especially in and around the downtown area. The streets need to be rehabilitated considering the high traffic volumes entering the city every day. Many streets are unpaved and open gullies carry storm- and wastewater, causing problems in a number of areas ofthe city. 98 PDMI: Pelotas Project Appraisal Document 2. Results Framework and Monitoring The key results and outcomes to be monitored during project implementation are: Table 2. Project Develom it Objectives and Outcome Indicators Project Development Outcome Indicators Use of Outcome 0 bj ectives Information Improve the capacity of the Improved Municipal Management Capacity Monitoring, municipality of Pelotas, to Number of municipal projects institutionalizing evaluation and provide infrastructure improved evaluation, social and environmental adjustment of each services and employment management processes in the municipal municipal policies, opportunities for its government of Pelotas management population. Percentage of citizens satisfied with quicker processes and and more user-friendly access to client services programs provided by the municipality Number of good practices or innovations replicated from other municipalities Increased local economic development opportunities The net percentage increase in formal jobs is higher (or its decrease is lower) among the beneficiaries ofthe project than in the municipal economy as a whole The net percentage increase in formal firms is higher (or its decrease is lower) among the beneficiaries ofthe project than in the municipal economy as a whole Improved Infrastructure Services Number of rural people with coverage of water supply Reduction in the density of vehicles and increase in their average speed in selected avenues benefitted by the project Percentage of urban citizens satisfied with the quality of infrastructure services Intermediate Results Intermediate Results Indicators Use of Intermediate Results Municipal Capacity Implementation of information systems for Monitoring of municipal databases project Number of municipal staff trained implementation and Percentage of annual work program delivered timely intervention on time with corrective measure as needed Income and Employment Number of beneficiaries of training andor Generation technical assistance Number of micro-credit loans reaching target population Number of productive infrastructure installed 99 PDMI: Pelotas Project Appraisal Document Infrastructure Services Physical progress of infrastructure improvements in urban transport as a percentage of km of pavedrehabilitatedroads and substituted, rehabilitated or duplicated bridges Physical progress of urban improvements and environmental recovery as a percentage of target attained: m2 of green areas recovered Physical progress of water, sanitation and drainage infrastructure improvements in absolute numbers and as a percentage of target attained: km of water supply network, km of sanitation network Arrangements for results monitoring Data Collection and Reporting: The municipality, through the UGP, will submit quarterly progress reports to the UAP and a bi-annual progress report to the Bank, a month before the supervision mission. The municipality will put in place a project Management Information Systems (MIS) and Monitoring and Evaluation System (M&E) and the UGP will manage both systems and collect relevant data from the respective implementing secretariats and organize necessary surveys each year to monitor and evaluate the progress of the project. The indicators related to the WSS improvements will be the responsibility of SANEP. Table 3. Project Outcome [ndicators, Baseline and Targ S I Target Cumulative Values Program Outcome Indicators Baseline Target YR1 YR2 I YR3 I YR4 I YR5 YO % YO YO YO Number of municipal projects institutionalizing improved At least 3 projects evaluation, social and environmental 0 institutionalize 0 0 1 2 3 management processes in the improved processes municipal government of Pelotas Percentage of citizens satisfied with To be quicker and more user-friendly access established Baseline increased 0 40% 50% 60% 70% to client services provided by the during year by 70% 1 municipality 1 I Number of good practices or At least 3 good innovations replicated from other practices or This indicator will start to be measured after municipalities innovations the UAP is working replicated The net percentage increase in formal --I- At least 1 above firms is higher (or its decrease is To be O% 10% 10% the performance of 3%above 5% lower) among the beneficiaries of the above above above the municipal O project than in the municipal yearly yearly yearly yearly economy as a whole economy as a whole 100 PDMI: Pelotas Project Appraisal Document - rlumber of rural people with coverage )f water supply, percentage of treated water Coverage Wastewater supply 500 1000 1500 2000 of water :O supply: Coverage: 2000 2000 rural rural people people. attended by water waste 26% of supply, 65% of water 40% 65% 65% collected wastewater treated. treated 65% wastewater : 26% treated Xeduction in the density of vehicles Reduction by 20% ind increase in their average speed in in density and Dens 0 0 - 10% -15% -20% ;elected avenues benefitted by the TBD at the increase by 10% in xoject beginning speed - in avenues of project receiving Speed 0 + 0% interventions and 0 +5% 1 roads nearby - Percentage of urban citizens satisfied To be Nith the quality of infrastructure established Baseline increased 0% 0 70% services during year by 70% 50% 1 Target CumulativeValues Intermediate Outcome Indicators Baseline Target YR1 1 YR2 YR3 YR4 YR5 Component 1: GIS and updated cadastre Vumber of properties cadastred in 10.000 25,000 40,000 57,000 of 57,000 properties iutomated information systems Vumber of municipal staff trained 0 1000 50 200 600 1000 1000 Percentage of annual work program 0 90% EOP 60% 70% 80% delivered on time 50% 90% 00 450 500 500 cluster firms and street 3 Component 2: vendors, 200 rural 150 200 200 Number of beneficiaries of training 0 producers. Technological mdor technical assistance Park: 5 innovative firms, 3 4 5 10 incubated firms 4 6 8 10 ~ Number of productive infrastructure Agrobusiness cluster: 1 Packin installed packing house. Street vendors: enlargement of 1 Camel g House, 0 Commercial Centre for 0 6drom Tech Social Inclusion 0 (Camel6dromo). 1 OlOgY Park Technological Park Component 3: 55 km of Roads 20 40 50 55 Physical progress of infrastructure pavedlrehabilitated roads; 5 101 PDMI: Pelotas Project Appraisal Document improvements in urban transport as a 1200 km of rural roads Mainte percentage of target attained: km of maintained; 19 bridges nance 400 800 1000 1200 pavedrehabilitated roads; km of 100 maintained roads; number of substituted, rehabilitated or duplicated Bridge 10 15 19 bridges sl 5 Physical progress of urban 3700 improvements and environmental 1 park with 3700 of m2 of 0 m2 0 recovery as a percentage of target green area green attained: m2 of green areas recovered area Water Physical progress of water, sanitation Expansion of 20 km of 10 20 20 5 and drainage infrastructure water supply network in improvements in absolute numbers ural areas. Construction 0. Conve and as a percentage of target attained: 0 3,2 km of water yance 0 3 $2 3 72 km of water supply network, km of conveyance system in 0 sanitation network, number of urban areas. 1 treatment Treatm wastewater treatment facilities waste water facility 1 1 1 1 ent 0 3. Proiect Descrbtion Pelotas has the largest project of the PDMI with a wide range ofrelated investments. The interventions have been carefully designed to complement other municipal projects, some of which involve external funding. The Municipal Strengthening Component is a priority for the current administration and builds on efforts initiated under PMAT. One of the main investments will be the transformation of an existing office building downtown into a modern and efficient facility that will host most municipal secretariats. This will be complemented by additional computer system support and staff training to streamline municipal functions. Capacity will also be built across the municipal secretariats to implement improved fiduciary, social and environmental management processes in infrastructure projects. The Income Generation Component will assist in the formalization of street vendors, strengthen fwit and vegetables clusters sectors, and transform an abandoned factory into a state-of-the-art Technology Park that will foster research, product development and innovation, based on a combined effort of the public and private sectors and academia. The Infrastructure Services Improvement Component will invest in road rehabilitation, focusing on streets served by public transport, and expand water supply and sanitation services, while strengthening the capacity ofthe municipal water company, SANEP. Detailed Proiect Description Component 1: Municipal Strengthening: This component will improve the municipality’s capacity to more effectively and efficiently execute projects, with a focus 102 PDMI: Pelotas Project Appraisal Document on fiduciary, environmental and social aspects, and improve the quality and efficiency of public services provided by the municipal government. Sub-component 1.1: Public Service Modernization to improve the municipality’s capacity to more effectively and efficiently execute activities, especially related to client services. The project will finance the transformation of a municipal-owned a commercial building downtown into the new Municipal Administrative Centre. The key expected outcomes are: a modern and well equipped Municipal Administrative Center, reduction in administrative costs of the municipal government, improved quality and satisfaction of services to clients and citizens and integrated databases used by different municipal agencies, improved maintenance and overall quality of basic sanitation infrastructure (also supported by Component 3). Activities include: a. Renovation of a municipal owned building into the new administrative center, provision of equipment and capacity building of staff in information technology and management (100% counterpart) b. Installation of about 5 energy efficient automatic drainage pumps to reduce electricity consumption ofthe municipal government (1 00% counterpart) c. Preparation of a master plan for drainage, water and sanitation, implementation of a municipal GIS system, completion of the works for the new administrative center, acquisition of about 24 vehicles for use by municipal government and provision oftraining and technical assistance to the Borrower’s staff on topics related to municipal management and project implementation. Sub-component 1.2. Project Management. This subcomponent will finance activities to help coordinate and monitor project implementation and ensure fiduciary and safeguard aspects are adequately taken care of during project implementation. The key results will be proper project implementation and timely submission of financial reports, progress reports, environmental monitoring reports, etc. Outcomes include: successful implementation of the project; improved capacity of the municipality to prepare and monitor project implementation; integration of project- specific procedures in other municipal projects (especially fiduciary and safeguards) and enhanced learning through knowledge sharing with the other municipalities in the program. Activities that will be financed are: a. Equipment and furniture required for the UGP, including acquisition of a vehicle, technical assistance, hire specialized consultants to supplement municipal staff and cover incremental operating costs for the municipality, dissemination, training and contribution to the UAP. Component 2: Income and Employment Generation: The project will support cross- cutting activities to improve the overall business environment, facilitate access to micro- credit, cluster development for street vendors and fruit and vegetable producers in urban and rural areas and a Technology Park to promote R&D. Interventions will be grouped into two sub-components, as described below. 103 PDMI: Pelotas Project Appraisal Document 0 Component 2.1 Sustainable LED Strategic Work, Access to Micro-credit and Support to SME Clusters. This sub-component will enhance municipal capacity to plan and implement sustainable LED strategies. Studies will be undertaken to assess the local business environment and devise measures to overcome key barriers, including for business registration. In addition, the sub-component will support the generation of employment and income through facilitating micro and small business access to micro-credit and improve their effectiveness through organization, training, technical assistance and preparation of business plans. Selected SME clusters will be provided with minimal infrastructure, technical assistance, technology and equipment upgrade, training and creation ofbrand names. a. In terms of strategic planning, the project will support studies on: the municipality’s growth potentials, business environment, identification of possible local growth engines and identification of regulatory/administrative barriers for business development. The expected outputs include the design and implementation of an LED Plan and enhanced local competitiveness. b, Support to Micro-business: the project will help facilitate access to credit of about 500 small businesses per year and conduct training activities focused on business management, marketing, and organization of productive groups. Expected results include micro-enterprises using business plans, reduction of informality and reduction ofmortality rates ofmicro-enterprises. C. Commercial Center for Social Inclusion (Carnefddrorno): the project will help renovate a commercial facility and a nearby public park (Praqa Cipriano Barcelos) to allow for the relocation ofabout 200 vendors to reduce informality. Support to this investment will be contingent on a solid business and facility management plan approved by the World Bank. d. Support to Agro-industry Cluster: will include the construction of a packing- house, organization and training of about 500 beneficiary farmers and creation of a brand name associated to quality and origin of products thereby expanding the value-added of agriculture-based products and gaining access to high-end markets. Support to this investment will be contingent on a solid business and facility management plan approved by the World Bank. 0 Component 2.2 Technology Park: This sub-component will finance the creation of a Technology Park and enhance collaboration on R&D across the many public, private and academic organizations that are located in the municipality but are currently not working systematically together. A building will be renovated and transformed into an establishment for private and academic sectors to foster innovative applied research and develop new technologies. A public-private partnership will create and support a development agency that will manage the park. Expected results will be a more innovative business environment and more successful business start-ups. Investment in this activity will require a sound business plan approved by the World Bank. Main investments: a. Technology Park with about 5 innovative firms and incubator for about 10 businesses 104 PDMI: Pelotas Project Appraisal Document b. 5 Centers for Digital Inclusion and a network connecting key locations in Pelotas, including municipal government offices. Component 3: Infrastructure Services Improvements 0 Sub-component 3.1. Rehabilitation of urban road infrastructure and landscaping: The sub-component will improve downtown road infrastructure and traffic planning, focusing on improved access by public transport, rehabilitation of downtown parks and landscaping, as well as renovation of historic buildings. Special attention will be given to traffic calming, pedestrian facilities and overall urban upgrading along the routes. The project will help establish better maintenance planning and operation to ensure long-term sustainability of investments. Some key investments ofthe sub-component are: a. Renovation of selected historic buildings (100% counterpart) b. Construction of approximately 50 bays for bus stops and approximately 10 pedestrian crossings (100% counterpart) c. Rehabilitation ofapproximately 7,000 m2of streets and paving lkm of Silo Paul0 street (100% counterpart) d. Rehabilitation ofapproximately 3,700 m2 of green space in the downtown area, paving and/or rehabilitation of main public transport access corridors, including pedestrian and bicycle infrastructure and landscaping. 0 Sub-component 3.2. Rehabilitation of rural road infrastructure and landscaping: This sub-component will help improve access and reduce transport costs in rural areas through improved public transport services and reduction in operational costs. The sub-component will also help establish better maintenance planning and operation to ensure long-term sustainability of investments. The main investments ofthe sub-component will be the: a. Acquisition of 10 trucks and 6 construction vehicles (100% counterpart) b. Replacement of about 12 small bridges, rehabilitation ofabout 5 bridges and duplication ofabout 2 bridges and rehabilitation and improved maintenance ofthe core rural road network. 0 Sub-component 3.3. Urban Upgrading and Environmental Rehabilitation: This sub-component will finance the expansion of the water supply network in rural areas and reduce potential problems with lack of water supply in urban areas with the construction of additional water conveyance systems. The project will reduce environmental impact on the Canal Sdo Gonqalo and connected water bodies with the implementation of a wastewater treatment facility near the city center. The investments will be supported by a WSS management plan (prepared under Component 1), improved monitoring and maintenance of the sanitation network and improved management by SANEP. The expected outcomes include: improved water quality of local water bodies, reduction in water-borne diseases, improved maintenance and quality of sanitation service delivery. The main activities include: a. Construction ofwater main to connect Arroio Pelotas with Sinott (100% counterpart) 105 PDMI: Pelotas Project Appraisal Document b. Implementation of automated urban drainage system (I00% counterpart) c. Construction of waste water treatment facility, and expansion of the water supply system network in rural areas. 106 PDMI: Pelotas Project Appraisal Document 4. Proiect Costs rable 5. Project costs by component Components Foreign Total cuss M) (US$ M) 1. Municipal Strengthening 1.1 Public Service Modernization 3.32 3.32 1.2 Project Management 0.99 0.99 2. Income and Emplovment Generation 2.1 Strategies, SME and Cluster Support 1.25 1.25 2.2 Technology Park 0.93 0.93 3 Infrastructure Services Improvements 3.1 Urban Road Upgrading 17.76 17.76 3.2 Rural Road Upgrading 3.01 3.01 3.3 Water and Sanitation Services 3.49 3.49 Unallocated and Contingencies 0.70 0.70 Front-end fee 0.05 0.05 Total Project Costs 31.50 31.50 Table 6. Financing Plan for Pelotas World Bank Municipality Total Components (US$ M) (US$ M) (US$ M) 1. Municipal Strengthening 1.1, Public Service Modernization 1 .oo 2.32 3.32 1.2. Project Management 0.74 0.25 0.99 2. Income and Employment Generation 2.1. Strategies, SME and Cluster Support 0.94 0.3 1 1.25 2.2. Technology Park 0.70 0.23 0.93 3. Infrastructure Services Improvements 3-1,Urban Road Upgrading 11.36 6.40 17.76 3.2. Rural Road Upgrading 1.22 1.79 3.01 3.3. Water and Sanitation Services 2.19 1.30 3.49 Unallocated 0.70 0.70 Front-end fee 0.05 0.05 Total Proiect 18.90 12.60 31.50 107 PDMI: Pelotas Project Appraisal Document C, Project Activities financed 100% by counterpart funds Expenditures for selected activities financed 100% by the municipality and incurred after June 30,2006 will be recognized as counterpart funding for the project provided that: (i) the activities are included in the list below, (ii)the Bank considers that the activities and costs are reasonable and necessary for the project, (iii)the Bank is satisfied with the procedures followed by the municipality for the procurement of the activities, and (iv) the Bank is satisfied that environmental and social requirements were adequately addressed. The activities are identified below: Table 7. Activities with 100% countermrt funding: Activity outputs Funding Source I Cost, US%,M 1,l Public Sector 1.1-a. Renovation of the new PMT: Contract No. 1.64 Modernization administrative center, 04.2.424.2.1 with BNDES equipment and capacity building of staff. 1.1-b. Installation of five more Contract No. 9928854 0.35 energy efficient automatic between SANEP and drainage pumps CEEE 3.1. Urban Road 3.1-a. Renovation of historic Programa Monumenta: 1.90 Upgrading buildings Covenant No. 39212002 with Ministkrio da Cultura 3.1-b. Construction of bays for- PRO-MOB: Finance 0.37 bus stops and pedestrian Ministry Authorization crossings Law No. 5,260 with Caixa Estadual SIA- AgCncia de Foment0 - RS 3.1-c. Rehabilitation of 7,247 CIDE: Federal Law No. 0.37 mz of streets and paving of 1 10,336 with Ministkrio da km of streets Fazenda 3.2-a. Acquisition of trucks & Pro- Vias: Contract No. 1.38 machines 02612007 with 3.2. Rural Road BANRISUL- Banco do Upgrading Estado do Rio Grande do SUI SIA 3.3. Water and 3.3-a Water main to connect ContractNo. 0215121- 0.42 Sanitation Services Arroio Pelotas with Sinot 0912006 with Ministkrio Station. da IntegraqBo Nacional 3.3-b Implementation of Contract No. 0194141- 0.17 automated urban drainage 7 112006 with Ministbrio system das Cidades through the Caixa EconBmica Federal- CEF Total: 6.60 108 PDMI: Pelotas Project Appraisal Document Table 8. Allocation of Loan Proceeds (a) and (b), and 3.2 (a) (2) (a) Works for Sub-component 1.1 (c), Sub- 13.13 75% component 2.1 (c) and (d), 2.2 (a) and @), 3.1 (d) and 3.2 (b) of the Project (b) Works for Sub-component 3.3 (c) of the 2.19 75% Project Unallocated 0.70 Front-end fee 0.05 I Total Project Costs 18.90 I 5. Proiect Implementation Arrangements The Borrower is the Municipality of Pelotas. The project will be coordinated by the Secretaria de Coordenaqgo e Planejamento da Prefeitura Municipal de Pelotas (Municipal Secretariat of Planning), under the overall arrangements ofthe PDMI. Implementing Secretariats: The other municipal implementing secretariats involved in project implementation include: Works; Urban Services; Rural Development, Economic Development, Environmental Quality, Administration and Finance, Security, Traffic and Transport; and the Attorney’s office. Their responsibilities in project execution are summarized below: 2. Income and Employment Generation Strategies, SME and 2.1 e 0 0 0 Cluster Support * 2.2 Technology Park 0 e 0 * 3. Infrastructure Services Immovements 109 PDMI: Pelotas Project Appraisal Document 3.1 Urban Road Upgrading 0 0 0 0 0 * 3.2 Rural Road Upgrading e * 3.3 Water and Sanitation 0 0 0 Services * Project Coordinating Unit The UGP was established by Municipal Law no 5.302, of 28 December 2006 (copy is available in project files). It is located and depends upon the Secretariat of Planning. The UGP will be in charge of coordinating activity projects across the different secretariats, supervising works, and approving payment requests of implementing agencies. Regular meetings will be organized with the Municipal Secretaries. More complex and strategic issues will be addressed during weekly meetings ofthe relevant Municipal Secretariats. The specific functions ofthe Pelotas PGU are to: Prepare and coordinate the execution of the municipal project implementation and procurements plan in conjunction with respective implementing municipal secretariats or departments. The procurement and implementation plans must be updated whenever necessary and at least once a year; Sequence and coordinate the execution of the works, services and procurement set forth in the Project Implementation Plan; Prepare the Monitoring and Evaluation Plan in order to monitor and evaluate the progress and achievements of the various projects on the basis of the outcome and impact indicators contained in the Logical Framework; Construct a database which will supply data for the different decision-making levels; Prepare technical and financial progress reports on the various project activities; Be responsible for financial management and generate the respective financial reports in order to ensure that all expenditure conforms to World Bank fiduciary and eligibility criteria. The financial management report system will be interlinked with the normal procedures employed by the municipality; Maximize the utilization of existing funds and resources and to seek new funding sources; Promote the dissemination of information on the project and its results to the community in general; Organize and deliver capacity building activities for technical staff of the municipalities and other beneficiaries ofthe project 110 PDMI: Pelotas Project Appraisal Document Composition and Organogram Project Coordination Unit and Staffing The organizational structure of the UGP will comprise a General Coordinator and Technical Staff for Architecture, Engineering, Environment, Social, Rural, Accounting, Legal, Financial Management, Economics and an assistant for administrative support. Of the 10 members of the UGP planned for at project launch, seven staff will be seconded for other municipal secretariats and three consultants will be hired. The functions of each member ofthe UGP are described in the PDMI PAD and Operational Manual. Org~n~gra~ada Unidade Gestora de Projetos - UGP 1 f V I f 6. Financial Management Risk Assessment and Arrangements A financial management risk assessment and arrangements for the municipality of Pelotas was carried out in loco on September 25-27, 2006 and January 08-09, 2007 and on September 13, 2007 ’. They are also based on the implementation arrangements presented in Annex 6 of the Program PAD and the detailed project description described in Annex 4 of the Program PAD. Even though individual ‘mini-PADS’ have been prepared for each loan, the overall Financial Management Arrangements for the Project, together with the FM arrangements for each of the four borrowers are summarized in Annex 7 of the Program PAD. Conclusion of the FM assessment: Pelotas financial management, satisfy the Bank’s minimum requirements and has acceptable financial management and disbursements arrangements in place to adequately control, manage, account and report about the funds to be allocated to this Project. The overall financial management risk associated with this project is considered Substantial, mostly related to the municipal and Implementing Agency capacities and lack of experience in the implementation of the financial management arrangements 8 Based on the Bank’s FMguidelines - Financial Management Practices in World Bank Financed Investments Operations as of Nov 03,2005 and other WB FM and Auditing documents. to review the FMarrangements and provide first training to staff. 111 PDMI: Pelotas Project Appraisal Document required by the Bank. Municipal However, with the arrangements and the action plan listed below, the remedial risk is rated as Moderate, enabling to provide relevant, timely and reliable information on it’s implementation, allowing the Bank to take pro-active actions to mitigate the associated risks, as shown in the Risk Framework below. There is no FM related condition of effectiveness. Strengths for project execution include: a) the commitment of the municipality to the project, b) good public sector FM arrangements in place; c) a supportive internal audit department, which checks all municipal transactions Table 10. Proiect Risks and Mitination Measures I Risk I H I S I M I L 1 RiskMitigationMeasures I Country specific X Sub-national (state) level X Entity specific No prior experience. Arrangements agreed to be closed I lxI I I follow up through Bank Supervision missions I Project specific I I 1x1 I I I Overall Inherent Risk I I I X I I I Implementing Agency 1x1 I Flow of Funds I I X I I I SOE disbursed based. I Staffing X Training in Bank financial management will be provided to UGP’s staff to be involved in the project financial management matters immediately following project effectiveness. - - Accounting procedures X I InternalExternal Audit I I I X I I I Information Systems X Although good FM system, needs to be updated to assure I - adequacy with project description Reporting & Monitoring X information/accountingsystem (SIM) is not ready to produce the said reports. It was agreed that the UGP will contact FATEC (responsible to develop the system) to find out the best alternative to run the said reports. Overall Control Risk 1x1 In order to mitigate the risks posed by the above-mentioned weaknesses includes: a) close supervision by the Bank FM team during the first year of project implementation will be required, b)Training in Bank financial management and disbursement procedures will be provided to UGP’s staff to be involved in project financial management matters immediately following project effectiveness, c) creation of a central unit (UAP) in Port0 Alegre will be created to provide technical assistance to the UGPs, d) Operational Manual, which shall include all financial management details (prior approved by the Bank) and e) review ofinternal control annual audit report, e The IFRs, SOE and SS were 112 PDMI: Pelotas Project Appraisal Document explained in details using the LOA and POA codes and accounts. The client connection presentation was provided. Project Coordination Unit and Staffing for FM Civil servants of the Municipality of Pelotas will be relocated to the UGP as soon as the project has become effective and will be complemented with consultants as needed. The UGP will be responsible for all FM and disbursement aspects related to the implementation of the project.and.wil1 have an accountant in charge of overseeing financial management matters under the project, as outlined in the PDMI Operational Manual with charts and details of all financial management functions and routines undertaken through UGP’s procedures. The UGP will liaise with the UAP and all relevant secretariats to manage and use the project’s resources and will also prepare IFRs for reporting purposes. Budgeting The UGP will have the responsibility of the preparation of the annual budgetary request for project funding. The budgeting process necessary for project implementation and disbursements is consolidated by the “Secretaria de Coordenaqiio e Planejamento da Prefeitura Municipal de Pelotas”. The information flows is through SIM - “Sistema de Informaqdes Municipais”, the municipality’s budgetary tool, where all public expenditures are compulsorily budgeted for, committed and recorded, and through which all payments are made. Budgetary allocations for all project components will be made under Secretaria de Coordenaqiio e Planejamento’s budget, but earmarked for use by the respective project beneficiaries. Project funds will be made available and released through SIM. Accounting, information system The SIM was acquired from FATEC - Fundaqtio de Apoio Tecnologico, public entity linked to the University of Santa Maria, RS. The SIM was developed by the municipal public information system’s company COINPEL (Cia Informatica de Pelotas) in order to improve the reporting framework. The municipality has the copyright of the system and IT support is carried out by COINPEL. The currently functioning modules of the system are protocol, budget and financial administration, general services, public module and human resources. The municipality’s budgeting process necessary for project implementation and disbursements will use the same IT system (SIM) as the Municipality. A specific cost center will be created in the municipal budget in order to provide the required project financial information by component/activity. The IFRs will also be issued through this system. COINPEL is responsible for IT support and operational and maintenance costs are charged through COINPEL’S cost center. The municipality will also develop monitoring module to evaluate the project’s physical performance. The UGP will be in charge of monitoring activities ofthe project. 113 PDMI: Pelotas Project Appraisal Document Financial Reporting - IFRs The UGP will prepare quarterly IFRs for management and reporting purposes as detailed in the PDMI Operational Manual and the Umbrella PAD, with expenditures figures to be stated by quarter, accumulated for the annual and accumulated for the project. IFRs will be submitted to the Bank up to 45 days after the closing of each quarter: IFR 1A - Source and application offunds by cost category as per Project Agreement, IFR 1B - Statement ofInvestments by Components and activities, Internal Audit CAGEMP (Controladoria e Auditoria Geral do Municipio de Pelotas), which is linked to the Mayor’s Office and performs ex-post controls for the municipality, will conduct the internal audit function of the project in accordance to the procedures outlined in the PDMI Operational Manual. A copy of this report will be sent to the WB by the end of each calendar year. This report will be assessed jointly with the external audit report and the IFRs to allow the Bank to have more information on project implementation and associated risks. External Audit The UGP will be responsible to provide the Bank annually with consolidated financial statements for the project including use of counterpart funds, audited by an independent auditing firm acceptable to the Bank, and under terms and conditions satisfactory to the Bank, which will include an opinion on the project financial statements and a management letter on the internal control structure. Procedures for this audit are detailed in the PDMI Program PAD and the Operational Manual. The Municipality of Pelotas is also audited, ex post, at least once a year, by the state’s Court of Auditors- TCE-RS. Disbursements and Flow of Funds An operational account in R$ will be opened in a commercial bank. Payments for works, goods and services will be made directly from this account for eligible payments to suppliers and contractors for project expenditures similar to other expenditures. Counterpart funds will be disbursed directly from the Municipal Treasury’s single account to contractors and service providers. The Borrower will open, maintain and operate under conditions acceptable to the Bank, a Designated Account in US dollars (US$), in a commercial bank acceptable to the Bank. An initial authorized Designated Account (DA) ceiling of approximately US$l.8 million will be established and could eventually be increased ifjustifiable by operational reasons. The minimum amount of each application with respect to direct payments by the Bank and reimbursements will be approximately 20% of the DA ceiling. LOA will establish the DA ceiling and minimum amount in the disbursement letter that will be discussed and confirmed with the Borrower during negotiations. Replenishment applications should be submitted by the Borrower ideally once a month but generally not latter than once every four months, and may include reconciled bank statements as well as other appropriate supporting documents. 114 PDMI: Pelotas Project Appraisal Document SOEs will be prepared on the basis of payments actually made through bank payment orders issued by Secretariat of Planning under instructions from the UGP. Bank orders reports will be drawn from the SIM system. SOE thresholds will be confirmed with procurement thresholds for consulting services and for goods and works. Supervision of FM During the first year, financial management supervision will take place at least twice a year and will include, among others, (a) reviewing of quarterly IFRs; (b) reviewing of the auditor's report and follow-up of issues raised by auditors in the management letter, as appropriate; (c) participation in project supervision, following up on any financial reporting and disbursement issues, (d) following up on internal control audit report, (e) following up on respective action plans. By the end of the mission, a financial management supervision report should be prepared, discussed with the borrowers and forwarded to the project team leader together with the ISR. 7. Procurement Arrangements As part of the PDMI, Pelotas is responsible for implementing its respective project, the coordination of which will be done with support by a management unit (Unidade de Gestio do Projeto - UGP), located in an existing municipal structure (Secretariat of Planning). The UGP will plan, implement, supervise and monitor all procurement tasks carried out by the respective Cornissao de Licitu@o under the project. In addition, the integrity of the programmatic approach will be guaranteed through the establishment of a high level coordination body and technical council comprising representatives of the all five municipalities as well as through the joint hiring of a Unidade de ArticulaGao do Program (UAP). Procurement for the PDMI that Pelotas will be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits", published in May 2004 and revised in October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" published in May 2004 and revised in October 2006); and the provisions stipulated in the Loan Agreement. The general description of various items under different expenditure categories is described in the main PDMI PAD. The overall risk assessment for the municipality of Pelotas is rated as high. Remedial actions have been identified in the attached Action Plan, and these were to be made effective in each municipality, independently of its risk range, to mitigate procurement risks. The measures to overcome these identified risks and which have been agreed are: 115 PDMI: Pelotas Project Appraisal Document Table 1 1. Action Plan to Mitigate Procurement Risks Activi Action Plan Time frame No. 1 Include in the PDMI Operations Manual the design of the entire procurement Before cycle and arrangements including clearances and approvals and description of appraisal. the roles of all participant agencies. This document forms part of the Loan Agreement 2 (i)UGP to second or employ staff to work with procurement to work as Before procurement coordinator; effectiveness. (ii)UAP to hire an ad hoc procurement specialist experienced in Bank’s financed projects to train, coordinate, monitor, and to proceed with quality control ofthe work carried out by UGP procurement coordinators in each participating municipality. The procurement specialist can be hired as an ad hoc consultant to work mainly on specific complex contracts or on a full-time basis. 3 Purchase andor make available equipment for the procurement staff of UGP, Before and Comissces de Licitaqdes including: (a) computer equipment with internet negotiations access; (b) printer; (c) necessary software; (d) office furniture and file cabinets 4 Provide an ample office space for the Comissdes de Licitaqdes and the Before procurement staff at the UGP, and a reserved area for the bidding opening effectiveness ceremonies. The office spaces should consider the privacy that any bidding committee required. 5 Finalize the procurement plan for at least the first eighteen months of project Before implementation negotiations 6 Develop/adapt a computerized procurement management system that shall be Before able to produce reports, including the procurement plan. effectiveness 7 WB to train of UGP staff on Bank-procurement policies. After effectiveness Procurement Plan and Methods: Pelotas is preparing its procurement plan for the activities to be carried out during the first 18 months of project implementation. Upon completion, this plan will be approved by the Bank and filed in the project files, and will also be available in the PDMI database and in the Bank’s external website. The procurement and consultant selection plans will be updated annually, and shall be submitted to the Bank in the first quarter of December of each year. The procurement plan should consist of: (i)goods, works and non-consulting services, including contract packaging, applicable procedures and process scheduling; and (ii)a consultant and training providers selection process plan for the projects’ training and consultant services, including contract packaging, applicable procedures, and selection criteria. The municipality expressed its intention in engaging the Universidade Federal de Pelotas, and the Universidade Catdlica de Pelotas to undertake technical assistance and training activities. During project preparation, the municipality expressed its intention in contracting the following entities to undertake technical assistance and training activities including: business administration, financial management, market strategies, quality control, 116 PDMI: Pelotas Project Appraisal Document marketing, etc. Each case will be reviewed by the Bank upon receiving the respective justification as required by the procurement Guidelines: (i) Fundaqlio da Universidade Federal de Pelotas (UFP), (ii) FundaqGo da Universidade Catdlica de Pelotas; (iii) Fundaqlio da Pontijkia Universidade Catdlica de Pelotas (PUC-Pe); (iv) Sociedade Educacional Noiva do Mar (SENM); (v) Centro Federal de Educaqlio Tecnoldgica de Pelotas (CEFET-Pe) (to contract professors, technical staff and interns to provide technical assistance and capacity building to municipal staff ofPelotas, as well as, to hire students and trainees from these universities to support the municipality with project related activities in Pelotas; (vi) Serviqo Nacional de Aprendizagem Comercial (SENAC); (vii) Serviqo Brasileiro de Apoio ds Micro e Pequenas Empresas (SEBRAE), and (viii) Serviqo Nacional de Aprendizagem da Indzistria (SENAI). Seemingly, Pelotas requested the sole sourcing under par. 3.9 (a) of Guidelines for Banco do Nordeste do Brad (BNB) to support the start-up costs and initial operation of the micro-credit program (Crediamigo) in the municipality and the justification will be submitted to the Bank prior to signing the contract, as required by the Bank’s Guidelines. 8. Environmental and Social Assessment Institutional Framework The Municipality of Pelotas is qualified by the State Environmental Authority, CONSEMA, to license activities with local impacts. The municipality has a Municipal Environmental Fund (FMMA) and a Council of Environmental Protection (COMPAM). The Municipal Secretary of Environmental Quality (SQA), created in 2001, is responsible for environmental protection, inspection and licensing, and oversees environmental licensing and inspection, according to the environmental legislation and guidelines established by COMPAM. Pelotas is working on a covenant with FEPAM to acquire further responsibilities over environmental licensing (beyond activities with strictly local impacts). Environmental and Social Assessment During project preparation it was agreed that the SQA staff and social workers of the housing department of the municipality would be responsible for evaluating and monitoring project investments with strictly local impacts and will work with state agencies in project investments with larger impacts. The SANEP will screen and monitor investments in the water and sanitation sector. The detailed screening of all first 18 month investments confirmed that the project investments in Pelotas will have strictly local impacts. During project preparation, 53 road rehabilitation and/or paving projects were screened, none of which required widening of existing right-of-ways or the acquisition or displacement of people. The city is also proposing the rehabilitation ofthe Dom Ant8nio Zattera Park, landscaping and rehabilitation of park facilities and the Lobo da Costa 117 PDMI: Pelotas Project Appraisal Document Street, which will become a pedestrian priority street. Two small bridges are included in the priority investments that will provide improved access to poor neighborhoods and will have localized impacts that are going to be mitigated through the application of the EMSF and specific construction guidelines. Investments in road infrastructure will happen along existing right-of-ways not requiring any displacement of people. The main concern is with local access during construction and traffic safety issues during operation. The city is including sidewalk improvements and arborization programs in the proposed projects. The Safety of Dams is being analyzed since the project includes water supply networks that will draw directly from two water reservoirs that will be used for water supply in the city. The results of this analysis will be reviewed by the Bank prior to any investment in wss. Pelotas is recovering a number of historical buildings with federal funds from the Monumenta Program. This program, with assistance from UNESCO, aims at recuperating and preserving historic building and ensures the original architecture is respected as required by Bank policies. Furthermore, the city has recently purchased an old shopping mall building that will become the new main Administrative Complex of the City. The building is a modern high-rise building in the downtown area that has been empty for a number of years. Under Component 1, the project will support works to improve the internal layout and infrastructure. These renovation projects are expected to have mostly localized impacts that can be mitigated through proper management and physical protection around the construction site. Expansion of the Camelodromo - the existing market houses nearly 200 vendors and will be expanded for other street vendors. No land acquisition is necessary since the site is clear and currently used as a parking area for people coming to the Camelodromo and occasional events. The project will include alternative plans for parking and access to avoid conflicts with surrounding streets. None of the proposed investments in the first 18 months in Pelotas requires economic or physical displacement of people nor are expected to negatively affect cultural property. The project’s Resettlement Policy Framework applies to unforeseen economic or physical displacement of people and chance find guidelines for archeological and cultural artifacts are included in the EMSF. The safeguard procedures are common for all municipalities. Prior to implementing projects that will draw existing dams for water supply purposes, the Municipality of Pelotas will have to inspect and evaluate the safety status of the existing dams and, if necessary, provide recommendations and remedial measures to improve safety of these dams. 118 PDMI: Pelotas Project Appraisal Document Capacity Assessment From the information provided and assessment during project preparation, the SQA, SANEP and social workers are among the most qualified to monitor and control the environmental and social aspects of the proposed investments in the project. During project implementation, special attention will be given in further strengthen integration of environmental and social aspects in planning and implementing infrastructure investments and strengthen citizen participation in the overall process. 119 MAP SECTION IBRD 35554 57° 56° 55° 54° 53° 52° 51° 50° ° ° 27 27 BRAZIL RIO GRANDE DO SUL INTEGRATED MUNICIPAL Uruguai SANTA Erexim CATARINA DEVELOPMENT PROGRAM (PDMI) ARGENTINA y Santa Rosa Urugua PROJECT MUNICIPALITIES ° 28° 28 MAIN ROADS Passo Fundo RAILROADS Santo Carázinho Ângelo Ijují SELECTED CITIES STATE CAPITAL Casca Vacaria MUNICIPAL BOUNDARIES São Borja Cruz Alta STATE BOUNDARIES INTERNATIONAL BOUNDARIES Antonio Prado 29° 29° Santiago Bento Gonçalvez Caxias do Sul Gramado Lajeado S. Francisco Santa Cruz de Paula do Sul Montenegro Santa Alegrete Maria Novo Hamburgo São Leopoldo Uruguaiana SANTA Esteio Sapucaia do Sul MARIA URUGUAIANA Canoas 0 153045607590 30° Cachoeira Guaiba PORTO ALEGRE 30° KILOMETERS do Sul PORTO Rosário do Sul ALEGRE y São Gabriel This map was produced by the Map Design Unit of The World Bank. Urugua The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. Santana do Livramento Dom s Pedrito o t 60° 40° a NICARAGUA 31° P 31° COSTA RICA TRINIDAD s & TOBAGO BAGÉ o R.B. de d VENEZUELA PANAMA GUYANA Bagé a Fr. Guiana n COLOMBIA SUR. u g a PELOTAS L 0° 0° ECUADOR Pelotas ATLANTIC PERU ° ° BRAZIL 32 Rio Grande 32 BOLIVIA RIO Brasília URUGUAY GRANDE 20° 20° OCEAN PAR PACIFIC AGU CHILE AY Laguna OCEAN Mirim RIO GRANDE ATLANTIC DO SUL ARGENTINA OCEAN URUGUAY 33° 33° 40° 40° FALKLAND ISLANDS (MALVINAS) A DISPUTE CONCERNING SOVEREIGNTY OVER THE ISLANDS EXISTS BETWEEN ARGENTINA WHICH CLAIMS THIS SOVEREIGNTY AND THE U.K. WHICH ADMINISTERS THE ISLANDS 58° 57° 56° 55° 54° 53° 52° 51° 50° 49° 80° 60° 40° JUNE 2007