Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 32941-BR PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$57.6 MILLION Public Disclosure Authorized TO THE FEDERAL DISTRICT WITH THE GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL FOR A BRASILIA ENVIRONMENTALLY SUSTAINABLE PROJECT Public Disclosure Authorized July 6,2005 Brazil Country Management Unit Environmentally and Socially Sustainable Development Sector Management Unit Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without the World Bank authorization. Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange Rate Effective July 6,2005) Currency Unit Real R$l.OO US$0.43 R$2.34 US$l.OO FISCAL YEAR January 1 - December 3 1 ABBREVIATIONS AND ACRONYMS GDF Governent of the Federal District Govern0 do Distrito Federal DF Federal District Distrito Federal RIDE Integrated economic development region Regiiio Integrada de Desenvolvimento Economico GEF Global Environmental Fund W&S Water and sanitation ADASA Water and sanitation regulatory agency Agencia Reguladora de Agua e Saneamento do DF PDOT Territorial management plan Plano de Ordenamento Territorial ZEIS Zona de Interesse Social SANEAGO State of Goifis water and sanitation Empresa de saneamento de GoiAs company CAAB Brazilian environmental water and Companhia Ambiental de Aguas Brasileiras sanitation company ZHIS Zona Habitacional de Interesse Social CEF Federal financing agency Caixa Economica Federal SEDUH Urban and housing development agency Secretaria de Desenvolvimento Habitacional e Urbano BELACAP GDF solid waste department ServiGo de Ajardinamento e Limpeza Urbana SEMARH GDF environmental agency Secretaria de Estado do Meio Ambiente e Recursos Hidricos CAESB GDF Water and sanitation company Compania de Saneamento Ambiental do Distrito Federal so GDF civil works secretariat Secretaria de Estado de Obras ADS GDF social development agency Agencia de Desenvolvimento Social NOVACAP GDF drainage and paving department Cia Urbanizadora da Nova Capital do Brasil SECAP GDF financing identification secretariat Secretaria de Estado de CaptaGBo de Recursos IBAMNDF Federal Government environmental agency Intituto Brasileiro do Meio Ambiente e dos - department assigned to the DF Recursos Naturais Renovgveis - Gerencia Executiva do DF Vice President: Pamela Cox Country Managermirector: Vinod Thomas SMUDirector: John Redwood Sector Manager: Abel Mejia Task Team Leader: Paula Dias Pini FOR OFFICIAL USE ONLY BRAZIL Brasilia Environmentally Sustainable Project CONTENTS Page A . STRATEGIC CONTEXT AND RATIONALE ...................................................................... 1 1. Country and sector issues ................................................................................................ 1 2 . Rationale for Bank involvement ...................................................................................... 3 3 . Higher level objectives to which the project contributes ................................................. 4 B . PROJECT DESCRIPTION ..................................................................................................... 4 1. Lending instrument ........................................................................................................... 4 2 . Project development objective and key indicators .......................................................... 4 3 . Project background .......................................................................................................... 5 4 . Project Components description .................................................................................... 10 5 . Lessons learned and reflected in the project design ...................................................... 14 6 . Alternatives considered and reasons for rejection ......................................................... 15 C . IMPLEMENTATION............................................................................................................ 16 1. Institutional and implementation arrangements............................................................. 16 2 . Monitoring and evaluation of outcomes/results ............................................................ 16 3 . Sustainability ................................................................................................................. 16 4 . Critical risks and possible controversial aspects ........................................................... 17 5 . Loankredit conditions and covenants ........................................................................... 17 D. APPRAISAL SUMMARY .................................................................................................... 17 1. Economic and financial analyses ................................................................................... 17 2 . Technical., ...................................................................................................................... 19 3 . Fiduciary ........................................................................................................................ 21 4 . Social ............................................................................................................................. 21 5 . Environment .................................................................................................................. 22 6 . Safeguard policies .......................................................................................................... 22 7 . Policy Exceptions and Readiness .................................................................................. 23 Annex 1: Country and Sector or Program Background................................................................. 24 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies .......................... 28 Annex 3: Results Framework and Monitoring .............................................................................. 29 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 4: Detailed Project Description .......................................................................................... 35 Annex 5: Project Costs .................................................................................................................. 47 Annex 6: Implementation Arrangements ....................................................................................... 48 Annex 7: Financial Management and Disbursement Arrangements ............................................. 51 Annex 8: Procurement Arrangements ........................................................................................... 56 Annex 9: Economic and Financial Analysis .................................................................................. 59 Annex 10: Fiscal Analysis ............................................................................................................. 67 Annex 11: Safeguard Policy Issues ............................................................................................... 73 Annex 12: Project Solid Waste Disposal and Clean Development Mechanism - CDM............... 89 Annex 13: Social Analysis ................................................................................ :. ........................... 94 Annex 14: Project Preparation and Supervision ............................................................................ 98 Annex 15: Documents in the Project File...................................................................................... 99 Annex 16: Statement of Loans and Credits ................................................................................. 100 Annex 17: Country at a Glance ................................................................................................... 104 Annex 18: Maps ........................................................................................................................... 106 iv A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues Urban environment issues in large urban areas of Brazil are imposing increasingly large costs to society in terms of additional infrastructure to guarantee reliable water supply, and investments to address health impacts of pollution, and reduce damage associated with flooding. To address these urban environment issues, a long-term comprehensive strategy is required. This is the case of the largest metropolitan areas of Brazil like Sgo Paulo, Belo Horizonte, Curitiba, and Recife, but it is also an emerging demand from fast growing cities such as Brasilia, and medium size cities like Betim, Uberaba, Cubatgo which are experiencing similar urban environment issues. Brasilia is already the tenth largest urban concentration in Brazil, and despite its well-known plan for urban development, it shows high levels of socioeconomic inequality, uncontrolled urban expansion, and environment degradation, which are found in most of the largest metro areas of the country. In addition, the urban sprawl in Brasilia occurs at the expense of the degradation of the most stressed ecosystem of the country, the Cerrado, which is compromising its natural capacity to provide key environmental services to support a sustainable