Document of The World Bank Public Disclosure Authorized FOR OFFICIAL USE ONLY Report No: 43281 PROJECT APPRAISAL DOCUMENT Public Disclosure Authorized ON A PROPOSED LOAN IN THE AMOUNT OF US$20.8 MILLION TO THE STATE OF SERGIPE WITH A GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL Public Disclosure Authorized FOR A SERGIPE STATE INTEGRATED PROJECT: RURAL POVERTY August 25,2008 Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective May 14,2008) Currency Unit = Real (R$) R$1.00 = US$0.6017 US$l.OO = R$1.6620 FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS ADEMA Agencia Estadual de Meio Ambiente (State Secretariat of Environment) CA Community Association CDD Community-Driven Development CECMA Environmental Protection Council CEF Caixa EconGmica Federal CEHOP State Company for Housing and Public Works CHESF S8o Francisco River Hydro-Electric Company COFIEX ComissCo de Financiamentos Externos (External Financing Commission) CONDEM Conselho de Desenvolvimento Municipal (Municipal Council) COOPIR Coordination for Promotion of Policies for Racial Equality CPS Country Partnership Strategy DES0 Sergipe Sanitation Company EMBRAPA Brazilian Agricultural Research Company FECAMP Federal University of Campinas (Sa0 Paulo) FETASE Sergipe State Federation of Rural Labor Unions FMR Financial Management Reports FUNAI National Indian Foundation FUNASA National Water and Sanitation Foundation HDI-M Municipal Human Development Index IBAMA Brazilian Environmental Institute ICMS Sales Tax on Goods and Services ICR Implementation Completion Report IEG World Bank Independent Evaluation Group IFR Interim Un-audited Financial Reports INCRA National Land Reform Institute ISDS Integrated Safeguards Data Sheet MC Municipal Council (CONDEM) MDA Ministry of Agrarian Development FOR OFFICIAL USE ONLY MIS Management Information System NCB Nacional Competitive Bidding NRDP Northeast Rural Development Program NTGA Technical Unit for Environmental Guarantees (in PRONESE) O&M Operation and Maintenance PDO Project Development Objective POA Project Annual Operating Plan PPA State Multi-annual Investment Program PRONAF National Program for Support to Family Agriculture PRONESE Sustainable Development Company of Sergipe RPAP Rural Poverty Alleviation Program RPRP Rural Poverty Reduction Program SEAGRI State Secretariat of Agriculture SECAD Secretariat of Continuing Education, Literacy and Diversity SEDETEC Secretariat of Economic Development, Science and Technology SEIDES State Secretariat for Inclusion, Assistance and Social Development SEINFRA State Infrastructure Secretariat SEPLAN State Secretariat of Planning SEPPIR Secretariat for Promotion of Racial Equality SIL Specific Investment Loan SISAP State of Sergipe Audit Tribunal Vice President: Pamela Cox Country Director: John Briscoe Sector Director: Laura Tuck Sector Manager: Ethel Sennhauser Task Team Leader: Jorge A. Muiioz This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. BRAZIL Sergipe State Integrated Project: Rural Poverty CONTENTS Page I. STRATEGIC CONTEXT AND RATIONALE ............................................................... 11 A . Country and sector issues .................................................................................................. 11 B. Rationale for Bank involvement ....................................................................................... 12 C . Higher level objectives to which the project contributes .................................................. 13 I1. PROJECT DESCRIPTION ........................................................................................... 13 A . Lending instrument ........................................................................................................... 13 B. Program Objective and Phases ......................................................................................... 13 C . Project development objective and key indicators ........................................................... 14 D. Project components ........................................................................................................... 14 E. Lessons learned and reflected in the project design ......................................................... 21 F. Alternatives considered and reasons for rejection ............................................................ 23 I11. IMPLEMENTATION .................................................................................................... 23 A . Partnership arrangements (if applicable) .......................................................................... 23 B. Institutional and implementation arrangements., .............................................................. 23 C . Monitoring and evaluation of outcomeshesults ................................................................ 26 D. Sustainability .................................................................................................................... 26 E. Critical risks and possible controversial aspects............................................................... 27 F. Loadcredit conditions and covenants ............................................................................... 28 IV. APPRAISAL SUMMARY ............................................................................................. 28 A . Economic and financial analyses ...................................................................................... 28 B. Technical ........................................................................................................................... 31 C . Fiduciary ........................................................................................................................... 31 D. Social ................................................................................................................................ 31 E. Environment., .................................................................................................................... 34 F. Safeguard policies ............................................................................................................. 35 G. Policy Exceptions and Readiness ..................................................................................... 36 Annex 1: Country and Program Background.......................................................................... 37 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 44 Annex 3: Results Framework and Monitoring........................................................................ 45 Annex 4: Detailed Project Description...................................................................................... 49 Annex 5: Productive Subprojects .............................................................................................. 58 Annex 6: Project Costs ............................................................................................................... 64 Annex 7: Implementation Arrangements ................................................................................. 65 Annex 8: Financial Management and Disbursement Arrangements..................................... 76 Annex 9: Procurement Arrangements ...................................................................................... 82 Annex 10: Economic and Financial Analysis ........................................................................... 88 Annex 11: Safeguard Policy Issues ............................................................................................ 95 Annex 12: Project Preparation and Supervision ................................................................... 115 Annex 13: Documents in the Project File ............................................................................... 116 Annex 14: Statement of Loans and Credits ............................................................................ 117 Annex 15: Country at a Glance ............................................................................................... 121 Annex 16: Map No. 36236 ....................................................................................................... 122 BRAZIL SERGIPE STATE INTEGRATED PROJECT: RURAL POVERTY PROJECT APPRAISAL DOCUMENT LATIN AMERICA AND CARIBBEAN LCSAR Date: August 25,2008 Team Leader: Jorge A. Munoz Country Director: John Briscoe Sectors: General agriculture, fishing and Sector Director: Laura Tuck forestry sector (70%); Power (1 0%); Water Sector Manager: Ethel Sennhauser supply (10%); Sub-national government administration (1 0%) Themes: Rural services and infrastructure (P);Participation and civic engagement (P);Rural non-farm income generation (P);Rural policies and institutions (S) Project ID: P110614 Environmental screening category: Partial Assessment Lending Instrument: Specific Investment Loan [XI Loan [ 3 Credit [ ]Grant [ ]Guarantee [ 3 Other: For Loans/Credits/Others: Total Bank financing (US$m.): 20.80 Proposedproposed terms:L FSLFell Borrower 2.77 1.06 3.83 International Bank for Reconstruction and 17.93 2.87 20.80 Development Local Communities 2.42 0.00 2.42 Total: 23.12 3.93 27.05 Borrower: State of