Document of The World Bank Public Disclosure Authorized Report No. 14490-BO STAFF APPRAISAL REPORT BOLIVIA Public Disclosure Authorized RURAL WATER AND SANITATION PROJECT Public Disclosure Authorized DECEMBER 15, 1995 Public Disclosure Authorized Country Department III Environment and Urban Development Division Latin America and the Caribbean Regional Office Currency Equivalents Currency unit = Boliviano US$1 = 4.74 Bolivianos (March 31, 1995) All figures in U.S. dollars unless otherwise noted Weights and Measures Metric Fiscal Year January 1 - December 31 Abbreviations and Acronyms DINASBA National Directorate of Water and Sanitation IDB International Development Bank NFRD National Fund for Regional Development NSUA National Secretariat for Urban Affairs OPEC Fund Fund of the Organization of Petroleum Exporting Countries PROSABAR Project Management Unit within DINASBA UNASBA Departmental Water and Sanitation Unit SIF Social Investment Fund PPL Popular Participation Law UNDP United Nations Development Programme Bolivia Rural Water and Sanitation Project Staff Appraisal Report Credit and Project Summary .................................. iii I. Background .................................. I A. Socioeconomic setting .................................. 1 B. Legal and institutional framework .................................. 1 C. Rural water and sanitation ............................. , , , , , , . 3 D. Lessons learned ............................. 4 II. The Project ............................. 5 A. Objective ............................. 5 B. Description ............................ 5 C. Costs ............................ 7 D. Economics .. 7..........................7 E. Financing .. 9..........................9 F. Environment ............................ 10 G. Risks ............................ 11 III. Project Implementation ............................ 12 A. Arrangements ............................ 12 B. Selection criteria ............................. 13 C. Supervision ............................ 13 D. Procurement .......... 13 E. Disbursement .......... 15 F. Audits ..................... 16 G. Reporting ..................... 16 IV. Agreements and Recommendation ., 17 This report is based on the findings of an appraisal mission that visited Bolivia from March 27 to April 7, 1995. The mission was comprised of Messrs./Mmes. Abel Mejia, Caroline van den Berg, Eid Nouhra, Miriam Vasquez (LA3EU); Jennifer Sara, Phillipe Auffret, Marco Quiroga (TWUWS); Mary L. Gonzalez (LATEN); Wendy Quarry, and Roger Young (Consultants). Gianni Brizzi and Jennifer Sara were responsible for project preparation until October 1994. Jose Decker (Coordinator), Alfonso Alvdstegui, Lourdes Elena Ruiz, Victor Moscoso, and Abraham L6pez comprised the project preparation team in Bolivia. Vijay Jagananathan (TWLUWS) and Alex Bakalian (LAIEU) are peer reviewers. The Sector Division Chief is Eugene D. McCarthy, the Project Advisor is Robert Crown, and the Department Director is Paul Isenman. Annexes 1. Bank Loans/ IDA Credits to Bolivia .......................................... 21 2. Experience from Previous Projects and Lessons Learned .......................................... 22 3. Water and Sanitation Sector .......................................... 24 4. Institutional Arrangements .......................................... 25 5. Technology Options .......................................... 27 6. Project Design .......................................... 31 7. Technical Assistance .......................................... 35 8. Detailed Project Cost .......................................... 42 9. Indigenous and Gender Issues .......................................... 44 10. Economic Analysis .......................................... 50 11. Revenue Projections .......................................... 63 12. Eligibility Criteria .......................................... 67 13. Project Flows .......................................... 69 14. Implementation Manual Outline .......................................... 74 15. Reporting .......................................... 77 16. Supervision .......................................... 79 17. Disbursement Schedule .......................................... 81 18. Monitoring Indicators .......................................... 82 19. Documents in Project Files .......................................... 86 Maps .......................................... 87 IBRD 27093 - iii - Bolivia Rural Water and Sanitation Project Staff Appraisal Report Credit and Project Summary Borrower: Republic of Bolivia. Benificiary: Small rural communities throughout the country. Executing agency: The National Directorate for Water and Sanitation (DINASBA), the main institution for the water sector, will be responsible for overall project implementation. DINASBA will also manage the institutional component of the project. The Social Investment Fund (SIF) will manage the investment component of the project. Amount: SDR 13.4 million (US$20 million equivalent) including up to SDR 1.13 million to be financed retroactively. Terms: Standard International Development Association (IDA) terms, with 40 years' maturity and 10 years' grace. Service charge: 0.75 percent, less any waiver. Commitmentfee: 0.50 percent on undisbursed credit balances, beginning 60 days after signing, less any waiver. Financingplan: See para. 37. Poverty category: Since poverty alleviation is the main goal of the project, it targets the poorest rural Bolivians, those in the highlands of the Sierra and Andean Valles, where the population is entirely indigeneous totaling baout 3.7 million (either Aymara or Quechua). The project will focus on the mobilization of communities involved and on the active particiaption of women in the planning, execution, and operation of water and sanitation facilities in all departments of the country. Rate of return: The internal economic rate of return of the project is estimated to be 13 percent. Staff Appraisal Report: No. 14490-BO Maps: IBRD 27093 ProjectIdentification Number: BO-PA-6206 I. Background A. Socioeconomic setting 1. Bolivia's poor have borne the burden of the economic austerity programs of the past nine years. The economic growth of the past five years, with per capita income increasing by one percent a year, has not reduced poverty levels-more than 70 percent of the population still lives below the poverty line. Despite the economic reforms made since the adoption of a new constitution in 1985, the country remains one of the poorest in Latin America. Inequalities persist within the overall population and between urban and rural dwellers. Health, nutrition, literacy, and water and sanitation indicators, among others, are still very low. A recent report from the United Nations International Fund for Agricultural Development found that 97 percent of the rural population-more than 3 million people-is living below the poverty line. 2. The current administration supports the sound macroeconomic policies initiated by previous administrations to accelerate growth and to reduce poverty, but it recognizes that high growth will not reduce poverty unless its benefits are distributed equitably. Reforms were introduced in April 1994 to achieve short-term improvements in the living standards of the poor, particularly in rural areas. The Popular Participation Law is changing dramatically the allocation of resources among municipalities-an unprecedented step toward more equitable and efficient use of fiscal resources. 3. But the economy remains fragile. In 1994 the fiscal deficit-at 3.2 percent of gross domestic product (GDP)-was significantly lower than in 1993. Yet, the external position is not strong, with the trade balance recording a large deficit in 1994-the twelve-month current account deficit was 10 percent of GDP at the end of 1994. The economy is also vulnerable to exogenous factors. Adverse changes in international commodity prices and external aid had a severe impact on the economy, and this impact is felt mostly among the poor, particularly in rural areas. Economic hardships and widespread poverty continue to induce urbanization. Population growth in rural Bolivia has stagnated, while the urban population grows by 4 percent a year. As a consequence, the rural population comprised 41 percent of the country's total population in 1993, from 59 percent in 1970. B. Legal and institutionalframework 4. A major institutional restructuring of the water and sanitation sector was initiated in 1991. The government removed itself from service delivery functions, previously under the Corporacionde Aguas and the Directorate of Environmental Sanitation of the Ministry of Health, by transferring most activities related to construction, human resources development, and service administration to the private sector and nongovernmental organizations. In 1993 the government consolidated the responsibility for leading the sector into the National Directorate for Water and Sanitation (DINASBA) in the National Secretariat of Urban Affairs, under the Ministry of Human Development. At the department level, regional development corporations, to be replaced by departmental governments as of January 1996 when the new Decentralization Law enters into effect, created local water and sanitation units. 5. DINASBA, created in November 1991, is the main institution for water, sewerage, and solid waste services. Its responsibilities include prioritizing projects at the national level, preparing national plans and -2 - investment programs, coordinating