Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 53980-SV PROJECT APPRAISAL DOCUMENT ON A Public Disclosure Authorized PROPOSED LOAN IN THE AMOUNT OF US$SO MILLION TO THE REPUBLIC OF EL SALVADOR FOR A LOCAL GOVERNMENT STRENGTHENING PROJECT Public Disclosure Authorized April 29,2010 Sustainable Development Department Central America Country Management Unit Latin America and the Caribbean Region Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Exchange Rate Effective - April 12,2010 Currency Unit = US$1 = US$1 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ADESCO Community Association AECID Spanish Development Agency ANDA National Aqueduct and Sewerage Administration BCR Central Reserve Bank CI Inter-institutional Project Committee CFAA Country Financial Accountability Assessment CNE National Energy Council COMURES Municipalities Corporation of El Salvador CONADEL National Commission of Local Development CPS Country Partnership Strategy DA Designated Account DC Decentralization Committee DGT General Treasury Directorate DPL Development Policy Loan DRM Disaster Risk Management EA Environmental Assessment ECLAC Economic Commission for Latin America and the Caribbean ES Environmental Services EU European Union FIS Social Investment Fund FISDL Social and Local Development Investment Fund FM Financial Management FMA Financial Management Assessment FODES Economic and Social Development Fund (Official transfer mechanism from National Government to Municipalities) FONASA Environmental Services Fund FOVIAL Highway Maintenance Fund FUNDAUNGO Dr. Guillermo Manuel Ungo Foundation -. GOES.-._. _.__.__ Government of-El Salvador __._ . _.- .--. GTZ German Technical Cooperation IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding IDA International Development Association IDB Inter-American Development Bank IFR Interim Financial Report IMF International Monetary Fund INBI Index of Unsatisfied Basic Needs IPPF Indigenous Peoples Planning Framework i FOR OFFICIAL USE ONLY ISDEM Salvadoran Institute for Municipal Development KfW German Promotion Bank LACAP Public Administration Procurement and Contracting Law LG Local Government MA Municipal Adviser M&E Monitoring and Evaluation MAG Ministry of Agriculture MARN Ministry of the Environment and Natural Resources MDP Muni ci p a1 D eve1opmen t P 1an MFA Municipal Framework Agreement MFF Municipal Fiduciary Framework MH Ministry of Finance MOP Ministry of Public Works NCB National Competitive Bidding NGO Non-Governmental Organization OM Operational Manual PDNA Post Disaster Needs Assessment PDO Project Development Objective PFM Public Financial Management PIP Project Implementation Plan POA Annual Operating Plan PROMUDE-GTZ Decentralization and Local Development Program of the German Agency of Technical Cooperation RECODEL Network of Donors for Local Development in El Salvador RP Resettlement Plans RPF Resettlement Policy Framework SAE Secretariat of the Presidency for Strategic Affairs SAFI Government’s Integrated Financial Management System SAFIMU Municipal Finance System SBD Standard Bidding Documents SEPA Procurement Plan Execution System SIL Specific Investment Loan SOE Statements of Expenditure SRfP Standard Request for Proposals SSDT Subsecretariat for Territorial Development and Decentralization ST Technical Secretary of the Presidency TA Technical Assistance TOR Terms of Reference UACI Institutional Procurement and Contracting Unit UFI Institutional Financial Unit UNDP United Nations Development Programme USAID United States Development Agency VIP Ventilated Improved Pits WB World Bank W&S Water and Sanitation 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. Vice President: Pamela Cox Country Director: Laura Frigenti Country Manager Albert0 Leyton Sector Manager: Ethel Sennhauser Task Team Leader: Mark Austin ... 111 EL SALVADOR Local Government Strengthening Project CONTENTS Page I . STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 A . Country and sector issues .................................................................................................... 1 B . Rationale for Bank involvement ......................................................................................... 3 C . Higher level objectives to which the Project contributes .................................................... 3 I1 . PROJECT DESCRIPTION ................................................................................................. 4 A . Lending instrument ............................................................................................................. 4 B . Project development objective and key indicators .............................................................. 4 C . Project Components .......................................................................................................... 10 D . Lessons learned and reflected in the Project design ......................................................... 11 E . Alternatives considered and reasons for rejection ............................................................ 14 I11 . IMPLEMENTATION .................................................................................................... 15 A . Institutional and implementation arrangements ................................................................ 15 B . Monitoring and evaluation of outcomeshesults ................................................................ 16 ... C . Sustainability ..................................................................................................................... 17 D . Critical risks and possible controversial aspects ............................................................... 18 E . Loadcredit conditions and covenants ............................................................................... 20 IV . APPRAISAL SUMMARY ............................................................................................. 21 A . Economic and financial analyses ...................................................................................... 21 B . Technical ........................................................................................................................... 22 C . Fiduciary ........................................................................................................................... 22 D . Social ................................................................................................................................. 23 E . Environment ........................................................................ ... ............................................ 23 F . Safeguard policies .................................................................................... ;........................ 24 G . Policy Exceptions and Readiness ...................................................................................... 25 iv Annex 1: Country and Sector or Program Background ......................................................... 27 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 33 Annex 3: Results Framework and Monitoring ........................................................................ 36 Annex 4: Detailed Project Description ...................................................................................... 42 Annex 4A: Distribution of Investment Amount Assigned to Municipalities ......................... 59 Annex 4B: Municipal Diagnostic ............................................................................................... 64 Annex 5: Project Costs ............................................................................................................... 71 Annex 6: Implementation Arrangements ................................................................................. 72 Annex 7: Financial Management and Disbursement Arrangements ..................................... 83 Annex 8: Procurement Arrangements ...................................................................................... 93 Annex 9: Economic and Financial Analysis ............................................................................. 99 Annex 10: Safeguard Policy Issues .......................................................................................... 102 Annex 11: Project Preparation and Supervision ................................................................... 116 Annex 12: Documents in the Project File ............................................................................... 118 Annex 13: Statement of Loans and Credits ............................................................................ 120 Annex 14: Country at a Glance ............................................................................................... 121 Annex 15: Map No . IBRD ELS37765 ...................................................................................... 123 -. ... ._ ............ .............. ...... V EL SALVADOR LOCAL GOVERNMENT STRENGTHENING PROJECT PROJECT APPRAISAL DOCUMENT LATIN AMERICA AND CARIBBEAN LCSAR Date: April