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