Documentof The World Bank FOROFFICIALUSEONLY ReportNo: 28647-BR PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDLOAN INTHE AMOUNT OFUS$30.0MILLION TO THE STATEOF MARANHAO WITH THE GUARANTEEOF THE FEDERATIVEREPUBLICOFBRAZIL FORA MARANHAOINTEGRATED PROGRAM: RURALPOVERTYREDUCTION PROJECT April 23,2004 BrazilCountry Management Unit EnvironmentallyandSociallySustainableDevelopmentSectorManagement Unit LatinAmerica and CaribbeanRegion This document has a restricted distribution and may be used by recipients only inthe performance of their official duties. Its contents may not be disclosed without World Bank authorization. CURRENCYEQUIVALENTS (Exchange Rate Effective at Appraisal) Currency Unit = Real (R$) R$1.00 = US$0.34 US$l.OO = R$2.90 FISCAL YEAR January 1- December 31 ABBREVIATIONSAND ACRONYMS BB Bank of Brazil BN Bank of the Northeast C A Community Association CAS World Bank Country Assistance Strategy CAF Casu da Agricultura Familiar (Family FarmSupport Local Agency) CDD Community-Driven Development CMDRS Municipal Council for Sustainable Rural Development DLIS Local Integrated Sustainable Development FUMAC Municipal Community Scheme GDH State Management Unit for Human Development GEAGRO State Management Unit for Agriculture, Livestock and Rural Development GEMA State Management Unit for the Environment and Natural Resources GEPLAN State Management Unitfor Planning, Budget and Management GEVIDA StateManagement Unitfor Quality of Life GOB FederalGovernment of Brazil GR Gergncias Regionais (Regional Administrative Units ) HDI United Nations Human Development Index IBAMA FederalEnvironmental Agency IBGE Brazilian Institute for Geography and Statistics MIS Management InformationSystem NCB National Competitive Bidding NEPE State Special Projects Unit/GEAGRO NGO Non-Governmental Organization NRDPPAPP Bank-financed Northeast Rural Development Program PAC State Community Scheme POA Annual Operating Plan PMDI Municipal Plan for IntegratedDevelopment PPA Multi-year Government Investment Plan PRONAF Brazilian Federal Programto Support Family Agriculture R-NRDP Reformulated Northeast Rural Development Program RPAP Rural Poverty Alleviation ProjectsProgram RPRP Rural Poverty Reduction ProjectsProgram SOE Statement o f Expenditures STR Rural Workers' Union STU State Technical Unit TA Technical Assistance Vice President: David de Ferranti Country Director: Vinod Thomas Sector Director: John Redwood Task Team Leader: Luis 0.Coirolo Page ii FOROFFICIAL USEONLY Brazil MaranhPoIntegrated Program: Rural Poverty Reduction Project CONTENTS Project Financing Data............................................................................................... 1 A Project Development Objective . 1. Project development objective and key performance indicators ................................. 2 B Strategic Context . 3 2. Main sector issues and Government strategy ....................................................... 1. Sector-related CAS goals supported by the project ................................................. 4 3. Sector issues to be addressed by the project and strategic choices ................................ 5 C Project DescriptionSummary . 8 2. Key policy and institutional reforms supported by the project .................................... 1. Project components ..................................................................................... 8 4. Institutional and implementation arrangements ..................................................... 3. Benefits and target population ........................................................................ 9 9 D Project Rationale . 12 2. Major related projects financed by the Bank andlor other development agencies ............. 1. Project alternatives considered and reasonsfor rejection .......................................... 13 4. Indicationsof borrower commitment and ownership .............................................. 3. Lessons learned and reflected inproposed project design ......................................... 13 5. Value added of Bank support in this project ........................................................ 15 15 E Summary Project Analyses . 15 2. Financial ................................................................................................. 1. Economic ................................................................................................ 16 17 4. Institutional .............................................................................................. 3. Technical ................................................................................................. 17 5. Environmental .......................................................................................... 18 6. Social ................................................................................................... 19 7 Safeguardpolicies ....................................................................................... . 21 F Sustainability and Risks . 2. Critical risks ............................................................................................. 1. Sustainability ............................................................................................ 22 23 3. Possible controversial aspects ......................................................................... 24 G MainLoan Conditions . 1. Effectiveness conditions ............................................................................... 24 H Compliance with BankPolicies ............................................................................... . 24 This document has a restricted distributionand may be used by recipients only in the performanceof their official duties I t s contents may not be otherwise disclosed . lwithoutWorld Bank authorization . Annexes Annex 1. ProjectDesignSummary Annex 2. DetailedProject Description Annex 3. EstimatedProject Costs Annex 4. EconomicAnalysis Annex 5. FinancialSummary Annex 6. Procurement and DisbursementArrangements Annex 7. ProjectProcessingBudgetand Schedule Annex 8. Documentsinthe Project File Annex 9. Statementof Loansand Credits Annex 10. Countryat aGlance Annex 11. Evaluationof the BrazilianExperience with RuralPoverty Reduction Annex 12. IndigenousPeoples' ParticipationPlan Annex 13. EnvironmentalManagementPlan Annex 14. State of Maranhiio DevelopmentAgenda Page iv Brazil Maranhiio Integrated Program: Rural Poverty Reduction Project Project Appraisal Document Latin America and Caribbean Region Brazil Country Management Unit Date: April 23, 2004 Task Team Leader: Luis 0.Coirolo Country Director: Vinod Thomas Sector Director: John Redwood Project ID: PO80830 I Sector: Agriculture Program Objective Category: Poverty Alleviation ILending. Instrument: SDecific Investment Loan Proeram of Targeted Intervention: I rxi l ~ e Is r 1 INO Project Financing Data [XI Loan [ ] Credit [IGuarantee [ ] Other [Specify] For Loans/Credits/Others: Loan Currency: United States Dollars Amount (US$m): 30.0 Borrower Rationalefor Choice of Loan Terms Available on File: [XI Yes ProposedTerms (IBRD): Variable-Spread Loan (VSL) Commitment Fee: 0.75% Front-endFee (FEF) on Bank loan: 1.OO% Payment for FEF: Capitalize from Loan Proceeds Financing Plan (US$m): Source Local Foreign - Total State Government 6.40 0.00 6.4C Community Associations 3.60 0.00 3.6C IBRD 27.90 2.10 30.0C TOTAL: 37.90 2.10 40.0(1 Borrower: State of Maranhiio ExecutingAgency: GEAGRONJZPE Address: Rua do Giz, 249-Centro, 65010-680-SBo Luis, MA Contact Person: Dr. AntGnio Gualhardo Alvarez Prazeres Tel: 55-98-232-3699 Fax: 55-98-232-1567 Email: nepe@nepe.ma.gov.br EstimatedDisbursements (Bank FY/US$m): FY 2004* - 2006 2005 - - 2007 200r Annual 3.00 8.25 9.00 6.75 3.0( Cumulative 3.00 11.25 20.25 27.00 30.0( * Includes retroactive financing of up to US$3.0million for eligible expenditures incurred after June 30, 2003 but not earlier than twelve months prior to loan signing. Project Implementation Period: Four years Expected Effectiveness Date: 913012004 Expected Closing Date: 1213112008 A. Project Development Objective 1. ProjectDevelopment Objective Background: In 2001, the most recent year for which household data exist, MaranhHo was Brazil's second poorest state on a per capita income basis. Using a poverty line of about a dollar a day, nearly 60 percent o f Maranhenses are living in poverty. Maranhgo also has the second lowest Human Development Index (HDI),' a combined measure of income and equality, educational and health indicators, among all of Brazil's states. The lag in education is particularly severe, with the average educational attainment (2.8 years) well below that of both the country and neighboring Northeast states. Finally, Maranhao is Brazil's most rural state, and it is in the rural space where HDIs are the lowest. The State's needs in terms of socio-economic infrastructure and services, and institutional capacity, are commensurate with these indicative statistics. The State Government of MaranhHo has set a goal of increasing its HDIfrom 0.647 (in 2000) to 0.700 by the year 2007, and this provides the unifying theme for its multi-year investment plan (PPA 2004-07). Although ambitious, this goal is feasible based on the State's track record over the past decade. Since the 1990s, MaranhHo has had a series of competent State Governments, and social indicators have increased faster than in most Northeast states. The State has launched an innovative, decentralized form of government, dividing itself into 18 regional management units, and has been very active in attempting to change the culture of Brazil's state and local governments away from clientelism and patronage, toward responsible service delivery to the population. The Government has built its PPA on a strategic platform comprising six elements: (1) economic integration, (2) competitiveness, (3) transformation o f the economic base, (4) social inclusion, (5) construction o f a knowledge economy, and (6) environmental sustainability. All programs in the PPA are justified in relation to these six principles, and programs across all sectors are then implemented by 18 regional executing agencies (gergncius). Priority programs are in education, health, water and sanitation, employment generation through local productive clusters, technology, environmental preservation, and public sector management and planning. At the level of the economy, in order to pursue these six strategic principles, the state is focusing private sector development along four principal axes: agro-industry, tourism, construction, and mining/metallurgy. The proposed project seeks to support the State Government in its effort to reduce poverty by increasing its HDI, using a community-driven development (CDD) approach that has already proven successful in MaranhHo under the Bank-financed Rural Poverty Alleviation Program (RPAP, Ln. 4252-BR). While building on the institutional foundations of the RPAP, the proposed project will improve on the experience by: strengthening the cross-sectoral integration, monitoring, evaluation and results-based management o f development efforts within MaranhHo at the state, municipal and local levels; better aligning the State's public expenditures with the PPA development priorities, while improving the effectiveness and targeting of expenditures; introducing performance agreements between the State Government and municipalities, with special emphasis on targets for improving the various components o f the HDI, and encouraging subproject identification and selection by beneficiaries according to the criteria of impact on municipal HDIs and environmental sustainability; The Human Development Index (HDI) is a summary measure of three dimensions o f the human development concept: living a long and healthy life, being educated and having a decent standard o f living. I t combines measures of life expectancy, school enrollment, literacy and income. There are strong links between the HDIand the Millennium Development Goals (MDGs). The three dimensions of human development captured in the HDIare similar to goals 1-7 of the MDGs. Page 2 0 providing significantly more emphasis on education, health, culture, natural resource management and environmental sustainability; 0 taking advantage of opportunities to achieve stronger results through coordinated action, including piloting regional subprojects (involving several municipalities) to address environmental issues, and supporting productive subprojects which tackle critical gaps within a broader concept of local supply chains (arranjos produtivos locais); and leveraging the skills, social capital and institutional arrangements developed under the RPAP project at the local and municipal levels to improve also the relevance, efficiency, environmental sustainability, targeting and outcomes of non-project investments inrural areas of MaranhZo. Project development objective: The proposed project will help MaranhZo to achieve the goal of reducing poverty by increasing its HDIfrom 0.647 to 0.700 by the year 2007, through: (a) strengthening the results-based management capacity at the State level for planning, cross-sectoral integration, monitoring and evaluation o f public policies and investments under MaranhBo's PPA; (b) supporting cross-sectoral integration of development actions at the municipal and local levels through the design and implementation of integrated municipal development plans and the introduction of State-municipal performance agreements; (c) financing demand-driven community investments for income-generation, health and sanitation, education, culture, environmental management and others impacting the HDI and environmental sustainability; and (d) strengthening municipal governance through the participation o f community associations and municipal councils in decisions that are directly related to improvements in the living conditions of the rural poor, and through capacity-building focused on integration of environmental sustainability issues in the decision-making process. 2. Key Performance Indicators 0 Increase in statewide and municipal HDIs attributable directly to project technical assistance and investments; 0 Improvement in State's capacity to achieve cross-sectoral integration of public policies and investments, and to effectively plan, monitor and evaluate its PPA; 0 Number of State-municipal performance agreements under implementation and achieving a positive impact on cross-sectoral integrationand investment effectiveness at municipal and local levels; 0 Number of project Municipal Councils participating in priority-setting and decision-making on resource allocation of both project and non-project funded development activities; 0 Number of community subprojects approved following the criteria of impact on the HDIand environmental sustainability; and 0 Number of families benefited by project activities. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goalssupported by the project (see Annex 1): CAS Document Number: Date of latest CAS Discussion: R2003-0194 [IFC R2003-01981 December 9,2003 The current results-based Bank CAS for Brazil aims to achieve a more equitable, sustainable and competitive Brazil, inter alia through integrated responses to development challenges. Given the Northeast's relatively higher level of poverty and inequality, the CAS maintains and reinforces the Bank's longstanding commitment to the region. The proposed project supports the CAS by focusing on the Northeast state o f MaranhZo, Brazil's second poorest state, and within MaranhHo it places special emphasis on the poorest municipalities with the lowest HDIs. It supports Page 3 integrated and simultaneous action on the economic and social fronts, both at the central level, through a "horizontal component" which will strengthen State policy formulation and management of investments across sectors, and at the municipal and local levels by expanding the role of participatory Municipal Councils and introducing results- based performance agreements aimed at improving municipal HDIs. The project directly promotes sustainable poverty reduction in rural MaranhHo by explicitly linking inputs (i.e., demand-driven subproject investments) to improvements inthe HDI. Through careful targeting and disbursement of funds directly to community associations, using proven community-based decision-making and implementation arrangements, the project will build social capital at the local and municipal levels, improve cost-effectiveness and enhance sustainability of assets by building communities' sense of ownership and commitment. By strengthening the capacity o f Municipal Councils and forging links between these entities and other partners (Federal programs, state and local governments, civil society, financing institutions and the private sector), the project will help to leverage resources for local development and improve the consistency and overall impact of rural poverty reduction efforts in MaranhHo. 2. MainSector Issuesand Government Strategy Rural Poverty and Social Exclusion: Brazil is characterized by extreme levels of income disparity, with poverty rates much higher than in other countries at a similar level of per-capita GDP. The Northeast region accounts for only 20 percent of Brazil's land area, yet is home to 30 percent of its total population and to 49% o f all Brazilians living on less than US$1 per day. Within Brazil, Maranhiio i s the second poorest state, has the second lowest HDI, and i s the country's most rural state. Rural areas of MaranhHo show serious deficits in terms of minimal access to basic services: 84 percent without piped water, 80 percent without sanitation, and 53 percent without electricity. As discussed below, social indicators are also well below national averages. Notwithstanding these deficits relative to the rest of Brazil, MaranhHo has actually experienced one o f the strongest rates of improvement over the past decade. The HDI for Maranhao rose from 0.551 in 1991 to 0.647 in 2000, although this i s still well below the national average of 0.764. The State's strategy for addressing rural poverty explicitly links interventions through the PPA to the desired increase in the HDI. I t will target investments which have the greatest potential to raise the HDI, paying particular attention to the poorest municipalities and to the `rural space' generally. Municipal Councils established under the predecessor RPAP project in Maranhi30 (Ln. 4252-BR) will play an expanded role in investment prioritization and allocation decisions. The State government further proposes to introduce agreements with municipal governments (contratos de adeszo) whereby each party commits to performance indicators relating to the expenditure program outlined in the PPA and the HDIobjective. The State Management Unit for Planning, Budget and Management (GEPLAN) has been tasked with integrating, monitoring and evaluating state, municipal and federal expenditures directed toward poverty reduction in Maranhiio, using a results-based management information system (SIARI) which it will strengthen and integrate with existing control systems. Low Educationand Health Attainments. Inorder to achieve its HDIgoal, Maranhao needs to pay special attention to improving its extremely poor education and health indicators, and this, in turn, will require integrated action among social sector, infrastructure and income generation programs. The average educational attainment for the State is only 2.8 years - the second lowest in Brazil and significantly below the Northeast average o f about four years. Many school districts, especially in the rural interior, have no access to education beyond grade four and in those cases children's only recourse is to move or permanently drop out. Adult illiteracy is twice the national average. The State strategy for addressing these challenges involves (a) increasing access and quality in the first four grades o f basic education, (b) raising literacy levels by closely linking literacy programs with productive activities to maintain motivation of youths and adults to participate, and (c) reducing infant and maternal mortality. Although social subprojects were eligible for support under the RPAP, communities tended to prioritize other kinds of investments. Over the next few years, the State will make a major effort to inform Municipal Councils and communities and motivate them to participate in several programs with proven effectiveness, including Vamos Ler (Let's Read), PRONERA, and Escola Ativa (Active School, modeled on Colombia's Escuela Nueva program). At the same time, they will also be encouraged to identify any interventions in other sectors which may also be crtical for achievingeducation and health objectives, such as rural electrification, water supply, local transport, etc. Page 4 Environmental Sustainability. Maranhiio faces a number of important environmental issues, the solutions to which will play a criticial role in underpinning the long-term sustainability of the State's development efforts. Among the most pressing: improper treatment of liquid and solid wastes, high rates of deforestation, inadequate agricultural and livestock technologies, occupation of protected areas and legal reserves, and watershed degradation. As in the case of the social sectors, addressing these problems will require an integrated approach, at both state and local levels, and often across sectors. An important part of the State's strategy will be to work with local communities and Municipal Councils to sensitize them to the causes and impacts of environmental problems, to encourage them to address environmental sustainability issues in the local planning process, and to identify the key issues in their respective geographic locations and seek financing to address them (e.g., production and planting of native seedlings for reforestation, including species with good commercial marketing prospects, forestation or reforestation of areas of particular value to the community, development of opportunities to sell environmental services, establishment of demonstration units for environmentally sustainable agricultural technologies, development of efficient fuelwood alternatives). The State will also pilot coordinated action across municipalitieskommunitiesto address common sub-regional environmental problems (e.g., micro-basin management in the Vale do Magu). Integration of Policies and Investments. The State Government of Maranhiio seeks to unite its investment program under a common results-based framework aimed at reducing poverty by raising the HDI, and to upgrade its management capacity to plan, integrate, monitor and evaluate its efforts towards achieving that goal. Effective integration of development efforts has both spatial and cross-sectoraldimensions. The State's strategy includes the recent adoption of a new state government structure at the level of its 18 regions. GEPLAN is developing a computerized system to integrate planning and budgeting functions (SEPOC). Also within GEPLAN, an existing system tracks the planning and execution of government programs at the municipal level (SISPCA). A new institute has been established (IEASE) to help strengthen the links between statistical data collection and analysis and policy formulation. A further information system is planned (SIARI) to track links between execution o f programs and their impact on the state's overall HDIgoals. Finally, the State plans to develop individual performance agreements with municipalities, indicating the spending programs on which the two levels of government will collaborate and setting specific performance targets; impact will be measured through SIARI. Sustained cross-sectoral dialogue among the various State Management Units and with local and municipal actors will be vital to build consensus on the merits of pursuing an integrated approach to poverty reduction. Decentralization: Since ratification of the Brazilian Federal Constitution of 1988, there has been a trend towards increasing decentralization of fiscal resources, public investment, priority-setting and program implementation, from the Federal Government to the state, municipal and local levels. The current State administration in Maranhiio has adopted the new governmental structure referred to above. I t also intends to strengthen local and municipal capacity to participate effectively in priority-setting, decision-making over resource allocations and progradproject implementation and maintenance. At present, there are 216 Municipal Councils developed under the RPAP (in all municipalities except Siio Luis, the State capital), but there are also other councils - PRONAF, DLIS, etc. - present in many of these municipalities. The State plans to consolidate these entities under a unifiedMunicipal Council for Sustainable Rural Development (CMDRS), whose mandate would include all the principal challenges to improving the HDIat municipal level. The composition o f the CMDRS may vary among municipalities, provided the majority are representatives from community associations and other organized civil society, following the procedures established under the RPAP. State and municipal governments will play a vital role in the functioning of the CMDRS, in terms o f logistical support and partnering in the execution of project activities. 3. Sector issuesto be addressed by the project andstrategic choices The project will assist Maranhiio in implementing its strategies to address the above sector issues: (a) rural poverty and social exclusion, (b) especially low education and health indicators, (c) environmental sustainability; (d) integration of public policies and investments to achieve greater impact on the HDIand poverty reduction and (e) decentralization. B y expanding access of poor rural communities in Maranhiio to basic socio-economic infrastructure, productive opportunities and environmental investments, the project aims to increase incomes and improve well-being. Operationally, the project will adopt the following principal strategies: the integration (sectoral and spatial) of public policies and investments to attain the over-arching goal of raising Maranhiio's HDI; the decentralization of decision-making to the municipal and community levels; the informed participation of communities and municipal councils in the prioritization of investments in line with the objectives of the PPA; the Page 5 active engagement of organized civil society; the active participation of municipal government; and the continuous monitoring and evaluation of results on the ground. Compared with earlier interventions, the project will not only broaden Bank support to MaranhHo, but through a "horizontal" component (see sections below on Main Strategic Choices and Project Description) will also provide the wider context for future Bank assistance to the State. The following instruments will be employed: The PPA for MaranhHo, which indicates the macro policies, strategic themes and investments neededfor attainment o f the State's mobilizing goal of increasing the HDIfrom 0.647 to 0.700 by year 2007; Results-based management techniques under the aegis of GEPLAN, supported by several planning, management information, monitoring, control, analysis and program evaluation tools (SEPOC, SISPCA and SIARI); State-municipal performance agreements, entered into by both parties, designed to formalize their partnership in and obligations toward achieving poverty reduction outcomes through improvement in municipal HDIs; Municipal Plans for Integrated Development (PMDI), as a means of rationalizing the goals embodied inthe PPA with local-level demands; Municipal Councils, as agents of social control for project activities and Community Associations, as executing entities; A project communication plan, to facilitate dialogue between central Government and localentities and to ensure an alignment between public policy orientation and the informed participation regarding investment decisions at the local level; and An environmental management plan, as a means of aiding and promoting policies for conservation, preservation and sustainability. The project will build on the successful CDD mechanisms that were piloted and scaled-up, respectively, under the R-NRDP and RPAP in the Northeast States (Annex 11). The cumulative impact of these earlier projects attests to the robustness of this strategy: (a) since 1993, more than 50,000 infrastructure, productive and social investments have reached about 7.5 million poor people with at least one subproject, working with over 30,000 rural Northeast communities; (b) sustainability of investments is high, with about 90 percent of a sample of over 8,000 subprojects funded in 1995 and 1997-8 still fully operational; (c) cost efficiency has also been high, with recorded cost savings of 30-50 percent over similar publicly-provided infrastructure and services; (e) of the almost 1,500 project Municipal Councils functioning to date, some 30 percent have progressed beyond simple subproject decision- making to engage in municipal planning and allocation of non-project resources, and about 25 percent of community associations have also used their social capital and assets acquired under the projects to access non-project financing. Recent research on the project municipal councils indicates that the decentralized decision-making structures fostered under the RPAP for fund allocation and oversight, combined with community-level subproject implementation, contribute to the strength and sustainability of these Councils. As such, these Councils have quickly become vehicles for increasing local levels of civic engagement and have led to a greater sense o f citizenship and empowerment on the part of those community associations which participate. The main strategic choices made inproject design include: CDD approach: The community-based approach, when compared to more traditional management of similar investments executed by traditional public sector entities, has proven to be cost-effective, more responsive to local priorities and to offer better prospects for sustainability (Annex 11). Targeted interventions which directly impact HDI: The State o f MaranhHo has focused its investment program on the goal o f raising the HDI statewide to 0.700 by 2007, as a means o f benchmarking progress toward poverty reduction. All aspects of the public investment agenda are linked to this mobilizing goal. Under the proposed Page 6 project, subproject investments would be assessed at the municipal level through the CMDRSs for their expected contribution toward raising the HDI. Community associations and Municipal Councils would take part in capacity- buildingactivities to build awarenessand skills in linking local-level investments to changesinthe HDI. Local-level integration of programs andpoliciesfor poverty reduction: A growing number of Municipal Councils in the Northeast are now proactively seeking funding from and participating in decision-making on both RPAP project and non-project sources of finance. Under the new project, these Councils will expand their input into broader local planning, with a view to achieving better integration of policies and programs and improving the impact o f public resources available for poverty reduction. Partnerships among Federal, State and Municipal agencies, civil society and project Municipal Councils will be encouraged to improve the planning and execution of local and municipal investments, deliver technical assistance and training, leverage additional non-project funding, and thereby help to rationalize human and financial resources for poverty reduction in an era of necessary fiscal austerity. Horizontal integration to enhance the impact of public expendituresfor poverty reduction: A key transformation in the approach taken by the State of Marahfio is to strengthen its cross-sectoral planning, monitoring and impact evaluation of public policies and development expenditures. The project will support this transformation through technical assistance, training and seminars, working closely with GEPLAN. Integration will occur both at the local level, through the coordination of project and non-project investments via municipal development plans and State- municipal agreements, and at the central level, through the planning and budgeting functions of the State government. Inthis spirit, the "horizontal" component of the project (Section C.l) will help to strengthen the State's overall ability to pursue its HDI goal through the effective execution o f the PPA by assisting GEPLAN in its construction of a results-based management framework and in the integration of government programs across sectors. Beneficiary targeting via municipal-level HDZ (HDZ-M): Project municipal councils can more easily engage in priority-setting when an indicative resource envelope is available. Allocation of subproject resources across municipalities will be basedon a formula tied to their share of the State's rural population and the relative HDI. Strengthening partnerships with civil society: Non-governmental organizations (NGOs) have already played a strong and positive role in the RPAP, in mobilizing and training community associations and project municipal councils and providingtechnical assistanceduring subproject preparation and execution, particularly with youth and womens' groups, Quilombolas (descendents o f former slaves) and indigenous communities. The proposed project will maintain and further strengthen these linkages with civil society. Social Inclusion: The demand-driven nature of the project has already been shown to be highly inclusive of those groups which have been historically excluded from the development process. In Maranhiio, both Quilombola and indigenous communities implemented about fifty subproject investments under the predecessor RPAP. This represents about 1% of all subproject investments, which is more than proportional to these groups' distribution within the statewide population. Under the RPAP, specialized training was offered to Quilombola and indigenous communities as a means of facilitating their participation; this same approach will be pursued under the proposed project. These efforts to stimulate the participation and inclusion o f these two groups will be further enhanced under the proposed project. Greaterfocus on education, culture and health investments: The relatively low indicators for access to education in rural areas, as well as retention rates, imply that investments in this sector can have substantial influence on raising the HDI. Under the proposed project, activities in literacy and basic education for adults (i.e., age 15 and higher) will be financed via the CDD mechanism, in such programs as Vamos Ler and improvements to multi-grade rural schools along the lines of Escola Ativa, which adopts a methodology successfully field-tested in Colombia (Nueva Escuela). Health-related investments could directly impact HDI by reducing out-of-pocket costs due to preventable illness, as well as increasing longevity. Such subprojects would include improved sanitation, mini health posts, health education and training programs, among others. Page7 Renewed attention to environmental protection and conservation: Sustainability o f investment activities at the local level, including project-financed assets will be strengthenedby environmental training for Municipal Councils, Community Associations and project technical staff. In addition, a new category o f investment - environmental subprojects - will be made available to beneficiary communities, and regional development subprojects will be piloted, which involve more than one municipality in a coordinated effort to address common environmental challenges. The project will provide access to environmental expertise via an in-house environmental specialist and partnerships with the State Management Unit for the Environment and Natural Resources (GEMA), building awareness of sound natural resources management and environmental practices into municipal development agendas. C. Project DescriptionSummary 1. Project Components (seeAnnex 2 for detaileddescriptionandAnnex 3for detailedcostbreakdown) The total project cost is US$40 million, of which the Bank will finance US$30 million; the State of Maranhtio, US$6.4 million; and beneficiary communities, US$3.6 million, in cash or in-kind. Component I Community Subprojects (US$36 million or 90% of total project cost) will support community - matching grants for approximately 1,200 small-scale socio-economic infrastructure, education, health, culture, productive, environmental and other investments aimed at raising HDIs. All 216 municipalities inMaranhb (other than Sa6 Luis) will be covered by this component, because of the importance o f encouraging cross-sectoral integration throughout the State, getting all municipalities to focus on the HDIs, and strengthening local and municipal institutional arrangements. However, about 60% of total component cost will be concentrated in the 80 municipalities with the lowest HDIs. Component 2 -Znstitutional Development (US$2 million or 5% of total project cost) will finance technical assistance and training to increase the capacity of implementing entities including the CMDRSs, community associations, GEAGRO and GEPLAN. Component 3 - Horizontal Zntegration (US$1 million or 2.5% of total project cost) will finance technical assistance to strengthen the results-based management capacity of the State Government to plan, integrate, monitor and evaluate public policies and investments for poverty reduction, and to improve the alignment of public expenditures with the State's development priorities. Component 4 Project Administration, Supervision, Monitoring and Evaluation (US$1 million or 2.5% of total - project cost) will finance costs (excluding salaries) of project administration and coordination, including supervision, monitoring and impact evaluation. Component Indicative Costs % of BankFinancing % of Total (US$million) Total (US$ million) Bank Financing 1. Community Subprojects 36.0 90.0 27.0 90.0 2. Institutional Development 2.0 5.0 1.7 5.7 3. Horizontal Integration 1.o 2.5 0.8 2.7 4. Project Administration, Supervision, 1.o 2.5 0.5 1.6 Monitoring and Evaluation Tntal Prniect Cnsts: 40.0 1on.n 3n.n 1on.n 2. Key policy andinstitutional reforms supported by the project The principal institutional reform supported under the project is the move by Maranhtio to integrate its policies and investments - as detailed in the PPA - under the mobilizing objective o f improving the State's HDI. Such integration, if successful, will strengthen the impact of both project and non-project investments and should lead to a Page 8 reduction in the share of the rural population living in poverty. Additional reforms supported by the project will include the recent decentralization of the State government into 18 regional management units, the use of State- municipal performance contracts, and the consolidation of municipal level councils established by the RPAP and other programs at the municipal and local level into single Municipal Councils (CMDRSs). 3. Benefits and target population Benefits: Improvement in the quality of life and/or incomes o f some 80,000 rural families in MaranhHo (about 400,000 people) through participation in at least one community subproject. Monitorable impacts may include higher productivity, increased family income, job creation, income diversification, improved education and health indicators, and enhanced environmental sustainability. Social capital will be strengthened through the project-assisted Municipal Councils and community associations and governance improved at the rural community and municipal levels through the greater integration fostered by the performance agreements(contrutos de udestio)between the State and municipal governments. The volume of non-project finance available for rural poverty reduction, and its effectiveness, should increase as project Municipal Councils, with appropriate training, more proactively seek funding for local development needs and extend their involvement in priority-setting and decision-making over resource allocation o f other federal, state and local programs. Target Population: While the project would indirectly benefit many o f the 2.7 million people living in the rural space, in 216 municipalities throughout the State of MaranhHo, as a result of better cross-sectoral integration and targeting of development activities, it would directly reach about 400,000 people through some 1,200 community sub-projects (about 15% o f the population living in the `rural space'). Sixty percent of total subproject resources would be concentrated in the 80 municipalities (with a total rural population of 1.1 million) which have the lowest HDIs. In each of these municipalities, an indicative budget envelope averaging US$270,000 would be available over the four-year period. The remaining 136 municipalities would be allocated indicative budget envelopes o f US$79,000. For both of these groups, additional non-project resources would be mobilized under the local-level integration pursued by the CMDRSs. 4. Institutional and implementation arrangements Implementation period: Four years Executing entities: Community Associations are groups of rural citizens with a common interest who organize into legally-constituted civil associations. They identify, prepare, implement, supervise, operate and maintain their subprojects, assisted both by technical specialists whom they contract directly and by technical assistance and training made available by project Municipal Councils and the State Technical Unit. Once subprojects are approved for financing, Community Associations can access a share of the costs for design and implementation assistance. Municipal Councils (CMDRSs) include representatives of beneficiaries and civil society, as well as local government. A majority of voting CMDRS members (at least 60%) would represent potential beneficiary communities while the remaining 40% representation would be from other organized civil society (e.g., STR, NGOs, local government) and other public sector entities. CMDRSs are the key organization for targeting of benefits and allocating project resources; they also provide a critical link to local government and have the potential to engage in other non-project activities. The CMDRSs play a fundamental role in mobilizing communities and promoting their participation in local decision-making. Duringregularly scheduled and widely publicized meetings that the public is encouraged to attend, the CMDRSs receive, prioritize and approve subproject proposals from the Community Associations, within the ceiling o f an indicative resource envelope received from NEPE, and in line with their Municipal Plan for Integrated Development (PMDI). Page 9 The State Technical Unit. The NUcleo Estadual de ProjetosEspeciais (NEPE), within the State Management Unit of Agriculture, Livestock and Rural Development (GEAGRO), will function as the State Technical Unit (STU), responsible for overall project coordination, with the support of GEAGRO's 18 regional units (CasusdeAgricultura Familiar - CAFs). NEPE will gradually delegate supervision of community associations and subprojects to the CMDRSs and concentrate on oversight of the Municipal Councils themselves, as well as general project coordination and promotion. The latter duties include continuous execution of information campaigns, project reporting, impact evaluation, Management Information System (MIS) updating, and design and provision of tailored training modules for CMDRSs and Community Associations on key project issues. The State Management Unitfor Planning, Budget and Management (GEPLAN) will, through Component 3 of the project, promote the integration of public policies and investments oriented toward poverty reduction, monitor the activities associated with these policies - including, inter alia, the subproject investments financed under Component 1- and evaluate the outcomes and impacts as they relate to an increase in MaranhFio's HDI. SubprojectCycle: A statewide information campaign will increase public awareness about the project, and Municipal Councils and community associations will receive explanations about the situation of their municipality with respect to the HDIand its various components, to help them in considering subproject alternatives and understanding the HDIcriteria which will beusedinthe selection process. Community associations determine their local investment priorities, based on their own choices and information provided concerning the State's HDI objective and the proirities under the PPA, and will prepare subproject proposals for investment financing. Subproject proposals from community associations are submitted to the respective CMDRS, where they are prioritized and approved, based on indicative municipal resource envelopes, their expected contribution toward improvement of HDI-M, and their compatibility with the Municipal Plan for IntegratedDevelopment (PMDI). The STU technically evaluates approved subprojects and confirms compliance with subproject technical, social and environmental guidelines established in the Project Operational Manual before releasing funds. Subproject agreements are signed between NEPE and community associations. These agreements spell out the terms and conditions for the funding, execution, ownership, operation and maintenance of the approved subprojects. Resources for subproject implementation are then transferred directly from the project to the community association's bank account. Community associations contract goods, works and technical assistance for subproject execution, bear responsibility for operation and maintenance of all investments, and may request technical assistanceto develop operation and maintenance arrangements for subproject investments. Project Oversight: GEPLAN is responsible for project oversight and the Manager of GEPLAN represents the Borrower vis-a-visthe Bank. The Manager delegates day-to-day execution o f Component 1,2 and 4 to NEPE, which is housed within GEAGRO and will operate as the STU. Component 3 (Horizontal Integration) will be executed by GEPLAN. Project Coordination:NEPE, supported by the 18 regional CAFs, will (a) review community subproject proposals for compliance with project guidelines and eligibility criteria in the Project Operational Manual; (b) assess the degree of community participation in identifying, preparing and executing subprojects and quality of technical assistance; (c) supervise the project Municipal Councils to ensure they adequately manage quality of subproject implementation and provide sufficient training support to communities; (d) implement introductory training and technical assistance programs for all project Municipal Councils and community associations with approved subprojects (including training on subproject implementation, contracting, 0&M and financial management); (e) monitor and apply performance incentives to reward efficiency, transparency and inclusiveness of community associations and project Municipal Councils, and to penalize poor performance/misappropriation(e.g., legal action for fund misallocation); (f) monitor performance through the project MIS and periodically report progress; (8) prepare annual implementation, physical performance reviews, and impact evaluation studies; and (h) submit project yearly operating plans (POAs) to the Bank for approval. Page 10 For the most common types of subprojects, NEPE would develop standardized designs and cost indicators for use by community associations to ensure reasonable quality and costing for subproject implementation. Departures from these standard designs would have to be fully justified in the subproject proposal, as would proposed investments which fall outside the range o f standardized costs. Finally, NEPE will conduct a statewide information campaign to continuously disseminate information about the project and its guidelines to all potential beneficiary communities, thereby increasing awareness, transparency and participation in the program. A proposal for the statewide information campaign was reviewed prior to negotiations and considered satisfactory to the Bank. GEPLAN will coordinate Component 3 of the project (Horizontal Integration) and will (a) monitor the specific contribution of the subprojects financed under the project to the goal o f increasing Maranhiio's HDI, (b) assure that the activities under the proposed project are consistent with the overall strategy of the State, regarding progress toward improvements in HDI, and (c) maintain detailed information concerning investment programs at the Federal, State and Municipal levels. Project operationalprocedures: The project will be implemented according to detailed procedures defined in its Project Operational Manual. This Manual will be based on that used for the predecessor project (RPAP-MA, Ln. 4252-BR), and has been revised and updated to reflect lessons learned during its implementation and for consistency with the state's mobilizing goal of achieving an increase in the HDI by 2007 and the integrated nature o f the proposed project. A user-friendly synthesis of this document will also be available to project Municipal Councils and community associations. Prior to negotiations, the Bank reviewed a complete draft o f the Project Operational Manual. Theadoption by the State of the Project Operational Manual, in aform satisfactory to the Bank, would be a condition of loan effectiveness. Monitoring arrangements: Monitoring of project implementation will rely on a database of subproject information from the project MIS operated and maintained by NEPE. This database will be integrated with statewide information systems (SEPOC, SISPCA, SIARI) to facilitate monitoring by GEPLAN o f the overall PPA and impact assessment of the project and broader State development efforts. The database is currently organized in three general levels: (a) a subproject information module containing pertinent physical and financial information for each subproject; (b) a financial management module, from which Statements o f Expenditure (SOEs) and Financial Statements in FMR format are generated; and (c) a project management module, from which all project reports are generated. The database includes community profiles, which will also aid in evaluating project impact. The Institutional Development component will be monitored through tracking o f training events, workshops and achievement of POAs by the project Municipal Councils. The Horizontal Integration component will be monitored by GEPLAN via indicators which link both project and non-project expenditures to reduction in poverty in the rural space and statewide, measured by improvement in the HDI. The Bank's Recife Office will monitor project performance indicators through the online MIS, and with inputs from the State, review monthly disbursement summaries and supervise subproject implementation progress on a sample basis in the field. A MIS, satisfactory to the Bank, is already operational. Zmpact assessment. Project-financed evaluation studies will assess the impact of the subprojects and provide feedback to improve project operations. These studies will include: (a) annual physical performance reviews to assess the quality and sustainability of common types of financed subprojects, including reviews of community- based procurement; (b) a mid-term evaluatiodimplementation review, to include consultations on project performance and impact as perceived by its beneficiaries; (c) assessment o f the activities under the Horizontal Integration component on achieving cross-sectoral integration of public policies and investments to reduce poverty; and (d) a rigorous and comprehensive evaluation of the impact of the project in raising Maranhiio's HDI. The impact evaluation will use repeated surveys of project beneficiaries, non-beneficiary households, and beneficiaries of similar projects with centralized delivery mechanisms to assess (i)poverty targeting o f beneficiaries relative to the income distribution of the population at large; (ii) household welfare; (iii) capital formation at the social community level; (iv) improved governance at the municipal level; (v) cost-effectiveness of infrastructure investments compared with traditional delivery mechanisms; (vi) cost-benefit of productive investments and (vii) environmental sustainability. In addition, community leaders and municipal leaders will be surveyed for the analysis o f social capital and governance impacts. The first baseline field survey will be conducted within six months of project effectiveness. A survey update, to be contracted at the same time as the baseline study, will be Page 11 conducted two years later, followed by further survey updates after four and six years, depending on interim results. Presentation of Terms of Reference for the project baseline study and for the overall evaluation framework, both acceptable to the Bank, would be a condition of loan effectiveness. Accounting, financial reporting and auditing arrangements: The financial management systems to be used by NEPE were reviewed by a Bank financial management specialist during project preparation for compliance with OP/BP 10.02 and the Guidelines for Assessment of Financial Management Arrangements. The Guidelines of Fiduciary Management for Community Driven Development Projects (CDD Guidelines) were taken into consideration where applicable. Based on this review, the financial management arrangements were considered satisfactory, indicating that the project complies with the Banks minimum financial management requirements. The final format of the Financial Monitoring Reports - FMR - and their periodicity were agreed during negotiations. Under the new project, NEPE will implement an action plan, agreed with the Bank, which is a part of the Management Information System. According to arrangements for Bank-financed projects in Brazil, the annual audit o f the project accounts for the period January 1 to December 31 will be carried out by an Independent Auditor satisfactory to the Bank. The audit report will be submitted to the Bank no later than June 30 in the year following that for which the project accounts are audited. The year-end FMR will also serve as the Financial Statement of the Project, on which the independent auditors will express their opinion. The annual audit will also include a review on the eligibility of expenditures disbursed on the basis of SOEs, as well as on the Special Account, compliance with all financial covenants and a Management Letter on internal controls and recommendations. D. Project Rationale 1. Project alternativesconsideredand reasonsfor rejection: More centralized, integrated development model. Experience with integrated rural development projects in Northeast Brazil during the 1970s and 1980s conclusively demonstrated that more centralized approaches to planning and implementation of infrastructure and service delivery through public institutions are not effective in dispersed rural areas, due inter alia to high overhead costs, coordination difficulties, subprojects that do not accurately respond to community needs, and poor sustainability of investments. While the proposed project will assist in forging effective integration of public programs and policies for poverty reduction, it does so by building on an already successful CDD model, broadly recognized for its effectiveness in delivering rural infrastructure and services under Brazilian Northeast conditions, its transparency in resource allocation, and strong performance in building social capital in rural communities. Rather than top-down integration, the project promotes local-level integration, with project Municipal Councils working closely with municipal governments to more effectively bring together cross-sectoral policies and programs to reduce poverty and improve quality of life, as measured through the HDI. Repeater RPAPproject. The RPAP achieved very positive outcomes which are now widely recognized in the Bank, Brazil, and in other countries which are attempting to emulate this CDD model. Nonetheless, rather than simply design a repeater project, the team chose to use the institutional foundations o f the RPAP and build on them in order to significantly scale up the impact. Without some of the innovations that are incorporated in the proposed project (e.g., strengthening results-based management at State level, promoting cross-sectoral integration of public policies and investments, introducing State-municipal performance agreements, engaging Municipal Councils in decision-making about both project and non-project financed development programs) an opportunity would have been missed to achieve much greater impact on poverty reduction and attainment of the State's HDIgoal under its PPA. Page 12 Sector Issue Project Latest Supervision (PSR) Rating Bank financed: Land Reform Land Reform Pilot (Ln.4147-BR) S S Land-based Poverty (Ln. 7037-BR) S S CDD RPAP Maranhao (Ln. 4252-BR) S S RPAP Paraiba (Ln.4251-BR) S S RPRP Bahia (Ln.4623-BR) S S RPRP Cearfi (Ln. 4626-BR) S S RPRP Pernambuco (4625-BR) S S RPRP Piaui(Ln. 4624-BR) S S RPRP Rio Grande do Norte (Ln. 4667-BR) S S RPRP Sergipe (Ln. 4649-BR) S S NRMiLandManagement II ParanfiN R M and Pov (Ln. 4060-BR) S S SC NRMand Pov (4660-BR) . s S Health Sector Reform S S Education III HDProg. FUNDESCOLA I11(Ln. 7122-BR) S S 3. Lessonslearned and reflected inthe project design: Decentralization of fiscal and investment decision-making and implementation from federal to state and local governments and to community organizations, improves program administration and outcomes. Experience in Northeast Brazil shows that decentralized CDD approaches can reduce bureaucracy and eliminate administrative bottleneck,s and reinforce accountability for project outcomes by placing decision-making near beneficiaries. The project will further what has already been achieved under the RPAP, delegating additional duties to Municipal Councils and utilizing STUcentral and regional offices to promote more responsive and local-level monitoring, data collection, coordination, and supervision. Participation by beneficiaries under the RPAP in the selection, financing, execution, and O&M of subprojects in Northeast Brazil has helped to ensure that investments meet genuine community needs, generate cost savings, and increase community `ownership', thus improving sustainability of investments. This methodology will be extended under the new project to both project and non-project investments critical to achieving Maranhao's HDIobjectives. Poverty targeting mechanisms that are simple, verifiable and based on objective criteria, can foster transparency and minimize political interference in project resource allocation. Poverty targeting mechanisms under the RPAP have been effective to date in reaching the poorest rural populations in the Northeast. About 84 percent of the program's beneficiary population are comprised of small farmers and rural laborers living in remote, low density areas with acute deficiencies in access to basic infrastructure and services. A significant additional population resides in rural areas directly adjacent to the urban periphery of municipal centers. Experience with project Municipal Councils demonstrates that communities themselves are the best-positioned and informed to target effectively. Under the new project, broad targeting will be undertaken (a) at the municipal level, by prioritizing subproject resources according to poverty indices (Le., municipal HDIs) and (b) at the community level, by the Municipal Councils themselves, which will be encouraged and technically assisted to undertake a poverty ranking o f the communities in their municipalities and to use this in prioritizing subproject proposals. Intensive supervision of CDD projects has been found to be an indispensable determinant of success and sustainability. It needs to be reinforced at all levels and involve local entities closest to the communities, particularly Municipal Councils and NGOs. Under the new project, supervision responsibilities will be increasingly devolved to Municipal Councils, which will be supported with training and technical assistance. Measures will also Page 13 be taken to provide computers and information technology to the Councils to allow them to receive and exchange information through the Internet and to modernize management. A user-friendly monitoring and evaluation system facilitates the subproject evaluation process, provides feedback and necessary information to improve targeting and efficiency, and i s an essential management and planning tool. The project MIS will be enhanced to more effectively link physical implementation data with financial information on the project, and will be integrated with State information systems to facilitate overall monitoring and evaluation of the PPA. A comprehensive impact evaluation component will also be introduced to measure income, welfare and social capital gains. Dissemination of "bestpractices", such as experiences with NGOs in Rio Grande do Norte, EMATERCE in CearB, social inclusion in Maranhzo and FUMAC Councils in Bahia and Sergipe can hasten learning and reward innovation. Under the new project, exchanges among states, municipalities and communities will be expanded further usingmore frequent regional training seminars, and workshops and videoconferencing, where available. Standardization of subproject documents, technical designs and unit costs simplifies subproject preparation and evaluation, improves the quality of subprojects, facilitates the procurement process, prevents over-design and enables participation by poorer communities. The existing database of standard designs will be reviewed at appraisal and technically updated and expanded where necessary. Environmental protection criteria: Proactive attention to natural resource management and sustainability issues i s essential in the environmentally fragile State of Maranhzo, located in a transition zone from the Semi-arid Northeast to the Amazon region. The project will offer an expanded option of environmental subprojects which community associations can propose, as well as piloting of regional or territorial subprojects which may cut across several municipalities (e.g., watershed management). Demonstration projects will also be undertaken in selected regions throughout the state to stimulate interest in the adoption of sustainable resource management technologies and techniques. Municipal Councils will serve as focal points for channeling information from the State and NGOs (e.g., AMAVIDA) on environmental issues relevant to the specific municipality. The re-designed and enhanced environmental checklist developed under RPAP will be used to improve the criteria and procedures, and their application for evaluating environmental impact of subprojects. An environmental specialist at NEPE will provide additional technical assistance on environmental matters and training to increase environmental awareness of Municipal Councils and community groups. Partnerships will be fostered with State and municipal environmental agencies and NGOs to develop a culture of environmental awareness in the communities and Councils through training and education. Technical assistance enhances the ability of community associations and Municipal Councils to identify, prepare and implement subprojects, thereby augmenting their capacity to compete for investment funds. Technical assistance needs to be targeted to weaker municipalities to improve their planning, management and financial capacity to participate in the project. Locating and/or developing sources of technical assistance in rural areas requires significant attention and needs to be monitored at the local level. Under the new project, attention will be placed on training at the community level. To this effect, funds will be made available for the appointment of `technical advisors' to be recruited by each Municipal Council. These advisors will be responsible for managing and coordinating local technical and training needs. Increasing efforts will also be placed on deeper involvement of civil society (e.g., NGOs and other civil and church groups) - particularly with respect to increasing the flow of information, mobilizing the poorest groups and supporting training activities at the community level. A system of checks and balances, clearly-defined and well-disseminated, is essential to ensure proper use of funds and sound targeting of resources. Guidelines for performance incentives and penalties will be detailed in the Project Operational Manual. Incentives may include increasing Councils' indicative budget envelopes, increasing the number of investments or investment volume permitted to a community association, or incentives for environmental or technologically innovative investments. Penalties would attach to cases o f mis-management and diversion o f funds and include removal from eligibility to participate, reduced availability of funds, and/or judicial action. As important as penalties per se is the free and transparent flow o f information. Municipal Councils include participation of local civil society (e.g., NGOs, Rural Workers' Union, the Church), representatives of public Page 14 ministries and municipal officials, and their meetings are publicly announced and open to broad participation. Project-financed computers in the Councils will enable Council decisions to be publicized on their own and on NEPE's webpages. All of the above are designed to institutionalize transparency. Productive subprojects should be subjected to rigorous selection, preparation, technical assistance and supervision criteria. Under the new project, a `one-shot' matching grant will be provided to eligible productive investments that (a) provide services for a large number of community members; (b) whose collective use is regulated by strict operational guidelines (regulamento de uso); (c) for which 0 & M is assuredby charging adequate user fees to both association members and non-members; (d) meet the criteria of impact on HDI and environmental sustainability; and (e) include technical assistanceto ensure the sustainability o f the investment. Revisedprocedures for productive subprojects are outlined in the Project Operational Manual, as are arrangements to facilitate access to formal credit by eligible communities (Annex 2). Efforts will also be taken to expand the participation of communities in the ongoing "Fair Trade" initiative (Comkrcio Etico e Soliddrio). 4. Indications of borrower commitment and ownership: The proposed project has been designed in close consultation with the State of Maranhiio. The project objective i s fully consistent with the state's PPA 2004-2007 in seeking explicit linkages between project activities and expected improvements in the HDI. In meetings during project preparation, both the State Governor and the State Management Units involved (Le., GEAGRO, GEPLAN, GEMA) fully endorsed the project concept. NEPE demonstrated strong capacity for project management under the RPAP and will coordinate the proposed project, once it is approved. The project proposal was submitted by the State o f Maranhiio to the Federal Government, which has given its approval to proceed. 5. Value added of Bank support inthis project: For nearly three decades, the Bank has partnered with the Northeast States to address rural poverty through a variety of programs and projects. Under the predecessor project (RPAP-MA, Ln. 4152-BR), using a CDD approach some 197,000 families benefited from more than 4,300 community investment subprojects. Bank participation will ensure that international best-practice in CDD (both in Brazil and elsewhere) is incorporated into project design and that sound international quality standards of monitoring, evaluation and impact assessment are applied. An especially important feature o f Bank value-added under the proposed project will be its ability to facilitate closer local integration on the part of project Municipal Councils with the wide spectrum of programs aimed at rural poverty reduction. The Bank is well-positioned to help forge these linkages, not only because of its direct role in financing the RPAP and developing the Municipal Council mechanism, but also because of its involvement in other important sectoral programs relevant to rural poverty reduction (e.g., irrigation, agricultural research, land reform, education, rural health, environmental sustainability) and the many opportunities for policy dialogue and consensus buildingin the context of its fairly active program of collaborative research and analytical work on poverty and rural development issues in Brazil. The Bank will also provide technical value-added in the development of results-based management methods within the State Government through the Horizontal Component of the project, strengthening the planning, coordination, monitoring and evaluation of the Government's investment program. Finally, the Bank will undertake, as part of its strategic updating of all work in Northeast Brazil, a yearly review o f how the implementation of the Bank's Northeast program is contributing to integrate broader issues of poverty reduction in the region. E:Summary ProjectAnalyses (Detailed assessmentsare inthe project file, see Annex 8) 1. Economic (see Annex 4): Specific investments under the proposed project will be selected and carried out by communities during implementation. It is thus not possible to know a priori precisely how resources will be allocated, or to determine their cost-effectiveness, rate of return and fiscal impact. However, many o f the subprojects would, in general, be similar to those financed under previous and ongoing community-based rural development projects in the Northeast. Page 15 Based on the accumulated experience from these projects, the following aspects of subproject investments were assessed: (a) cost-effectiveness; (b) financial viability of productive subprojects; and (c) the overall fiscal impact. Cost-effectiveness: Several aspects of project design help to ensure that subproject investments represent the least- cost, best alternative. First, the demand-driven nature of subproject selection helps to ensure that scarce resources flow where they are most needed and chosen subprojects are the best alternatives for local communities. Second, the use of standard technical designs (projetospadrzo) and cost parameters for the most common types of infrastructure and social subprojects ensures that community associations employ least-cost models for subproject implementation and decreases associated search and information costs. Third, the delegation of subproject implementation directly to the community associations has proven to generate cost savings, when compared to similar quality works implemented by public sector agencies. The contracting procedures in the Project Operational Manual will allow direct contracting by community associations, but it will require that they solicit three bids for the subproject and select the least-cost bid. Based on the analysis of a random sample of subprojects (including ten categories which collectively represent some 80 percent of the types of subprojects financed under the R-NRDP and RPAP), it has been found that, for infrastructure and social subprojects, costs were 30-50 percent less than for projects of similar quality, implemented by the state. 2. Financial (see Annex 4): Internal rates of return were estimated for the most common types of productive subprojects. These exceeded, on average, 30 percent. Analyses were made assuming constant benefits over a ten-year subproject life cycle. In addition to these positive impacts, benefits are largely concentrated in the subprojects' beneficiary communities. Sensitivity analysis performed on these illustrative subprojects showed that they tend to be reasonably robust vis-8- vis decreases in output and prices and increasesin production costs. Benefitcost ratios are high (greater than 2.0) for the main productive subprojects analyzed. Analysis of these subprojects also suggests that investments are generally financially sustainable. Although beneficiary associations do receive a one-time matching grant, the investments tend to be sustainable because cost recovery through user fees by the average beneficiary association is normally adequate to cover both O&M and replacement of original investments before the end of their useful economic life. The project's directfiscal impact depends on what the State would have done in the absence of the project. First, if the State had attempted to provide the basic services through traditional delivery mechanisms, the fiscal savings are direct and significant (see cost effectiveness discussion above). Evaluations indicate that a significant fiscal contribution will also accrue from cost savings associated with the decreased need for state and local governments to provide certain services, due to project investments. A mid-term review of the RPAP in Bahia, Ceari and Sergipe concluded that, in Sergipe, estimated savings from not having to use water trucks to provide communities with drinking water during critical periods totaled R$500,000 (about R$100,000 per month) during a year o f `normal' rainfall; in Ceari savings were estimated at R$950,000; and in Bahia, R $ l million. In years o f severe drought, as in 1998, savings were at least twice those estimated for a normal year. Provision of better quality, more reliable water also has less quantifiable but nonetheless significant impacts on health, reducing public health costs of Municipal Governments. The Project reduces the dependency of municipalities on central and state government transfers by strengthening the capacity of local governments and communities to take responsibility for local economic and social development. Subproject O&M costs are typically paid by beneficiary communities, reducing the fiscal burden on municipalities and states (with few exceptions, e.g., electricity and some types of water supply, commonly maintained by state agencies and operated in return for a user fee). Finally, the additional, highly cost- effective annual spendingattributable to the project constitutes 1 percent o f total public expenditures for fiscal year 2002 and thus has no significant impact on the aggregate fiscal position of the State. Finally, interms of revenue generation, direct impacts are likely to be small, but indirect impact could be significant. Incremental ICMS (sales tax) revenues from subproject investments are insignificant for the state. Much of the incremental production of the subprojects is either self-consumed, not liable to taxation, and/or circulates in informal markets where tax is rarely paid. But it can imply a significant increase in ICMS collected within the poor municipalities in which the project operates (ICMS is collected by the state and all municipalities receive 25 percent of total collections, independent o f where it is collected). Experience under the RPAP showed that there was a large increase in the purchase and use of domestic appliances when electricity became available, appreciably increasing Page 16 the ICMS revenue to municipalities. This observation is also applicable to purchases of items such as agricultural machinery and irrigation equipment. 3. Technical The technical viability o f the project has been demonstrated under the successful RPAP projects in the Northeast. Investment cost estimates, physical contingencies, prices and estimates o f inputs and outputs are based on actual historical data under the earlier project and thus are considered reliable. Technical standards of specific subprojects will be ensured through standardized designs (including engineering aspects, technical, financial and economic feasibility, O&M, simple environmental guidelines and cost parameters) that cover approximately 80 percent of subproject types normally demanded by the communities. Field evidence demonstrates that these simple, practical standards have enhanced subproject quality, sustainability and cost-effectiveness. All subprojects will be screened by qualified staff in NEPE and communities can contract technical assistance(up to 8 percent of subproject value) to assist in design and implementation of subprojects. Training programs are also being offered to develop community capacity to prepare, implement, operate and maintain projects, as well as acquaint them with existing environmental regulations at the state and federal level. 4. Institutional: 4.1 Executingagencies NEPE will be responsible for day-to-day coordination and management of Components 1,2 and 4 of the project, and GEPLAN for Component 3 (Horizontal Integration). Municipal Councils will undertake resource allocation and subproject prioritization, with community associations identifying and managing subproject implementation. Partnerships will also be established with civil society (including NGOs) and State and Municipal puhlic agencies to respond to communities' subproject implementationneeds. NEPE: is a semi-autonomous agency of GEAGRO. There will be a high-level Steering Council -- the State Council for Sustainable Rural Development -- to supervise the global execution of the proposed project. The Council will provide guidance on the overall scope and the annual operating plan (POA). NEPE will have sufficient financial and administrative autonomy to flexibly operate the project, and will provide it with a network of infrastructure and human resources both at central and regional levels (e.g., through the CAFs) consistent with its responsibilities. Municipal Councils: are membership organizations with 60% of voting members representing beneficiary associations and civil society organizations, and 40% representing the public sector. They may be established as legally constituted civil organizations or through Municipal decree, and have administrative and financial autonomy from the Municipal Government. A total of 216 Municipal Councils have been established in Maranhiio under the RPAP. B y providing a link to municipal government, the Municipal Councils play a critical role in embedding the community-based process in formal channels and are essential for buildinginstitutional sustainability of the project. In the new project, Councils will assume additional responsibilities, including oversight of community O&M of investments; an increasing role in subproject approval, and as facilitators linking communities with external financial partners and other programs. A focus of the new project will be training communities to assume these new responsibilities. I n particular, additional money will be made available for Municipal Councils to appoint technical advisors, mobilize communities, and provide assistance and informationduring implementation. Community Associations: are legally constituted civil associations that serve as the foundation o f project implementation. Under the RPAP, beneficiary community associations demonstrated that they can be efficient and cost-effective agents for their own development. Charging the communities with primary responsibility for the implementation, operation and maintenance of their own subprojects has been found to enhance quality and reinforce community ownership. The new project will build on the latent capacity of community associations and develop and reinforce it by making available funds for direct contracting o f technical assistance, as well as training programs to develop basic financial and administrative skills. For subproject-related assistance in design and implementation, associations can contract technical assistance using up to 8 percent of subproject costs. Page 17 4.2 Procurement issues(see Annex 6): Procurement systems have beenreviewed by Bank specialists and are considered satisfactory. 4.3 Financial managementissues(see Annex 6): Financial management systems have been reviewed by Bank specialists and are considered satisfactory. 5. Environmental: Environmental Category: B (Partial Assessment) 5.1 Summarize the steps undertakenfor environmental assessmentand EMPpreparation (including consultation and disclosure) and the significant issuesand their treatment emerging from this analysis. An EMP was prepared with the assistance of current and former personnel from the State Management Unit for the Environment and Natural Resources (GEMA), extensive discussions with NEPE staff, the analysis of technical documents regarding the environment in Maranhilo, and field visits to potential beneficiary communities. The proposed project has been assigned a "B"environmental classification. An Integrated Safeguard Data Sheet (ISDS) has been prepared and both the ISDS and EMP were reviewed by the LCSES Quality Assurance Team prior to appraisal. Environmental Checklists -incorporated into the Project Operational Manual under the predecessor project RPAP - have been adapted and updated for the proposed project, for use in subproject preparation by potential beneficiary community associations. These checklists would be completed by community associations, with assistance from a technical specialist when necessary, to identify potential adverse environmental impacts from subproject investments and methods to mitigate them. The EMP includes a representative sample of RPAP subprojects and indicates that, due to their small scale, the likelihood o f significant adverseenvironmental impact is very small. Inthe few cases where subproject investments could generate a localized negative impact, these would be detected in the Environmental Checklist and actions taken to address such impacts. The project will also promote improved environmental management and sustainability through: (i) capacity-building of Municipal Councils and Community Associations to take environmental issues into consideration during local planning processes, (ii)financing subproject investments in natural resource management and environmental restoration, and (iii)supporting the adoption of technologies by small-scale producers which also seek to minimize environmental impact. As stated earlier, the Municipal Councils will serve as conduits for information-sharing (from both the State and NGOs) on environmental issues o f interest to the municipality and region. 5.2 What are the main features of the EMPand are they adequate? The EMP is based on the environmental legislation in Maranhilo, is consistent with Bank safeguard policies and identifies three lines of action for the proposed project: (i)control and minimization of negative environmental impacts o f individual subprojects to be financed; (ii)inclusion o f subprojects aimed at conservatiodpreservation o f the environment, and the enhanced integration of environmental awareness within all subprojects, as well as the piloting of regional subprojects which cut across several municipalities to address common issues (e.g., regional watershed management in the Vale do Magu and protection activities in the Parque Mirador); and (iii) systematic and comprehensive environmental training, over the course of the proposed project, for all stakeholders. More specifically, all financed subprojects would first be classified according to the potential for adverse environmental impact, using various diagnostic tools (e.g., environmental checklist, participative assessment). Mitigating measures would then correspond to the identified risk. Standard subproject designs (projetos padrdo) would use technologies and specifications which protect, recover, improve or conserve (as needed) environmental resources. Demonstration projects would be implemented in selected communities and municipalities as examples of such environmentally- friendly technologies and practices. The focus on capacity building of stakeholders for environmental issues is a main feature of the EMP, since implementation of this activity will not only influence environmental sustainability o f project-financed investments, but also that of investments made by the municipalities usingother sources o f funds. Page 18 Discussions between GEMA and the Project team have resulted in an understanding that GEMA and NEPE will work closely to develop simplified licensing procedures, including the possibility o f group licenses by theme and/or geographical location, in order to expedite subproject implementation and foster environmental compliance by individual subprojects. 5.3 For Category A and B projects, timeline and statusof EA: Date of receipt of final draft: 10/30/2003 5.4 How have stakeholders been consulted at the stageof (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? Stakeholders were consulted via a series of qualitative interviews. NEPE project staff, personnel from GEMA, as well as Federal level staff from the Ministry of the EnvironmentIIBAMA took part in discussions of the environmental implications resulting from the proposed project and the ways in which they would be addressed through project activities. Duringthe preparationof the EMP, consultations were held with several relevant localNGOs. The final copy of the EMP was distributed to them as well as to key government agencies. The EMP is also available on NEPE's website (www.nepe.ma.gov.br). 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment?Do the indicators reflect the objectives andresults of the E M P ? The EMP proposes a systematic monitoring of each subproject investment for its potential and actual environmental impacts. First, a regional study will assess the environmental impact of a given set o f financed subprojects. The design and methodology of the study will draw on the technical expertise o f GEMA, in coordination with NEPE and the CAFs. Additionally, follow-up assessments will be made at regular intervals following the implementation of subprojects and would form part of the project's overall mid-term review. Such monitoring reports would be an extension of the current MIS, which already functions satisfactorily in documenting each step in the subproject cycle. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. The project seeks to improve the quality of life of the target population through small-scale investments under a CDD approach, thereby increasing the social capital of rural communities via their participation at all levels of the subproject cycle. Under the project's participatory approach, the wide inclusion o f all potential beneficiaries, including women and minorities, would be assured through a state-wide information campaign designed to create awareness regarding the project's objective, operating guidelines and how to access project benefits. Identification and implementation o f specific subprojects would occur through demand-driven mechanisms at the community level. 6.2 Participatory Approach: How are key stakeholders participating inthe project? Rural communities have generated the demand for the new project, and will dictate the types o f subprojects to be financed, in accordance with the CDD delivery mechanism. Evaluations o f the R-NRDP and RPAP validate this finding (see Annex 11). In the Mid-term Review of RPAP, and other evaluations, strong demand for subproject investments has been observed. High levels of beneficiary satisfaction, as well as strong economic impact of local investments, were recorded. Page 19 Apart from meeting basic community investment needs, a major achievement of the program to date has been to foster the creation o f social capital within rural municipalities and communities. This accumulation of social capital has increased with the proliferation of the project Municipal Councils (Le., CMDRSs), which have provided a new, representative and transparent forum for local government and community representatives to discuss and prioritize investment proposals. B y affording rural communities the opportunity to address their needs through participatory decision-making and oversight, the Municipal Councils have succeeded in: (i) reducing clientelism and political interference; (ii)strengthening the capacity of both communities and municipal governments to select, prioritize and implement investment decisions; (iii)creating partnerships between communities, Municipal Councils and municipal governments and more generally, increased the community voice in the use of public resources; and (iv) fostering citizenship through increased awareness of the social responsibilities of citizens, their representatives and public authorities incivic matters. 6.3 How does the project involve consultationsor collaborationwith NGOsor other civil society organizations? MaranhHo has a rich set of NGOs and other representatives of civil society, many of which were consulted during project preparation. Among these are: Associac;HoBrasileira das RBdios Comunitkias MaranhHo, Chritas Brasileira (Regional MaranhHo), Coletivo das Mulheres Trabalhadoras Rurais do MaranhHo e Pastoral da Mulher, AMAVIDA, Instituto do Homem, AssociaqHo das Comunidades Negras Rurais Quilombolas do MaranhHo (ACONERUQ), Sitio Ecol6gico Praia do Barco, FederaGiio dos Trabalhadores na Agricultura do Estado do MaranhHo (FETAEMA) e Sociedade Maranhense de Defesa dos Direitos Humanos (SMDDH). These consultations touched on the respective coverage areas and objectives of the respective organizations throughout the State, their past and present experience working in partnership with both government and non-governmental organizations, their institutional capacity and their evaluation o f the RPAP and suggestions for improvements which could be incorporated into the proposed project. Additionally, all subprojects are identified, prepared, implemented (including procurementtcontracting o f works), supervised, operated and maintained by community associations. Funds are directly disbursed to community associations, which also contribute up to 10percent of subproject costs. Intermediary NGOs, private firms and other civil groups may provide technical assistance, facilitate information dissemination to community associations and assist in mobilization and organization of communities. Local government participates in Municipal Council meetings, and directly facilitates the work of these councils. NEPE offers capacity-building and training to community associations and municipal councils to foster and enhance social capital, as well as to maximize the inclusion in the project of those groups which have been traditionally isolated (e.g., indigenous, Quilombos, women). NEPE also forges links with a cadre of Federal, State and Municipal agencies to leverage mobilization, training and specialized expertise in project activities. 6.4 What institutional arrangements have been provided to ensure the project achievesits social development outcomes? Experience under the RPAP shows that Municipal Councils have promoted inclusion o f all social groups. For example, Municipal Councils and community associations had a strong representation o f women and minority groups. In the proposed project, the policies of open access to program benefits, and widely dispersed information regarding programrules (using the information campaign) will be continued. To further increase project impact, the following changes are being implemented to strengthen transparency and social inclusion: (a) higher levels of funding for the poorest municipalities, as determined by the municipal HDI; (b) training of Municipal Councils in targeting, with performance incentives for reaching the poorest; and (c) promote sustainability through a strategy for linking communities to local governments, alternative funding from financial institutions and to other programs. 6.5 How will the project monitor performance interms of social development outcomes? Under the Horizontal Integration component, the State will put in place a means of tracking the impact o f public expenditures as they contribute to increasing the HDI for MaranhHo. The project MIS will monitor subproject implementation, as well as the number and location o f beneficiaries. The MIS will track community mobilization Page 20 activities, training courses offered for CMDRSs, as well as periodic supervision o f subprojects in situ. Annual physical performance reviews over the course of the project will assess, inter alia, the participatory approach pursued under the project, making recommendations where needed. Also, the overall project impact evaluation will assess the poverty targeting of project benefits, household welfare and social capital formation, at both the community and municipal level. 7. SafeguardPolicies: 7.1 Are any of the foIlowing safeguardpoliciestriggered by the project? Policy Applicability Environmental Assessment (OP 4.01, BP4.01, GP 4.01) Yes Natural Habitats (OP4.04, BP 4.04, GP 4.04) N o Forestry (OP4.36, GP4.36) N o PestManagement (OP4.09) N o Cultural Property (OPN 11.03) No IndigenousPeoples (OD 4.20) Yes Involuntary Resettlement(OPBP4.12) N o Safety of Dams (OP 4.37, BP4.37) No ProjectsinInternational Waters (OP 7.50, BP7.50, GP 7.50) N o ProjectsinDisputedAreas (OP7.60, BP7.60, GP7.60)" N o 7.2 Describeprovisionsmadeby the project to ensure compliancewith applicablesafeguardpolicies. Environmental Assessment (see 5.1 and 5.2 above) IndigenousPeoples An indigenous population of about 19,000 (about 0.3 percent of total state population) is distributed across 17 indigenous lands in Maranhfio, all of which have been officially demarcated by the National Indigenous Foundation (FUNAI). The most numerous group - Araib6ia - has 3,292 inhabitants and resides in the municipality of Amarante. Cana Brava Guajajara - situated within the municipalities o f Barra do Corda and Grajali - i s the second- most populous group, with 3,143 inhabitants. While the RPAP was itself based on principles o f social inclusion for all potential beneficiaries in the rural space, the project made special efforts to stimulate the participation of indigenous populations, particularly through training events aimed at the construction of sustainable development strategies for these communities. To this end, since 1998, some 85 subprojects were proposed and financed in indigenous communities, benefiting approximately 25 percent of the total indigenous population. This outreach to the indigenous population proved successful, in that through a demand-driven process statewide, they were able to capture a level o f subprojects that was three times their relative weight in the overall population. Additionally, NEPE has placed on staff an Indigenous Specialist in order to ensure proper and consistent treatment of indigenous issues and develop methods to further expand the participation of indigenous groups throughout the state in the project. Incompliance with OD4.20, a draft plan for the participationof indigenous peoples inthe project has been prepared by the State. The Plan benefits from the experience of the RPAP and discussions with NGOs involved in this subject, and is available to the public and on NEPE's website (www.nepe.ma.gov.br). Page 21 F.Sustainability andRisks 1.Sustainability: Institutional sustainability: Both the R-NRDP and the RPAP indicate that, by delegating greater responsibility and influence to local-level organizations and municipal governments, the proposed project can successfully support decentralized resource allocation and social capital creation in rural MaranhHo. The new project will link the project councils to local municipal planning and budgeting processes and programs, as well as alternative credit and financial services. The sustainability of NEPE i s quite strong, given the experience that its core technical team already brings to rural development activities and its broad involvement in other State and Federal supported programs, and because of the technical and administrative capacity and autonomy with which it has been formally established as the State Technical Unit for the project. The project's horizontal component will also contribute to the long-term institutional sustainability of project interventions by supporting MaranhHo's efforts to introduce results-based management and integration of development efforts and State and municipal levels. Financial sustainability: Financial analysis and field investigation confirm the sustainability of the investment subprojects funded by the R-NRDP and RPAP programs. A sample o f over 8,000 community subprojects in those Northeast States which executed RPAP projects as o f 1995 (under the R-NRDP) and 1997198 (under RPAP) was reviewed in 2000. Eighty-nine percent of these subprojects were fully operational. Analysis of productive subprojects revealed that cost recovery through user fees by beneficiary associations was adequate to cover both operation and maintenance and replacement of the original investment long before the end of its useful economic life. The preparation mission observed that the investments carried out under the RPAP in Maranhlo continued to be operated and managed in a satisfactory manner by the beneficiary communities with their own contributions, and continued satisfying community needs. Physical sustainability: Beneficiary participation at all stages of the subproject cycle, together with significant levels of community counterpart contribution, help to ensure subprojects are maintained. Further, the democratic process intrinsic to project participatory municipal councils ensures better selection and prioritization of subprojects by beneficiaries, enhancing long-term sustainability. The proposed project requires the establishment of community- funded O&M plans and subproject maintenance would be monitored by Municipal Councils and NEPE during implementation. Performance incentives for proper O&M are included in project design. Page 22 2. Critical Ris - Risk Risk RiskMinimization Measure Rati ng From Outputs Subprojects do not N Focus of 60% of subproject resources on the poorest 80 of Maranhgo's to Objective target the rural poor 216 municipalities. Introduction of HDIcriteria for subproject selection. Training of CMDRSs and introduction o f performance incentives for proper targeting. Communities do not N Information dissemination of project guidelines and processes. effectively prioritize Provision of technical assistanceto promote social inclusion. Short needs negative list of subprojects ineligible for funding. Erosion of local, state M Continued demonstrated success of the program reinforcing ownership and national political at all levels. Strengthen links between CMDRSs and local government support for CDD for mutual benefit. Politicization of M Membership of CMDRS with voting rights comprises 60% of CMDRSs beneficiary representatives and civil society. Use of Information Technology for e-transparency. Community M Systematic training and TA to both community associations and Associations and CMDRSs targeted at specific needs associated with subproject CMDRSs unable to implementation, 0 & M. Standard designs and cost criteria will be implement and manage provided for most types o f subprojects. Technical and environmental quality subprojects. - assessment and oversight for all subprojects. Project 0 Inadequate andor M Shared counterpart funding responsibilities by State, local government Components untimely flow of and beneficiaries. Continued efforts to reduce transaction costs to outputs counterpart funds affecting timely flow o f funds. 0 Insufficient H Contratosde adesEo between municipal government and the State will integration of identify local-level investment demands and serve to mobilize the activities during relevant resources, both human and financial. Regional Management project execution Units and CAFs will contribute to this process. 0 CMDRSsnot N Strict enforcement of project requirement that beneficiary associations representative of pluscivil society representatives comprise 60% of CMDRS constituents membership. Communities informed of the project rules relating to transparency, democracy and accountability. CMDRSs not given M Close Bank supervision of NEPEadherence to project rules clear indicative concerning indicative budgets. budgets for decision making - Technical assistance M Fundsfor TA are provided to CMDRSs and communities, and they are services not available informed of funding availability. Appointment of salaried Technical or not used by Advisor to each CMDRS, paid by project funds. NEPE will prepare CMDRSs and and disseminate a list of reliable, experienced TA providers for communities community and CMDRS use. Seminar to encourage local service - provider participation in the project. Subprojects not of M Subproject proposals to include an 0 & Mplan, to be monitored by the sufficient quality nor CMDRS. Performance incentives inproject design to ensure O&M properly maintained compliance by associations. Overall Project RiskRating Modest Risk Rating - H(High Risk), S (Substantial I ik), M (Modest Risk),N(Negligib1e or Low Risk) Page 23 3. PossibleControversial Aspects: None G.Main LoanConditions 1.EffectivenessConditions e Adoption of Operational Manual, satisfactory to the Bank; and Terms of Reference for the project evaluation baseline study and overall evaluation framework, satisfactory to the Bank. H.Compliance with BankPolicies 1.This project complies with all applicable Bank policies. Vinod Thomas, Director Task Team Leader Sector M&agement UnitJ Brazil-Country Management Unit Environmentally and Socially Latin America and the Caribbean Sustainable Development Region Page 24 Annex 1 Brazil Maranhgo IntegratedProgram: RuralPoverty Reduction Project Project Design Summary Hierarchy of Objectives Key Performance Data Collection Strategy Critical Assumptions Indicators Sector related CAS Goal: to Bank Mission) Rural Poverty Reduction Reduction in poverty Annual economic *(Goal Relevance o f poverty incidence in rural statistics (IMFWorld indicators for actual areas Bank) prevalence o f rural Poverty assessment poverty. reports (World Bank) Census indicators Government Economic Reports. Annual PNAD Data Project Development Increase in statewide GEPLAN (Objective to Goal) Objective: and municipal HDIs informatiodevaluation Help State of Maranhiio achieve attributable directly to to track impact of Macroeconomic shocks or the goal of reducing poverty by project technical Government programs natural disaster do not increasing its HDIfrom 0.647 to assistanceand on the State's overall eliminate poverty 0.700 by year 2007, through: . . investments; progress indicators, alleviation gains achieved strengthening the results- Improvement in principally the HDI. by the program. basedmanagement capacity State's capacity to Project Impact at the State level for achieve cross-sectoral Evaluation Sufficient complement of planning, cross-sectoral integration of public NEPE Bi-annual other resources (e.g., integration, monitoring and Progress Reports health, education, credit) evaluation of public policies policies and MIS updates and investments in investments, and to Beneficiary surveys Maranhtio's PPA; effectively plan, monitor and evaluate MaranhHo-specific socio-economic supporting cross-sectoral its PPA; development indicators integration of development Number of families for rural areadpoverty actions at the municipal and benefited by project Municipal Council local levels through the activities; Reports design and implementation # community of integrated municipal subprojects approved development plans (PMDI) following the criterion and the introduction of of impact on HDI; State-municipal increase in total performance agreements; project and non- project financing financing demand-driven allocated through community investments for project municipal income-generation, health councils; and sanitation, education, Number of State- culture, the environment and municipal other investments impacting performance the HDI; and agreementsunder implementation and strengthening municipal- achieving a positive level governance through impact on cross- the participation of sectoral integration Page 25 community associations and and investment municipal councils in effectiveness at decisions that are directly municipal and local related to improvements in levels; the living conditions of the incremental rural poor, and through employment generated capacity-building focused on from subproject integration o f environmental investments; sustainability issues i n the decision-making process. increase in social welfare of rural communities; increase in social capital index of project municipal councils; #project municipal councils participating inpriority-setting and decision-making on resource allocation of proj. and non-proj. funded development activities; # communities graduated from the program and successfully linked to other financing. outputs: (Outputsto Objective) Social, economic and #, type of subprojects NEPEBi-annual Subprojects will target the productive infrastructure # subprojects Progress Reports rural poor implemented and operating and well MIS Communities effectively maintained. maintained two years WB Supervision Reports prioritize needs after completion Municipal Council Continued political suppor Community associations Cost-effectiveness and reports at local, state and nationa organizing to meet own quality of subprojects GEPLANevaluations level for community basec needs. Economic efficiency, approach financial viability of Community associations Responsive Municipal productive subprojects and municipal councils are Councils setting and [#CAS]/ able to implement good achieving local priorities. [# communities in quality subprojects. project area] Councils are not politicized Improved monitoring of Growth of number of by Municipal government efficiency and impact of CAS public investments to reduce #subproject proposals rural poverty. submitted/year %women in CMDRSss, CAS #CASparticipating in CMDRSs which don't have subprojects Page 26 ProjectComponentsISub Inputs: (budgetfor each (Componentsto Outputs) components: component) 1. Community subprojects 1. US$36.0 M NEPE bi-annual e Timely flow o f counterpart Progress Reports and funds to NEPE 2. Institutional Development 2. US$ 2.0 M WB bi-annual e Subprojects will be high Supervision missions quality and sustainable 3. Horizontal Integration 3. US$ 1.0M e Municipal Councils are representative of 4. Project Adm., Supervision, 4. US$ 1.0M constituents Monitoring and Evaluation e Municipal Councils have clear indicative budgets for effective decision making e TA services available and usedby Municipal Councils and communities e Subprojects will be maintained e Sufficient integration of activities during project -execution Page 27 Horizontal integration will occur both at the local level, through the coordination of investments (whether within the proposed project or not) via municipal development plans and state-municipal agreements, and at the central level, through the planning and budgeting functions of the State Government (e.g., through GEPLAN). From the perspective of Bank projects, integration will be pursued both at the planning level, through the Bank building a shared understanding with the State Government of the state's development strategy and execution mechanisms, specifically through the horizontal component, and at the local level, through the activities of the municipal councils indeciding local investment priorities across sectors. This horizontal integration will strengthen three objectives within GEPLAN: 1. Integration of program execution at the local and central levels of government; 2. Monitoring of program execution (inputs, activities, outputs); and 3. Evaluation o f program results, impact on the HDI, and results-based decision making. In addition to technical services, Bank support for the component will focus on delivering further technical value- added through advice and seminars. Initial seminars have already taken place in September, November and December 2003, creating an exchange of experience and good practice inresults-based management among Brazil's Northern and Northeastern states. Further work going forward will include training provided to Maranhiio government officials by WBI and OED, in 2004 and similar activities planned for the future. This component will also be carefully coordinated with any activities initiated under the Inter-American Development Bank's management support to MaranhHo (e.g., under the new national project PNAGE). Project Components Project Component 1-Community Subprojects (US$36.0 million or 90 percent of total project costs): The component will support community matching grants (up to US$50,000 each) for small-scale socio-economic infrastructure, education, health, culture, productive, environmental and other investments aimed at raising HDIs. I t is expected that approximately 1,200 subprojects will be financed under this component. Using the HDI-M as a mobilizing goal, the component will establish mechanisms for local-level integration of project activities, with other Municipal, State and Federal programs, to increase those indicators which constitute the HDI-M. Community associations determine their local investment priorities, based on their own choices and information provided to them concerning the State's HDIobjective and the priorities under the PPA, and will prepare subproject proposals for investment financing. These proposals will then be forwarded to their CMDRS, which would match these investment demands with available funding, both from project and non-project sources, their expected contribution toward improvement of HDI-M, and their compatibility with the Municipal Plan for Integrated Development (PMDI). The subproject proposals will be assessed by NEPE for technical, economic, financial and environmental viability. Subproject agreements are then signed between NEPE and community associations. These agreements spell out the terms and conditions for the funding, execution, ownership, operation and maintenance of the approved subprojects. Once approved, funds for subproject implementation will be transferred to the bank account of the respective community association. A majority of voting CMDRS members (at least 60%) will represent potential beneficiary communities while the remaining 40% representation would be from other organized civil society (e.g., STR, NGOs), and public sector entities. Fundingunder Component 1will be allocatedacrossparticipating municipalities inthe following manner: Area 1: where 60% of total component cost will be concentrated inthe 80 rural municipalities with the lowest HDI- M. For these municipalities, special strategies will be adopted by State government to ensure a concentration of financial resources and public policies, integrated at the local-level, in order to bring about a sustained increase in HDI-Min these municipalities. The Horizontal Integration (Component 3 of the project) will be the primary instrument to both mobilize and coordinate these integrated activities in the Area 1municipalities. Area 2: where the remaining 40 percent o f Component 1 resources will be allocated to the remaining 136 rural municipalities of the project area, where, in addition to the specific subproject investments, the component in Area 2 (as in Area 1) will be catalytic for these municipalities and their CMDRSs to focus on cross-sectoral integration, on the HDIsand strengthening local and municipal institutional arrangements. Page 29 Subproject proposals for all forms of investment would observe standard procedures, documentation and technical, economic, environmental and sustainability criteria set forth in a detailed Project Operational Manual. A short negative list2 of subproject types ineligible for financing will be enforced, with particular emphasis on the application o f rigorous eligibility criteria for productive subprojects to ensure proper targeting, and financial sustainability of this form of investment3, also included in the Project Operational Manual. Prior to negotiations, the Bank reviewed a complete draft of the Project Operational Manual. Adoption of this revised Project Operational Manual, satisfactory to the Bank, is a conditionof loan effectiveness. Targeting. In practice, the project will focus on the 2.7 million people living in the rural space, defined as those communities with up to 7,500 inhabitants, in 216 municipalities throughout the State o f Maranhao (Le., all municipalities except that of Si50 Luis). The targeted municipalities are divided into two groups according to poverty levels measured by municipal HDI. Sixty percent of total subproject resources will be concentrated in the 80 municipalities (with a total rural population of 1.1 million) which have the lowest HDIs statewide. For these municipalities, an indicative budget envelope under the project, averaging US$270,000 per municipality, will be available over the four-year period. For the remaining 136 municipalities (with a total rural population o f 1.6 million), 40% of total subproject resources will be allocated, yielding an average indicative budget envelope under the project of US$79,000 per municipality. For both of these groups, additional non-project resources will be mobilized under the local-level integration pursued by the CMDRSs and encouraged under the Horizontal Integration component. Overall, the 1,200 subprojects expected to be financed directly under the project will benefit some 80,000 families (or about 15% of the "rural space" population). Municipal Councils will be responsible for community targeting. This will be supported in various ways: (1) providing the Councils an annual budget figure for the resources available to finance subprojects in their respective municipalities; (2) asking Councils to carry out poverty ranking exercises o f the communities based on assessed needs and an inventory o f community assets, and providing them with technical assistance to do so; (3) widely disseminating information about project activities, particularly among the poorest communities so as to promote their presentation o f subproject ideas and their participation in Council meetings; and (4) direct advocacy, encouraging Councils to prioritize poor communities. The effectiveness o f this methodology will be assuredby the establishment o f clear and transparent rules and procedures for the Councils' functioning. Continual implementation and revision of the information campaign for the project will also be used to expand opportunities for participation of the poorest communities in the target area. This information on project eligibility and procedures will be targeted to potential beneficiary communities to create a level playing field for access to project funds and to stimulate demand from potential beneficiaries across the state. Some communities already have significant levels of organization, either traditionally or from previous development projects in the area, and are poised to benefit immediately from the project. However, for those less organized communities, the project, through its institutional development component, would actively extend mobilization assistance through the services of NGOs or accredited agents who know the communities well and can serve as catalysts for organization (refer to component 2 described below). Inorder to be eligible to receive funding under the project - in compliance with BrazilianLaw - beneficiaries must form legally-constituted civil associations (or 'community associations'). Disbursements to the beneficiary associations will occur through agreements @rotocolo de intenqdes) with NEPE, as per model agreements developed under the predecessor RPAP. These agreements are included in the Project Operational Manual for the new project. Beneficiary associations will be required to contribute either in cash, kind or labor, a minimum of 10 percent (but not more than 20 percent) of the subproject cost, and will be responsible for the operation and maintenance (O&M) of the investments. The minimum level of contributions expected from the beneficiaries, municipalities and the State Government is specified in a cost-sharing matrix detailed in the Project Operational Manual. Those subprojectsineligiblefor funding include production of alcohol, tobacco and drugs, churches, and facilities for political activities. Productive subprojects, as with infrastructure and social subprojects,must be property of the association as a whole and not of select members. Foreach type ofproductivesubproject, a set of operational guidelines (regdamentode KSO), developed by the STU, would be provided to the associationfor adoption. Inaddition, each subproject proposal must identify the source of technical assistance for subproject implementationand subsequent operation. Page 30 Areas of Increased Emphasis Education and Health: Under the project, the Component will encourage community investments that (i) increase access to and the quality of grades one to four of primary education; (ii) reduce illiteracy and promote functional literacy by integrating literacy with productive/income-generationactivities; (iii) reduce infant mortality; and (iv) decrease maternal mortality. The result of these activities would be an expected positive impact on three of the four variables (i.e., life expectancy, literacy and school attendence) from which the HDIis calculated. Specific activities will include: Literacy and Basic Educationfor ages 15 and higher: the project will provide a means by which communities can access two programs for youth and adult education. Vamos Ler (Let's Read), developed through the State Management Unit for Human Development (GDH) will provide basic literacy training and an equivalency curriculum for primary grades one to four. The financing o f the "education package" would be borne by GDH and the respective municipality, with the community contributing (through the proposed project) in the construction o f the school, as well as ensuring the continued attendence of those enrolled. The second program -PRONERA-has,inthepast,beenprimarilyimplementedinagrarianreformsettlements. PRONERAisa14 month program which follows an equivalency curriculum up to primary grade two. Communities will select instructors based on established criteria (Le., completion of grades 1-8, community residency). Escola Ativa: the project will support the adoption, among existing rural primary schools for grades one to four, of the education methodology already field-tested in Colombia and known there as Escuela Nueva (the New School). The facets of this methodology include self-learning approaches that minimize reliance on student- teacher interaction for working pupils and strong community participation. Under the project, the following will be eligible for subproject financing: (i)school construction and rehabilitation, (ii)purchase of learning materials and resources, (iii) student learning packages (kit do aluno); and (iv) funding for implementation of a Strategic Education Plan (PDE). Other Escola Ativa activities and those responsible are detailed in the table below. Table 1: ActivitiesUnder Escola Ativa Life (GEVIDA), with goods financed by the project. Health: As in the case of activities in the Education sector, health-related investments under the Project should contribute to the improvement o f health indicators, especially those which more significantly impact the HDI-M (e.g., reduction in infant and maternal mortality). Concentrating in the 80 municipalities o f Area 1, the Component will support the following activities: (i) basic equipment and essential materials to increase the capacities o f Family Health workers; (ii)construction of water and sanitation systems to prevent and reduce water-borne diseases; (iii) local-level vaccination programs; and (iv) community health education activities. Page 31 Ta Environment: The proposed project will support environmental activities that would also result in positive impacts on quality of life and incomes of rural communities. Specifically, three lines of actions would be pursued: Environmental community subprojects, which will be based on communities' own initiatives and on those generated on the basis of information provided by the Government through the CMDRSs. Community associations will propose (following procedures similar to those of the RPAP in MaranhHo) subproject investments to their respective CMDRSs, which will then prioritize them, applying the criteria o f expected contribution to HDI, sustainable natural resource management and alignment with the PMDI. Demonstration subprojects, which will test environmentally appropriate technologies for production activities. Both GEMA and GEAGRO already have a knowledge base of such technologies which can be deployed for rural production. Under the project, NEPE, through its CAFs throughout the state, will consult with the CMDRSs to build awareness of these technologies, after which the CMDRSs would (i) identify interested rural producers who would voluntarily adopt and implement said technologies and (ii) draft and submit a subproject proposal for needed financing and technical assistance. Regional and territorial subprojects, which will involve more than one municipality and focus on environmental sustainability at the regional level. Under Component 1, a pilot of 2-4 subprojects will take place, which will then be evaluated with the intent of assessing the positive outcomes from this experience and determining whether scaling-up is warranted. At present, a consortia of municipalities have notionally identified three potential territorial subprojects: (i)the Rio Magu watershed; (ii) Bacia do Rio Munim; and the (iii) municipalitiessurroundingtheParqueEstadualdoMirador. the Culture: Under Component 1, the project will seek to strengthen and sustain cultural heritage inMaranhao through activities which address the dual aspects o f culture as social and productive capital. The first aspect - social capital -takescultureto beawell ofcommonknowledge andvalues that create sharedmeanings andsupportsthe social fabric of a community. Activities that address social capital would include activation o f cultural heritage and its associated values and also the recognition, strengthening and diversification of the means o f transmission and dissemination of that heritage (i.e., of the contents of culture). This encompasses ensuring access to heritage through traditional, as well as newer mechanisms for socialization, such as the inclusion of the knowledge o f local culture in school curricula. Regardingculture as productive capital, the project would emphasize the economic dimensions of cultural activities, thus offering the possibility of positive impacts on income o f rural communities. These dimensions include cultural production and management skills -training and support- and the usual components of other productive activities that seek to generate income and employment opportunities in the rural space. Following Page 32 the CDD approach, project beneficiaries would define cultural heritage for themselves and identify strategies for strengthening culture and other significant aspectsof their cultural heritage. Project Component 2 Institutional Development (US$2.0 million or 5 percent of total project costs): - The Institutional Development component will finance technical assistance and training, sufficient for each group participating in project implementation to acquire the capabilities needed to effectively carry out its responsibilities. This component will also finance the contracting of consultants and other entities to assist NEPE in monitoring, supervision and evaluation tasks, and will provide technical assistance services to support State level modernization and reform. This component will also support piloting of the use of information technology by community associations and CMDRSs to increase transparency by making available, inreal time, information about the program itself, as well as usingthe Internet to connect communities directly to markets, both inBrazil and internationally. Using the demand-driven implementation mechanisms described in Component 1, the project consolidates participatory institutions and processes at the municipal and community levels. In this process, well-organized communities with sound, carefully prepared proposals are provided with financial support for investments. To encourage this process and reinforce the decentralized implementation framework, technical assistance and training will be provided for community associations, Municipal Councils, and NEPE, and other entities participating in the project. Types of training and assistancewill include support to communities in organization, subproject preparation and execution, and operation and maintenance techniques. Assistance will be provided to the CMDRSs to improve decision-making capacities, and to create capacity for investment planning and financial administration. At NEPE, training will also be provided to enhance project coordination and supervision skills. The implementation of the institutional development component will be decentralized, and the provision o f and accountability for technical assistance and training would occur increasingly at the local level. In particular, the CMDRSs will play a critical role in overseeing the capacity-building activities for community associations in their jurisdictions. Technical assistance will increasingly be provided by the CMDRSs, and a local technical advisor will be competitively recruited for this purpose. The CMDRSs, provided with model terms of reference prepared by NEPE, will contract technical assistance based on programs agreed with NEPE, and then release funds for that purpose. Institutional development activities can be broadly categorized into five areas: mobilization assistance and trainingfor participating communities.Assistance will be organized and contracted by NEPE and Municipal Councils, to support the organization and strengthening of community associations, identification o f viable investments, subproject preparation, and operation and maintenance of investments. As done under the RPAP, specialized efforts will be pursued to both mobilize and encourage the participation of traditionally isolated populations (e.g., indigenous peoples, Quilombolas, women); capacity-building programsfor CommunityAssociations and Municipal Councils. Organized by NEPE, these programs will include intensive training on the role o f Municipal Councils, explanation of the Project Operational Manual guidelines, techniques for subproject evaluation and supervision, as well as related topics such as environmental assessment of subprojects, participatory planning and financial management. Under the new project all CMDRSs and community associations, with approved subprojects, will be required to participate in mandatory `introductory training' covering the above-mentioned topics. In addition, the CMDRSs will be gradually equipped with computers to assist them inperformingtheir expanding functions; specialized skills training for all participating entities. Based on needs, local providers will be contracted by the STU, Municipal Councils and groups of community associations to provide expert advice and "on-the-job training", in areas such as investment-related technical support, the use of standard designs, monitoring techniques, and financial management; Environmental sustainability training. As an effort to encourage the further inclusion of environmental criteria in decision-making, especially as regards productive activities and infrastructure, the Component will support training and workshops for CMDRSs, Community Associations, GR representatives, as well as field staff of NEPE -primarily attached to the CAFs - and GEMA personnel; and workshops and seminars for the Municipal Councils and beneficiary associations, to exchange experience under the project. These "best practice" exchanges may also extend to seminars to forge links between all STUs of the ten Northeastern states, and to disseminate successful experiences across states. Page 33 Project Component 3 -State Governance and Capacity-building (Horizontal Integration) (US$l.O million or 2.5 percent of total project cost) The component will support technicalassistance to the State of Maranhiio in promoting the integration of state- and federal-level policies for poverty reduction and strengtheningthe managementcapacity of the State to better monitor the impact of its public expenditures to reduce poverty in the rural space (See Project Scope above). Figure 2 explains the integration of the proposedBank support to the State of Maranhiio that will be initiated by the proposed project. Tables 3 and 4 summarize currently plannedactivities and costs in this component. A m r-l 8 Table._Timeline and budget for ComDonent 3 activites _ _ _3: ~ Y Amountsby year OR$l,OOO) Activity" 2003" 2004 2005 2006 Total 1. Developmentof the PPA 2004-2007 50 50 2. Strengtheningof State Planning - 50 150 150 150 500 Y Y 3. Developmentand installation of monitoringand evaluation modulesof SISPCA 100 - - 100 SISPCA (Sistemade Planejamento, Coordenafiio, eAvaliapio); SIARI (SistemaInformatizado de Avaliagiio de Impactos e Resultados);IEASE(Instituto de Estudos eAna'lises Sociais e Econdmicos). See annex 14 for details. These systems are denotedby the acronyms SIPLAN, SIAFEM and SIAGEM. Page 34 Table 4: Timeline and Budget, by Category Amount by year (R$1,000) Category 2003" 2004 2005 2006 Total 1. Consulting 100 550 800 300 1.750 "2 In addition to the above technical services, Bank support for the component will focus on delivering further technical value-added through advice and seminars. Project Component 4 -Administration, Monitoring and Evaluation(US$l.O million or 2.5 percent of total project cost): This component will support overall project coordination and supervision and would help to strengthen the effectiveness and quality of project operations. I t will finance the operating costs o f NEPE (excluding salaries), which is responsible for overall coordination o f project activities in partnership with community associations and with Municipal Councils. As part of its duties, the STU will conduct an ongoing statewide information campaign to continuously disseminate information about the project and its guidelines to all potential beneficiary communities, thereby increasing awareness, transparency and participation in the program. The campaign will increase public awareness about the project, and Municipal Councils and community associations will receive explanations about the situation of their municipality with respect to the HDIand its various components, to help them in considering sub-project alternatives and understanding the HDI criteria which will be used in the selection process. This campaign will be organized in two phases: the first will take place during the launching o f the project and will be oriented to disseminating widely its objectives and characteristics in the project area, while the second phase will take place during the entire life of the proposed project and will be oriented to promoting as much implementation transparency as possible, through the regular dissemination of information on all relevant activities and aspects of the project. For this campaign, the project will finance: (a) local technical assistance in the design and development of the campaign; and (b) the implementation costs, including appropriate, simplified posters, leaflets, radio spots and videos. A proposal for the statewide information campaign was reviewed prior to negotiations and considered satisfactory to the Bank. Given the importance o f supervision to the overall impact of the program, intense project supervision will be maintained and one-half of its cost will be financed under this component. Project supervision will provide NEPE with the necessary information on project performance to make managerial decisions, such as the provision of technical assistance or training and the correction of departures from project guidelines. In line with the increasing emphasis on decentralization under the new project, the responsibilities for project supervision at the local level will be successively devolved to CMDRSs, with NEPE focusing on supervision of the Councils, 'spot-checks' of community associations to verify performance, and overall project coordination. Each subproject will be supervised at least three times: (i)after its approval and before the disbursement of funds, at which time the obligations of the recipient community association will be clearly established; (ii)mid-way during the implementation of the subproject; and (iii)at the end of the construction o f the works, in the case of infrastructure, when the finalization o f the works will be certified. Supervision activities to be financed under the project include operational expenses for field visits and subcontracted services from NGOs and other participating agencies. Monitoring and Evaluation Arrangements: The component will also finance the establishment o f a monitoring system, including the maintenance and use of a Management Information System (MIS). This database will be integrated with statewide information systems (e.g., SEPOC, SISPCA, SIARI) to facilitate monitoring by GEPLAN Page 35 of the overall PPA and impact assessment of the project and broader State development efforts. To function as an efficient management tool, the project MIS, originally designed under the RPAP, will be improved and made more user-friendly and performance-oriented. I t will allow regional offices to enter data and monitor on-line real time flow of subprojects. The MIS will be expanded to contain key technical, financial and socio-economic information on subprojects (planned and actual), as well as cost and other physical indicators, and quantitative variables for impact monitoring. MIS-generated project reports, including monthly disbursement reports and semi-annual progress reports, would facilitate subproject tracking and generate appropriate feedback on project performance. The Horizontal Integration component will be monitored by GEPLAN via indicators which link project and non- project expenditures to reduction in poverty in the rural space and statewide, measured by improvement in the HDI. Project performance and impact indicators would be regularly updated to take stock of project implementation and will be included in the semi-annual progress reports. A Project Implementation Plan and a matrix of Project Performance Indicators were finalized and agreed during project preparation. This component will finance operating costs for monitoring activities, as well as finance experts in information technology and project management: (a) to improve the MIS; and (b) to collect and analyze data on cost indicators and physical parameters from the most frequently approved types of subprojects, so as to calculate a range of values for these indicators and to adjust subproject eligibility criteria accordingly. These adjustments are incorporated into the Project Operational Manual. The MIS is currently organized in three general levels: (a) a subproject information module, which contains pertinent physical and financial information for each subproject; (b) a financial management module to monitor financial execution o f the sub Projects and other components of the Project and from which the Financial Statements in FMR format and the Statements of Expenditure (SOEs) will be generated; (c) a project management module, from which all project reports are generated. Under the new project these three modules will be integrated to allow improved monitoring of the entire subproject cycle. The database will include community profiles, and quantitative variables relating to control groups, with the aim of improving the capacity to evaluate project impact. Finally, the MIS allow real time data entry and monitoring on-line directly from the field and regional offices. NEPE will continue to be responsible for maintaining and regularly updating the MIS, including key Project information (as agreed with the Bank). Through periodic processing of the database information, combined with field visits and inputs from project supervision reports, project contracted studies and audits, NEPE would monitor project characteristics and trends, identify implementation problems and accomplishments and undertake or promote appropriate actions to improve project implementation. The Bank will also monitor project performance indicators through the online MIS, and with inputs from the State, review monthly disbursement summaries and supervise subproject implementation progress on a sample basis in the field. A MIS, satisfactory to the Bank, is already operational. Finally, the project will finance consultant services to develop and implement studies to evaluate the impact of the subprojects and provide feedback to improve project operations, including the following: (a) annual physical performance reviews to assess the quality and sustainability of common types of financed subprojects, including reviews of community-based procurement; (b) a mid-term evaluation/implementation review, to include consultations on project performance and impact as perceived by its beneficiaries; (c) assessment of the activities under the Horizontal Integration component on achieving cross-sectoral integration of public policies and investments to reduce poverty; and (d) a rigorous and comprehensive evaluation o f the impact of the project in raising Maranhiio's HDI. During project preparation, an execution timetable was agreed. Terms of Reference for the aforementioned baseline study and an overall evaluationframework, both satisfactory to the Bank, would be a condition of loan effectiveness. Project Coordination: NEPE, supported by GEAGRO's 18 regional offices (CAFs), will be responsible for overall project coordination, with the following specific duties: (a) to appraise community subproject proposals for compliance with project guidelines and eligibility criteria found in the Project Operational Manual; (b) to assess community participation in identifying, preparing and executing subprojects and quality of technical assistance; (c) to supervise the Municipal Councils to ensure they are adequately managing quality o f subproject implementation and providing sufficient training support to communities; (d) to implement public information campaigns to disseminate information about the project; (e) to implement introductory training and technical assistanceprograms for all municipal councils and community associations with approved subprojects (to include training on subproject implementation, contracting, operation and maintenance and financial management); (f) to monitor and apply performance incentives to reward efficiency, transparency and inclusiveness o f community associations and municipal councils, and also to penalize poor performance/misappropriation (e.g., legal action for fund Page 36 misallocation)6; (g) to monitor project performance through the MIS and to periodically report progress related to the project performance indicators; (h) to prepare annual implementation and physical performance reviews; and (i) to submit project Annual Operating Plans to the Bank for approval. Using standardized cost indicators, reasonable costing for subproject implementation would be ensured. Departures from standard designs would have to be fully justified in the subproject proposal, as would proposed investments which fall outside the range of standardized costs. Finally, NEPE will conduct a statewide information campaign to continuously disseminate information about the project and its guidelines to all potential beneficiary communities, thereby increasing awareness, transparency and participation in the program. GEPLAN will coordinate Component 3 of the project (Horizontal Integration) and will (a) monitor the specific contribution o f the subprojects financed under Component 1 to the goal of increasing MaranhPo's HDI, (b) assure that the activities under the proposed project are consistent with the overall strategy of the State, regarding progress toward improvements in HDI, and (c) maintain detailed information concerning investment programs at the Federal, State and Municipal levels. Project Oversight: The project will be overseen by GEPLAN, which will delegate project coordination and day-to- day implementation responsibilities to NEPE, which has been formally established as the State Technical Unit within the structure of the GEAGRO. NEPEwill implement the project inpartnership with Community Associations and Municipal Councils. I t will receive and approve the Annual Operating Plans for the project Municipal Councils. NEPE will be responsible for day-to-day project oversight with respect to monitoring, supervision of municipal councils, evaluation and requiredreporting under the project. Accounting, financial reporting and auditing arrangements: The Special Account will be established in a commercial bank, and the project accounts will be maintained and audited annually in accordance with the audit TORS. According to arrangements for Bank-financed projects in Brazil, the annual audit of the project accounts for the period January 1 to December 31 of the year will be carried out by independent auditors acceptable to the Bank. The audit report will be submitted to the Bank no later than June 30thin the year following the year for which the projects accounts are audited. The Auditor's TOR will be based on current audit policies and practices for World Bank financed activities. The audit reports will express a single opinion on the Project's accounts, on the SOE's Statement including, their accuracy, the relevance of supporting documents, eligibility for financing in terms of the project`s legal agreements and standards of record keeping and internal controls related to the foregoing. A special opinion will be expressedon the Special Account. Detailedcriteriaand proceduresconcemingperformanceincentives and penalties are includedinthe Project Operational Manual. Page 37 Table 5: Area 1Municipalities, HDI-Mand population Total HDI- Municipio RegiHo Popn Urban Rural M 1. Arai6ses BAIXO PARNAiBA 34,906 9,134 25,7720.486 2. Santanado MaranhHo BAIXO PARNAiBA 10,944 1,340 9,6040.488 3. LagoaGrandedo MaranhHoPEDREIRAS 8,469 2,862 5,6070.492 4. Centrodo Guilherme ALTO TURI 6,152 3,401 2,75 10.493 5. GovernadorNewtonBello ALTO TURI 11,804 2,678 9,1260.494 6. Beligua ITAPECURU 5,253 1,829 3,4240.495 7. Matdesdo Norte ITAPECURU 7,435 2,134 5,2610.495 8. FernandoFalcHo CENTROMARANHENSE 4,823 731 4,0920.497 9. Brejode Areia MEDIO MEARIM 10,418 2,064 8,3540.501 10. SHo Roberto PEDREIRAS 4,400 2,121 2,4630.502 11. PresidenteJuscelino MUNIMELECOISMARANH 10,693 2,715 7,9780.506 12. PaulinoNeves BAIXO PARNAiBA 11,526 3,413 8,1130.508 13. SHo JoHo do Caru PINDA& 13,495 3,156 10,3400.5 11 14. Santo Amaro MUNIMELECOISMARANH 9,612 2,775 6,8370.512 15. BomJardim PINDA& 34,474 12,126 22,3480.515 16. Jenipapodos Vieiras CENTROMARANHENSE 10,119 2,157 7,9420.516 17. Marajido Sena MEDIO MEARIM 7,161 725 6,4360.519 18. CachoeiraGrande M U " ELECOISMARANH 7,383 2,852 4,5310.521 19. CantanhCde ITAPECURU 17,713 8,526 9,1870.522 20. SHo Jog0 do S6ter LESTEMARANHENSE 14,834 4,442 10,3920.523 21. TufilPndia P I N D ~ 5,527 2,049 3,4780.524 22. Timbiras COCAIS 26,401 13,954 12,447 0.524 23. Satubinha PINDA& 10,815 2,263 8,5520.525 24. TurilPndia BAIXADA MARANHENSE 17,231 6,929 10,3020.526 25. MaranhHozinho ALTO TURI 8,445 5,114 3,3310.529 26. Agua Docedo MaranhHo BAIXOPARNAfBA 9,703 2,747 6,9560.529 27. ConceiSHodo Lago Aqu MEDIO MEARIM 10,774 5,252 5 3220.529 28. Itaipavado Grajau CENTROMARANHENSE 13,341 1,125 12,2160.532 29. Lago Verde MEDIO MEARIM 13,038 4,713 8,3250.533 30. SantaFilomena PRESIDENTEDUTRA 4,667 1,623 3,0440.533 31. Senador AlexandreCosta PRESIDENTEDUTRA 8,571 4,944 3,6270.533 32. Joselhdia PRESIDENTEDUTRA 14,609 4,417 10,1920.534 33. Arame CENTRO MARANHENSE 29,843 11,461 18,3820.535 34. Pedrodo RosLio BAIXADA MARANHENSE 17,954 2,937 15,O 170.537 35. Peritor6 COCAIS 17,336 6,527 10,8090.537 36. PauloRamos MEDIO MEARIM 19,290 8,627 10,6630.537 37. ,550 Bernard0 BAIXOPARNAiBA 22,720 8,764 13,9560.538 38. Tut6ia BAIXOPARNAfBA 37,728 11,589 26,1390.538 39. Alto Alegre do MaranhHo COCAIS 20,162 12,997 7,165 0.538 40. IgarapCdo Meio PINDARE 9,842 3,912 5,9300.540 41. DuqueBacelar LESTEMARANHENSE 9,413 4,173 5,2400.540 42. BomLugar MEDIO MEARIM 11,534 1,929 9,6050.541 43. Alto Alegre do PindarC PINDA& 30,177 7,909 22,2680.542 44. Pi0XI1 PINDA& 28,413 12,944 15,4690.542 45. PresidenteVargas ITAPECURU 10,483 3,744 6,7390.543 46. S5o Beneditodo R.Preto ITAPECURU 16,442 9,163 7,2690.543 Page38 Municipio RegiHo Total Popn Urban Rural HDI-M 47. Siio LuisGonzagado MA MEDIO MEARIM 22,722 7,722 15,050 0.543 48. Capinzaldo Norte PRESIDENTEDUTRA 10,543 4,024 6,519 0.543 49. VargemGrande ITAPECURU 34,707 17,116 17,591 0.544 50. PassagemFranca SERTAOMARANHENSE 14,817 7,012 7,806 0.545 51. MagalhHesde Almeida BAIXO PARNAfBA 13,021 6,279 6,742 0.547 52. Buritirana TOCANTINS 13,822 3,784 10,038 0.547 53. AraguanH ALTO TURI 9,123 3,899 5,224 0.548 54. S. Rdo.Doca Bezerra PEDREIRAS 6,671 1,486 5,185 0.549 55. NinaRodrigues ITAPECURU 8,289 3,363 4,926 0.550 56. Aldeias Altas LESTEMARANHENSE 18,827 7,375 1,452 0.550 57. Lagoado Mato SERTAOMARANHENSE 9,446 2,695 6,751 0.550 58. Brejo BAIXOPARNAfBA 27,513 10,656 6,857 0.552 59. Buriti BAIXO PARNA~BA 24,126 7,195 6,931 0.552 60. Barreirinhas MUNIMELECOISMARANH 39,669 13,209 26,460 0.552 61. PresidenteSarney BAIXADAMARANHENSE 13,718 3,242 10,476 0.555 62. SHo Franciscodo MaranhHo BALSAS 12,854 3,205 9,649 0.555 63. Santa Luzia PINDA~ 69,271 21,264 48,007 0.556 64. Tuntum CENTROMARANHENSE 35,411 16,424 18,987 0.556 65. Coroath COCAIS 55,676 33,419 22,257 0.556 66. UrbanoSantos ITAPECURU 17,603 10,906 6,697 0.556 67. PrimeiraCruz MUNIMELECOISMARANH 11,019 3,759 7,260 0.556 68. GovernadorEughio Barros PRESIDENTEDUTRA 14,629 4,245 10,384 0.556 69. SHo Jos6 dosBasflios PRESIDENTEDUTRA 7,432 2,713 4,719 0.556 70. Cod6 COCAIS 111,146 75,093 36,053 0.558 71. Afonso Cunha LESTEMARANHENSE 4,680 2,255 2,425 0.558 72. Parnarama LESTEMARANHENSE 32,469 11,007 21,462 0.558 73. GovernadorLuis Rocha PRESIDENTEDUTRA 6,513 4,333 2,180 0.558 74. Junco do MaranhHo ALTO TURI 5,533 2,596 2,938 0.560 75. Santa QuitBriado MA BAIXOPARNAfBA 28,150 11,499 16,651 0.561 76. Morros MUNIMELECOISMARANH 14,594 4,946 9,648 0.561 77. Serranodo Maranhao BAIXADAMARANHENSE 9,120 2,918 6,202 0.562 78. Cajapid LAGOSMARANHENSES 9,622 2,853 6,769 0.562 79. Milagresdo Maranhao BAIXOPARNAfBA 5,149 1,399 3,750 0.563 80. Colinas SERTAOMARANHENSE 35,803 20,821 14,982 0.563 1,419,761 567,699 852,229 Page39 Table 6: Area 2 Municipalities, HDI-Mand population Total Municipio RegiHo Popn Urban RuralHDI-M 1. MongHo PIN DARE 26,043 9,002 17,041 0.564 2. Mirador SERTAOMARANHENSE 19,906 6,992 12,914 0.564 3. Apicum AGU BAIXADA MARANHENSE 11,099 5,553 5,546 0.565 4. Anajatuba ITAPECURU 22,978 5,992 16,986 0,567 5. Turiap BAIXADAMARANHENSE 31,289 8,489 22,800 0.567 6. MataRoma BAIXOPARNAfBA 11,799 5,235 6,564 0.567 7. Mat6es LESTEMARANHENSE 26,433 9,479 16,954 0.567 8. Altamirado Maranhiio MEDIO MEARIM 8,865 2,894 5,97 1 0.567 9. Lagodo Junco PEDREIRAS 9,833 2,840 6,993 0.567 10. GovernadorArcher PRESIDENTEDUTRA 9,100 5,858 3,242 0.567 11. NovaOlindado MaranhHo ALTO TURI 5,660 9,398 6,262 0.568 12. Fortuna PRESIDENTEDUTRA 4,596 9,128 5,468 0.568 13. GonGalvesDias PRESIDENTEDUTRA 6,790 7,527 9,263 0.568 14. BelaVista do MaranhHo PINDA& 9,900 3,464 6,436 0.569 15. FeiraNovado MaranhHo CERRADOMARANHENSE 7,543 1,030 6,5 13 0.569 16. Formosada SerraNegra CERRADOMARANHENSE 3,781 2,189 11,592 0.569 17. Bacurituba LAGOSMARANHENSES 4,67 1 1,139 3,532 0.569 18. PalmeirPndia LAGOSMARANHENSES 17,264 3,208 14,056 0.569 19. Humbertode Campos MUNIMELECOISMARANH 21,266 6,240 15,026 0.569 20. Carutapera ALTO TURI 18,624 13,121 5,503 0.571 21. CentroNovo do MaranhHo ALTO TURI 14,554 3,127 11,427 0.571 22. SHo Vicente Ferrer LAGOS MARANHENSES 18,406 3,977 14,429 0.571 23: OlhodAgua das Cunhiis MEDIOMEARIM 14,377 8,441 5,936 0.571 24. GragaAranha PRESIDENTEDUTRA 6,080 2,998 3,082 0.571 25. Amapi do Maranhiio ALTO TURI 5,431 3,979 1,452 0.572 26. Pirapemas ITAPECURU 15,124 8,546 6,578 0.572 27. Icatu MUNIMELECOISMARANH 21,489 6,272 15,217 0.572 28. PresidenteMCdice ALTO TURI 5,116 3,377 1,739 0.575 29. Lagodos Rodrigues PEDREIRAS 8,443 4,480 3,963 0.575 30. NovaIorque SERTAOMARANHENSE 4,543 2,597 1,946 0.575 31. Santo Antonio dos Lopes PRESIDENTEDUTRA 14,253 5,337 8,916 0.576 32. BequimHo BAIXADAMARANHENSE 19,700 5,148 14,552 0.577 33. Bernard0do Mearim PEDREIRAS 5,239 1,546 3,693 0.579 34. BomJesus das Selvas P&-AMAZONIA MARANHEN 16,545 7,967 8,578 0.580 35. LimaCampos PEDREIRAS 10,749 6,128 4,621 0.581 36. Po~iiode Pedras PEDREIRAS 22,378 9,864 12,514 0.583 37. Buriti Bravo SERTAOMARANHENSE 21,446 14,886 6,560 0.583 38. Amarantedo Maranhiio TOCANTINS 31,292 10,818 20,474 0.583 39. CPndidoMendes ALTO TURI 16,566 9,156 7,410 0.584 40. Siio Mateusdo Maranhiio COCAIS 34,859 25,970 8,889 0.584 41. Penalva LAGOSMARANHENSES 30,299 12,624 17,675 0.584 42. Chapadinha BAIXOPARNAfBA 61,322 37,231 24,091 0.588 43. CoelhoNet0 LESTEMARANHENSE 42,214 34,747 7,467 0.588 44. Siio PedrodaAguaBrancaPR6-AMAZONIAMARANHEN 10,927 9,459 1,468 0.588 45. SenadorLa Roque TOCANTINS 16,242 7,965 8,277 0.588 46. Cajari LAGOS MARANHENSES 13,405 3,753 9,652 0.589 47. Zk Doca ALTO TURI 46,134 29,082 17,052 0.590 Page40 Municipio Regiiio TotalPopn Urban RuralHDI-M 48. Centraldo Maranhiio BAIXADAMARANHENSE 7,186 3,308 3,878 0.590 49. Riachgo CERRADOMARANHENSE 20,983 9,676 11,037 0.591 50. GovernadorNunesFreire ALTO TURI 25,921 14,102 11,819 0.592 51. Anapurus BAIXO PARNAiBA 10,280 4,601 5,679 0.592 52. SantaRita ITAPECURU 24,922 9,666 15,256 0.592 53. Siio Bento LAGOS MARANHENSES 31,819 16,760 15,059 0.592 54. SBo JoBo Batista LAGOS MARANHENSES 18,917 3,549 15,368 0.592 55. Paraibano SERTAOMARANHENSE 17,854 12,827 5,027 0.592 56. PeriMirim BAIXADA MARANHENSE 13,07 1 3,153 9,918 0.593 57. Esperantin6polis PEDREIRAS 21,224 9,823 11,401 0.593 58. Sucupirado Norte SERTAOMARANHENSE 10,378 3,832 6,546 0.593 59. Davindpolis TOCANTINS 12,275 10,231 2,044 0.593 60. Bacuri BAIXADA MARANHENSE 15,531 7,649 7,882 0.594 61. NovaColinas CERRADOMARANHENSE 3,904 1,637 2,267 0,594 62. Vitorino Freire MEDIO MEARIM 27,462 13,594 13,868 0.594 63. Buriticupu P&-AMAZONIA MARANHEN 51,059 26,017 25,042 0.594 64. Vila Novados Martirios PRE-AMAZONIA MARANHEN 6,705 3,108 3,597 0.594 65. BeneditoLeite CERRADOMARANHENSE 5,288 2,232 3,056 0.595 66. SBo Domingosdo AzeitBo CERRADOMARANHENSE 6,289 4,079 2,210 0.595 67. SBo Ftlix de Balsas CERRADOMARANHENSE 5,144 1,283 3,861 0.595 68. GodofredoViana ALTO TURI 6,994 4,341 2,653 0.596 69. OlindaNovado Maranhiio LAGOS MARANHENSES 10,128 3,415 6,713 0.596 70. Tasso Fragoso CERRADOMARANHENSE 6,393 3,034 3,359 0.599 71. SantaHelena BAIXADAMARANHENSE 30,860 15,105 15,755 0.600 72. Alchtara METROPOLITANA 21,291 5,665 15,626 0.600 73. IgaraptGrande PEDREIRAS 9,759 6,044 3,715 0.602 74. Loreto CERRADOMARANHENSE 10,024 4,840 5,184 0.603 75. Bacabeira MUNIMELECOISMARANH 10,516 1,892 8,624 0.603 76. Sucupirado Riachiio SERTAOMARANHENSE 4,287 2,133 2,154 0.605 77. LagodaPedra PEDREIRAS 40,405 24,048 16,357 0.606 78. Trizidela do Vale PEDREIRAS 16,402 14,329 2,073 0.608 79. Sambaiba CERRADOMARANHENSE 5,261 2,295 2,966 0.609 80. ItapecuruMirim ITAPECURU 42,772 27,661 15,111 0.609 81. SBo Domingosdo MA PRESIDENTEDUTRA 33,044 15,980 17,069 0.609 82. MontesAltos TOCANTINS 10,347 4,825 5,522 0.611 83. Maracapme ALTO TURI 14,866 12,691 2,175 0.613 84. Cidelhdia P&- AMAZONIA MARANHEN 11,816 4,623 7,193 0.613 85. PastosBons SERTAOMARANHENSE 15,460 9,160 6,300 0.613 86. Caxias LESTE! MARANHENSE 139,756 103,485 36,271 0.614 87. Port0Ricodo Maranhiio BAIXADAMARANHENSE 6,380 2,542 3,838 0.615 88. Vitdria do Mearim LAGOS MARANHENSES 29,953 13,492 16,461 0.615 89. SantaLuziado ParuA ALTO TURI 20,058 10,676 9,382 0.616 90. Arari LAGOS MARANHENSES 26,366 15,453 10,913 0.617 91. Jatobi SERTAOMARANHENSE 5,055 2,06 1 2,994 0.617 92. Barrado Corda CENTROMARANHENSE 78,147 43,412 34,735 0.618 93. Cedral BAIXADAMARANHENSE 9,793 1,976 7,817 0.619 94. Viana LAGOS MARANHENSES 44,190 22,996 21,194 0.619 95. Axixa MUNIME LECOISMARANH 10,142 1,202 8,940 0.619 Page41 Municipio RegiHo Total Popn Urban RuralHDI-M 96. PindartMirim PINDARE 27,517 20,941 6,576 0.620 97. BoaVista do Gurupi ALTO TURI 5,128 4,204 924 0.621 98. Cururupu BAIXADAMARANHENSE 33,747 21,468 12,279 0.623 99. Bacabal MEDIO MEARIM 91,823 71,408 20,4 15 0.623 100. PresidenteDutra PRESIDENTEDUTRA 39,541 27,505 12,036 0.624 101. RibamarFiquene TOCANTINS 6,488 2,744 3,744 0.624 102. Miranda ITAPECURU 16,123 13,611 2,512 0.625 103. GovernadorEdisonLobHo TOCANTINS 10,891 3,867 7,024 0.625 104. Si30 Pedrodos Crentes CERRADOMARANHENSE 4,024 1,692 2,332 0.626 105. SBo FranciscoBrejBo P&-AMAZONIA MARANHEN 7,062 3,833 3,229 0.629 106. SHo Franciscodo M A SERTAOMARANHENSE 12,854 3,205 9,649 0.629 107. Ros6rio MUNIMELECOISMARANH 33,665 21,765 11,900 0.630 108. JoHo Lisboa TOCANTINS 24,598 15,307 9,29 1 0.630 109. SitioNovo CENTROMARANHENSE 15,114 4,249 10,865 0.631 110. BarHode Grajau SERTAOMARANHENSE 15,349 7,887 7,462 0.631 111. LuisDomingues ALTO TURI 5,724 4,693 1,031 0.632 112. Campestredo MaranhHo TOCANTINS 11,521 8391 2,930 0.633 113. DomPedro PRESIDENTEDUTRA 21,956 14,037 7,919 0.634 114. Alto Parnaiba CERRADOMARANHENSE 10,174 6,038 4,136 0.636 115. Fortalezados Nogueiras CERRADOMARANHENSE 11,301 5,925 5,376 0.637 116. SHo Rdo. dasMangabeiras CERRADOMARANHENSE 14,870 9,720 5,150 0.638 117. Pinheiro BAIXADAMARANHENSE 68,030 38,186 29,844 0.639 118. Grajau CENTRO MARANHENSE 47,155 26311 20,644 0.639 119. Pedreiras PEDREIRAS 39,828 31,732 8,096 0.639 120. GuimarHes BAIXADAMARANHENSE 12,64 1 5,259 7,382 0.640 121. Matinha LAGOSMARANHENSES 19,231 6,905 12,326 0.640 122. SBo JoBo dosPatos SERTAOMARANHENSE 23,182 18,817 4,365 0.640 123. LajeadoNovo TOCANTINS 5,717 1,978 3,739 0.646 124. Mirinzal BAIXADA MARANHENSE 13,005 7,812 5,193 0.650 125. SHo JoBo do Paraiso TOCANTINS 10,365 3,829 6,536 0.654 126. Timon LESTEMARANHENSE 129,692 113,066 16,626 0.655 127. Carolina CERRADOMARANHENSE 23,991 14,362 9,629 0.658 128. Itingado MaranhHo PR~AMAZONIA MARANHEN 23,128 17,401 5,727 0.664 129. AGailiindia PRI~-AMAZONIA MARANHEN 88,320 64,164 24,156 0.666 130. SantaInbs PINDARG 68,321 63,030 5,291 0.671 131. Port0Franco TOCANTINS 16,840 12,618 4,222 0.678 132. Estreito CERRADOMARANHENSE 22,930 15,846 7,084 0.681 133. Estreito TOCANTINS 22,930 15,846 7,084 0.681 134. Balsas CERRADOMARANHENSE 60,163 50,144 10,019 0.696 135. Imperatriz TOCANTINS 230,566 218,673 11,893 0.722 136. PaGodo Lumiar METROPOLITANA 76,188 1,188 75,000 0.727 3,272,943 1,938,813 1,333,865 Page42 4. ProjectAdministration, Supervision,Monitoring and Evaluation Supervision - Subprojects NEPE, No. of Councils Visits 720 1,080 1,080 720 3,600 - Municipal Councils NEPE No. of Visitslo 432 432 432 432 1,728 1 1.44 subprojects/association. 8 2 coursesfor each Council. 9 3 visitdsubproject. 10 2 visitshlunicipal CounciVyear. Page43 Information Campaign NEPE -- Presentation to Bank X Campaign Launched X - Preparation X - Review and Adjustments (with X Bank approval) Monitoring Reports (sent to I II I I I I I I I I - Impact Evaluation NEPE No. (i)Baseline X (ii)Final X 11 IPONyear Page 44 Annex 3 Brazil MaranhBo Integrated Program: RuralPoverty Reduction Project Estimated Project Costs Proiect ComDonent Local -------------US$Foreign Total million ___________ 1. Community Subprojects 31.80 3.50 35.30 2. Institutional Development 1.70 0.30 2.00 3. HorizontalIntegration 0.85 0.15 1.oo 4. Administration, Monitoring and Evaluation 0.85 0.15 1.oo Total Baseline Cost 35.20 4.10 39.30 Physical Contingencies 0.30 0.10 0.40 Price Contingencies 0.20 0.10 0.30 Total Proiect Cost 35.70 - 4.30 - 40.00 Page45 Annex 4 Brazil Maranh2oIntegratedProgram: RuralPovertyReductionProject Economic Analysis Summary of Benefitsand Costs: Specific investments carried out under the new project will be decided by communities over the life span of the project. It is thus not possible to know a priori how available resources will be precisely allocated, and therefore a precise ex ante estimation of their cost-effectiveness, rate of return and fiscal impact is not possible. However, subprojects to be financed under the proposed project would, in general, be similar to those financed under previous RPAP and ongoing RPRP projects. Based on accumulated experience from the R-NRDP and RPAP, the following aspects of project investments were assessed: (i)cost-effectiveness and sustainability o f infrastructure and social subprojects; (ii)financial viability of productive subprojects; (iii)the fiscal impact o f the RPRP; and (iv) the aggregate impact o f the RPRP program. Cost Effectiveness and Sustainability of Infrastructure and Social Subprojects The bulk of subproject investments under the RPAP were of the infrastructure type (77 percent), while social subprojects comprised less than 3 percent. Most of these subprojects are in the realm o f core public services (water, sanitation, electrification, social investments). Numerous studies show that these basic services provide benefits that justify their universal provision. The experience of the R-NRDPs and RPAPs has shown that the CDD approach to rural infrastructure and service delivery targeted to the poorest can work in a cost effective manner in the Brazilian Northeast. Several aspects of project design help to ensure that the RPRP mechanism to deliver communal infrastructure and social investments represents the least-cost, best alternative. First, the demand-driven nature of each subproject permits scarce resources to flow where they are most needed. Community participation, under the direction of the project Municipal Councils, ensures that the chosen subproject is the best alternative for the local community. Furthermore, the project has, in the Municipal Councils, a democratic mechanism to prioritize the use of the resources available at the municipal level. Second, the use of standard technical designs (projetos padrdo) for the most common types of infrastructure and social subprojects (including corresponding cost parameters) ensures that community associations employ least-cost models for subproject implementation. These standard designs also decrease searchand information costs for community associations by providing established patterns of initiating and completing a subproject. Experience under the RPAP demonstrates that the technical quality of these investments has been good. Third, the delegation of subproject implementation directly to the community associations has proven to generate cost savings, when compared to comparable quality works implemented by public sector agencies. The contracting procedures prescribed in the Project Operational Manual require direct contracting through competitive processes on all subprojects: the community association solicits three bids for the subproject and chooses the least-cost bid. These characteristics have contributed to the cost-effectiveness of the subprojects financed underthe project. Based on the analysis o f a random sample of subprojects (including ten categories which collectively represent some 80 percent of the types of subprojects being financed), it has been found that, for infrastructure and social subprojects, costs under the RPAP were 30-50 percent cheaper than projects o f similar quality, when financed by the state. State-level evaluation of the RPAP in Bahia, CearB, Pernambuco, Piaui, Rio Grande do Norte and Sergipe examined the quality of the materials used, the quality of overall finish, and the quality of operation of the investments. In all states surveyed, the majority of subprojects were found to be technically satisfactory and of good quality. Beneficiaries expressed their satisfaction with the quality of their subprojects and regarded more than 90 percent of all investments as being satisfactory overall. Also, according to experience, the operation and maintenance of infrastructure and social subprojects has been good, with community associations charging user fees sufficient to operate and maintain the investments. The overall evaluation study of the Northeast RPAP program, carried out in 2000, reviewed a sample of 8,123 subprojects funded by the R-NRDP in 1995 and RPAPs in 1997198, finding that 7,240 of them, or 89 percent, were fully operational in March 2000. Furthermore, the same study found that there was no substantial difference in terms of Page46 sustainability across infrastructure, productive and social subprojects. Of 6,064 infrastructure, 1,820 productive and 239 social community subprojects, 89, 87and 88 percent, respectively, were fully operational at the time of the study. Financial Viability of Productive Subprojects Benefit-cost ratios are high (greater than 2.0) for the main types of productive subprojects analyzed. Analysis of selected productive subprojects also suggests that the investments are generally financially sustainable (Table A). Although beneficiary associations have received a one-time investment grant from the RPAP, this investment is financially sustainable because cost recovery through user fees by the average beneficiary association is, in general, adequate to cover both O&M and replacement of the original investment long before the end of its useful economic life. For illustrative purposes, twelve productive subprojects representing some of the most typical productive investments carried out under the RPAPs, were selectedfor financial analysis. Activity models were constructed for these subprojects, based on field interviews with the managers of the subprojects (carried out during evaluation), supervision and project preparation missions, and consultation of standard project designs (projetos padriio) prepared by the STUs. The subprojects analyzed are as follows: Manioc Mill.Middle-size construction equipped with mill, press, oven and other equipment required to process cassava into flour. Investments include a pack animal to transport produce to and from the plant. The mill serves a local community of some 30 to 40 farming families. The plant operates around 100days per year processing some 120 tons o f cassava into approximately 30 tons offarinha and 4.8 tons of starch employing one person to operate the plant during those days. Farmers are charged a users' fee of 15 percent of output. Association members normally pay a smaller fee than non-members. Communal Tractor. Tractor of 75 HP, plus trailer, grain sheller, grader and other equipment, including a garage. The tractor benefits an association of some 65 farming families. The tractor works for members and non- members providing land preparation, grain shelling and transport services. It works approximately 1,700 hour per year serving some 300 ha. User fees for members are smaller than prices charged by private tractor owners and fees charged to non-members. The subproject employs a full-time motorist hired by the association. Small Irrigation 1. Purchase of 18 localized irrigation kits for 38 families to pump water to irrigate a total of some 29 ha (0.8 ha per family). The irrigation is accompanied by the introduction of a new technical package and two new cash crops, chuchu and quiabo (two high-price Brazilian vegetables with good local markets), which replace the existing traditional cultivation of corn, beans and bananas, providing a very good return. Small Irrigation 2. Sprinkling irrigation system to irrigate 10 ha o f previously uncultivated land with water pumped from a permanent water source, benefiting 10 farming families. Most of the irrigated land is used for traditional subsistence crops, corn and beans, although a cash crop-- watermelon - is planted on one-third of the new area. Two crops are obtained per year. Goat Production. Production o f goats by a group o f some 30 farmers, with an investment consisting o f 120 breeding females and 4 breeding males. A pen, a fence and other facilities are constructed and 85 ha of improved pastures are installed. Income is derived from the sale (or self-consumption) of incremental animals and the sale (or self-consumption) of milk. Animal Feed Production Ecluipment. Grinding machine and complementary equipment to produce animal feed from crop residuals, together with a small construction to shelter the machine. Farmers pay a small amount (R$ 1.5) per hour to use the machine. From these payments, electricity and maintenance costs are covered and a small fund is formed. The machine works approximately six months per year. Raw materials and labor to operate the machine are supplied by users. The organization and supervision o f machine use is freely supplied by association leaders. Page 47 Honey Production. Purchase of 340 beehives plus 2 decanters, 2 centrifuges and other apiculture and honey processing equipment to benefit an association of some 23 members with no previous apiculture experience. Training is provided along with the equipment. The beehives, located in 8 sites, are maintained by association members. They yield an annual output of some 8,200 kgof honey which is sold wholesale. Local Bakery. Middle-size construction (120 sq. m) equipped with a gas oven and other baking facilities to produce various types of bread, with an average output of 130 kgo f bread per day. Employs a master baker and two full-time workers. Bread is sold locally in the surrounding communities. FishFarm. Five fish ponds of 2,200 m2each, with a capacity for 8,500 tilapia fish each. Ponds are rotated, with 4 ponds being permanently used at a time. Two harvests are collected per pond in a year, with a total output of 24,000 kg. of fish. Output is sold locally to middle-men. One person i s employed half-time to feed the fish and another i s employed half-time as watchman. Part-time labor is used to harvest the fish. Cashew Processing Plant. Middle size plant plus equipment to process cashew nuts. Some 200 tons of cashew nuts are processed annually into 46 tons of roasted and packed cashew almonds, which are then sold wholesale. It operates during ten months of the year, employing around 6 operators. Cashew nuts are bought from surrounding farmers serving some 150 farmers with 1 to 5 ha of cashew trees each. Jam Production Plant. Plant to process various local fruits into different types of jams and other confectionery products, producing an average of 175 kg per day of these products. Fruit and other inputs are bought by the plant. Products are sold retail locally and also wholesale to retailers. Employs a plant manager and three permanent workers. Small Dairy Plant. Middle size plant (155 sq. m) equipped with a pasteurization kit, cooling chamber and other facilities to pasteurize milk, with a capacity of 1,200 1. per day. The plant i s supplied by around 400 cows with an average daily output of 3 liters per cow belonging to some 60 dairy farmers in a radius of 6 km. Employs a plant manager and 4 permanent workers. The results of the financial analysis are summarized in Table A. Table A The investment cost of the subprojects ranges from around R$7,000 to R$65,000, which is typical for RPAP productive investments. All subprojects show satisfactory internal rates of return, some of them being very high. Page 48 Less than six years are needed to recover the investment in all cases and less than 3.5 in half of the cases. The net incremental annual income or value-added generated by the subprojects (at full development) ranges from R$1,149 for the feed preparation equipment to R$90,781 in the case of one of the irrigation subprojects, with an average value of around R$28,000 for an average investment of around R$ 39,000. The IRRs of the subprojects compare favorably with the real cost of borrowing to the Brazilian Government. The IRRs also compare favorably with the interest rates that would have to be paid in concessionary rural credit programs, like those of the Banco do Nordeste and Banco do Brasil. Only two subprojects --the cashew processing plant and one of the irrigation subprojects -- would be able to pay the high interest rates charged by commercial banks for term lending. Three categories o f projects can be identified in the above illustrative sample. First among these are communal processing equipment or livestock activities which are simple to operate and well-known to farmers, meet community-wide needs, and directly benefit a majority of families in the community. The manioc mill, communal tractor, feed production equipment and goat production subprojects fall into this category. The results summarized inTable A illustrate that these types of investments can be profitable. Their financial returns, however, are not high because benefits are passed on to farmers in the form of moderate user fees or because the activity in question i s intrinsically not very profitable as in the case o f small-scale goat rearing. These subprojects have the advantage of building on activities familiar to farmers, and have therefore little training requirements and simple management needs. They also have low marketing requirements since the community itself is the market for the service, and the outputs produced with the help of the service normally have regular marketing channels or are self-consumed. The second category o f subprojects are those promoting off- or on-farm productive activities which generate full time employment and considerable income for a particular group o f farmers in the community. The small irrigation subprojects and the honey production, jam production, fish farm and bakery subprojects belong in this category. New activities producing a final consumption good to be sold in markets outside the community, exemplified by the honey production, fish farming andjam production subprojects, can be profitable and offer a source of income and employment to some members of the community; however, these subprojects tend to be demanding in terms of marketing and managerial skills. Other popular subprojects in this category are clothes-making and the production of different artisanal goods such as embroideries. These subprojects are normally part o f industries where the entry cost is low and competition high, leaving small operating margins. The lack of working capital and the difficulty to establish a brand name to differentiate the product and place it in the best-paying markets are two common constraints. Local bakeries, which are popular subprojects in some states, have little training and marketing requirements, and are similar to cassava mills or communal tractors to the extent that they cater for a local need and have therefore a local market, although in this case it is that of a final good rather than of a productive service, but they only offer employment and income to a reduced number o f community members. The irrigation subprojects illustrate well that, whenever possible, irrigation together with the introduction o f cash crops and an improved technical package is a profitable and cost-effective way of increasing income and employment in the semi-arid areas of the Brazilian Northeast, which can be successfully operated by local farmers at a very small scale. The contrast between the very high returns to investment o f the first subproject, where new cash crops and technology were introduced alongside with irrigation, and the moderately high ones o f the second subproject highlights the impact of profiting from the availability of irrigation water to introduce wider changes in the cropping system. The last category of subprojects consists of processing plants requiring comparatively higher capital investment, which operate on a scale bigger than the communal equipment included in the first category, benefiting also farmers outside the local community and hence with impact at a more regional level. The dairy and cashew processing plants exemplify this type of subprojects. To complete the financial analysis of productive subprojects, a weighted average o f the IRRs of the activity models included in the sample is calculated. The shares o f each of the twelve types o f illustrative models (which were taken to represent other similar ones) in the total amount invested in community subprojects in the RPAP program were used as weights. The resulting average IRR is 30.2 percent. This figure gives an indication o f the overall profitability of the productive subprojects normally financed under the RPAP, but should not be taken as an ex ante Page 49 estimate of the aggregate profitability of the productive investments of the RPRP, since it is not known a priori which type of subprojects will be most requested by beneficiary communities during the new project. Fiscal Impact There are two possible assumptions for estimating the fiscal impact of the RPRP program on the budget of the State Governments of the Northeast Region. One assumption is that, in the absence of the program, State Governments would not carry out the type of investments financed by RPRP, devoting those resources to other uses. An alternative assumption is that without RPRP, State Governments would carry out the investments using a different targeting and disbursement mechanism. The latter is the most plausible assumption, particularly for the infrastructure and social investments, in view of their absolute priority, the social and political pressure from the rural population and municipal authorities in favor of these investments, and the sustained interest shown by Northeast Governments in the RPAP program. The focus here is therefore on this second hypothesis. It is worth noting, however, that if the investments were not carried out, the resources saved by the State Governments would not significantly alter their overall fiscal position. As shown in Table B, where the annual program cost of the RPRP is compared with total and current state budgetary expenses, the annual cost of the RPRP to the Northeast Governments ranges between 0.4 and 1.0 percent of their total annual budgetary expenditures and between 0.5 and 1.2 percent of their total states' annual current expenditures for year 2000. Table B: Comparison between State Budgetary Expenditures and State-level RPRPAnnual Costs RPRP State Budget - Comparison Total Annual Total Current Annual Annual Program Program Expenditure Expenditure RPRPCost RPRPcost State Cost (R$m) Cost (R$m) (R$m) (R$m) (% of Total (% of Expenditure) Current Expenditure) 1.Alagoas 33.6 8.4 1,280.9 1,141.9 0.7 0.7 2.Bahia 157.5 39.4 7,788.0 5,032.0 0.5 0.8 3.Ceara 105.0 26.2 4,885.0 2,541.0 0.5 1.o 4.Maranh20 112.0 28.0 3,083.0 2,308.0 0.9 1.2 5.Paraiba 86.1 21.5 2,068.0 1,463.0 1.o 1.5 6.Pernambuco 84.0 21.0 4,117.2 3,421.2 0.5 0.6 7.Piaui 63.0 15.8 1,715.0 1,303.0 0.9 1.2 8.Rio Grande 63.0 15.8 1,89 1.9 1,570.2 0.8 1.o Norte Norte 9.Sergipe 63.0 15.8 1,312.0 1,100.0 1.2 1.4 Aggregate 767.2 191.8 28,141.0 19,880.3 0.7 1.0 Under the second assumption, the direct impact of RPRP on government earnings derives both from savings in government costs and from the generation of incremental government revenue. There are tangible government savings associated with the community driven design of the program. Thus, as mentioned above, evaluations have shown that the cost o f investments implemented by communities (either directly or contracted) were 30-50 percent lower than prices paid by public authorities for similar works. There are also budgetary savings associated to the decreased need for state and local governments to provide some inescapable services which need is reduced by RPAP investments. This is for instance the case with government costs for water distribution using carros pipa to communities without drinking water in critical periods. Thus, a mid-term evaluation review of Bahia, Cearh and Sergipe concluded that in Sergipe it is estimated that savings expenses for carros pipa associated with RPAP investments totaled R$ 500,000 (about R$ 100,000 per month) during a year of `normal' rainfall; in Ceari savings were estimated at R$ 950,000; and in Bahia, R $ l million. In years of severe drought, as in 1998, savings were at least twice those estimated for a normal year. Provision of better quality, more reliable water also has less quantifiable but nonetheless significant impacts on health, reducing public health costs Page 50 of Municipal Governments. Subproject operation and maintenance costs are also typically paid by the beneficiary community, reducing the fiscal burdenof municipalities and states (with a few exceptions, e.g., electricity and some types of water supply, commonly maintained by state agencies and operated in return for a user fee). With respect to revenue generation direct impacts are likely to be small but indirect impacts could be significant. The incremental revenue on the sales tax (ICMS) will be small because much of the incremental production o f the subprojects is either self-consumed or not liable to taxation or circulates in informal markets where tax is rarely paid. Infrastructure subprojects, however, can have big one-time indirect benefits. Experience for instance shows that there was a large increase in the purchase and use o f domestic appliances when electricity became available. Thus, the same mid-term evaluation report quoted above estimated the incremental ICMS revenue from the most common appliances (TV sets, refrigerators, stereos, irons, antennas, etc.) at approximately R$2.0 million in Sergipe, R$2.2 million in Cear6 and R$1.0 million in Bahia. Incremental ICMS revenue from electrical equipment is also associated with the purchase of items such as agricultural machinery and irrigation pumps. Aggregate Impact of the RPRPProgram on Employment, Income and CultivatedArea The impact evaluation study carried out of the RPAPs in eight Northeastern States, the results o f which are examined in Annex 11, provides an estimate o f the aggregate impact on employment, income and cultivated area of the infrastructure, productive and social subprojects included in the program. The study, based on a sample from the most representative types of subprojects in each of the States, with an error of less than 20 percent, allows the calculation of summary figures o f incrementaljobs created, incremental income generated and incremental number of ha cultivated. Using these unit-level summary figures from the RPAP and multiplying them by the investment in productive subprojects expected under the RPRP, a gross approximation of the aggregate benefits of the entire RPRP program has been estimated, with the following results (rounded figures): Total investment in community subprojects: US$362.0 million Incremental employment created: >40,000 jobs Incremental net annual incomelsavinm generated: US$80.0million These estimates are subject to a number of caveats, among which is the fact that the level of significance of the sample is not big and that the representative subproject mix under the RPAP only by chance would be replicated under the RPRP. Furthermore, the estimates reflect not only the direct impact of the investments on employment, income and cultivated land but also some indirect impacts, for example, the expansion of cultivated area, employment and income derived from the introduction of a tractor or a easa defarinha in a certain community. The above figures should be taken therefore as an indication of the order of magnitude o f the benefits involved. Sensitivity Analysis1Switching Values of Critical Items: To examine the financial robustness of the subprojects, a sensitivity analysis was carried out on the illustrative activity models. Three scenarios are considered. Inthe first one, production is assumed to be 20 percent below the base case, because of, say, marketing problems. A 20 percent decrease in output causes a 20 percent decrease in revenue, but this is, to some extent, matched by a reduction in the use of inputs and hence in variable costs. Inthe second scenario, the price decreases 20 percent and revenue also decreases by the same proportion without any compensating element. Finally, in the third scenario, an increase o f 20 percent in the price o f variable costs is assumed. The results of the sensitivity analysis are shown in Table C. Page 51 NPV (R$) 1,831 397 62 1,496 Honey Production IRR (%) 16.8 10.0 7.2 11.6 NPV (R$) 9.112 42 -3,635 2,162 Local Bakery IRR (%) 35.0 20.1 < O 15.8 NPV (R$) 56,868 22,45 I -21,559 12,859 FishFarm IRR (%) 15.6 9.3 < O < O NPV (R$) 13,739 -1,732 -39,886 -26,024 Cashew ProcessingPlant IRR(%) >50 >50 48.3 >50 NPV (R$) 288,790 210,642 132,561 201,015 Jam Production Plant IRR(%) 41.7 24.0 < O 12.7 NPV (R$) 69,062 29,690 -33,720 5,652 Small Dairy Plant IRR (%) 19.7 2.0 n.d. (*) n.d. (*) NPV (R$) 30,223 -23,493 -138,697 -84,98 1 (*) R R not defined; net benefits are negativeall years. Some subprojects are more sensitive than others to changing market conditions. Ingeneral, subprojects which are highly dependent on purchased inputs, like the communal tractor, the bakery, the fish farm, the jam production plant and the dairy plant, are more sensitive to deteriorating market conditions than those little dependent on purchased inputs, such as the manioc mill, goat production, feed preparation equipment and honey production subprojects. In all cases, the worst scenario is that of a decrease in prices (scenario 2). The second worst scenario depends on the type of subproject; for subprojects highly dependent on purchased inputs, it is the increase in variable production costs (scenario 3), while for those little dependent on purchased inputs, it is the fall in output (scenario 1). Page52 Annex 5 Brazil Maranhiio Integrated Program: RuralPoverty ReductionProject Financial Summary Years Ending December 31 (in millionUS$) ----- Implementation Period Year 1 Year2 Year3 Year4 Total Total Financing Required: Proiect Costs InvestmentCosts 8.08 10.34 9.49 6.09 34.00 RecurrentCosts 1.43 1.83 1.66 1.08 6.00 Total ProiectCosts 9.51 12.17 11.15 7.17 40.00 Front-endFee Total Financing: 9.51 12.17 11.15 7.17 40.00 Financing: IBRDADA 7.13 9.13 8.36 5.38 30.00 State Government 1.52 1.95 1.78 1.15 6.40 Community Associations 0.86 1.09 1.01 0.64 3.60 Total Project Financing: 9.51 12.17 11.15 7.17 40.00 Page 53 Annex 6 Brazil Maranh2o Integrated Program: Rural Poverty ReductionProject Procurement, Financial Management and Disbursement Arrangements Procurement A) GENERAL All procurement of goods under the Project would be carried out in accordance with the "Guidelines, Procurement under IBRD Loans and IDA Credits" dated January 1995 and revised in January and August 1996, September 1997, and January 1999. Consultants would be employed in accordance with the Guidelines, Selection and Employment of Consultants by World Bank Borrowers, dated January 1997 and revised in September 1997, January 1999 and May 2002 and the provisions stipulated in the Loan Agreement. The methods to be used for procurement are described below and the estimated amounts for each method, are summarized in Table A. The threshold contract values for the use o f each method are established in Table B. B) PROCUREMENTRESPONSIBILITIESAND CAPACITY Project administration and monitoring will be the responsibility of the Nu'cleo Estadual de Projetos Especiais (NEPE), the State Technical Unit (STU). A procurement capacity assessment of the STU was conducted at appraisal by the Project Team's Procurement Specialist. In early 2003, an independent procurement review was conducted of the predecessorproject - RPAP - and concluded that the procurement procedures followed under the project complied with the loan agreement. Procurement responsibilities will be carried out by the STU's procurement staff who have performed successfully these functions during the predecessor project (RPAP-MA, Ln. 4252-BR) and are well-versed in Bank procurement policies and procedures. With the exception of some technical assistance for the beneficiaries which will be procured by the STU, and activities under the Horizontal Component, it is anticipated that all procurement financed by the Project would be carried out by the beneficiary community associations. The beneficiaries have already demonstrated satisfactory administrative capacity in preparing the subproject proposals; this would be evaluated by NEPE/STU at the time of their submission. In addition, the STU would exercise overall quality control o f procurement financed by the subprojects. C) PROCUREMENTARRANGEMENTS Subproiects The Project will provide matching grants to legally constituted rural community associations to finance small-scale subprojects, technical assistance and training for institutional strengthening. Grants would be made in accordance with the selection procedures described in the Project Operational Manual. A standard grant agreement satisfactory to the Bank will be used to transfer grant funds to the beneficiaries under conditions that would ensure adequate implementation. Procurement o f goods and works under subprojects costing less than US$50,000 implemented in remote areas would be carried out mainly through direct contracting and community participation. This procurement method is appropriate because most subprojects: (a) would be small and/or implemented in scattered or remote areas and therefore it will be difficult to obtain competitive proposals; (b) can be managed directly by rural communities, who will also contribute directly to the work through the donation of unskilled labor and local materials; (c) will be selected on the basis of willingness of the beneficiary communities to contribute to and physically supervise works execution; and (d) would provide means by which communities could play an active role in the local development process. Additional procurement of goods estimated to cost less than US$100,000 equivalent, up to an aggregate amount of US$1.5 million, would follow national shopping procedures. Contracts estimated to cost more than Page 54 US$lOO,OOO equivalent would be awarded on the basis of National Competitive Bidding (NCB) procedures satisfactory to the Bank. Works contracts (other than contracts costing less than US$50,000 in scattered or remote areas) estimated to cost less than US$lOO,OOO equivalent, up to an aggregate amount of US$l.O million, would be procured under lump- sum, fixed price contracts awarded on the basis of quotations obtained from a minimum of three qualified local contractors in response to a written invitation. The invitation shall include a detailed description of the works, including basic specifications, the required completion date, a basic form of agreement acceptable to the Bank, and relevant drawings, where applicable. The award would be made to the contractor who offers the lowest price quotation for the required work, and who has the experience and resources to complete the contract successfully. The standard biddingdocuments for NCB agreedbetween the Bank and the Federal Government of Brazil would be used. N o International Competitive Bidding (ICB) is anticipated for any goods or works under the Project. Consultant Services Firms The loan would finance contracts with consulting firms for information campaigns, technical assistance, studies and capacity building for the beneficiary communities and the STU. These contracts would be awarded following a Quality and Cost Based Selection (QCBS) process, in accordance with Section I1of the Consultant Guidelines. However, services estimated to cost less than US$200,000equivalent per contract may be procured following Least Cost Selection procedures in accordance with provisions for paragraphs 3.1 and 3.6 of the Consultant Guidelines. Individuals The consulting services required for the Project include specialized advisory services and services to support project monitoring, such as MIS experts, which are appropriate for individual consultants. Individual consultants would be selected by comparison of qualifications of three candidates and retained in accordance with the provisions of Paragraph 5.1 through 5.3 of the Consultant Guidelines, or may be selected on a sole-source basis in accordance with Paragraph 5.3 and 5.4 o f the Consultants Guidelines, subject to prior approval from the Bank. The competitive process followed to select individual consultants would be described in further detail in the Project Operational Manual. IncrementalOuerating Costs Sundry items, utilities and other incremental recurring costs would be financed on a 20 percent basis and would be procured using the STUs administrative procedures which were reviewed and found acceptable to the Bank. In addition, the Bank would finance 50 percent of STUincremental staff costs for project supervision and monitoring. Prior review thresholds and Procurement Supervision The proposed thresholds for prior review are summarized in Table B. Prior review would be required for all NCB contracts. In addition, the Bank would review the first contracts procured through shopping procedures for goods and works, respectively. Contracts with consulting firms estimated to cost US$lOO,OOO or more and with individual consultants estimated to cost US$50,000 or more would be subject to the Bank's prior review. Assignments of a critical nature and amendments raising contract values above the said thresholds would also be subject to prior review. Page 55 Although the level of Bank prior review of procurement would be overall low, it would be compensated in several ways. First, reviews of procurement by community contracting would be carried out yearly during project implementation, under terms of reference agreed during project appraisal. Second, cost comparisons o f similar subprojects would be conducted using the project MIS in order to detect possible procurement problems and determine whether prices paid under community procurement were reasonable. Third, the project's annual physical performance evaluation would verify the physical implementation of subprojects and analyze procurement issues. Finally, during Bank supervision, additional random reviews would be conducted of subprojects, including field visits and review of subproject documentation. Table A: Project Costs by ProcurementArrangements (in US$million) Expenditure Category Procurement Method" Total Cost NCB Local Direct Other N.B.F13 (including Shopping Contracting contingencies) 1. Civil 1.o 20.5 21.5 (0.7) (15.3) (16.0) 2. Goods and Materials" 1.5 12.8 14.3 (1.3) (9.5) (10.8) 3. Consulting Services, Studies 4.2 and Project Administration (3.2) - Total 2.5 35.0 2.5 40.0 (2.0) (25.5) (2.5) (30.0) I Contract Value Procurement Contracts Subject to Expenditure Category Threshold Method Prior Review (US$ thousands) (US$millions) 1.Works > 100,000 NCB All <100,000 Three Quotations 1St <50,000 inremote areas Direct Contracting None 2. Goods >100,000 NCB All <100,000 Shopping lS <50,000 inremote areas Direct Contracting None 3. ConsultingServices Firms > 100,000 Q C B P All <100,000 None Individuals >50,000 Guidelines, Section V All <50,000 None Financial Management, Auditing and Disbursement Arrangements The Maranhao Integrated Program: Rural Poverty Reduction Project is a repeater Project in terms o f financial management arrangements. The first Rural Poverty Alleviation Project for Maranhi50 - Ln. 4252 has already disbursed 100% and the closing date is June 30, 2004. This Project has been successfully implemented, and therefore the Financial Management Assessment for this second-generation Rural Poverty Reduction Project was Figuresinparenthesisare the amountsto be financedby the Bank loan. l3N.B.F. =Not Bank-financed. l4Communitysubprojects l5Community subprojects I6Servicesestimatedto cost less than US$200,000 may beprocured following LeastCost Selectionprocedures,where appropriate. Page 56 limited to a review o f the Financial Management System, the design of new Financial Statements in FMR format, simplification of some administrative procedures, simplification of funds flow, and review of audit arrangements. Implementing Entity. The Project will be implemented a State Special Projects Unit - NEPE, the STU existing under the State Management Unit for Agriculture, Livestock and Rural Development (GEAGRO). This Unit has a well-proven experience in managing the first Rural Poverty Project -Loan 4252-BR. FinancialSystem. The financial management system to be used by the project was reviewed by a Bank Financial Management Specialist during project preparation for compliance with OPBP 10.02 and the new Guidelines for Assessment of Financial Management Arrangements. Based on this review, the financial management system and other arrangements were considered satisfactory, indicating that they satisfy the Banks minimal financial management requirements and have already the capacity installed to disburse through conventional SOE procedures or through report based methodology- FMR, if the Project decides to use this methodology in the future. Action plan. An action plan was prepared and agreed during project preparation to strengthen the current system, and will be fully implemented in the context of the overall Management Information System for the project. The format of FMRs for reporting purposes were also agreed. Fundsflow. Fundswill be deposited by the Bank from the Loan account to a special account with Banco do Brasil New York. An equivalent account in SHo Luis will be opened to receive funds upon withdrawal from the Special Account. From this account funds will be converted to R$, according to project needs, and transferred to an operational account in Banco do Brasil for application in the individual subprojects. Any balance left in the US$ special account will be invested in the international financial market and interest will be credited to the project in due course, Funds will be invested by NEPE up to 30 days after withdrawal from special account, and SOEs for its replenishment will be submitted upon transfer of funds from the special account, according to the Fiduciary Guidelines for Community Driven Development Projects. Counterpart funds from the State of MaranhBo will be requested by the STU and deposited in the project operational account. The communities' contributions to subproject investments would be defined in the agreement between the project Technical Unit/STU and the beneficiary community association. This contribution would be computed as part of counterpart finance of the project. Simple, standard records, whose format are included in the project Operational Manual, would be completed by a designated community representative. They would be used to record cash contributions, which will be directly paid to suppliers, materials and labor inputs, and would be subject to project audit procedures. Disbursements. Disbursements for all expenditures would be made on the basis of statements of expenditure (SOEs), except for goods and works exceeding US$lOO,OOO equivalent; contracts with consulting firms above US$lOO,OOO equivalent; and with individuals above US$50,000, which would be supported by SS (Summary Sheets). The information required for the compilation of SOEs would be maintained by the STU in the MIS data base. All SOEs would be transmitted from the STU to the World Bank in Washington. This procedure would allow the Bank and the STU to maintain a cumulative account of the progress o f project implementation. NEPE will designate officials with authority to sign the withdrawal requests and file with the Bank the signature specimens. IftheProjectdecidesinthefuturetodisburseonbasisofFMRs,theFinancialManagementSystemisalready equipped and sufficiently reliable to allow for such a mechanism o f disbursement. The proposed Bank loan would be disbursedover a period o f four years. The project is expected to be completed by the project's C1,osing Date of December 31, 2008. The allocation of loan proceeds by disbursement category is shown in Table C. Reporting. The Project will prepare quarterly Financial Monitoring Reports (FMR) which will include source and application of funds by components and sub components and a physical progress report. The FMRs were designed insuch a way that they can be usedas the year end Financial Statements for auditing purposes. FMR-BasedDisbursement. Once the borrower is prepared to adopt the FMR-based disbursement option, such disbursements should follow the following procedures: Page 57 All withdrawals from the LoanAccount shall be deposited by the Bank into a special Account basedupon Table C. Each such deposit into the Special Account will be withdrawn by the Bank from the loan account under one or more of the eligible categories. Each application for withdrawal from the Loan Account for deposit into the Special Account must be supported by a FMR. Upon receipt o f each application for withdrawal the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account an amount equal to the lesser of: (a) the amount so requested; and (b) the amount which the Bank has determined, based on the FMR accompanying that application, is required to be deposited in order to finance eligible expenditures during three-month period following the date of the FMR. In the case of a faster than expected draw-down of the Special Account, an interim FMR may be submitted to request a supplemental disbursement prior to the next scheduled quarterly disbursement request. All supporting documentation authenticating the expenditures reported in the FMRs will be maintained by the Project Technical Unit and made available for review by auditors and Bank missions as requested. Auditing Arrangements. According to arrangements for Bank-financed projects in Brazil, the SOEs Financial Statement, SOEs and the special account will be audited in conjunction with the annual financial audit of the project accounts for the period January 1to December 31. A single opinion will be issued on Project's accounts and SOE Statement. A special opinion will be issued on the Special Account Statement. This audit will be performed by an Independent Auditor. Both the terms of reference for the Audit, and the Auditor shall be acceptable to the Bank. The audit report will be submitted to the Bank no later than June 30 in the year following the year for which the project accounts are audited. The Auditor's report will include the issuance of a management letter on internal controls, and recommendations thereof. Financial Covenants: Standard Financial Covenants will apply for this Project Supervision Plan: Biannual supervision Missions will be carried out in the Project. Page 58 Table C: Allocation of LoanProceedsby Project Category Expenditure Category Project Cost Financing Allocation of Loan inUS$ million Percentage Proceeds inUS$ million 1. Grants for Communitv Submoiects (investments, technical assistance and start-up grants) (a) Area 1grants 21.3 75% 16.0 (b) Area 2 grants 14.2 75% 10.6 2. Consultants' services for Parts B, C and Dof the Project 0.9 84% 0.8 3. Training for Parts B, C and D of the Project 0.6 100% 0.6 4. Administrative Costs (a) incremental operational costs 0.5 20% 0.1 (b) project supervision and monitoring costs 0.7 50% 0.3 5. 0.3 6. Unallocated 1.8 1.3 Total 40.0 30.01 Page 59 Annex 7 Brazil Maranhiio Integrated Program: RuralPoverty Reduction Project Project ProcessingBudget and Schedule A. ProjectBudget (US$OOO) Planned Actual (At final PCD stage) US$172,228 US$252,590 B. Project Schedule Planned Actual (At final PCD stage) Time taken to prepare the project (months) 12 15 First Bank mission (identificationlpreparation) 02/2003 02/2003 Appraisal mission departure 10/2003 11/2003 Negotiations 11/2003 0412004 Planned Date of Effectiveness 01/2004 0912004 Prepared by: Secretariat of Agriculture, Livestock and Rural Development (GEAGRO) Bank staff who worked on the project included: LuisCoirolo, Team Leader, LCSER Raimundo Caminha, LCSRE Tdlio Barbosa, LCSRE Jog0 Barbosa de Lucena, LCSRE Maria Isabel Junqueira Braga, LCSEN Edward Bresnyan, LCSER Jose August0 Carvalho, LEGLA Maria Madalena dos Santos, LCSHD Claudio Mittelstaedt, LCOAA Anna Roumani, LCSER MarkThomas, LCSPE Sylvie Duran, Consultant Estela Neves, Consultant Peer Reviewer: Klaus Deininger, DECRG Page 60 Annex 8 Brazil Maranhao Integrated Program: Rural Poverty Reduction Project Documents in the Project File* A. Project ImplementationPlan 0 Draft OperationalManual for Maranhiio B. Bank Staff Assessments 0 Sector Issues and Concept 0 Contributions for defining subprojectsin the healthand education sectors. 0 Current Rural Poverty Alleviation Program 0 Governmentof Maranhiio Project Document(February 2003) 0 Project Economic and Financial Analyses 0 Cost-Benefit Analysis for selected Subprojects 0 Fiscal Impact 0 Project Implementation Arrangements 0 Community Organizations 0 State Technical Unit (STU) -N6cleo Estadualde ProjetosEspecias(NEPE) 0 State ManagementUnit for Agriculture, Livestock and Rural Development (GEAGRO) 0 NGOS 0 Private Sector 0 Social Capital Assessment 0 Environment 0 Environmental ManagementPlan (September 2003) 0 IndigenousPeoples 0 Planode Participa@oIndigena (October 2003) 0 Project Monitoring 0 Project Database 0 Monitoring Activities 0 Project Reporting 0 Project Supervisionof Rural Poverty Alleviation Project (Loan 4252-BR) 0 World Bank SupervisionReports C. Background Studies 0 MidTerm Review of Rural PovertyAlleviation PrograminBahia, Cearaand Pernambuco. 0 Rural DevelopmentProgramsfor Brazil's Northeast: An Interim Assessment *Including electronic files. Page61 Annex 9 BRAZIL MaranhiioIntegratedProgram: RuralPovertyReductionProject Statement of Loans and Credits Differencebetween Orig. Amt. expectedand actual (US$million) disbursements Project ID FY Purpose IBRD IDA CEF Cancel. Undisb. Orig. Frm. Rev'd PO60573 2004 BR Tocantins Sustainable RegionalDev 60.0 0.0 0.0 0.0 60.0 0.0 0.0 PO80827 2004 BR Loan for Sust. and Equitable Growth ' 505.1 0.0 0.0 0.0 549.6 0.0 0.0 PO49265 2003 BR-RECIFE URBANUPGRADING PROJECT 46.0 0.0 0.0 0.0 45.1 1.8 0.0 PO70827 2003 BR-2nd APL BAHIA DEV. EDUCATION PROJEC 60.0 0.0 0.0 0.0 56.4 -3.6 0.0 PO54119 2003 BAHIA DEVT (HEALTH ) 30.0 0.0 0.0 0.0 28.7 -0.3 0 0 PO58503 2003 GEF BR Amazon Region Prot Areas (ARPA) 0.0 0.0 30.0 0.0 27.5 0.0 0.0 PO80400 2003 BR-AIDS & STD Control 3 100.0 0.0 0.0 0.0 95.0 -1.6 0.0 PO78310 2003 BR-CAIXA Water 75.0 0.0 0.0 0.0 75.0 5.7 0.0 PO76977 2003 BR-EnergySector TA Project 12.1 0.0 0.0 0.0 12.1 1.7 0.0 PO74777 2003 BR-MunicipalPension ReformTAL 5.0 0.0 0.0 0.0 4.7 2.2 0.0 PO57653 2002 BR- FUNDESCOLA IIIA 160.0 0.0 0.0 0.0 205.5 -22.8 0.0 PO51696 2002 SA0 PAULO METRO LINE4 PROJECT 209.0 0.0 0.0 0.0 186.4 116.8 0.0 PO55954 2002 GOIAS STATE HIGHWAY MANAGEMENT 65.0 0.0 0.0 0.0 41.7 34.5 0.0 PO57665 2002 BR-FAMILY HEALTHEXTENSION PROJECT 68.0 0.0 0.0 0.0 59.2 35.6 0.0 PO74085 2002 BR Sergipe Rural Poverty Reduction 20.8 0.0 0.0 0.0 12.0 2.8 0.0 PO73192 2002 BR TA FinancialSector 14.5 0.0 0.0 0.0 9.3 0.4 0.0 PO70552 2002 GEF BR PARANA BIODIVERSITY PROJECT 0.0 0.0 8.0 0.0 8.6 3.9 0.0 PO66170 2002 BR-RGN2ND Rural PovertyReduction 22.5 0.0 0.0 0.0 16.4 3.5 0.0 Po60221 2002 FORTALEZA METROPOLITANTRANSPORT PRO 85.0 0.0 0.0 0.0 111.5 39.7 0.0 PO43869 2002 BR SANTA CATARINA NATURALRESOURC & P 62.8 0.0 0.0 0.0 60.5 11.9 0.0 PO50880 2001 BR Pernambuco RuralPoverty Reduction 30.1 0.0 0.0 0.0 22.2 13.2 0.0 PO5088I 2001 BR PIAUIRURALPOVERTY REDUCTIONPROJ 22.5 0.0 0.0 0.0 13.4 8.7 0.0 PO57649 2001 BR BahiaRural Poverty ReductionProject 54.4 0.0 0.0 0.0 24.4 7.9 0.0 PO73294 2001 BR Fiscal& Fin. Mgmt. TAL 8.9 0.0 0.0 0.0 6.7 5.7 0.0 PO59566 2001 BR- CEARA BASIC EDUCATION 90.0 0.0 0.0 0.0 79.0 -11.0 0.0 PO50772 2001 BR LAND-BASEDPOVRTY ALLEVIATION I(S 202.1 0.0 0.0 0.0 224.3 161.5 0.0 PO50875 2001 BR Ceara Rural Poverty ReductionProject 37.5 0.0 0.0 0.0 21.8 9.8 0.0 PO35741 2000 BR NATL ENV 2 15.0 0.0 0.0 2.3 6.4 8.7 8.4 Po62619 2000 BR INSS REF LIL 5.1 0.0 0.0 0.0 0.4 -0.1 0.7 PO39199 2000 BR PROSANEAR 2 30.3 0.0 0.0 0.0 29.0 29.0 0.0 PO47309 2000 BR ENERGY EFFICIENCY (GEF) 0.0 0.0 15.0 3.3 11.6 13.1 -0.8 PO50776 2000 BR NE Microfinance Development 50.0 0.0 0.0 0.0 31.7 -18.3 0.0 Po06449 2000 BR CEARA WTR MGT PROGERIRHSIM 136.0 0.0 0.0 0.0 81.6 43.3 0.0 PO43874 1999 BR- DISEASE SURVEILLANCE - VIGISUS 100.0 0.0 0.0 33.0 8.8 41.8 0.0 PO58129 1999 BR EMER. FIRE PREVENTION (ERL) 15.0 0.0 0.0 0.0 5.9 5.9 3.5 PO50763 1999 BR- Fundescola2 202.0 0.0 0.0 0.0 17.6 14.3 0.0 PO48869 1999 BR SALVADOR URBANTRANS 150.0 0.0 0.0 0.0 94.2 94.2 0.0 PO38947 1998 BR- SC. &TECH 3 155.0 0.0 0.0 88.8 5.3 94.1 0.0 PO35728 1998 BR BAHIA WTR RESOURCES 51.0 0.0 0.0 0.0 10.1 IO. I -2.8 PO06559 1998 (BF-R)SP.TSP 45.0 0.0 0.0 0.0 3.9 3.9 0.0 PO06474 1998 BR LAND MGT 3 (SA0PAULO) 55.0 0.0 0.0 0.0 49.4 47.1 8.6 PO38895 1998 BR FED.WTR MGT 198.0 0.0 0.0 40.0 59.2 99.2 99.2 PO43421 1998 BR RJ M.TRANSIT PRJ. 186.0 0.0 0.0 17.2 113.5 130.7 0.0 PO57910 1998 BR PENSION REFORM LIL 5.0 0.0 0.0 0.0 2.0 2.0 0.1 PO43420 1998 BR WATER S.MOD.2 150.0 0.0 0.0 125.0 20.6 145.6 1.3 PO42565 1998 BR PARAIBA R.POVERTY 60.0 0.0 0.0 0.0 17.4 17.4 0.0 PO43873 1997 BR AG TECH DEV. 60.0 0.0 0.0 0.0 18.0 18.0 18.0 PO06562 1997 BAHIA MUN.DV 100.0 0.0 0.0 0.0 9.0 9.0 9.0 Po06532 1997 FED HWY DECENTR 300.0 0.0 0.0 30.0 84.9 114.9 88.5 PO43868 1997 BR RGS LAND MGTPOVERTY 100.0 0.0 0.0 0.0 25.9 25.9 25.9 PO34578 1997 BR RGS Highway MGT 70.0 0.0 0.0 0.0 44.6 44.6 44.6 PO37828 1996 BR (PR)R.POVERTY 175.0 0.0 0.0 0.0 55.8 55.8 55.8 Po06210 1996 GEF BR-NAT'L BIODIVERSITY 0.0 0.0 10.0 0.0 1.9 2.7 0.0 PO06564 995 BEL0 HM.TSP 99.0 0.0 0.0 0.0 9.5 9.5 0.0 PO38882 1995 BR RECIFE M.TSP 102.0 0.0 0.0 0.0 7.9 7.9 0.0 TOTALS: 4,660.6 0.0 63.0 339.6 2,883.0 1,498.0 360.0 Page62 BRAZIL Statementof IFC's HeldandDisbursedPortfolio As of February29,2004 (US$ million) Committed - Disbursed IFC - IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1998 Fras-le 7.33 0.00 10.00 0.00 7.33 0.00 6.70 0.00 1994 GAVEA 2.81 0.00 5.50 0.00 2.81 0.00 5.50 0.00 2001 GP Cptl Rswctd 0.00 9.67 0.00 0.00 0.00 9.54 0.00 0.00 1997 GPC 9.00 0.00 0.00 0.00 9.00 0.00 0.00 0.00 1998 Guilman-Amorim 22.73 0.00 0.00 38.32 22.73 0.00 0.00 38.32 1999 IcatuEquity 0.00 20.00 0.00 0.00 0.00 12.60 0.00 0.00 1980187/97 InnovaSA 15.00 5.00 0.00 40.00 15.00 5.00 0.00 40.00 1999 Ipiranga 13.11 0.00 10.52 39.75 13.11 0.00 10.52 39.75 2000/02 Itaberaba 0.00 5.34 0.00 0.00 0.00 5.34 0.00 0.00 1999 Itau-BBA 62.63 0.00 0.00 0.00 49.08 000 0.00 0.00 1995 JOSAPAR 7.57 0.00 7.00 0.00 2.57 0.00 7.00 0.00 1992199 Lojas Americana 6.00 0.00 0.00 0.00 6.00 0.00 0.00 0.00 2002 MBR 17.50 0.00 0.00 0.00 17.50 0.00 0.00 0.00 2002 Macae 52.03 0.00 10.00 43.75 52.03 0.00 10.00 43.75 2002 MacedoNordeste 0.00 0.00 5.00 0.00 0.00 0.00 5.00 0.00 1994 Microinvest 0.00 1.25 0.00 0.00 0.00 0.12 0.00 0.00 1996 Net Servicos 0.00 31.74 0.00 0.00 0.00 31.74 0.00 0.00 1994100lO2 Para Pigmentos 12.90 0.00 9.00 0.00 12.90 0.00 9.00 0.00 2000 Perdigao 6.56 0.00 0.00 0.00 6.56 0.00 0.00 0.00 2003/04 Portobello 0.00 1.15 0.00 0.00 0.00 1.15 0.00 0.00 1998 Puras 3.33 0.00 0.00 0.00 3.33 0.00 0.00 0.00 1997 Queiroz Galvao 0.64 0.00 0.00 0.00 0.11 0.00 0.00 0.00 1997103 Randon 4.67 0.00 3.00 0.00 4.67 0.00 3.00 0.00 1994197 Rodovia 19.44 0.00 0.00 15.90 19.44 0.00 0.00 15.90 2002/04 SP Alpargatas 30.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 1997 Sadia 7.70 0.00 4.83 48.85 7.70 0.00 4.83 48.85 1998 Salutia 0.00 0.08 0.00 0.00 0.00 0.08 0.00 0.00 2003 Samarco 8.10 0.00 0.00 1.33 8.10 0.00 0.00 1.33 2000 Saraiva 5.77 3.00 0.00 0.00 5.77 3.00 0.00 0.00 1997 Satipel 15.00 0.00 10.00 0.00 15.00 0.00 10.00 0.00 1999 Seara Alimentos 0.00 0.09 0.00 0.00 0.00 0.09 0.00 0.00 2001 Sepetiba 27.00 0.00 5.00 0.00 12.00 0.00 5.00 0.00 1996 sucorrico 1.50 0.00 0.00 0.00 1.50 0.00 0.00 0.00 1998 Sudamerica 0.00 15.00 0.00 0.00 0.00 15.00 0.00 0.00 2001/03 Synteko 18.00 0.00 0.00 0.00 18.00 0.00 0.00 0.00 2002 TIGRE 5.77 0.00 5.00 0.00 5.77 0.00 5.00 0.00 2002104 Tecon Rio Grande 5.41 0.00 5.50 9.89 5.41 0.00 5.50 9.89 1999 Tecon Salvador 0.00 0.56 0.00 0.00 0.00 0.55 0.00 0.00 1999 UPOffshore 11.60 10.00 0.00 30.00 0.00 3.00 0.00 0.00 2001 Unibanco 20.00 0.00 0.00 0.00 14.80 0.00 0.00 0.00 1996197 Vulcabras 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 Wiest 0.00 0.00 8.00 0.00 0.00 0.00 8.00 0.00 AG Concession 0.00 15.00 15.00 0.00 0.00 14.07 0.00 0.00 Algar Telecom 0.00 8.17 0.00 0.00 0.00 8.17 0.00 0.00 Total Portfolio: 704.27 155.84 212.35 568.37 625.81 139.24 194.05 538.37 ApprovalsPendingCommitment FY Approval Company Loan EQuity Quasi Partic 2002 Andrade 0.00 0.00 0.00 100.00 2000 BBA 10.00 0.00 0.00 0.00 2002 BancoItau-BBA 0.00 0.00 0.00 100.00 2001 Brazil CGFund 0.00 0.00 20.00 0.00 1999 Cibrasec 0.00 0.00 7.50 0.00 2002 Net Servicos2 50.00 0.00 0.00 0.00 2002 Suape ICT 6.00 0.00 0.00 0.00 2004 TermoFortaleza 55.50 7.00 0.00 112.50 2002 Unibanco-CL 0.00 0.00 0.00 150.00 Total Pending Commitment: 121.50 7.00 27.50 462.50 Page63 Annex 10 BRAZIL MaranhBo Integrated Program: Rural Poverty ReductionProject Country at a Glance Latin Lower- POVERTYand SOCIAL America middle- Brazil & Carib. income Developmentdiamond' 2002 Population mid-year(millions) 174.5 527 2,411 GNI per capita (Atlas method US$) 2,830 Lifeexpectancy 3,280 1,390 GNI (+Was method US$billions) 494.5 1,727 3,352 Average annual growth, 1996-02 T Population (%) 1.3 1 5 1.o Laborforce (%) 1.7 2 2 1.2 GNI Mostrecent estimate (latest year available, 1996-02) per capita Poverty (% of population belownationalpovem//me) 22 Urbanpopulation (% of totalpopulation) 82 76 49 I Lifeexpectancyat birth (years) 69 71 69 1 Infant mortality(per 7,000live births) 30 27 30 Child malnutntion(% of children under5) 6 9 11 Accessto improvedwater source Access to an improved water sourcePA of population) 87 86 81 Illiteracy(% ofpopulationaqe 15+) 12 11 13 Gross primaryenrollment (% of school-aqepopulation) 162 130 111 ^__x- Braul Male 166 131 111 Lower-middle-incomeorouo Female 159 128 110 KEY ECONOMICRATIOSand LONG-TERMTRENDS 1982 1992 2001 2002 Economicratios* GDP (US$ billions) 281 7 390.6 509 0 452.4 Gross domesticinvestment/GDP 21 1 18.9 21 2 19.3 Exportsof goods and servicedGDP 7 6 10.9 132 15.8 Trade Gross domesticsavings/GDP 20 4 21.4 20 2 21.5 Gross nationalsavingslGDP 153 20.1 166 18.0 T Current account balancelGDP -5.8 1.6 -46 -1.7 Interest payments/GDP 3.4 0.7 3 0 3.0 Total debt/GDP 33.3 33.0 48 3 51.3 Total debt service/exports 81.9 21.1 76 4 70.2 Present value of debt/GDP 52 6 58.4 Presentvalue of debt/exports 334 2 Indebtedness 1982-92 1992-02 2001 2002 2002-06 (averageannualgrowth) GDP 2.6 2.7 1.4 1 5 3.4 -Brazil GDP percapita 0.7 1.4 0.1 0.2 2.2 - Lower-middle-incomegroup STRUCTURE of the ECONOMY 1982 1gg2 2o02 ! Growth of investmentand GDP (%) (% of GDP) 1 Agriculture Industry Manufacturing 346 247 140 132 Services 454 536 71 6 729 Private consumption 696 61 5 606 593 i o General government consumption 10.0 17.1 19.2 19.3 Importsof goods and services --mGDI '-O-GDP 1982-92 1992-02 2o01 2o02 (averageannualgrowth) Growth of exports and imports (%) Agriculture 2.5 3.5 5.7 Industry 1.6 2.3 -0.7 Manufacturing 0.5 1.8 1.4 Services 3.2 2.8 1.9 Private consumption 0.7 3.9 0.8 Generalgovernmentconsumption 7.1 0.9 1.o Gross domestic investment 4.1 2.1 -1.1 -5.2 '---Exports +Imports Importsof goods and services 3.9 7.6 1.2 -12.8 I . , I I , I Page 64 Brazil PRICES and GOVERNMENTFINANCE 1982 1992 2001 2002 Domestic prices Inflation(%) (% change) Consumer prices 100.5 951.6 7.7 7.7 ImplicitGDP deflator 104.8 968.5 7.5 8.5 Government finance (% of GDP, includescurrentgrants) Current revenue 22.7 24.1 97 6% 99 M) 01 02 Currentbudget balance 3.0 3.1 Overall surplus/deficit 3.8 -GDP deflator -CPi I TRADE 1982 1992 2001 2002 (US$mi//ions) Exportandimportlevels(US$ mill.) Total exports (fob) ...... .. 35,793 58,223 60,362 75,000 T Coffee 2,534 2,932 3,049 Soybeans 2,696 2,726 2,199 Manufactures 23,787 32,901 33,001 50.000 Total imports (cifl .. 20,554 55,572 47,219 Food 850 1,169 1,085 25.000 Fuel andenergy 3,069 6,276 6,281 1 I Capitalgoods ...... 6,335 14,808 11,593 0 Export price index (1995=100) 73 92 94 95 6% 97 98 99 w 01 Importpriceindex(f995=100) 65 63 114 115 Exports mlmports Terms of trade (1995=700) 112 147 82 82 O2 BALANCEof PAYMENTS 1982 1992 2001 2002 (US$ mi//ions) Currentaccountbalanceto GDP (%) 1 Exportsof goods and services 21,967 38,999 67,545 69,968 Importsof goods andservices 24,761 25,717 72,653 61,863 Resourcebalance -2,794 13,282 -5,108 8,105 Net income -13,510 -9,382 -19,743 -18,191 Net currenttransfers 2 2,243 1,638 2,390 Current account balance -18,302 6,143 -23,213 -7,696 Financingitems (net) 11,101 8,926 19,795 -3,570 Changes in net reserves 5,201 -15,069 3,418 11,266 Memo: Reservesincludinggold (US$ mi//ions) 3,994 23,754 35,866 37,823 Conversionrate IDEC, /ocal/US$) 6.52E-11 1.64E-3 2.4 2.9 EXTERNALDEBTand RESOURCEFLOWS 1982 1992 2001 2002 (US$mi//ions) Composition of 2002debt(US$ mill.) Total debt outstandinganddisbursed 93,932 129,060 245,844 232,075 IBRD 2,694 7,238 7,963 7,710 A: 7.710 IDA 0 0 0 0 Total debt service 19,215 8,647 54,322 51,636 IBRD 411 1,913 1,362 1,518 IDA 0 0 0 0 Compositionof net resourceflows Officialgrants 24 38 81 0 Officialcreditors 966 -936 2,742 916 Privatecreditors 7,580 5,888 -1,781 -9,541 Foreigndirect investment 2,910 2,061 22,636 0 Portfolioequity 0 1,704 2,482 0 F: 152,327 World Bank program Commitments 1,090 1,344 1,624 1,276 A IBRD E Bilateral Disbursements 623 581 1,639 1,384 B IDA D. Othermultilateral F Private Principalrepayments 215 1,266 828 1,063 C IMF --- G Short-term --- Net flows 408 -685 810 322 Interest payments 196 647 533 456 Nettransfers 212 -1,332 277 -134 Page 65 Annex 11 BRAZIL Maranhiio IntegratedProgram: RuralPovertyReductionProject Evaluationof the BrazilianExperiencewith RuralPovertyReduction I. INTRODUCTION Brazil is characterized by extreme levels of income disparity, with poverty rates much higher than in other countries with a similar level o f per-capita GDP. The Northeast region accounts for only 20 percent o f Brazil's land area yet is home to 48.2 million people, 30 percent of Brazil's total population. Poverty is endemic in the region, with 47% of the total NE population living on less than US$lper day. Poverty in the rural space is more severe, with 64% of the NE rural population (9.2 million) living on less than US$1 per day. On a national scale, 498 of Brazil's population living on less than US$l per day reside in the Northeast; for rural Brazil, this figure jumps to 64%. Among the five major regions of the country, the Northeast ranks lowest in terms of the HDI (0.608 compared to 0.764 for all of Brazil). The five lowest state-level HDI are also in Northeast Brazil: Alagoas (0.633), Maranhiio (0.647), Piaui (0.673), Paraiba (0.678) e Sergipe (0.687). These same five states have shown between 14 and 18% increases in HDI since 199I. The State of Maranhiio has the largest proportion of rural inhabitants among all Brazilian states (about 40% o f total population). Some 50% of the total and 65% of the rural population survive on less than US$1 per day. Rural areas of Maranhiio continue to show minimal access to basic services: 84% without piped water, 80% without sanitation, and 53% without electricity, compared to 3296, 26% and 2%, respectively, for the urban areas of the state. Approximately 32% of the state's adult population is illiterate, compared to a national average of 15% and a Northeast regional average of 30%. The average educational attainment for the state is 2.8 years - the second lowest in Brazil - and significantly lower than the Northeast average of four years. Many school districts, especially in the rural interior of the state, have no access to education beyond grade four; in fact, student matriculation at grades 5-8 is five times higher in Maranhiio's urban areas than in its rural areas. Without such access in rural areas, students are forced either to move or permanently terminate their studies. Notwithstanding these deficits relative to the rest of Brazil, Maranhiio has actually experienced one of the strongest rates of improvement over the past decade. The HDI for Maranhiio rose from 0.551 in 1991 to 0.647 in 2000, although this is still well below the national average of 0.764. The State's strategy for addressing rural poverty explicitly links interventions through the PPA to the desired increase in the HDI. I t will target investments which have the greatest potential to raise the HDI, paying particular attention to the poorest municipalities and to the `rural space' generally. Municipal Councils established under the predecessor RPAP project in Maranhiio (Ln. 4252-BR) will play an expanded role in investment prioritization and allocation decisions. Recent successful rural development projects - the Reformulated Northeast Rural Development Project (R-NRDP) [1993-19961 followed by the RPAPs [I995 - present] - have helped to alleviate conditions, and present a promising approach to addressing persistent poverty levels. The combined program - the R-NRDP (including a community- based pilot part of the Northeast Rural Development Program before its reformulation) and the RPAPs - has successfully financed some 54,000 community-managed subprojects in nearly 1,600 municipalities o f the Northeast (77 percent of total), providing basic services to about 1.7 million of the poorest families, or some 7.5 million rural poor, in over 30,000 separate communities. In Maranhiio alone, under the RPAP, over 4,300 subprojects across 211 municipalities statewide have benefited 197,000 families. Although these achievements have contributed to a reduction in the growth o f poverty in the rural space of the Northeast, the sheer scale of poverty there remains high. To address this poverty, the Government o f Brazil, in partnership with the World Bank and the Northeast States, is expanding and consolidating the achievements of the R- NRDP and RPAP programs through a new series of sub-national projects. Building on the successful mechanisms employed under those previous generations, these new projects will continue to improve both effectiveness and page66 sustainability of impacts through adjustments to operational features reflecting lessons learned from implementation. In Maranhiio, the proposed project will be explicitly linked to the State's current multi-year investment plan (PPA), which seeks to increase the state's HDIfrom 0.647 to 0.700 by the year 2007. Strong monitoring and evaluation, combined with intensive, locally-based supervision, have been an important facet of the program, contributing to the depth of knowledge that exists on its performance. From March 1998 through March 2000, the program underwent extensive evaluation comprising a series of independent reviews to assess overall impact in achieving poverty reduction objectives. This Annex presents findings from the 2000 evaluation, as well as nearly a decade of implementation experience, focusing on the achievements of the most recent (and therefore most evolved) RPAP-style projects (but also including information about the NRDP and the R-NRDP), synthesizing lessons learned and already incorporated in the proposed successor projects. 11. THE EVOLUTIONOF COMMUNITY-BASED RURAL DEVELOPMENT INNORTHEAST BRAZIL Community-based activities were first introduced to Northeast Brazil in 1985 as a small-scale pilot component of the World Bank-financed Northeast Rural Development Program (NRDP). For several years following effectiveness, this community-based component - Apoio ds Pequenas Comunidades Rurais (APCR) - was the only activity under the NRDP to disburse effectively and achieve positive results on the ground. The APCR, at a total component cost of US$106 million, represented one of the most significant attempts o f the Bank to make rural development projects more participatory. The APCR fund made grants of up to US$lO,OOO to community associations in towns of less than 5,000 inhabitants. About 60 percent of the grants financed community-owned ventures like grain-milling facilities, seed banks, input-supply stores, and storage facilities. Another 25 percent went to small works projects (e.g., road repair, community laundries, public toilets) while the remaining 15 percent supported institution-building activities in rural community associations. Relying on rural communities to organize, prioritize needs, and plan, execute and manage subprojects, this innovative component produced results that were both encouraging and replicable, demonstrating that by involving communities, poverty reduction could be achieved at a low per family cost. Equally important, the APCR demonstrated the ability of municipal governments - which were not originally included as project participants - to mobilize additional resources at a time of severe fiscal austerity. In late 1993, drawing on lessons from the APCR and similar schemes elsewhere in Latin America, the NRDP was reformulated into a full-scale community-based development program (R-NRDP). Significant features of the reformulation were: (i)decentralized decision-making, (ii)state and community counterpart funding responsibilities and (iii)delegated implementation from the Federal Government to the State and local levels. Subsequent evaluation of the Northeast program has confirmed that not only was it an effective model for rural poverty alleviation, but also became a key tool of the Northeast States for promoting organized decentralization, local development and community participation. After field-testing the R-NRDP model for over three years, eight Northeast State Governments (Bahia, CearB, MaranhBo, Paraiba, Pernambuco, Piaui, Rio Grande do Norte and Sergipe) scaled-up the use of the methodology and ushered in the follow-on Rural Poverty Alleviation Projects (RPAPs). Since their inception in 1995196, the RPAPs ' have financed nearly 23,000 community-managed investments comprising basic social, productive and infrastructure services, benefiting some I.2 million rural families, with high levels o f efficiency, sustainability and demonstrable impact on the poorest, providing improved access to services and enhanced employment opportunities. Building on the success of this innovative approach to poverty reduction in the rural space, a new round of sub- national projects was initiated in six Northeast States and now in Maranhtio. These projects will consolidate gains made under the previous generations of the Northeast program and expand the coverage o f the program to all ten States in the region, while simultaneously integrating activities o f the Municipal councils with the local government and, through more focused investment linked to HDIs,promote asset accumulation of the poorest. Page 67 111. INFORMATIONSOURCES Strong monitoring and evaluation, combined with intensive, locally-based supervision, have been an important feature of the Northeast program. Extensive studies of the program have also evaluated project impact in achieving poverty alleviation objectives. Data for this review were collected from a variety of sources, including: Decentralized Rural Development, Enhanced Community Participation and Local Government Performance: Evidence from Northeast Brazil, an evaluation of the R-NRDP and RPAP programs conducted by FAOKP (July 2000); Evaluation studies carried out by independent consultants contracted by STUs in six Northeast states. These studies covered 331 municipalities, 671 communities, 3,888 families and more than 420 community subprojects of different types financed in Bahia, CearB, Sergipe, Pernambuco, Piaui and Rio Grande do Norte. In Bahia, CearB and Sergipe, both a physical performance study and project impact assessment were completed. In Pernambuco, Piaui and Rio Grande do Norte, baseline studies and physical performance reviews were conducted. Inall six states, these studies complemented monitoring reports (semi-annual and annual) prepared by the STUs, covering all project activities since effectiveness. Samples for the evaluation studies were based on the most representative subprojects financed up to early 1998 for Bahia, CearA and Sergipe and early 1999 for Pernambuco, Piauiand Rio Grande do Norte; A community participation study, conducted by an independent consultant under the World BanWAO-CP agreement in these six Northeast states; Supervision missions carried out by the states, FA0 and the Bank during a two-year period from March 1998 to April 2000. These missions interviewed STU technical staff and visited a large number of communities in some 110 municipalities to interview and meet with community leaders, beneficiaries, members of FUMAC Councils and municipal authorities (including mayors, council members, municipal secretaries). Case studies were also prepared. Implementation Completion Reports (ICRs) for the ten R-NRDP projects, which detail all aspects of project execution, Borrower and Bank performance, and indicators related to cost-effectiveness and sustainability of subprojects financed under the R-NRDP. Results from these ICRs were summarized and included in the Staff Appraisal Reports for the eight RPAPs. The Management Information System (MIS), which provides current data on all subprojects, including a characterization of associations, types of subprojects, number o f beneficiaries, subprograms, budgets, costs, financial transactions, subproject status, as well as relevant data and information on technical assistance, training and supervision reports. MIS data are updated monthly and transmitted electronically to the Bank which, in turn, operates its own database with project data and information on all eight RPAP states. The Program's monitoring and evaluation were cited Best Practice in the World Bank document, Measuring the Poverty Impact of Projects in LAC (July 6, 1998); More broadly, the Bank has also invested in a variety of studies and analytical work in recent years to identify the dimensions, characteristics and causes of rural poverty in Brazil and to develop strategic options for policies and programs. Most notable among these studies have been: (a) Brazil Poverty Assessment (Report No. 14323, 1995); (b) State Economic Memoranda (similar to CEMs albeit at state level, SEMs have been completed or are in progress for CearB, Pernambuco, Bahia and other Northeast states); (c) Rural Poverty Reduction in Brazil: Towards an Integrated Strategy (April 2001); and (d) various surveys, evaluations and impact assessments of the R-NRDP and RPAP projects. Page 68 IV. IMPLEMENTATION RESULTSOFTHENORTHEASTPROGRAM a. Subprojects: Major types, costsand implementingmechanisms Rural Northeast communities have demonstrated their strong interest and high level of demand for the program by submitting, through December 2002, well over 90,000 subproject proposals for funding and implementation under the combined programs. Based on these proposals, the Northeast States cumulatively implemented some 44,000 subprojects, implying that a little nearly one-half of identified needs could be met, with available resources under the program and after the analysis o f proposals presented. Subprojects were implemented across three types o f implementation instruments: State Community Schemes (PAC): The original delivery,mechanism devised under the R-NRDP, and applied also under Rural Poverty Alleviation Project (RPAP). Municipal Community Schemes (FUMAC): Initially piloted under the R-NRDP, FUMAC channels subproject funds through project municipal councils, where proposals are prioritized and approved through participatory processes. Pilot Municipal Funds Schemes (FUMAC-P): First piloted under the RPAP, selected FUMAC councils prioritize and approve subprojects submitted by rural communities and then finance them within the context of an annual budget allocated to each council by the STU. Over nearly fifteen years of implementation (including the APCR pilot which preceded the R-NRDP), the delivery cost of the combined program has been consistently low. Overall, the average subproject cost (including community contribution) was about US$19,000, yet within the program, the cost structure (as a function of the differing scale of subproject investments) varied significantly. For example, APCR investments were limited to a maximum of US$lO,OOO, whereas under both the R-NRDP and the RPAP, the maximum was US$50,000. Notably, average subproject cost under both the R-NRDP and the RPAPwere US$24,000 and US$23,500, respectively. Specific to the RPAP, subproject costs were remarkably similar for the different investment types (i.e., infrastructure, productive and social), while average subproject cost by subprogram (Le., PAC, FUMAC and FUMAC-P) varied, with cost efficiency increasing from PAC to FUMAC to FUMAC-P. Some 77 percent of subproject investments selected by communities comprised basic rural infrastructure (e.g., water and electrification), another 20 percent were productive in nature (e.g., small scale agro-processing and communal tractors), while the remaining 3 percent represented investments of a social nature (e.g., day care centers or health-related house rehabilitation). While more than 100 categories are represented in the data, rural water supply systems and rural electrification were by far the most popular types of investments. Other popular subprojects included rural access road improvement, communal tractors, small bridges, manioc mills, sanitation systems and small irrigation schemes. These findings were reasonably consistent across the different subprograms - PAC, FUMAC and FUMAC-P. b. Beneficiaries: Families, community associationsand municipalities Since its inception, the Northeast program has benefited nearly 1.7 million families. This represents 53 percent of the total target population for the eight RPAP projects in aggregate, and about 25 percent of all rural families in these states. The gradual accumulation by some of the target population o f benefits and assets under the ACPR, R-NRDP and RPAP (as well as other programs) has a significant impact on community development (see also Technical Evaluation, Section VI). This constitutes an important element o f a strategy to graduate some o f these beneficiary communities into other, non-grant basedprograms (see Section V for more detailed discussion on graduation). Through December 2002, the combined program had subprojects implemented in nearly 1,600 municipalities (92 percent of rural Northeast municipalities), engaging more than 35,000 community associations. Under the R-NRDP, PAC accounted for 79 percent of subprojects implemented, with the remaining 21 percent o f subprojects financed under FUMAC. The RPAP mainstreamed the FUMAC concept, resulting in slightly more than one-half of subprojects being financed under this subprogram; PAC accounted for about 45 percent of all RPAP subprojects, with Page69 an additional 4 percent made up of FUMAC-P subproject activity. In sum, the program has evidenced a gradual yet sustained move toward increased decentralization of project implementation as emphasis has shifted from PAC to FUMAC to FUMAC-P. Some 1,500 Municipal Councils - with two-thirds of membership drawn from potential beneficiary communities and one-third representing the public sector and broader civil society - have been established and are active in program implementation. The Rural Poverty Alleviation Program comprises eight State projects in Northeast Brazil with total Bank loans of US$444.0 million, effective in the period from late 1995 to 1998, and with Closing Dates ranging from June 30, 2001 to June 30, 2004. The combined disbursement o f the eight projects through December 2002 amounted to US$412.3 million or 93 percent of the total. V. IMPACT ANALYSISOFTHE NORTHEASTPROGRAM Evaluation o f the Northeast program indicates that its primary objective - reduction of rural poverty - is being efficiently achieved on a significant scale. a. Locallevel The Northeast program has made a substantial contribution to both the quality of life of the beneficiaries and the local economy. The availability o f electricity and water supply, localized improvements to feeder roads and bridges, rehabilitation of rural schools and health posts, and the provision of community-owned productive infrastructure, have changed the socio-economic outlook of entire communities throughout the region. Equally important, the Northeast program is contributing, through mobilization associated with subproject execution (and coupled with training and technical assistance) to gradual yet substantial accumulation of social capital in poor rural communities. Socioeconomicimpact Benefits under the combined programs have included: (i) improved living conditions; (ii) improved health conditions and productivity; (iii) increased family income; and (iv) job creation- all serving to gradually lift beneficiary families from poverty. Prior to the program, most of the recipient rural communities suffered from lack o f access to water, electricity and other basic infrastructure. As of December 2002, some US$900 million have been disbursed to finance over 54,000 community subprojects under the APCR, NRDP and RPAP. Through these social and infrastructure community subprojects, the Northeast program has provided access to these previously unavailable services. Basic infrastructure and social subprojects have also provided communities with cleaner water, better sanitary conditions, and also resulting in significant health improvements for the recipient communities as well as savings related to reduced medical assistance. Specific to the RPAP, an evaluation of the aggregate socioeconomic impact o f the US$550 million total of community subproject investments under the RPAPs to December 2002 indicates that: (i) more than 40,000 additional permanent jobs were created, (ii) additional 35,000 hectares were brought under an cultivation, (iii)additional sustainable income or savings of more than $80 million per annum. When the impact of the predecessor R-NRDP was included, aggregate investments o f about US$800 million through March 2000 had generated almost 100,000 additional permanent jobs, an increase in cultivated area o f about 85,000 ha., and had generated additional, sustainable annual income or savings of US$203 million. At the subproject level, the socioeconomic impact of investments varies, but is evaluated briefly below according to type - basic infrastructure, social or productive subprojects. Basic Infrastructure: About 77 percent of subproject investments under the Rural Poverty Alleviation Program were in basic infrastructure -rural electrification and water supply being the most important. Investments in rural electrification provide obvious benefits in terms of access to information, knowledge and even distance learning by radio and television, facilitating household work but also contributing to improved health for the entire family through better food storage. There is also evidence that, when coupled with other subprojects, rural electrification Page 70 can lead to initiatives or productive activities that create jobs and increase household income (e.g., small irrigation schemes, small businessesand agro-industries). Similarly, water supply subprojects directly and rapidly improve families' level o f well-being through provision of good-quality water. The construction of almost 12,000 community-built and managed water supply systems under the combined programs (to December 2002) has meant that thousands of families no longer depend on the intermittent water trucks during drought, thousands of women no longer spend 4-5 hours daily collecting water and large numbers of infants do not die of water-borne diseases. Analyses from the RPAP alone suggest that net annual income/savings per rural water supply subproject were approximately US$12,000/subproject. These incomelsavings are comprised largely of time savings, foregone health expenditures and increased agricultural production. This is significantly higher than other types of infrastructure subprojects, which typically return lower than US$2,000 per annum. Other common types of infrastructure subprojects, such as community road improvements, telephone booths, and construction of small bridges not only improve the living conditions of residents of small rural communities, but also facilitate the movement of people, inputs and products as well as communications with family members who have migrated and live and work in other towns. Analysis of a sample of over 8,000 basic infrastructure investments indicate sustained impact - 89 percent of infrastructure subprojects fundedlexecuted in 1995198 continued to be fully operational in March 2000. Productive investments. Investment in productive activities - Le., subprojects involving the production and/or transformation, or processing of agricultural and non-agricultural goods - were typically demanded by communities only after basic infrastructure needs were met. About 20 percent of investments under the Rural Poverty Alleviation program were for productive activities, such as small scale agro-processing and communal tractors. Productive investments have a relatively strong potential for generating income opportunities in the short and medium terms, especially for projects with simple production processes and low exposure to market risks (e.g., manioc mills, small irrigation schemes, tractors, primary processing of corn and rice, and cashew nut). Internal rates of return for productive subprojects exceeded, on average, 30 percent (see Annex 4). Furthermore, these productive ventures are, in general, financially sustainable, with about three and one-half years needed, on average, to recover the capital invested and user fees adequate to cover O&M. More complex undertakings (e.g., clothes-making, community brick and ceramics factories) have also been successful when packaged with technical assistance and training. For a sample of 1,820 productive subprojects fundedtexecuted in 199998, some 1,580 or 86.8 percent were found to be in full operation in March 2000. It is expected that the financing of productive investments will stabilize, with STUs expanding financing to communities that have until now not benefited from infrastructure subprojects and /or from growth. Various cases have been identified o f communities that initially benefited from infrastructure or productive investments, graduated from the program, and are now beginning productive undertakings with the assistance of conventional sources o f financing (e.g., Banco do Nordeste, Banco do Brad), or other programs. This trend will be promoted inthe new project, with enhanced linkages to other projectslprograms, credit and markets. Social investments: Under the Rural Poverty Alleviation program, social subprojects (e.g., sanitation, health- related housing improvement and social centers) have comprised 3 percent of total subprojects. Sanitation subprojects (e.g., latrines, septic tanks) have improved community health. Community centers financed under the program have served both social and productive functions (e.g., hosting various civic events, serving as sites for training). Similarly, communal wash-houses that provide washing water for family laundry fulfill a social function while providing a valuable service to the community. Impacts were also sustained - for a sample of 239 social subprojects fundedlexecuted in 1995198,88 percent of them remained operational in March 2000. Under the proposed project in MaranhHo, and in line with the State's mobilizing goal of increasing its HDI, it is expected that greater subproject activity will take place under this category, especially in regard to health-related investments. Targeting Effective targeting of the rural poor is crucial, given the matching grant-based nature o f subproject investments. Under the RPAP, but also under the R-NRDP, targeting has occurred at two distinct levels: (a) selection of Page 7I municipalities based on poverty level and/or other socioeconomic characteristics and (b) selection of beneficiary communities through Municipal Council deliberations. Furthermore, consistent with the demand-driven characteristics o f the program, prospective beneficiaries "self-select" in that community associations identify local needs and prepare subproject proposals to address them. Populations targeted under both the R-NRDP and the RPAP have been poor and, in general, strategies for targeting these groups seem to have produced the desired results. There is reasonable certainty that the relatively better-off and better-organized communities did not capture a larger than proportional share o f project benefits. Targeting was somewhat less precise in municipalities where only PAC subprojects had been implemented; the expansion of FUMAC and FUMAC-P largely resolved this difficulty, since Municipal Councils - where community representation is strong - can make better allocation decisions due to local knowledge o f both community needs and their extent of vulnerability. The recent Rural Poverty Review for Brazil assessed the coverage and targeting of several social programs in Brazil; it found the RPAP to be among the best performers in terms of both coverage and targeting. Not only have the vast majority of program resources under the RPAPs (approximately 93 percent) reached the final beneficiaries as direct subproject investment, but evaluations indicate that targeting of the poorest has been effective with 75 percent of beneficiaries having an initial income of less than US$1 per day. Graduation B y improving living standards and economic conditions of beneficiaries, the RPAP and the R-NRDP have stimulated asset accumulation at both the local and household levels, an important consequence of which i s that, over time, certain communities have satisfied their basic needs and increased their socio-economic standing. Because future project resources will be targeted to the poorest, these communities will eventually be precluded from further project financing. Field observations suggest that the expansion of FUMAC and FLJMAC-P mechanisms has led to a natural process of community graduation by Municipal councils. For those communities which have implemented a number of subprojects, this informal graduation entails either (i)reducing the community's priority ranking within the municipality or (ii)excluding the community's subproject proposals. Municipal council performance in regard to graduation needs to be more closely monitored to ensure consistency. Under the proposed project, the following will be applied: Graduation of communities - exit strategy. Most of the investments requested by communities in the past (around 77 percent) comprised infrastructure subprojects. However, since the rural poor are generally off the radar screen of any formal credit institution in the rural Northeast, particularly as individuals, project matching grants for productive investments and technical assistance can be catalytic by encouraging the formation of groups, providing some experience in the management o f financial assets and income-earning activities, and thus making them more attractive to financial institutions. Therefore, communities that presently lack access to formal credit can qualify for one grant-based productive subproject, after which they will be graduated from such support, (under the R-NRDP and RPAP there were no limits, although as a practical matter the Municipal Councils have tended to limit communities to an average two subprojects of any kind, in order to ration scarce resources). At the same time, a major effort will be made to link communities graduating from productive projects, to possible sources o f formal credit. In particular, the Bank of the Northeast (BN) has increasingly been seeking organized communities to which it can provide group credit. BN and the RPAPs have already partnered in some places, albeit in an ad hoc manner - but there is now enough positive experience that the state o f MaranhHo and BN are interested in taking the cooperation to another level. Therefore, agreements have been reached on information sharing and coordination, which will be detailed in the project Operational Manual: (a) BN will have access to relevant information from the project MIS about group credit candidates, which it will pass on to its units in charge of credit lines and government programs in which it participates; (b) BN's local development agents will be invited to attend Municipal Council meetings; and (c) BN will provide MaranhHo with feedback on project- graduated groups to which it has extended credit, for use in project monitoring and evaluation. BN has also undertaken to expand its testing of the Bank-financed CrediAmigo micro-credit program into rural areas. With regard to community infrastructure and social subprojects, graduation considerations are different. Most of these subprojects are in the realm o f core public services (water, sanitation, electrification, social investments), and the definition of the minimum acceptable level o f such services necessarily varies over Page 72 time. Grant-based support is provided because of the poverty targeting under the project. The R-NRDPs and RPAPs demonstrated that the CDD approach to rural infrastructure and service delivery targeted to the poorest can work, in a cost effective manner and on a large scale, while also having important impacts in terms of social capital formation and improved local governance. Under the proposed project in Maranhilo, the state intends to encourage project Municipal Councils to proactively seek new sources of funding, and to engage in priority-setting and decision-making over a much wider range of activities, with a view to improving the effectiveness of local governments and the integration and overall impact of public resources directed towards rural poverty reduction. b. State and Municipal Levels (see also Annex 4) Subprojects implemented under both the R-NRDP and the RPAP programs have injected significant levels of resources into the economies of beneficiary municipalities through direct investment, revenue generation and cost savings. At the Municipal level, the program has delivered to the rural poor cost-effective basic infrastructure and services in a timely fashion. Evaluations indicate that, had these investments been undertaken in the traditional manner, they would have constituted a larger burden on State and Municipal government budgets and taken longer to complete. For example, the rural water supply subprojects in beneficiary communities have replaced recurrent expenditures that municipalities and States have typically incurred to mitigate the often severe and protracted drought. In Sergipe alone, it is estimated that such savings totaled more than R$500,000 annually during a year of "normal" rainfall; in Ceari and Bahia, the amount exceeded R $ l million annually. In years of severe drought, such as 1998, savings were at least doubled. Information from the Superintendency for the Development of the Northeast (SUDENE) shows that between October 1998 and June 2000, total Federal, State and Municipal expenditures on trucked water (carro pipa) in the ten Northeast states were more than R$65 million or about US$39 million. In addition to tanker-related savings, water supply subprojects reduce municipality spending on medical supplies and medical care by reducing the incidence of water-borne diseases. From a fiscal standpoint, ICMS (sales tax) revenues from subprojects are expected to be small because much of the incremental production is either self-consumed, not liable to taxation, and/or circulates in informal markets where tax is rarely paid. However, the indirect effects of infrastructure subprojects can be large. Experience under RPAP showed that there was a large increase in the purchase and use of domestic appliances when electricity became available. This observation is also applicable to purchases of items such as agricultural machinery and irrigation equipment, although these types of subprojects are not as numerous as electrification. VI. TECHNICAL EVALUATION Quality of investments Technical evaluations conducted by independent consultants have found that works executed under the program were technically satisfactory and of good quality. Beneficiaries uniformly expressed their satisfaction with the quality (good or excellent) of materials used in construction, and regarded more than 90 percent of all investments as being satisfactory. This finding was consistent for PAC, FUMAC and FUMAC-P mechanisms. From 50 percent to 75 percent of all subprojects were considered to be adequately sized to meet beneficiaries' needs, another 13-33 percent were considered under-sized, and 2-14 percent too large (varying according to State). Cost-effectiveness (see also Annex 4) In many cases, subproject investments under the Northeast program were substitutes for investments that would normally have been made by Federal, State and Municipal governments. Evaluations show that costs of investments implemented by communities under the Northeast program (either directly or contracted) were consistently 30-50 percent lower than costs incurred by public authorities for works o f equal or lesser quality. Cost per beneficiary family decreased as communities moved from PAC to FUMAC. Cost reductions under the program were stimulated by several actions, including: (i)use o f standard subproject models; (ii) accurate analysis of subproject proposals; (iii) more inspection o f works during execution; (iv) visits to Page 73 communities prior to the approval of proposals; and (v) provision of training to those involved in carrying out procurement in the associations. Supervision observations during subproject execution and visits to communities prior to subproject approval were incorporated into the STUs' work routines. Additionally, standardized subproject designs and unit costs and procurement-related training on pricing for goods, works and services, facilitated the process o f subproject analysis and execution for the associations, and the work of supervision and monitoring for the TUs and the Municipal Councils. In general, the program has proved that procurement by community associations can be very successful and cost effective. Sustainability (see also Annex 4) Subproject sustainability was found to be enhanced by a sense of community ownership, by their cofinancing of subproject costs and by communal responsibility for operation and maintenance of the investment. Recent reviews, which sampled some 8,000 community subprojects funded from 1995 to 1997198found that about 90 percent of these subprojects continued to be fully operational. This sustainability did not vary substantially, either in terms of whether the subproject was completed under the R-NRDP or the RPAP, or across subproject types (Le., infrastructure, productive, social). Observations indicate that community associations have generally been able to establish internal rules for charging user fees, thus ensuring the sustainability of these investments. There are some limited cases, particularly in subprojects financed under the PAC subprogram, in which beneficiaries, despite having participated in the decision to select the investment, are not paying regularly user fees. Incentives to minimize such occurrences and increased emphasis on FUMAC have been included in the new projects. Due to their relatively small scale, subprojects, in general, were observed not to have a significant effect of the environment. VII. INSTITUTIONALEVALUATION The Northeast program - a participatory, demand-driven mechanism addressing a large target population - involves many actors and stakeholders. The institutional analysis, therefore, focuses on the communities themselves as the cornerstone of the program. In particular, it assesses how the program has served to enhance social capital in beneficiary communities and municipalities. It will also examine the performance and capacity o f community associations, municipal councils and technical units. Social Capital In addition to meeting basic community investment needs, a major achievement of the program to date has been to foster social capital creation within rural municipalities and communities. Again, program evaluations indicate that social capital has expanded on two levels under the program: (i) as the program evolved from APCR to R-NRDP and finally under the RPAP and (ii) as the delivery mechanisms became more decentralized, from PAC to FLJMAC to FUMAC-P. This is because the Municipal councils have served as representative and transparent fora for local government and community representatives to discuss and prioritize investment proposals. B y serving as a participatory means for communities to equitably address their collective needs, the municipal councils have succeeded in: (i) reducing clientelism and political interference; (ii)strengthening the capacity of both communities and municipal governments to select, prioritize and implement investment decisions; (iii)creating partnerships between communities, municipal councils and municipal governments; (iv) increased community voice in the use o f public resources; and (v) fostering citizenship through increased awareness o f social responsibilities of citizens, their representatives and public authorities in community and public matters. Some 1,500 municipalities have established project Municipal councils under the program. Approximately 30 percent of these councils (in which community representatives have a two-thirds majority) have progressed beyond simple subproject decision-making into popular participation fora for municipal planning and allocation of non-project resources - a telling indication of the gains in social capital at the municipal level. In addition, approximately 25 percent of community associations are leveraging social capital acquired under the Program to access other non-RPAP investment financing previously unavailable. Although intangible and difficult to quantify, there is a palpable difference in self-respect and confidence in many RPAP communities. Page 74 A community participation study (Section 111) - an analysis based on a representative sample of 225 community associations - revealed that from the advent of the R-NRDP (1993) up to the implementation of the RPAP (1998- 2000), social capital accumulation had increased by some 41 percent. A particularly noteworthy result of this analysis was that social capital remained constant for the PAC approach, increased some 43 percent for FUMAC and rose by 76 percent for FUMAC-P, clearly demonstrating that empowerment of communities through devolution of decision- making and, particularly financial management responsibilities, leads to more effective and genuinely demand-driven rural development. Indeed, one of the most subtle feats of the RPAP has been that gradually all states have become convinced of the superiority of FUMAC over PAC. Given the continued emphasis on the FUMAC and FUMAC-P subprograms, it is expected that the program's rate of social capital formation will continue to increase. Institutional sustainability will also be ensured as links are strengthened between Municipal councils, local governments, rural communities and other external partners, introducing these actors and stakeholders to a new way of doing business. Community Associations Fieldobservations, and the community participation study mentioned above, indicate that the community associations created under the program have generally performed well. Collective responsibilities are typically met by the members (e.g., appointment of office holders, payment of dues or user fees), particularly in better organized groups. While there exists the potential for political influence in the organization o f these community associations, the outcome has been generally favorable as mayors, STUs and NGO agents facilitated the spread of information about the program and provided the conditions necessary for communities to capitalize on program benefits which met their basic needs. Community association membership was found to be inclusive, with an increasing proportion of women undertaking leadership functions. Another important observation has been that subprojects implemented by associations have tended to benefit entire local communities, and notjust association members. Uniformly across the program, community associations share a common need for technical assistance. Not only is this essential for the organizational development of newly-formed associations, but it is also needed to assist the associations during the entire subproject cycle, from preparation to implementation and operation and maintenance o f subprojects. Funds are available under the program for community contracting of technical assistance, supplemented by similar provision from Municipal councils and the STU. Technical assistance will become increasingly important as the program expands, and weaker communities not yet participating in the program gradually become involved. Better access to organizational and management training will also contribute to the sustainability of both community associations and subprojects. Municipal Councils Since the advent of the R-NRDP, the formation of Municipal councils - both FUMAC and FUMAC-P - has been an important contribution of the Northeast program. Evaluations indicate that these councils, as fora o f democratic discussion, have (i) increased transparency, (ii) reduced political interference, (iii)improved targeting, and (iv) contributed significantly to social capital formation in rural communities. Furthermore, FUMAC-P councils performed even better than FUMAC councils, confirming the benefit o f increased decentralization in program delivery. The setting of budget envelopes for the Municipal councils (under FUMAC-P) makes for more realistic priority-setting than in respective FUMACs, contributing to an increased capacity by communities in these councils to identify, plan and implement subprojects. These stronger FUMAC-P councils also were even more effective catalysts for increasing community organization and thus social capital. Experience on the ground shows that Municipal councils are becoming an integral part o f local government planning processes, indicating that the initial risk of FUMAC and FUMAC-P councils being parallel structures to local governments (with a life span tied to the program) is actually being overcome. Councils are increasingly being recognized by both the local population and their elected mayors as valid representatives o f communities and civil society, and as able partners of local administrations in fostering and sustaining municipal development. Obviously, progress has been faster in some states (e.g., Rio Grande do Norte, Bahia and Piaui), but even in the other Northeastern states, both FUMAC and, in particular, FUMAC-P are slowly but firmly taking hold. In approximately 30 percent of the councils, decisions are made not just on program-related allocations, but also on priorities for local municipal resources. If carefully nurtured, not only with the right mix o f technical assistance and funding support but Page 75 also by insistingthat clear and transparent rules continue to apply to the functioning of the Councils, this model may well become one of the most valuable and durable institutions for rural development inthe Northeast. Over the course of program implementation, both the State Governments and the Bank have monitored the progress of the Municipal councils and, as a result, have introduced a series of adjustments to improve their performance and to increase their ability to generate social capital. Among these adjustments are: (i) increases in the relative number of community representatives on the Councils and continued diversification o f council membership; (ii) greater local- level integration through the implementation of Integrated Municipal Development Plans (PMDIs) and State- municipal performance agreements; (iii)provision of more effective information, training and orientation for Municipal council members, especially related to the PPA; (iv) increased responsibilities of Municipal councils to expand their role in providing technical assistance and support to communities; and (v) advice to councils on other sources of funds, including credit, to meet other community interests. Municipal councils are being encouraged to take a wider view of municipal development, to define criteria for community graduation and to assume the political and social burden for prioritizing community proposals. The councils have also been endowed with more secure sources of revenue for their operation, so that they can accomplish their tasks without total dependence on municipal resources. Community associations have been made aware of their responsibility to help in sustaining and guaranteeing the independence of their Municipal council. Finally, analysis suggests that the conditions whereby the councils can improve their performance include: (i) political inclusiveness, (ii) stronger community representation and (iii)awareness of the relative scarcity of resources. Technical Units Throughout its history, the Northeast program has been administered in each state by a Project Technical Unit (STU) which in five Northeast states is under the State Secretariat of Planning (SEPLAN).17 The STUs are the vehicle for project administration and for communication with the Bank and the State Government. It is also the project's main liaison with the FUMAC and FUMAC-P Municipal Councils and, in PAC municipalities, with the community associations. The institutional set-up and performance of the STUs across the Northeast states i s diverse and varied. Ingeneral, all the STUs show satisfactory levels of technical capacity, and have received adequate levels of technical assistance and training from contractedlexternal providers such as Instituto Interamericano de Cooperacidn para la Agricultura (IICA). Increasing decentralization, partnerships with public and private entities, and the build-upof both capacity and social capital in rural communities and their Municipal councils have allowed both communities and councils to assume greater responsibilities - including for supervision, monitoring and training -and thus imply a potentially much smaller role for the STUs in the future. With few exceptions, the STUs have benefited from the commitment and budgetary support of State governments: sound disbursement performance has been a notable feature of the RPAPs. STUs have, for the most part, implemented their functions efficiently, with few bureaucratic bottlenecks. The STUs' performance in the execution of training activities for associations and FUMAC and FWMAC-P councils, is considered satisfactory. Under the new projects, this function will be improved, and training made more relevant and timely, by increasingly devolving these responsibilities to Municipal councils. The extent to which individual STUs are collaborating with public and private entities to leverage better project implementation is again variable. Most of the STUs have formed strong relationships with the State leadership, with the FUMAC and FUMAC-P councils and with municipal mayors. While there is widespread and active participation from rural workers' unions in community mobilization, organization and other activities, formal NGO participation in the implementation has been relatively modest. The notable exception is Rio Grande do Norte, where the economic and social benefits of active, dynamic NGO involvement are clear and measurable. This situation is changing however, and STUs are proactively seeking greater involvement and participation o f NGOs. l7Bahia, Pernambuco, Paraiba, Piauiand Sergipe. InMaranhiio, the STU - NEPE - is under GEAGRO. The STU for Rio Grande do Norte is located within the Secretariat for Social Action, while in Ceari, the STU is housed in the Local and Regional Development Secretariat. Page 76 VIII. LESSONSLEARNEDAND REFLECTEDINTHE PROPOSEDPROJECTDESIGN Decentralization of fiscal and investment decision-making and implementation from federal to state and local governments and to community organizations, improves program administration and outcomes. Experience in Northeast Brazil shows that decentralized CDD approaches can reduce bureaucracy and eliminate administrative bottleneck,s and reinforce accountability for project outcomes by placing decision-making near beneficiaries. The project will further what has already been achieved under the RPAP, delegating additional duties to Municipal Councils and utilizing STU central and regional offices to promote more responsive and local-level monitoring, data collection, coordination, and supervision. Participation by beneficiaries under the RPAP in the selection, financing, execution, and O&M of subprojects in Northeast Brazil has helped to ensure that investments meet genuine community needs, generate cost savings, and increase community `ownership', thus improving sustainability of investments. This methodology will be extended under the new project to both project and non-project investments critical to achieving MaranhHo's HDIobjectives. Poverty targeting mechanisms that are simple, verifiable and based on objective criteria, can foster transparency and minimize political interference in project resource allocation. Poverty targeting mechanisms under the RPAP have been effective to date in reaching the poorest rural populations in the Northeast. About 84 percent of the program's beneficiary population are comprised of small farmers and rural laborers living in remote, low density areas with acute deficiencies in access to basic infrastructure and services. A significant additional population resides in rural areas directly adjacent to the urban periphery of municipal centers. Experience with project Municipal Councils demonstrates that communities themselves are the best-positioned and informed to target effectively. Under the new project, broad targeting will be undertaken (a) at the municipal level, by prioritizing subproject resources according to poverty indices (i.e., municipal HDIs) and (b) at the community level, by the Municipal Councils themselves, which will be encouraged and technically assisted to undertake a poverty ranking o f the communities in their municipalities and to use this in prioritizing subproject proposals. Intensive supervision of CDD projects has been found to be an indispensable determinant o f success and sustainability. It needs to be reinforced at all levels and involve local entities closest to the communities, particularly Municipal Councils and NGOs. Under the new project, supervision responsibilities will be increasingly devolved to Municipal Councils, which will be supported with training and technical assistance. Measures will also be taken to provide computers and information technology to the Councils to allow them to receive and exchange information through the Internet and to modernize management. A user-friendly monitoring and evaluation system facilitates the subproject evaluation process, provides feedback and necessary information to improve targeting and efficiency, and is an essential management and planning tool. The project MIS will be enhanced to more effectively link physical implementation data with financial information on the project, and will be integrated with State information systems to facilitate overall monitoring and evaluation of the PPA. A comprehensive impact evaluation component will also be introduced to measure income, welfare and social capital gains. Dissemination of "best practices", such as experiences with NGOs in Rio Grande do Norte, EMATERCE in CearB, social inclusion in Maranhso and FUMAC Councils in Bahia and Sergipe can hasten learning and reward innovation. Under the new project, exchanges among states, municipalities and communities will be expanded further using more frequent regional training seminars, and workshops and videoconferencing, where available. Standardization of subproject documents, technical designs and unit costs simplifies subproject preparation and evaluation ,improves the quality o f subprojects, facilitates the procurement process, prevents over-design and enables participation by poorer communities. The existing database of standard designs will be reviewed at appraisal and technically updated and expanded where necessary. Page77 Environmental protection criteria: Proactive attention to natural resource management and sustainability issues is essential in the environmentally fragile Northeast. The project will offer an expanded option of environmental subprojects which community associations can propose, as well as piloting of regional or territorial subprojects which may cut across several municipalities (eg. watershed management). Demonstration projects will also be undertaken in selected regions throughout the state to stimulate interest in the adoption of sustainable resource management technologies and techniques. Municipal Councils will serve as focal points for channeling information from the State and NGOs (e.g., AMAVIDA) on environmental issues relevant to the specific municipality. The re-designed and enhanced environmental checklist developed under RPAP will be used to improve the criteria and procedures, and their application for evaluating environmental impact of subprojects. An environmental specialist at NEPE will provide additional technical assistance on environmental matters and training to increase environmental awareness of Municipal Councils and community groups. Partnerships will be fostered with State and municipal environmental agencies and NGOs to develop a culture of environmental awareness in the communities and Councils through training and education. Technical assistance enhances the ability of community associations and Municipal Councils to identify, prepare and implement subprojects, thereby augmenting their capacity to compete for investment funds. Technical assistance needs to be targeted to weaker municipalities to improve their planning, management and financial capacity to participate in the project. Locating and/or developing sources of technical assistance inrural areas requires significant attention and needs to be monitored at the local level. Under the new project, attention will be placed on training at the community level. TOthis effect, funds will be made available for the appointment of `technical advisors' to be recruited by each Municipal Council. These advisors will be responsible for managing and coordinating local technical and training needs. Increasing efforts will also be placed on deeper involvement of civil society (e.g., NGOs and other civil and church groups) - particularly with respect to increasing the flow o f information, mobilizing the poorest groups and supporting training activities at the community level. A system of checks and balances, clearly-defined and well-disseminated, is essential to ensure proper use of funds and sound targeting of resources. Guidelines for performance incentives and penalties will be detailed in the Project Operational Manual. Incentives may include increasing Councils' indicative budget envelopes, increasing the number of investments or investment volume permitted to a community association, or incentives for environmental or technologically innovative investments. Penalties would attach to cases o f mismanagement and diversion of funds and include removal from eligibility to participate, reduced availability of funds, and/or judicial action. As important as penalties per se is the free and transparent flow of information. Municipal Councils include participation of local civil society (e.g., NGOs, Rural Workers' Union, the Church), representatives of public ministries and municipal officials, and their meetings are publicly announced and open to broad participation. Project-financed computers in the Councils will enable Council decisions to be publicized on their own and on NEPE's webpages. All of the above are designed to institutionalize transparency. Productive subprojects should be subjected to rigorous selection, preparation, technical assistance and supervision criteria. Under the new project, a `one-shot' matching grant will be provided to eligible productive investments that (a) provide services for a large number of community members; (b) whose collective use is regulated by strict operational guidelines (regulamentode USO); (c) for which 0 & M is assured by charging adequate user fees to both association members and non-members; (d) meet the criterion of impact on HDI; and (e) include technical assistance to ensure the sustainability of the investment. Revised procedures for productive subprojects are outlined in the Project Operational Manual, as are arrangements to facilitate access to formal credit by eligible communities (Annex 2). Efforts will also be taken to expand the participation of communities in the ongoing "Fair Trade" initiative (Come`rcioEtico e Solidbrio). Page 78 Table A: RuralPoverty Alleviation Projects (RPAP) Loanand Disbursement Data' - Loan data Project total Loanamount Loan Total Disbursed Disbursed Disbursedfor cost (US$ (,US$ million) disbursed for subproject million) (,US$ million) subprojects State (% projectcost) (% total loan) (US$ (%total million)* disbursed)' 1. Bahia 163.4 105.0 64.3% 103.3 98.4% 94.6 91.6% 2. CearCl 99.6 70.0 70.3% 70.0 100.0% 65.9 94.I% 3. Maranhiio 106.9 80.0 74.8% 75.7 93.6% 62.8 83.8% 4. Paraiba 79.5 60.0 75.5% 38.6 64.3% 32.2 83.4% 5. Pernambuco 51.2 39.0 76.2% 36.0 92.3% 28.4 78.9% 6. Piaui 39.7 30.0 75.6% 28.7 95.7% 24.8 86.4% 7. Rio Grandedo Norte 31.6 24.0 75.9% 24.0 100.0% 20.0 83.3% 8. Sergipe 53.3 36.0 67.5% 36.0 100.0% 33.7 93.6% Total I 625.2 444.0 71.0% 412.3 92.8% 364.4 88.1% As of December2002. 'Aggregate disbursementsfor community subprojectsunderthe RPAP, R-NRDPandthe pilot community-basedpilot of the NRDP (APCR) totaledUS$738.0million as of April 2001 andcorrespondto total investmentincommunity subprojectsof US$903.2million. Excludingdisbursementsmade to specialaccounts. Includingtechnical assistancethis figure increasesto over 95 percent. Number of subprojectsfinanced State Total' PAC F U M A C FUMAC-P # % # % # % 1. Bahia 6,608 2,632 39.8% 3,331 50.4% 645 9.8% 2. CearCl 3,056 982 32.1% 2,047 67.0% 27 0.9% 3. Maranhiio 3,946 1,331 33.7% 2,615 66.3% 0.0% 4. Paraiba 3,058 2,302 75.3% 726 23.7% 30 1.0% 5. Pernambuco 1,601 508 31.7% 1,047 65.4% 46 2.9% 6. Piaui 1,199 391 32.6% 808 67.4% 0.0% 7. Rio Grande do Norte 1,697 70 4.1% 1,545 91.0% 82 4.8% 8. Sergipe 1,820 343 18.8% 1,317 72.4% 160 8.8% Total 22,985 8,559 37.2% 13,436 58.5% 990 4.3% As of December2002. State TOTAL Infrastructure' Productive2 socia1' # % # % # % 1. Bahia 6,608 4,823 73.0% 1,722 26.1% 63 I.O% 2. Ceari 3,056 2,369 77.5% 655 21.4% 32 1.O% 3. Maranhao 3,946 3,007 76.2% 613 15.5% 326 8.3% 4. Paraiba 3,058 2,406 78.7% 56 1.8% 596 19.5% 5. Pernambuco 1,601 1,055 65.9% 369 23.0% 177 11.1% 6. Piaui 1,199 910 75.9% 127 10.6% 162 13.5% 7. Rio Grande do Norte 1,697 992 58.5% 659 38.8% 46 2.7% 8. Sergipe 1,820 1,519 83.5% 197 10.8% 104 5.7% Total 22,985 17,081 74.3% 4,398 19.1% 1,506 6.6% Page79 Average cost per subproject State (US$) PAC F U M A C FUMAC-P TOTAL' 1. Bahia 25,122 23,849 15,941 23,584 2. Cear6 32,782 29,512 33,23 1 30,596 3. Maranhiio 26,222 22,626 23,930 4. Paraiba 24,278 25,414 24,932 24,554 5. Pernambuco 32,507 22,661 9,385 25,403 6. Piaui 30,961 25,308 27,152 7. Rio Grande do Norte 29,477 14,352 11,333 14,830 8. Sergipe 32,839 25,177 23,316 26,458 'Totalof 26,997 23,614 17,190 24,608 As December2002. formed and Con nunity AssociationsBen k e d State Municipalities Municipal Councils Comm reached F U M A C FUMAC-P Assoc' 1. Bahia 375 313 41 3,594 2. Cear6 177 134 5 2,410 3. Maranhiio 211 174 1 2,835 4. Paraiba 220 159 0 2,458 5. Pernambuco 173 153 2 1,255 6. Piaui 199 167 3 897 7. Rio Grande do Norte 137 124 8 1,382 8. Sergipe 71 66 5 917 Total *# 'As of 1,563 1,329 64 15,748 December2002. of community associationswith subprojectsfinanced. State Beneficiary Cost per beneficiary family Families (#)* PAC FUMAC FUMAC-P All ~ 1. Bahia 451,917 174 196 191 186 2. Cear6 153,205 545 471 420 493 3. Maranhiio 184,473 379 294 323 4. Paraiba 108,430 547 556 766 551 5. Pernambuco 135,987 290 228 210 249 6. Piaui 70,918 352 332 339 7. Rio Grande do Norte 77,119 377 266 235 271 8. Sergipe 62,396 317 385 562 375 Total 1,244,447 302 272 245 283 Page 80 3 M Annex 12 BRAZIL MaranhiioIntegratedProgram: RuralPovertyReductionProject IndigenousPeoples' ParticipationPlan 1. Background 1.1. LegalFramework The Federal Constitution of 1988, in recognizing the diverse forms of social organization o f the indigenous populations of Brazil, their customs, languages, beliefs, traditions and rights - including those over the lands which they have traditionally occupied - provides for a profound qualitative leap in the legal and humane treatment of these populations. Despite the efforts made by the Federal government to operationalize these constitutional rights, there still exists today a wide gap between that which the Constitution prescribes and the reality lived by these indigenous populations, primarily in regard to their relationship with the larger Brazilian society and their quality of life. The role of the government, therefore, as laid out in the Constitution, is one of taking those necessary actions to achieve the social inclusion of these populations, in such a way that both indigenous and non-indigenous peoples can live together in harmony, conscientious and respectfulof their differences. While the indigenous peoples of Brazil maintain the permanent possession and "exclusive usufruct rights to the riches of the soil, rivers and lakes" in their lands, as stated in para. 2 of Article 231of the Federal Constitution, these lands nonetheless constitute Federal public property. Thus, as special use public properties, indigenous lands, as well as being both inalienable and non-transferable, cannot be usedfor other than purposes expressly indigenous. The process of demarcation is the administrative means by which territories traditionally occupied by indigenous peoples are explicitly drawn. The Federal government, through the demarcation of indigenous lands, seeks to (a) recover a historical debt left by the f i s t inhabitants of these lands; (b) provide the basic conditions for physical and cultural survival of these peoples; and (c) preserve the cultural diversity of Brazil, in compliance with Article 231 of the Federal Constitution. Ineach case where an indigenous community possessesrights over a specific land, the terms of para. 1, Article 231 of the Federal Constitution dictate that the public sector identify and demarcate these lands, duly registering and protecting them. These actions are explicitly linked to Article 231, and as such, the Federal government must carry them out. Concomitant with the actions prescribed by Article 231, the government of Maranhiio has defined a set of specific policies to attend to its indigenous populations, having among them the fundamental elements o f affirming cultural diversity, opening of "political space" for these populations, and the encouragement o f indigenous populations' participation in the decisions that have an impact on their way of life. 1.2 Current Situation of Indigenous PeoplesinMaranhi50 According to information provided by the National Indigenous Foundation (FUNAI), the State of Maranhiio has six registered ethnic groupings - AwB, GuajB, Guajajara, Kanela, Krikati e Timbira (Gaviiio) - which inhabit 17 indigenous lands, all of which have been demarcated. The total indigenous population resident in Maranhiio is approximately 19,000. Table 1 lists these areas, the indigenous groups which occupy them and the municipalities where they are located. Page 82 Table I: Source: FUNAIIDEDOCISEII Jad2002 In the context of the national indigenous population, Maranhiio possesses about 5 percent of total, making it the second largest in the Northeast region. I n regard to total State population, indigenous peoples constitute 0.33 percent. According to the Conselho Indigenista Missiondrio (CIM1)l8, the indigenous peoples of Maranhao are divided among two linguistic branches: Tupi-Guarani (Guajajara, Temb6, Urubu-Kaapor e Guaj6) and Timbira (Kanela, Krikati e Gaviiio). What follows is information concerning the living conditions o f these ethnic groups in the areas o f health, basic sanitation, social organization, infrastructure, education and other aspects o f life for these diverse indigenous areas. Regarding health services, some villages have access to preventive and urgent health care services, mainly in terms of basic hygiene, first aid, certain medicines, with transfer o f patients to other hospitals as needed. The most frequent illnesses are flu, fever, diarrhea and intestinal disorders. Inthe majority of indigenous villages, there are no sanitary facilities in individual homes, only those in the primary school, health post or the FUNAIoffice. Concerning education, many villages are covered by the state system o f basic education, with regular schooling for grades one to four and "multi-classrooms" for Sth and 6" grades. Many villages are also included in the State literacy program (Programa de AlfabetizapZo Soliddria), targeted to youth and adults. Currently, there are 205 indigenous schools with 10,000 students in attendance and employing 472 instructors, most of whom are indigenous and have been selected by their own communities. Some 21 Parent-Teacher Associations (FTAs) are responsible for the management o f financial resources dedicated to these indigenous schools. The basic foodstuffs of the indigenous peoples are manioc and native fruits. Also consumed are: manioc meal (farinha),paparuta, grolado, rice, beans,wild game and fish. Some communities have access to potable water through artesian wells, but in the majority of cases, water is obtained from nearby rivers, creeks, swamps or water trucks. Communication outside the village is largely through use o f a radio transmitter, generally located in the l8 Santos Barros, Maria Mirtes e Zannoni, C16udio. Povos indigenas do Maranh6o exemplo de resistgncia. Siio Luis/MA, CIMI-MA, 1988. Page 83 health post maintained by FUNASA. Many of the villages are accessible only by dirt roads, most in poor condition, often passable only with four-wheel drive vehicles, motorcycles or animal transport. The indigenous peoples possess a rich and diverse culture, with music, customs, rites of passage, beliefs and traditions which are passed down from generation to generation. 2. Prior Bank activities inMaranhiio Under the Bank-supported Rural Poverty Alleviation project (RPAP) in Maranhlo, beginning in 1995, indigenous communities have demonstrated the concrete capacity to identify and execute small-scale community investments through their own associations, with complete respect o f their unique socio-ethnic characteristics. In terms of financial resources and number of beneficiaries, Maranhlo represents the largest Bank-supported intervention in the Northeast region in regard to assistance to indigenous communities. From 1998 to 2003, some 85 small-scale community investments were financed under the RPAP, benefiting some 4,900 individuals. Some of these small- scale investments were productive in nature (e.g., manioc mills, rice mills, tractors and fishing boats), while others were infrastructure (e.g., rural electrification, water supply, small dams) or social (e.g., school and home rehabilitation). I t is important to emphasize that, in each case, these investments were prioritized and executed by these indigenous communities, which are now also maintaining these investments and have contributed (typically in labor) to the total cost of the investment. Table 2 lists the types of subproject investments financed and individuals benefited for indigenous communities under the RPAP since 1998. Table 2: Investments financed under RPAP, 1998-2003 Tvoe of Investment # Total Individuals - 1 Financing (R$) Benefited Rural Electrification 29 1,357,030 1,467 Agricultural Package 14 774,754 615 Home Improvement 7 184,804 343 Access Road Improv. 7 342,886 367 Small Dam 7 185,827 537 FarmTractor 6 295,25 1 404 Rural Water Supply 6 268,268 601 Manioc Mill 4 84,707 238 Fishing Boats 2 34,703 163 Comm. School Rehab. 1 16,831 76 Irrigation 1 47,574 29 Agro-industry 1 59,938 65 TOTAL 85 3,652,573 4,905 The experience of the RPAP with the indigenous communities of Maranhgo offers some important lessons: (i) indigenous community organizations have shown themselves to be capable of expressing and prioritizing their needs, and administering the resources received; (ii)the role o f FUNAI and other state public sector staff - in mobilizing communities and orienting them in the subproject proposal process, through training - was crucial to the success of these investments; (iii) this partnership is encouraging a general reorientation of indigenous public policy in the State, moving away from an "assistance" approach toward one of integration and participation; and (iv) the vast majority o f indigenous communities, when compared to non-indigenous communities, showed a greater receptivity to participation in community activities, likely due in large part to their traditional practice of collective action. Further evidence of the strength of collective action in these communities is the fact that, in all indigenous villages, there is at least one active community organization. A recent diagnostic reveals that, despite the 25 percent of the indigenous population that has thus far benefited from investments under the RPAP, indigenous communities still have high levels of poverty and social exclusion. Traditional methods of production (e.g., fishing, hunting, subsistence agriculture) do not adequately fulfil the survival needs of these communities or address the new demands generated through their contact with the non- indigenous, interms of access to consumer goods, infrastructure and enhanced quality o f life. Page 84 3. The Maranhiio Integrated Project: Rural Development The proposed project seeks to build upon the coverage of indigenous communities achieved under the RPAP and extend it, on a priority basis, to those indigenous communities that have yet be reached by the project. The Indigenous Peoples' Participation Plan, in the context of the proposed project, will promote the ethnic development of indigenous populations via the provision of community investments and assistance for the mobilization and training of these communities, with an eye toward maintaining their cultural heritage, protecting their environment, means of production and well-being. The actions and strategies found in the Plan were defined with the participation of indigenous leaders from each of the groups listed in Table 1, during a training course sponsoredby IICA and financed under the RPAP, which sought to prepare these leaders for participation in the proposed project. The training took place over a three-month period and was designed in modules to permit, inthe interval between each module, the return of the indigenous leaders to their respective villages to discuss the proposed strategies with the entire community. Various NGOs, including a representative from CIMI, also took part in the training event. 3.1. Proposed Actions inthe Implementation of the Plan Social Communication By means of competitive selection of specialists, the Project will support the preparation and dissemination of an awareness campaign specifically designed to meet the diverse ethnic groups present in MaranhHo, and their distinct languages, customs, beliefs, traditions and geographic location. The objective of the campaign will be to inform these indigenous communities about the project guidelines and processes, thereby facilitating their access to resources under the proposed Project. Trainingand Capacity-Building The proposed Project will support a program of training, linked to NGOs and other institutions with experience in indigenous issues, in which the following aspects will be included: (i)community demand analysis, through participation of leaders and organizations; (ii) prioritizing of demands and their compatibility with municipal and State development plans (e.g., PPA, PMDI); (iii)definition of actions to be pursued to meet these community demands. This participatory approach will be complemented by an exchange o f experiences, as well as the needed capacity and technology, organizational processes, and due attention to the cultural values o f each ethnic grouping. Specific training activities will include: community management and action, project guidelines, and activities for agricultural and non-agricultural production. Community Investments Under the general guidelines of the proposed Project, indigenous communities will be benefited with subproject investments, up to a value of US$50,000, which have been prioritized by these communities. Although no demand assessment has yet been undertaken, it is estimated that at least 100 subproject investments will be financed within these indigenous communities. As such, each indigenous community should benefit from at least one subproject. The same operational Project guidelines will be applied to indigenous community participation, with adjustments as needed to respect their distinct cultural tenets. Leaders from indigenous associations will receive training in the operational guidelines of the Project. Following the experience under the RPAP, the community subprojects will follow these guidelines: 1. Subproject proposals are prepared and forwarded to the respective Regional Management Unit (GR) by the indigenous community association; 2. Resources for the financing of the approved subproject are deposited directly into the bank accounts of the community association; 3. The community association is responsible for acquiring goods, services and technical assistance, as needed; Page 85 4. The goods and works financed will be the property of the respective indigenous community, which will also be responsible for its maintenance and operation; and 5. The supervision of subproject execution will be conducted by NEPE inpartnership with GDS and FUNAI. The Project Operational Manual, which is part of the Loan Agreement, defines the guidelines and specific procedures, as described above, for engaging indigenous populations in the activities of the Project. Monitoring and Evaluation Monitoring of the Plan will be done through the Management InformationSystem -MIS- which was established under the RPAP. As such, the principal aspects of project implementation will form part of the MIS database, including information on the physical and financial performance of the beneficiary communities, their socio- economic profile and key indicators for impact evaluation. Management The Plan will be implemented by NEPE - the STU - in partnership with the State Management Unit for Social Development (GDS), which is responsible for the coordination of indigenous public policies for the State of Maranhiio. GDS has an indigenous office (Superintende^nciaIndigenista) which, in conjunction with FUNAI, has already assessed and accompanied the actions of the RPAP in indigenous communities. This institutional arrangement has proven to be quite effective and, as such, will be continued under the new Project. The administrative structure of FUNAI in Maranh2o consists of three regional offices, which work directly with indigenous communities, a central office in SBo Luis and 12"indigenous posts" located in indigenous villages. 4. TimeLineandBudgetfor PlanImplementation Page 86 w Maranhiio:Demarcated IndigenousAreas 48. TOCAr UNIDADES DE CONSEWACAO E AREAS AFINS Areasde PresewaGGo Ambiental (APA) Parques Reserva Biologics Areas lndigenas + Rlos Page 87 Annex 13 BRAZIL MaranhiioIntegratedProgram: RuralPovertyReductionProject EnvironmentalManagementPlan The Environmental Management Plan (EMP) for the proposed project meets the objective of addressing environmental issues, integrating the analysis with specific actions as well as proposing methods for their implementation. Specifically, the objectives of the Plan are: a. Ensure that the proposed project is fully compliant with the relevant State and Federal environmental legislation and with the environmental safeguardsof the Bank; b. Promote the integration of environmental standards in the subprojects to be financed under the Project, both individually and for the Project as a whole; c. Promote actions that ensure a convergence between rural poverty reduction and the conservation and adequate valuation of the environment; and d. Link environmental conservation and protection activities with actions contributing to an increase in the Human Development Index (HDI), in line with the State of Maranhiio's Economic and Socially Sustainable Development Plan. The EMP was developed following an environmental assessment of subprojects financed under the previous project (RPAP), the norms and environmental guidelines of the World Bank, specific literature concerning environmental management and the impact of similar projects, evaluations of the RPAP, the environmental issues of the State of Maranhiio, interviews with both technical teams and management o f selected State agencies, and field visits conducted during September 2003. 1. Initial Conditions and Guidelines of the EMP for the Proposed Project 1.1 Initial Conditions for the EMP The RPAP sought to build links between activities financed under the Project and the environment, including, for example, an environmental evaluation of each subproject prior to its financing. A review of the approach under the RPAP detected the need to strengthen both treatment and procedures related to environmental issues inthe management and operation of the proposed project. The focus of the proposed project, rural poverty reduction, is directly associated with environmental problems in rural Maranhiio, for example: (i)the lack of material goods encourages the over-utilization of natural resources to the point of their exhaustion, making it impossible to require the chronically poor to undertake environmental preservation; (ii)breaking this vicious cycle requires a means of raising income levels, opening the door to both reduced poverty and improved environmental quality. Considering that rural poverty reduction is one of the priority goals o f the State o f Maranhiio, the proposed project should operate in close partnership with the State Management Unit for the Environment and Natural Resources (GEMA) in order to build a new strategic approach to promoting alternative uses of natural resources. The following should be priority actions: (i)capturing local experience and lessons learned from productive and socio-environmental projects which have been implemented; (ii)creating partnerships in the decision-making and implementation of public policy, drawing on the participation o f State and municipal government, civil society and the private sector; (iii)focusing on community mobilization and capacity-building directed toward preventing environmental damage and compliance with environmental norms, including environmental licensing; and (iv) incentives and financing for the adoption of sustainable practices for natural resource use by small producers. Page 88 Contrary to investments in social and productive infrastructure, environmental protection and improvement are not always perceived as necessary by communities. The promotion of environmental actions and the financing of subprojects that seek to enhance the environment depend crucially on mobilizing and clarifying their importance on the part of the beneficiary public. Good design, implementation and management of environmental activities requires access to technical and scientific knowledge by all stakeholders, again reinforcing the importance of building technical capacity on the part of involved institutionsand individuals. Inclusion of environmental actions and criteria in the proposed project presupposes a bureaucratic backdrop to support it, which should be designed in such a way as to support the proposed activities with a minimal financial burden for the beneficiary public. 1.2 Guidelines for the EMP The majority o f investments expected under the proposed project have a low potential for adverse environmental impact, given their small scale and inherent characteristics. Nevertheless, some subprojects could produce locally-specific adverse environmental impacts. The inclusion of environmental activities among those eligible for subproject financing should contribute positively to the local environment. Likewise, the combined force of diverse subprojects in a fragile ecosystem could also generate environmental impacts - both beneficial and adverse. As such, environmental impacts should be analyzed for each individual subproject as well as for a series of subprojects implemented in a given geographical region. The environmental impacts associated with eligible subprojects should be identified during the planning stage, in an effort to minimize or even neutralize these impacts by paying attention to subproject design, implementation and operation. The environmental concerns of the proposed project should encompass the following aspects: (a) the beneficial and adverse environmental impacts associated with proposed subprojects; (b) identification o f subprojects which provide opportunities for employment and income generation through the protection, reclamation, conservation and proper valuation of the environment (c) seeking synergies among productive activities, community development and environmental conservation; and (d) capacity-building for all those involved in the project, especially the beneficiary public, to better promote environmental management as an element of all subprojects, as well as constructive collaboration with local efforts aimed at environmental management. As often as possible, the proposed project should take advantage of opportunities to make improvements in environmental quality, and use the financed subprojects as an environmental reference for the State of MaranhBo. Environmental activities under the proposed project should be conducted in partnership among Community Associations, Municipal Councils, NEPE, and the CAFs, and should rely on a constant interaction with GEMA and IBAMA and, as needed, municipal-level environmental organizations. The environmental objectives and activities of the proposed project should be reflected in the overall objectives o f the project, transformed into financed subprojects, made a theme for training and technical assistance, transformed into procedures in the Project Operational Manual, included in the information campaign, and finally an area for monitoring and evaluation o f disbursements under the proposed project. The Strategy of the EMP 2.1 Summary of Environmental Activities under the EMP The EMP identifies activities on various levels to be implemented under the proposed project, for example: Page 89 2.1.1. Community Subprojects (Component 1): At the level of individual subprojects: (a) identification and neutralization of potential adverse environmental impacts, beginning at the point o f subproject formulation and extending through both implementationand operation; and (b) the treatment of the environment as an opportunity to generate both employment and income through subproject investments. At the regional level (e.g., water basins, municipalities or groups of municipalities): implementation, inan integrated manner, of a collective of subprojects linked by the same environmental condition(s), e.g., interference with a water sub-basin, Area of Conservation, or jointly located in an area of special environmental value or environmental pressure, or which share a common environmental objective. Also at the regional level: (a) inclusion of initiatives to defend, conserve and properly value the environment as a means of reducing rural poverty and (b) exclusion/ ineligibility o f environmental initiatives that promote the degradation of critical natural habitats, sensitive or protected areas, or that could contribute to a worsening of current environmental challenges. 2.1.2 Institutional Development (Component 2): Undertake activities to mobilize the beneficiary public, as well as training and technical assistance for all project participants in order to incorporate the environment in all stages of the proposed project. Table 1 summarizes the environmental demands o f the proposed project and the associated proposed actions. Table 2 presents the training needs by segment of the beneficiary public, and the proposed activities for this training. The operational procedures which will equip NEPE to address environmental issues under the project are outlined in Table 3. Page 90 5e, (I) A b (I) 3 w p? - 8 a m u 0 .9 i h .-.a C 0 r, Y pc 2 I 0 E, 3 E, c .C 3 i2 5 a Y j s .-0 L .e .e Y .-> .-*> 'c- m c Y j .-e, F Ea 2 .- C A A A A A Q v1 2 c 535 tA - L m P Q a 2 I .n I+ h wM Annex 14 BRAZIL Maranhi50 Integrated Program: Rural Poverty Reduction Project State of Maranhi50 Development Agenda I. Introduction This annex provides an overview of the economic context in which the Maranhdo Integrated Program: Rural Poverty Reduction Project is being proposed. This document has two audiences. To the staff and Executive Directors o f the World Bank, it outlines some basic social and economic facts about the state and serves as a reference, as well as motivating and describing Bank strategy. To the State Government, and also to representatives of municipal governments, Federal government, and national agencies, and to civil society, it outlines the Bank's view of the main development challenges facing the state, and the Bank's own proposed strategic response. This synthesis should also promote the integration of the Bank's activities, both internally and with the government's program, and leverage Bank resources through partnerships with other organizations. The document is divided into two sections: (i) Basic Data and Development Challenges and (ii)Diagnosis and World Bank Strategy. 11. Basic Data andDevelopment Challenges A. Geography Maranhiio is a large, poor, sparsely populated state on the northern coast of Brazil. About the size o f Germany (333 thousand km2)and running about 1,000 km from north to south, it straddles the boundary of the humid Amazon and the drier Northeast zones and thus experiences a variety of climatic conditions within its boundaries. The north i s the most populous region. Agriculture there is poor and largely subsistence-based, with a predominance of rice and manioc, supplemented with fishing. A t the center of the north coast lies the state capital, Siio Luis, and the ports and processing plants for minerals from Pari. To the south, Central Maranhiio was once the site of prosperous cotton and rice plantations, but is now also devoted largely to subsistence agriculture based on rice, beans and corn, and the locally abundant babap palm, along with larger dairy farms and rice plantations. Third, to the west is the pre-Amazon with an economy dependent on forest products. The largest city here, Imperatriz, i s a center for lumber-milling. A fourth region is the pre-Sertiio on the east, with an economy based on livestock at higher elevations and rice growing along the rivers. Finally, Southern Maranhiio is climatically part of the Brazilian Center-West region and the cerrado biome. The south was traditionally a cattle-raising area, but i s now a major grain-producing region. B. Demographics Maranhiio has a population of 5.6 million, about 3 percent of the national population. IBGE estimates that population growth in Maranhiio is similar to the national average at about 1.3 percent. Although there are migratory flows from Maranhiio to the North, Center-West, and Southeast regions, these and the accompanying remittances into Maranhiio are not of sufficient magnitude to represent a development strategy. Detailed information on recent migration i s limited, but some numbers from the 2000 Census tell the overall story. There are 6.4 million maranhenses by birth in Brazil, o f which 5.2 million live in Maranhiio. Approximately one fifth of maranhenseby birth have therefore left the state. Most migration seems to be relatively local, to the North and Center-West. Of maranhenseby birth who were outside the state in 1995, 35 percent were in Pari, 10 percent were in Tocantins, and 8 percent were in Piaui. Only 9 percent were in SBo Paulo, 8 percent in Brasflia, and 6 percent in Rio de Janeiro. In-migration is insignificant: only 129,000 residents of the state have lived there less than 10 years (half are accounted for by arrivals from the neighboring states of Piaui and Pari). Of non-native maranhense, 39 percent are piauiense, 23 percent cearense, and 9 percent paraense. The economic prospects of MaranhZo will be affected by a demographic trend that is affecting all o f Brazil: the baby bust. InMaranhiio, the rate of fecundity (the number of birthsthat women of childbearing age would be expected to have over their childbearing years) dropped from 3.9 in 1992 to 2.9 in 1999. As a result, the population of the youngest cohorts (ages 0-4 and 5-9) is smaller than that o f the teenage population (ages 10-19). At the same time, Page 95 the number o f elderly people remains small. For the next few decades, the ratio o f children to working age population will decline, while the number of retirees will grow slowly in absolute terms. Already the ratio of dependents (people under fifteen or over 65+) to working age population (15-64 years) has dropped from 95.9 in 1992 to 74.6 in 1999. This will cause a rise in per capita income, as the earnings of the working age population are spread across a smaller number of dependents. This may also allow higher spending per child on child-oriented services, as the proportion of children declines. C. History MaranhHo has long been economically disadvantaged. The state enjoyed a brief economic boom in the second half of the 18th century, when the start of the British industrial revolution prompted growing demands for cotton. The cotton boom was largely over by the early 19th century. MaranhHo then went into relative economic decline, sustainedby cotton, rice, sugar, and babagu, while remaining poor and sparsely populated. Whereas water is a constraint on the development of agriculture in much of the Northeast region, large parts of Maranhiio are well watered - particularly the southern grain-producing area. The state also enjoys proximity to major mining areas in the neighboring state of Pari. These factors have driven the state's more recent economic trends, with the appearance of large-scale grain farming, most notably soy, in the south of the state, and the generation of a significant export center, shipping grains and ore from Pari (notably the iron ore mine at Carajis) at the main port of Itaqui, near the capital on the north coast. Like much of rural (particularly Northeast) Brazil, through much of the 20th century, MaranhHo was dominated by large landowners. In many cases these so-called corone`is held onto power through intimidation and voter fraud and were content to see the majority of the population remain poor and powerless. With the decline of the corone`is, politics in Maranhiio came to be dominated by a political machine centered around Vitorino Freire, who was installed by Getdlio Vargas in the 1930s, and remained a political force until his death in 1977. Politics has since become more pluralistic, with a better educated electorate giving growing support to more inclusive, transparent government. Maranhiio is probably best known in Brazil as the home state o f JosC Sarney, Brazil's first president after the dictatorship ended in 1985. The Sarney family i s still active and influential: JosC Sarney i s currently President of the Federal Senate, while his daughter Roseanawas Governor o f Maranhiio from 1994 to 2002 and was, for a while, leading 2002 presidential popularity polls before withdrawing from the race. D. Structure of the Economy MaranhHo is a highly rural and agricultural economy, in comparison with other Brazilian states. According to IBGE, Maranhiio has the highest proportion of agriculture in state GDP, at 17 percent, of any Brazilian state. This number understatesthe true dependenceo f the economy on agricultural activities, since (a) many productive activities do not appear in household survey income statistics or are unremunerated, and (b) many services in rural areas are closely related to agriculture and dependent on agricultural income streams for their demand. Over 50 percent of employment is in agriculture, mostly subsistence. MaranhHo's only significant exports are primary materials: aluminum, pig iron, and soybeans accounted for more than 95 percent of 2002 exports. Figure 1 shows the breakdown by sector of value-added in MaranhHo's economy for 2001. Not surprisingly for a poor state, public administration also takes a proportion of economic activity (25 percent) higher than the national average (15 percent). Manufacturing accounts for a proportion of state output correspondingly lower than the national figure: 15 percent in Maranhiio versus 27 percent for Brazil. The other notable feature of the maranhense economy is the relatively high value-added in transportation, storage, and related services - 6 percent of total value- added inMaranhHo versus 2 percent in Brazil as a whole -probably a measure of the difficulty of haulage within the state, owing to large distances and a poorly maintained road network. Page 96 Figure 1 Value Added inMaranhiio by Sector, 2001 (IBGE) Other Transp 6% Constr 6% Prof Sew 7% Domestic Good 8% Manu. 15% Comparison: Brazil DomesticGoods 7% E. Poverty Maranhiio was Brazil's poorest state throughout the 1990s, but recent progress has meant that the state has escaped that definition. Nonetheless, Maranhiio suffers from challenging socioeconomic indicators. Table 1 compares Maranhiio with Brazil, the Northeast region, its poor neighbor Piaui, and the three largest Northeast states (Cearfi, Pernambuco, and Bahia) on income, poverty, and inequality measures in 1998-2000 (the last years for which we have all these measures in comparable form). I t is apparent from these numbers that Maranhiio had lower income and higher poverty than any of these comparators. Using measures o f poverty sensitive to the depth of poverty (rather than only the number of poor)," Maranhiio fared slightly better. Maranhiio had a lower squared poverty gap (P2) than both Cearfi and Piaui. Income inequality (measured by the Gini coefficient) was also marginally lower than in the other Northeast states (and indeed than in Brazil). Maranhiio may have slightly fewer very wealthy people: mean income of the richest one percent was R$2000 in 2001, compared with nearly R$3000in the Northeast. The rural nature of the economy partly explains why Maranhiio is poorer than most other Brazilian states. Some productive rural activities may go measured in state GDP, but rural areas are ,in general, poorer than urban areas. More rural statesare therefore generally poorer than less rural states. l9 is Po the poverty headcount ratio: the percentage o f people who are poor. PI is the poverty gap, the proportion of total income theoretically neededto bring all the poor out of poverty with perfectly directed income transfers. P2is the so-called squaredpoverty gap, a measure which attaches greater importance to the most basic needs. P2would decreaseifmoney were redistributed from the poor to the most poor. Page97 A simple comparison of four Northeast states with Pernambuco, the richest and most urbanized state in the region, shows how these factors explain poverty differentials. Differences in poverty may (by definition) be decomposed into differences between the rural areas of different states, differences between the urban areas o f different states, and differences between the level of urbanization between states. Figure 2 shows that Maranhiio's "excess poverty" in such a comparison is explained by the fact that it is more rural and also by the fact that its urban areas are poorer than other urban areas in the NE, but not by rural differences: the rural areas o f Maranhiio are comparable with those of other Northeast states in terms of income and poverty. This is consistent with the earlier statement that Maranhiio is resource rich in comparison with its region. This has consequencesfor development strategy, which are discussed inPart 111. Figure 2 Decomposition of 4 NortheastStates' Poverty Differentialswith Pernambuco Maranhiio has been outperforming its neighbors and its region on poverty reduction. Figure 3 below shows how, since 1995, the poverty rate in Maranhiio has fallen faster than that for the Northeast as a whole.'' While Northeastern poverty measured by IPEA has fallen by 2.6 percentage points from 59.1 percent to 56.5 percent in the same period. By comparison, Maranhense poverty has fallen twice as fast from 66.6 percent to 61.6 percent.21Only Piaui and Sergipe had higher percentage point falls in poverty over this period, although elsewhere Paranh, Santa Catarina and Goihs also did better. Table 1: How MaranhdoCompared on Income, Inequality,and Poverty(1998-2000) Bahia 13.1 3,014 0.61 51.O% 19.8% . 12.8% 7.9 3,296 49 13.4% Sources: Population, IBGE 2000; Income, IBGE 1998;Inequality and Poverty, PNAD 1999. *'IPEA use 2o Using IPEA poverty rates. a poverty line of approximately R$125. Nationally poverty fell by one percentage point from 33.9 percent in 1995 to 32.9 percent in 2002. Page 98 Figure 3 Poverty in Maranhgoand the NE 75 h $ 70 i P .- z5s65 II .w 60 U I" Q 55 50 1995 1996 1997 1998 1999 2000 2001 2002 This good relative performance on poverty stems mainly from relative economic growth. While value-added grew by 8 percent for Brazil as a whole in 1998-2001 (the most recent year for which comparable state numbers are available), and slightly faster than in the Northeast (7.5 percent), for MaranhHo this growth was 12 percent. This performance came mostly from agriculture, where value-added grew by 28 percent in three years, and manufacturing, where value-added grew by 15 percent. Who are the poor? Agriculture is the predominant source of household income in MaranhHo. Over half the working population (56 percent) cite agriculture as the principal sector of employment. Most of this consists of subsistence agriculture on owner-occupied or informally rented land (as opposed to employment in commercial agriculture). Of the 1.5 million people employed in agriculture in 1999, 92 percent were classified as self employed, non- remunerated, or subsistence farmers. Eighty four percent of the population employed in agriculture work without remuneration or earn less than one minimum wage. A smaller proportion of Maranhenses define their principal source of income as low-skill services. These include domestic workers (who account for 4.5 percent of the active labor force) and people employed in small-scale or informal retailing. Of the eleven percent of the labor force employed in commerce, three quarters are self-employed or are unremunerated. Race is also an important dimension: World Bank analysis of the annual household survey (PNAD) found that in MaranhHo a self-reported black person is 50 percent more likely than a white person to be poor. This feature i s not particular to MaranhHo, however: for Brazil the ratio is two to one.22 What is particular to MaranhHo is the concentration of Afro-Brazilians: 10 percent of the population self-report as black versus 6 percent nationally, while 62 percent self-report as pardo (mixed race) versus 38 percent nationally. Maranhiio is known among other things as the capital of Brazilian reggae. Several q ~ i l o m b o sare ~ ~located in Maranhso, with strong organized civil society groups. O f the approximately 27,500 indigenous population in Brazil, Maranhiio is home to some 19,000, across six ethnic groupings and inhabiting 17 indigenous lands (see Annex 12). 22Fiess, Norbert and Dorte Verner (2001) "The Dynamics of Poverty and its Determinants: The Case of the Northeast of Brazil and its States," unpublished, World Bank. 23These are Afro-Brazilian communities that were originally founded in the 19Ihcentury as colonies of escaped slaves and have since been allowed to exist with a degree o f autonomy. Page 99 MaranhHo's human development indicator (HDI) was 0.647 in 2000, placing it second to last among Brazil's states. This was, however, significant progress in relation to the 1996 HDI of 0.547. Comparative health and education indicators are commensurate with this measure. Table 2 below gives comparable numbers for MaranhHo and the same comparators as Table 1. Perhaps most acute are issues of quality in education. For example, in 1999 MaranhHo had the lowest score in standardized (SAEB) tests of both mathematics and Portuguese proficiency in the eighth grade o f any state. F. Sustainable Use of Natural Resources MaranhHo's most sensitive areas are in the pre-Amazon and the cerrudo. In the pre-Amazon there is significant environmental degradation owing to ranching and logging. In the cerrado, the issue is one of defining land rights and environmental monitoring so as to ensure that the swift growth ingrain cultivation does not prove unsustainable. MaranhHo, in partnership with EMBRAPA (the national agricultural research institution), has launched an ecological and economic zoning initiative (ZEE), aimed in the first instance at providing the state with monitoring information on economic activities in its territory and their environmental consequences. G. Government, Fiscal and Administrative Conditions In recent years, MaranhHo has benefited from a high degree of continuity in its State government. Since 1994, the State has had only two Governors, both from the same political party (the PFL). Although it is hard to demonstrate conclusively with empirical analysis, this continuity has meant that MaranhHo has avoided some of the costly policy reversals, often mainly politically driven, that have plagued some states. Despite making reform efforts and complying with its debt agreement with the National Treasury (STN), Maranhiio is not in a strong position fiscally. On the key measure of net debt as a percentage o f current revenues (net o f constitutional transfers to the municipalities), MaranhHo stood at 215 percent in mid 2003. Most states' debt agreements set a ceiling for this ratio of 200 percent and describe a path over time for it to converge to 100 percent. However, MaranhHo has agreed its present ratio with STN, and is also in compliance with other requirements, such as the Kandei Law limit of 60 percent of current expenditures for personnel costs, and others. Table 2: How MaranhZioCompared on Health and Educationin 1998 Source: IBGE Social Indicators, 1999. Having already undergone a considerable retrenchment of its public sector, in the near term the administrative challenge for the State is to channel the efforts of its civil service towards effective development activities. In this regard, two initiatives are worthy of mention: decentralization and results-based management. Since 1998, the State Government has reorganized its operational activities into 18 cross-sector regional units (Gerzncias Regionais) with responsibility for the day-to-day delivery of state services within their respective regions. The managers of these units (Gerentes)have been given equal footing with the State Secretaries for each sector (e.g., finance, planning, or education): for this reason, Secretaries were duly re-titled Gerentes Centruis. I t is not possible to make a full assessment of this administrative arrangement in this annex, but there is consensus in the Page 100 State that it has contributed to making government more responsive. There are some teething problems, not least the rivalry that can be created between the regional managers and local mayors. Some regional managers have indeed ended up standing in mayoral elections within their regions. A second, more recent innovation has been the selection of the HDIas a target for State policy, and the reorientation of policies towards this target. The challenge here is now to build systems of monitoring and evaluation around sector policies in order to measuretheir impact on intermediate indicators, moving towards a system o f results-based management. At least for the most important categories of state spending. The state is committed to undertaking this, and indeed this i s the goal of the Horizontal Component of the proposed project. The difficulty o f the task nonetheless should not be under-estimated. 11. DiagnosisandWorld Bank Strategy A. MainOpportunitiesandThreats Maranhiio's main strengths are its natural resources, rich cultural assets, and its strategic logistical links including rail and port services (despite the poor quality o f roads). Its main weaknesses are its low performance on education and consequently unskilled labor force, the threat of ecological degradation and weak monitoring capacity to enforce protective environmental measures, and weak institutional capacity to implement its ambitious reforms to public administration. A development strategy appropriate for MaranhPo should build on these strengths while both acknowledging and addressing weaknesses. In the rural space, policy should focus on agricultural productivity, stimulating off-farm activities, improving road access where larger-scale agricultural activities are feasible, and improving the quality of education and also educational access and attendance in the middle schools years. Inurbanareas there remain some unanswered questions. Why is urbanMA poorer than urban areas inthe rest of the Northeast? Key challenges are to improve health indicators, partly by investment in better water and sanitation services, improve educational quality and also attendance at secondary school. And given the importance of Siio Luis for the state and the potential inherent in its historical center, as much attention as possible should be given to its renovation and protection. The cultural assets of MaranhHo's urban and rural areas, particularly Afro-Brazilian heritage, may also be a potential source of economic development that is as yet largely untapped. B. Prioritiesfor Government Government has oriented its multiyear plan (PPA) around the HDI, therefore its main priorities are income generation, education, and maternal and infant health. To pursue these objectives, the PPA proposes six strategies, which might better be labeled principles: economic integration, improving competitiveness, transforming the economy towards new activities, social transformation, the knowledge economy, and economic sustainability. The economic activities that the Government has identified for particular development by the private sector are agro-business, tourism, construction, and mining and metallurgy. It should be noted that rather than `` picking winners", this list essentially reflects a realistic assessment of where MaranhPo's existing strengths lie ("revealed comparative advantage"). In similar vein, and in common with several other Brazilian states, MaranhPo has identified a further list of smaller " clusters" o f economic activity (arranjos produtivos locais), which it also proposes to try to strengthen. Based on the elements that constitute the UN's calculation of the HDI (average income, life expectancy, and three measures of education: primary enrollment, secondary enrollment, and literacy), the Government has tried to rank proposed programs by their perceived impact on the HDI through these channels. The exercise is based on subjective assessmentrather than detailed evaluation, but nonethelessrepresents an attempt at dispassionate priority- setting over lobbying or special interest agendas. As monitoring and evaluation become a part of the state's planning cycle, the aim would be to increase the role of evaluative information in the selection o f priorities within the PPA in future years. The strengthening of these systems is thus a key challenge for the State Government. Page 101 C. Proposed Strategy, Instruments, and Sequencing The Bank's strategy, embodied at this stage principally in the proposed project, is built on six guiding principles: 1. Build on existing Bank strengths and successes in the state and the NEregion; 2. Integrate Bank activities with each other and with the Government's own program; 3. Integrate and build state institutions in the center and the regions; 4. Recognize the rural nature of the state and its most severepoverty; 5. Adhere to the Government's principle of targeting the HDI;and 6. Recognize the importance of continued fiscal discipline by the state, designing a lending program of appropriate dimensions. Within these principles, the Bank, through its analytical work and dialogue with the State Government, has identified six priority sectors: 1. Rural productivity, including off-farm activities in the rural space; 2. Environmental protection; 3. Culture, in particular protecting the value of cultural assets and encouraging their development in economic activities; 4. Education, most importantly rural access and quality improvement in all areas; 5. Water and sanitation in urban areas, with emphasis on its inclusion in preventive health strategy; and 6. Transport, in particular the strengthening of key trunk roads important for the viability of larger scale economic activities. Fiscal constraints imply that the Bank can probably envisage at most two loans to Maranhgo under the Maranhgo Integrated umbrella in the CAS period (2003-2007). The first loan - Rural Development - clearly embodies all six of the principles above. In particular, the integration of its established Community-Driven Development (CDD) approach with other Government programs will increase impact, while the Horizontal Component aims to strengthen institutional capacity, most importantly to monitor the implementation and impact of programs in pursuit of the HDI objective. While the Horizontal Component delivers technical assistance to the State, further analytical work could provide complementary assessment of appropriate results-based management approaches for Maranhgo. Interms of sector priorities, the proposed project focuses on rural productivity by building on the CDD approach to productive subprojects within the previous RPAP, while also pursuing education and health objectives at the local level by integrating with existing government programs. The recognition and appropriate valuing of cultural assets is also being explored within this operation. The environmental priority may be pursued through complementary GEF grant funding. The Inter-American Development Bank is also active in Maranhgo, in particular in the area of infrastructure investment (particularly transport), through its second PRODETUR loan. One possible strategy for any future expansion of World Bank activities inMaranhgo mighttherefore be to focus on educational access and quality. Page 102