Page 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB767 Project Name Additional Financing-BRAZIL: Espírito Santo Water and Coastal Pollution Management Project Region LATIN AMERICA AND CARIBBEAN Sector Sewerage (80%);Water supply (20%) Project ID P087711 Borrower(s) STATE OF ESPIRITO SANTO Implementing Agency State of Espírito Santo SEPLOG Av. Governador Bley, 236 Espírito Santo Brazil Tel: +55 27 3381-3248 Fax: +55 27 3381-3251 guilherme.dias@seplog.es.gov.br CESAN Av. Governador Bley, 186 Espírito Santo Brazil 29010-150 Tel: +55 27 3132-8200 Fax: +55 27 3222-4369 pruy@cesan.com.br IEMA (Instituto Estadual do Meio Ambiente) Rod. BR 262 - Km 0 Patio Porto Velho Espírito Santo Brazil 29140-500 Tel: +55 27 3136-3437 Fax: +55 27 3136-3441 presidente@iema.es.gov.br Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Safeguard Classification [ ] S 1 [ ] S 2 [ ] S 3 [ ] S F [ ] TBD (to be determined) Date PID Prepared May 7, 2004 Date of Appraisal Authorization March 12, 2004 Date of Board Approval June 17, 2004 1. Country and Sector Background A US$154 million loan for the Espírito Santo Water And Coastal Pollution Management Project was approved by the Board on June 28, 1994. The estimated total project cost at appraisal was US$308 million, including US$92.5 million in counterpart funds from the State of Espírito Santo Page 2 and US$61.5 from the State Water Company, CESAN. The project became effective on December 19, 1994 and was hampered by uneven implementation performance (both by CESAN and the State Secretariat for the Environment (SEAMA)) and a lack of counterpart funds (mainly those owed by the State Government) during much of its original 5-year implementation period. Significantly, the State Government failed to secure a parallel loan from the European Investment Bank (EIB) which, it was thought at appraisal, would cover all or most of the State Government’s counterpart funding obligations. By the original closing date (December 31, 1999), a large number of sewage collection systems in the Grande Vitória and Guarapari areas remained unfinished and unconnected to sewage transmission, treatment and disposal infrastructure. Against this backdrop, the project was radically restructured in late 1999 and early 2000, US$54 million were cancelled from the loan to bring the project’s overall size in line with the State’s ability to implement it and the original closing date was extended three times for a total of three and half years. After the restructuring, implementation performance improved significantly, to the point where the Bank agreed in late 2002 to reinstate a total of US$12.5 million in previously cancelled loan proceeds to complete on-going works. By the time loan 3767-BR closed on 30 June, 2003, the original US$308 million operation had become a more limited US$183 million operation with commensurate reductions in physical outputs and institutional achievements. An addition loan of US$36 million is now proposed to help the State Government meet the project’s original development objectives. 2. Objectives The additional loan would support activities consistent with the project’s three original development objectives (DO’s): 1. to improve the efficiency of CESAN’s water supply and sewerage systems by supporting the company’s efforts to operate on a commercial basis with financial self-sufficiency; 2. to increase the coverage level of CESAN’s water supply and basic sanitation services (i.e. sewage collection, treatment and disposal) in the urban areas of Grande Vitória, Guarapari…and other towns in the Santa Maria and Jucu river basins; and 3. to provide appropriate water and sanitation infrastructure in low-income urban areas of Grande Vitória and Guarapari 3. Rationale for Bank Involvement The State Government of Espírito Santo has requested an additional Bank loan of US$36 million in support of the Espírito Santo Water and Coastal Pollution Management Project (PRODESAN) which was partially financed by Bank loan 3767-BR between 19 December, 1994 (effectiveness) and 30 June, 2003 (closing date). The State Government’s request stems from a Page 3 desire to meet the project’s original water and sewerage coverage targets as well as institutional development objectives. Additional financing for the project would allow the State Government to (i) connect additional users to the still under-utilized trunk sewerage infra-structure constructed during the last 3 ½ years; (ii) improve the water quality, service continuity and service pressure of water supply systems, particularly in the poorer neighborhoods of Grande Vitória and Guarapari; and (iii) reach the institutional development objectives for the state environmental agency IEMA and the state water company CESAN. Initial estimates suggest that about 47% of the beneficiaries of additional water supply investments and 31% of the beneficiaries of additional sewerage investments would be poor (family incomes of less than 3 minimum salaries). Overall, about 1.4 million people are expected to benefit from follow-on investments in improved water supply services (improved service continuity, pressure and water quality) and about 354,000 people are expected to receive sewerage connections. Proposed project activities are consistent both with the State Government’s 2004-2007 environmental sanitation agenda and the Millennium Development Goals (Goal 7: “Ensure Environmental Sustainability”, Target 10: “Halve, by 2015, the number of people without sustainable access to safe drinking water”) and the Johannesburg Sustainable Development Summit target of halving those without adequate sanitation by 2015. 4. Description The additional loan would finance activities under the following four components: 1. Sanitation . Construction of additional sewage collection networks that would connect to the trunk infrastructure built with financing from loan 3767-BR. In addition to allowing about 354,000 additional people to enjoy the benefits of piped sewerage, the proposed investments are key to increasing CESAN’s revenues from sewage charges and fundamental to increasing capacity utilization of 4 large sewage treatment plants (STP’s) in Grande Vitória and Guarapari. In addition to the sewage investments that connect to existing infrastructure CESAN will construct sewage collection and treatment systems in other municipalities in the project area. 2. Water Supply . Capacity expansions for raw water intakes and water treatment plants, construction of storage tanks and distribution mains to improve the quality and service continuity of water supply in the Grande Vitória and Guarapari metropolitan regions. The proposed investments would complement the water supply infrastructure constructed with financing from loan 3767-BR. 3. Institutional Strengthening of SEAMA/IEMA. This component would strengthen the environmental management capacity of the State Secretariat of the Environment and Water Resources ( Secretaria de Estado do Meio Ambiente e Recursos Hídricos / SEAMA) which is charged with defining Espírito Santo’s environmental policies and its sister institution, the State Environmental Institute ( Instituto Estadual de Meio Ambiente e Recursos Hídricos / IEMA) which is responsible for carrying them out. Page 4 Possible activities include (i) the design of an institutional strategy for SEAMA/IEMA; (ii) implementation of an integrated environmental information system; (iii) improvements to the environmental licensing process in Espírito Santo; (iv) implementation of a monitoring network for water resources; (v) construction of a water resource management system; (vi) environmental education. 4. Institutional, Financial and Operational Strengthening of CESAN. This component would include activities designed to (i) improve CESAN’s financial and operational performance; and (ii) to hold CESAN accountable to its customers in terms of performance. 5. Financing Source: ($m.) BORROWER 26.3 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT 36.0 Total 62.3 6. Implementation Project implementation arrangements will be similar to those successfully adopted during the 3 ½ years after the project was restructured and before Loan 3767-BR closed. A project Steering Committee ( Comitê Diretivo do Projeto ) chaired by the State Government’s Secretariat of Planning, Budget and Management (SEPLOG) and comprising the State Secretariat of Finance (SEFAZ), the State Secretariat of Transportation and Infrastructure Development (SEDIT) and the State Secretariat of the Environment (SEAMA) in addition to CESAN, will assume overall project oversight functions. Project management will be the responsibility of an independent Project Management Unit ( Unidade de Gerenciamento de Projeto , UGP) directed by a general coordinator with support from technical, environmental and financial coordinators, all of whom will be selected by the Steering Committee. The UGP will be staffed by an external engineering consulting/project management firm that will report to the general coordinator. An Executive Secretary will provide logistical support to the Steering Committee. The Steering Committee will also create a standing bid evaluation commission ( Comissão Permanente de Licitação , CPL). The external engineering consulting/project management firm will (i) provide technical, administrative and financial management support for project implementation; (ii) review and update existing engineering designs for project works; (iii) prepare additional environmental studies as required; (iv) hire specialized individual consultants as required for project implementation; and (v) supervise contracts for works, goods and other consultants in cooperation with CESAN and IEMA, the implementing agency within Espírito Santo’s environmental management system. 7. Sustainability Page 5 The physical investments and capacity building measures to be carried out under the proposed additional loan have been designed to consolidate the financial and environmental benefits of the activities implemented under the project to date. On the infrastructure side, a number of key high-return water supply investments have been selected by CESAN that will improve water quality as well as service pressure and continuity while providing the backbone infrastructure that will allow for continued service expansion. These have been complemented by investments in sewage collection and treatment systems that maximize capacity utilization in four large existing sewage treatment plants and expand coverage to other areas in Grande Vitória and Guarapari that have a high direct impact on coastal water quality. On the institutional side, capacity building measures for IEMA will develop the environmental information systems, monitoring networks and licensing capacities required to allow it, inter alia, to track the effluent quality produced by sewage treatment plants constructed under the project to ensure compliance with appropriate environmental standards. Institutional strengthening of CESAN, finally, will enhance its accountability vis-à-vis the State Government and general public and build more robust governance structures less susceptible to political interference. 8. Lessons Learned from Past Operations in the Country/Sector Lessons learned from implementation of loan 3767-BR in Espírito Santo highlight the need (i) to implement the project through an autonomous, externally staffed project management unit (UGP); and (ii) to size the operation to the State Government’s and CESAN’s real counterpart financing capacity. 9. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment ( OP / BP / GP 4.01) [X] [ ] Natural Habitats ( OP / BP 4.04) [ ] [X] Pest Management ( OP 4.09 ) [ ] [X] Cultural Property ( OPN 11.03 , being revised as OP 4.11) [X] [ ] Involuntary Resettlement ( OP / BP 4.12) [ ] [X] Indigenous Peoples ( OD 4.20 , being revised as OP 4.10) [ ] [X] Forests ( OP / BP 4.36) [ ] [X] Safety of Dams ( OP / BP 4.37) [ ] [X] Projects in Disputed Areas ( OP / BP / GP 7.60) * [ ] [X] Projects on International Waterways ( OP / BP / GP 7.50) [ ] [X] 10. List of Factual Technical Documents Program Environmental Assessment and Environmental Management Plan 11. Contact point Contact: Franz R. Drees-Gross * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas Page 6 Title: Sr Sanitary Engineer Tel: (202) 458-7735 Fax: Email: Fdrees@worldbank.org 12. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop