Document of The World Bank Report No: 17451-BR PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$ 198.0 MILLION EQUIVALENT TO THE FEDERATIVE REPUBLIC OF BRAZIL FOR A FEDERAL WATER RESOURCES MANAGEMENT PROJECT (PROAGUA) MARCH 13, 1998 Environmentally and Social Sustainable Development Unit Brazil Country Sector Latin America and the Caribbean Regional Office CURRENCY EQUIVALENTS (Exchange Rate Effective December 1997) Currency Unit = Real ( R$) R$1.00 = US$0.901 US$ 1.00 = R$1.1097 R$1 million =US$ 901,144 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASIURES The Metric System has been used throughout this report ABBREVIATIONS AND AClRONYMS A, O&M Administration, Operation and Maintenance CAS Country Assistance Strategy CODEVASF Development Company for the Sao Francisco Valley DNOCS National Department to Combat Drought GIS Geographic Information System GOB Government of Brazil IBGE Brazilian Institute of Geography and Statistics IDB Inter-American Development Bank IERR Internal Economic Rate of Return LACI Loan Administration Change Initiative M&E Monitoring and Evaluation ME Ministry of Economy MIS Management Information System MMA Ministry of Environment, Water Resources and Legal Amazon MPO Ministry of Planning and Budget NGO Non-Governmental Organizations NBF Not Bank-Financed NRDP Northeast Rural Development Program OECF Overseas Economic Cooperation Fund (Japanese Government) OM (Project) Operational Manual PMSS II Water Sector Modernization Project (II) PROAGUA Federal Water Resources Management Project PROURB CearA Urban Development and Water Resources Management Project PROGERIRH Ceara Integrated Water Resources Management Project RPAP (NE) Rural Poverty Alleviation Program (Northeast) SEAIN Secretariat for International Affairs (MPO) SEPRE Secretariat for Regional Policies (MPO) SFC Secretariat for Financial Control (MF) SG State Government SINGRH National System of Water Resources Management (Sistema Nacional de Gerenciamento de Recurs as Hidricos) SOE Statement of Expenditures SRH Secretariat for Water Resources (MMA) TOR Terms of Reference UEGP State Project Management Units UGP Federal Project Management Unit (Unidade de Gestao do Projeto) UMA Federal Project Monitoring and Evaluation Unit (Unidade de Monitoria e AvaliaoIao) WRM Water Resources Management WUA Water User Associations Vice President: Shahid Javed Burki Country Director: Gobind T. Nankani Sector Director: Maritta Koch-Weser Task Manager: Luiz Gabriel T. Azevedo BRAZIL Federal Water Resources Management Project (PROAGUA) TABLE OF CONTENTS A. Project Development Objective 1. Project development objective and key performance indicators ...................... ..................2 Bl. Strategic Context 1. Sector-related CAS goal supported by the project ...........................................................2 2. Main sector issues and Government strategy ...........................................................2 3. Sector issues to be addressed by the project and strategic choices .....................................4 C'. Project Description Summary 1. Project components ..........................................................5 2. Key policy and institutional reforms supported by the project ...........................................6 3. Benefits and target population ..........................................................6 4. Institutional and implementation arrangements ........................................................... 7 El. Project Rationale 1. Project alternatives considered and reasons for rejection ...................................................8 2. Major related projects financed by the Bank and/or other development agencies ............. 9 3. Lessons learned and reflected in proposed project design ..................................... ........... 10 4. Indications of borrower commitment and ownership ....................................................... 10 5. Value added of Bank support in this project .......................................................... 11 E. Summary Project Analyses 1. Economic .......................................................... 11 2. Financial .......................................................... 13 3. Technical .......................................................... 14 4. Institutional .......................................................... 14 5. Social .......................................................... 15 6. Environmental assessment .......................................................... 15 7. Participatory approach .......................................................... 17 F. Sustainability and Risks 1. Sustainability .......................................................... 17 2. Critical risks .......................................................... 18 3. Possible controversial aspects .......................................................... 18 G. Main Loan Conditions 1. Conditions for Negotiations ................................ 19 2. Conditions for Effectiveness ............................1 l 9 3. Conditions for Disbursements of Funds ............................ 29 H. Readiness for Implementation ............................. 20 L Compliance with Bank Policies ............................. 20 Annexes Annex L. Project Design Summary .23 Annex 2. Detailed Project Description .27 Annex 3. Cost and Financing Summary .40 Annex 4. Economic, Financial and Fiscal Impact Analysis .43 Annex 5. Procurement and Disbursement Arrangements .51 Table Al. Project Costs by Procurement Arrangements ........................................ 52 Table A2. Consultant Selection Arrangements ........................................ 52 Table B. Thresholds for Procurement Methods and Prior Review .53 Table C. Allocation of Loan Proceeds 54 Annex 6. Monitoring and Evaluation Indicators .55 Annex 7. Project Processing Budget and Schedule .64 Annex 8. Environmental Assessment .65 Annex 9. Documents in Project File .70 Annex 10. Statement of Loans and Credits ........................................ 72 Table A. Status of Bank Group Operations in Brazil ..................................... 72 Table B. Statement of IFC's; Committed and Disbursed Portfolio ............................................... 74 Annex 11. Brazil at a Glance .................... 77 Annex 12. Map .................... , 80 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION BRAZIL Federal Water Resources Management Project (PROAGUA) Project Appraisal Document Latin America and the Caribbean Regional Office Brazil Country Sector Date- March 13, 1998 Team Leader/Task Manager: Luiz Gabriel T. Azevedo ,Country ManagerlDirector- Gobimd T- Nainkani Sector Manager/Director: Maritta.Koch-Weser Project ID: BR-PE 38895 Sector:. Water Resources and - Program Objective Category:. Environmentally : .,,__ -: - - .Water Supply Sustainable Development Lenditing Instrument: Investment Loan Program of.Targeted Intervention. [X] Yes I] ' -No Project Financing Data [X] Loan [1 Credit - L] Guarantee I[ Other Fior Loans/Credits/Others: Amount (US$m/SDRm}: US$1 98.0 million equivalent '_.___'_____-_: Proposed terms: :Xlt ucrrency [ : Single currency, specify- Grace period (years):S - -- F Standard.Variable Fixed [] LIBOR-based Years.to maturity::5 - ' T: - - I Commitment-fee: .75% - - - ______' ' ' : Service charge:- NA% ' : ___'__:':____-____ Financing plan (US$m): :_'_:_'_-_-_'I Source: Local Foreign Total Government 62.0 ------__ __. ___ 62.0 -Cofinanciers' 45.7 24.3 70.0 IBRD 119.2 78.8 198.0 O ther :-_. _' _ : ' _', _- _ ' : _' ___ - _: _: __ TOTAL 226.9 - 103.1 330.0 Borrower: Federative Republic &f Brazil Guarantor: Responsible agency: Secretariat for Water Resources (SRD), Ministry of Environment, Water.Resources and Legal Amazon: Estimated disbursements (Bank FYIUS$M): 1998 1999 2000 2001 2002 2003 Annual 10.0 60.0 62.5 1 42.5 14.5 8.5 Cumulative 10.0 70.0 132.5 175.0 189.5 198.0 Project implementation period: 5 yrs. Expected effectiveness date: May 31, 1998 Expected closing date. December 31, 2003 A. Project Development Objectives. 1. The development objective oftheproject is two-fold (seeAnnex 1). PRO0GUA aims to: (a) Promote rational and sustainable use and participatcory management of water resources in Brazil in general, and in the Northeast in particular. The project, which complements other Bank- supported initiatives in the water sector including those in Northeastern states like Bahia and Ceara, would help establish Federal and State regulatory and institutional frameworks. Once in place these changes would help formulate and implement efficient and sustainable water resources management policies and plans by: (i) strengthening relevant federal and state institutions; (ii) decentralizing water resources management to river basin committees and local water user associations (WUAs); (iii) developing mechanisms and institutional arrangements to promote efficient use of resource, allocation and enforcement of water use rights; and (iv) setting up a well-coordinated monitoring and evaluation system to track project performance and assessment of its impact on beneficiaries. (b) Provide reliable and sustainable access to water for dlomestic, municipal, and other uses in priority river basins in the Northeast, by: (i) supporting the construction and/or installation of storage/conveyance structures and distribution networks to optimize the storage, delivery, and use of water supplies within selected areas with high concentration of poor rural households; and (ii) establishing sustainable administration, operation and maintenance (A, O&M) systems for water supply infrastructure, including sound and efficient cost-recovery mechanisms. Project-financed infrastructure investments in bulk water supply, by ensuring an increased year-round water supply for human consumption and productive purposes, would provide sustainable and reliable supplies of water to rural and semi-urban populations of the Northeast, and reduce the vulnerability of this region's economy, to cyclical and protracted droughts. This would lead to significant improvements in the standards of living, health and sanitation of beneficiary populations, and would enhance local employment opportunities. B. Strategic Context. 1. Sector-related Country Assistance Strategy goals. In line with the recent CAS for Brazil (Document No.16582-BR, discussed by the Board of Executive Directors on June 12, 1997), the project would support the following strategic objectives (Annex 1): X:> Promote environmentally sustainable development, including water resources basin management, by supporting and implementing sound water resources management policies, strengthening sector institutions and establishing adequate legal amd regulatory frameworks; => Emphasize efficient resource allocation, public sector efficiency and provision of appropriate incentives to encourage private sector participation; => Support infrastructure development in the Northeast', a region selected under the Bank's Strategic Compact for enhanced support of rural development; => Alleviate rural poverty, by increasing reliable and sustainable water supplies for poor populations in the Northeast states; and =:> Direct Bank policy dialogue to the States, given their fundamental and increasing roles in the provision of infrastructure and social services. 2. Main sector issues and Government strategy. The National Law on Water Resources (No. 9.433), passed in January 1997, represents a fundamental step towards sustainable management of water resources in Brazil. Against this backdrop, the project has been Brazil Page 3 Federal Water Resources Management Project Appraisal Document designed to support and strengthen Government strategy in tackling the major issues affecting the sector. These are of social, economic and physical dimensions: Unreliable access to safe water has a strong adverse impact on the living and health standards of the rural populations in the Northeast. GOB recognizes the effect that scarce water resources have in aggravating and perpetuating rural poverty, and that it is the rural poor who suffer most severely from inadequately operated and maintained infrastructure. Unreliable and poor quality water supplies contribute to dismal health and sanitation conditions, and negatively affect agricultural production and yields. Less than 10 percent of the rural population in the Northeast has access to safe water, and only 4 percent has proper residential sanitation facilities. In periods of drought, many rural inhabitants need to walk several hours to the nearest water source, often of low quality, while others must await the arrival of publicly financed water trucks. At all levels of Government, costs of providing basic water and otlher services to alleviate the impact of water scarcity and droughts on the rural population and economy are substantial => To help their rural populations survive periodic droughts as well as annually recurring water shortages, the Northeastem States, along with the Federal and local Governments, have traditionally financed: (i) the delivery of water by trucks (carros pipa) costing State and municipal Governments as much as US$ 4.5 per cu. m. (vs. an estimated investment and O&M cost, in present value terms, of US$ 0.9 per cu. m. for infrastructure works considered under the project); and (ii) equally costly civil works and other drought emergency programs (e.g. US$ 238 million for only 6 months during 1993, the year of the last severe drought affecting the Northeast). Additionally, the cost of basic medical services for rural populations affected by the use of unsafe and insufficient water represents a significant drain on municipal budgets. -> In response to overwhelming demand by small rural communities, the Northeastern States and the Bank have financed, under the reformulated Northeast Rural Development Program (NRDP) and the follow-on Rural Poverty Alleviation Projects (RPAPs), small-scale rural water supply systems in the semi-arid region. The NRDP committed about US$ 58 million for the construction of some 2,700 simple rural water supply systems, small dams and wells, and demand by rural communities for this type of investment is expected to continue to be strong under the RPAPs. The proposed project would directly benefit existing RPAP-financed water distribution systems by increasing the reliability of water supplies to these systems. Use and O&M of existing hydraulic infrastructure has been grossly inadequate. Over the past century many reservoirs have been built in the Northeast, costing the Federal Government over US$ 2 billion. In general, these reservoirs store water just for local consumption, with no pipelines to convey water to towns or rural communities located in the same river basins. Local landowners manage the operation of these systems according to their own needs, ignoring the collective interest and/or potential participation of both upstream and downstream water users. In addition, maintenance has suffered from the lack of satisfactory cost-recovery mechanisms. As a result, water availability and, even more important, water reliability are much lower than what could be achieved through proper water resources management and operation. Uncertainties with respect to reliable supplies of water constitute a major disincentive for both agricultural and industrial development. Thus, farmers avoid risking large losses by opting to grow low-value, short cycle crops (e.g. beans) rather than fruits and other high-value crops that are dependent on a reliable and steady water supply. Effective and sustainable water resources management (WRM) is, therefore, one of GOB's central challenges for future economic development, particularly in the Northeast. To respond to growing water demand, Government must balance and distribute available water resources in an efficient, equitable, and sustainable manner. Large areas of the Northeastern states (80 percent of their territory with the exception of Maranhao) lie within the "Drought Polygon" and are subject to cyclical and prolonged droughts. Brazil Page 4 Federal Water Resources Management Project Appraisal Document Effective water management can optimize the allocation and use of water resources throughout the region, mitigate water conflicts stemming from competing uses, allow for sustainable A, O&M of existing and new infrastructure, and relieve water scarcities affecting the semi-arid rural areas. The implementation of permanent and sustainable solutions for reducing vulnerability to drought is paramount to the region's development, and facing this challenge is a priority objective of bolth the Federal and State Governments. The national strategy in dealing with problems affecting the sector is to start the effective application of the water resource management principles universally adopted at the Dublin International Conference on Water (1991), subsequently incorporated into the Bank's Water Resources Management Policy Paper (1993) and, more recently in Brazil's National Water Law. These principles translate into the following key concepts: (i) the watershed as the basic planning and management unit for water resources; (ii) the issuance of rights for water withdrawal and for effluent dilution; (iii) water as an economic good, and as such its use should be charged in order to achieve rational allocation and properly manage and maintain river basin systems; (iv) participatory and decentralized management of water resources; and (iv) high priority for adequate water supply for human consumption. 3. Sector issues to be addressed by the project and its strategic choices are: Introduction of an inter-sectoral cpproach to WRM. As recommended in the Bank's WRM Policy Paper and adopted in Brazil's new National Water Law, the project would apply an inter-sectoral approach to water resources management by: (i) integrating water resources' eco-systems with multi-sectoral demands for water; (ii) emphasizing decentralization; and (iii) incorporating stakeholder participation, especially in A, O&M. In particular, the project would support extensive user education programs to promote the public appreciation of clean water as an economic and environmentally sensitive resource; support the formation and strengthening of WUAs; and promote the establishment of sustainable cost-recovery mechanisms. Comprehensive environmental assessment and adoption of sound and sustainable river basin management practices would ensure compatibility with environmental objectives. Establishment of institutional and infrastructure systems for sustainable WRM in the Northeast. Water resources management issues would be addressed through the design and establishment of institutional and infrastructure systems that would stabilize supplies during drought and allocate these supplies according to explicit and agreed upon priorities. The project would finance priority infrastructure investments, based on rigorous evaluation of their social and economic impact, technical feasibility, as well as financial and environmental sustainability. Through the project, the participating States would receive the training and skills to monitor and enforce their water resources policies and plans. Development of a sound water resources management plan for the Sao Francisco river basin. A program that is geared towards efficient and effective allocation and use of scarce water resources in the Northeast has to include a sound management plan for the Sao Francisco river basin, which is the major river in this region and traverses five of its states. Major issues include: the degradation of the Sao Francisco upper basin where over 75% of the total river water flow is generated; intensification of water conflicts within the basin, especially between hydropower and irrigation; and potentially significant regional conflicts as the proposal of a trans-basin diversion to supply water to other States (Paraiba, Ceara and Rio Grande do Norte) continues to be the most controversial water issue in the Northeast. Solutions to these complex problems require the creation of a basin committee as well as local WUAs; participatory management of the basin's water resources; the implementation of sound water resources management practices; the establishment of A,O&M plans for existing and new infrastructure; improved coordination for the allocation of water rights in the basin; strengthening of relevant Federal, State and local institutions; and the effective implementation of the National Water Law more specifically the implementation of water user rights systems and of cost recovery mechanisms. Brazil Page 5 Federal Water Resources Management Project Appraisal Document Alleviation of rural poverty in the Northeast. The proposed project would be part of the Bank's Program of Targeted Interventions. The Northeast Region has the greatest incidence of poverty in Brazil. More than half of its poor live in the rural areas. By increasing access to safe water and reducing the effect of water shortages in this region, the project would contribute to improving the quality of life and employment opportunities of the rural and semi-urban populations in the Northeast. C. Project Description Summary. The project, broadly encompassing the water resources sector in the Northeast, covers all water users -- those who own, or should be granted, a water right. Its main focus is policy support and institutional strengthening, to be achieved through its "soft" (WRM and studies/project design) components both at Federal and State/local levels. Project funds for these activities as well as the construction of priority infrastructure works would be available to participating States on a competitive basis, depending on their institutional, legal and regulatory performance that would be monitored based on an institutional "matrix" that has been defined specifically for each State. Works to be financed would also have to meet strict eligibility criteria, laid out in the Project Operational Manual (OM). It is expected that the studies and planning exercises conducted under the project would feed through into additional investment programs or a follow-up phase of PROAGUA. Other project components would finance: the development of a specific WRM plan, together with pilot investments, for the Sao Francisco river basin; and project management, monitoring and evaluation. I. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): Component Category Cost % of Total Cost Bank Financing % Bank- I______________________ (US$ million) (US$ million) financed Water Resources * Policy Management * Institution building 53.1 16.1 40.1 75.5 (Federal and State levels) . Goods Infrastructure * Physical Investments * Institution building 212.0 64.2 104.9 49.5 (State and local levels) a Environmental mitigation Studies and * Physical Project Design * Institution building 41.6 12.6 34.0 81.7 (State and local levels) Sao Francisco * Institution Watershed building/policy 8.6 2.6 6.9 80.2 . Pilot activities . Goods . Minor works Management, * Project Monitoring and management/policy 14.7 4.5 12.1 82.3 Evaluation * Goods TOTAL 330.0 100.0 198.0 60.0 Including contingencies. Brazil Page 6 Federal Water Resources Management Project Appraisal Document 2. Key policy and institutional reforms supported by the project: Historically, water resources have been managed in the Northeast in much the same way as other parts of the world: (a) water is provided virtually free to users (but often in insufficient quantities and with poor quality); (b) financial resources for A,O&M are raised through general tax revenues and borrowing; (c) management is centralized in a command and control system (top-down approach). This so-called "old paradigm" resulted in waste and inequitable allocation of scarce water resources. The lobbying for construction of new reservoirs with Federal Government resources and the operation of existing infrastructure to meet the interests and needs of a few powerful groups, in a system known as the "drought industry", has constituted one of the major sources of political power in the Northeast. The revival of democracy in Brazil, starting in 1986, led to the realization that institutional reorganization was a must in the water sector. The project would support the consolidation of these changes. PROAGUA would develop and refine methodologies for integrated management of water within the region. This would involve addressing several key sectoral issues including public participation, full sustainable recovery of O&M costs, integrated management at the basin and inter-basin levels (with due regard for the natural ecosystems) and effective and adequate maintenance of infrastructure. The project would help strengthen the institutional capacity in the sector; it would emphasize decentralization and stakeholder participation in WRM, evaluate and improve the present institutional and regulatory frameworks in order to fully reflect the economic and social value of water through cost recovery mechanisms; it would promote sound and sustainable river basin management practices, and implement educational programs that would help improve public consciousness for water conservation and water quality protection. Finally, water supply management issues would be addressed through the planning and design of a system of institutions and infrastructure that would stabilize water supply during droughts, allow prioritization of supply allocation and alleviate the impact of water shortages on the rural poor and the regional economy. Strict eligibility criteria would be applied in selecting and prioritizing wor]ks that would have the greatest impact in terms of stabilizing bulk water supplies. Comprehensive environmental assessments would be undertaken. 3. Benefits and target population: Through its "soft" (policy and institution-building) component, the project would bring important, lasting institutional benefits to the Brazilian water sector. First, by supporting the establishment of sound legal and institutional frameworks at Federal level and in all 10 participating States, the project would ensure that the concept of sustainable resource management, already embodied ir the recent National Water Law, be effectively applied to water, one of the most critically scarce resources in the Northeast, thereby contributing to environmentally sustainable development in this region. Second, by financing water supply infrastructure that is viable not only in technical and economic terms but also from institutional, social and environmental standpoints, and by developing financially sustainable systems for their A, O&M, the project would provide lessons and models that could be replicated in other river basins both in the Northeast and elsewhere in Brazil. Finally, promotion of private sector participation, down to the lowest possible level, as well as greater efficiency in the public sector, would reinforce the jeint GOB/Bank's objective of efficient resource allocation in the water as in other sectors. Through its "hard" (infrastructure) component, the project would target the populations living in rural areas and in small to medium towns in the Northeast. At an average investment cost of less than US$ 150 per capita, the proposed works would provide reliable and sustainable access to water for domestic and productive purposes, reducing their vulnerability to drought in a permanent way. The project would contribute to reducing poverty by improving the quality of life of the beneficiaries and creating opportunities for employment and agricultural production increases. The target population constitutes some of the poorest segments of the Brazilian population, with annual per capita incomes of about US$ 230 Brazil Page 7 Federal Water Resources Management Project Appraisal Document (Brazil: A Povertv assessment, WB, June 27, 1995) and socio-economic indicators which are significantly lower than for Brazilians living in other regions. The ultimate beneficiaries of the infrastructure works proposed for financing in the first project years are estimated at some 1.3 million, or about 260,000 families. Of these, about half live in isolated rural communities and small semi-rural centers (of less than 15,000 inhabitants each), while the rest belong to relatively larger agglomerations of 20,000 to 50,000 people. Only Mossor6, the second most populated town in the State of Rio Grande do Norte, can be defined as an important town. IBGE statistics show that, even in these semi-urban centers in the Northeast, close to 50% of the households live on a monthly income that is less than the minimum wage. 4. Institutional and implementation arrangements: * Implementation period: The project would be executed over a period of 5 years. * Executing agencies: At Federal level, the major implementing agency is the Secretariat for Water Resources (SRH), MMA, where a Project Management Unit (UGP) would be established during the project period. In all participating States, State Project Management Units (UEGPs), within each State's Secretariat for Water Resources (State SRH), would coordinate the implementation of project activities by State agencies, river basin committees and local WUAs. * Project oversight would be provided by an inter-ministerial Comite Gestor (PROAGUA Managing Committee), constituted by representatives of MMA and MPO, and with SRH acting as Executive Secretary for the Committee. In addition, an independent quality control panel formed of eminent water sector experts would, twice a year, assist the central implementing agencies in evaluating: i) the need to adjust Annual Operating Plans (POAs) in conformity with the overall objectives of PROAGUA; ii) fulfillment by each State of the goals previously set in their POAs; and iii) the achievement of eligibility criteria by each proposed sub-project. * Project supervision and implementation would be handled from the Brasilia Office where the Task Manger is based. This project would require intense supervision for which adequate budgeting arrangements should be available. Project supervision would be supported by high level consultants to be hired through the UGP/SRH and UMA/SEPRE. * Flow of funds: Bank financing would be competitively allocated. Loan proceeds would be initially directed to SRH, MMA. A small portion of the loan would fund pre-defined institutional strengthening activities within SRH and a few pre-selected participating States whose institutional set- up is less sound than others. Otherwise, the bulk of the loan proceeds would only be disbursed to those States which meet a series of rigorous eligibility criteria regarding both institutional restructuring and infrastructure subprojects. These criteria, highlighted in Annex 2 would be included in the Project Operational Manual. Agreement has been reached with the National Treasury (STN) that loan disbursements for individual States would not be held hostage to all other States' meeting the relevant eligibility criteria. However, to eliminate the risk of concentrating funds in only a handful of States, each would only have access to an annual percentage of total financing, as defined in the OM. Once a participating State meets the specific eligibility criteria, the Federal SRH would disburse directly to the State SRH in accordance with a disbursement schedule defined in the State SRH's relevant POA. Funds allocated for institutional strengthening activities would be managed directly by the State SRH. Funds for infrastructure subprojects would be channeled by the State SRH to qualified construction firms and water infrastructure operators. For construction, firms would be selected on the basis of competitive bidding in line with Bank guidelines. The operator (whether State water company, private firm, or private water user association) would be selected by the State SRH on the basis of bidding and/or specific eligibility criteria defined in the OM. To facilitate disbursements, a project special account (with sub-accounts for participating States) would be established with Banco do Brazil and administered by STN, with an initial disbursement up to the maximum amount allowable under Bank guidelines. Future disbursements would be made on the basis of a consolidated Statement of Expenditures (SOE) Brazil Page 8 Federal Water Resources Management Project Appraisal Document submitted by SRH after consolidating SOEs from participating States. Details regarding flow of funds arrangements would be included in the OM. * Financial management arrangements: The Federal SRH would have overall financial management responsibility for the project, including, inter alia: (a) preparation of project financial statements in accordance with Bank guidelines issued under the Loan Administration Change Initiative (LACI); (b) flow of funds coordination and monitoring; (c) monitoring of procurement processing, contracting, implementation (to the extent practicable), and inventories; (d) management of financial information systems; (e) preparation of quarterly financial management reports for submission to the Bank and the project's Monitoring and Evaluation Unit (see below); and (f) implementation of remedial financial management actions, as necessary, during project implementation, A financial management assessment of SRH, in accordance with LACI guidelines and involving a EBank qualified Financial Management Specialist (FMS), was completed prior to negotiations. The results of this assessment indicate that SRH is well qualified to carry out the aforementioned responsibilities. A financial management assessment report can be found in the project files. Independent annual project audits would be carried out by the Federal Secretariat for Financial Control under the Ministry of Economy (SFC/MF). This is consistent with Bank practice in Brazil, where SFC has been approved as the agency responsible for auditing federal projects. SFC has a strong track record in carrying out this function and is working closely with Bank FMS staff to align policies and operations with LACI. SFC has substantial experience auditing public sector projects, with particular expertise relevant for Bank-financed projects, and maintains dedicated staff covering all federal Ministries and States. SFC's 1996 annual management report indicates that SFC: (a) audited nearly 200 projects financed by the Bank, IDB and other international organizations between 1994-96; and (b) trained over 15,000 public sector managers in financial and procurement management. * Monitoring and Evaluation arrangements: A monitoring and evaluation unit (UMA) at central level, within the Secretariat for Regional Policies (SEPRE), MPO, would be specially created to undertake project M&E. This unit would work in close coordination with the State UEGPs for project monitoring at the local level. An important component of the project's M&E system would be data obtained from socio-economic assessments realized during project preparation as well as from an initial baseline survey that the UMA would conduct on the beneficiaries' socio-economic conditions. These would serve as a basis for monitoring and evaluating improvements in the beneficiaries' standards of living through further socio-economic evaluations at mid-term and project completion. The UMA would be responsible for regularly updating and maintaining the project's M&E and data bank system. * Infrastructure civil works: As part of project preparation, a comprehensive set of criteria for the selection and ranking of infrastructure proposed by the participating; States was developed. These criteria are being incorporated into the OM, and would be applied by bolth Federal and State Governments in financing future hydraulic infrastructure in the Northeast and possibly other parts of Brazil. During project preparation, emphasis was given to selecting the best available proposals and to ensuring that the selected sub-projects were viable candidates for quick project start-up. For these, engineering designs (executive designs in some cases), cost estimates, social and environmental impact assessments were prepared in detail. Both Federal and State SRHs are already working towards the completion of final executive designs and the preparation of bidding documents for works selected for first year implementation. Works to be selected for future years would be subject to the same type of rigorous analysis and evaluation. D. Project Rationale. 1. Project alternatives considered and reasons for rejection: * No project or Status Quo Alternative: The alternative of maintaining the present scenario of insufficient and unreliable water supplies was rejected because of the mounting economic and social costs, associated with poor health, crop loss and lack of Brazil Page 9 Federal Water Resources Management Project Appraisal Document employment opportunities in the drought-stricken semi-arid region. To drastically reduce the vulnerability of the Northeast and its economy to drought, permanent solutions are required, including a system of sustainable recovery of O&M costs that would stop the continued deterioration of water resources infrastructure in the region. * Implementation by Federal Government alone: While the Federal Government, notably through the federal agencies DNOCS and CODEVASF, has a proven capacity for implementing construction of water supply and irrigation infrastructure and can play a useful role in providing technical assistance and training to the States, its institutional capacity and structure for achieving sound water resources management and policies and adequate A,O&M is still limited. Moreover, decentralized and participatory water resources management will not be successful without the active participation of the State Governments, and the option of project implementation by the Federal Government alone has therefore been discarded. * Complete decentralization to the States: Currently, with the exception of a few, the Northeast State Governments have a very weak institutional framework and implementation capacity for water resources management. One of the principal objectives of this first phase of PROAGUA is to strengthen the majority of the individual States' capacity to eventually implement their own water resources programs, as have begun to do the more advanced States of Bahia and Ceara. Since the role of the Federal Government in participating and supporting the State Governments in project execution is still necessary, the alternative of devolving implementation responsibilities entirely to the States has been rejected. 2. Major related projects financed by the Bank and/or other development agencies. * Government of Brazil: PROAGUA Nacional, financed with the Federal Government's own resources, applies the same concepts and criteria to the development of institutional capacity for water resources management and additional water supply infrastructure both in the Northeast and other regions of Brazil. * World Bank: Brazil - PMSS II, is the second phase of a program to modernize the water supply and sewerage (WSS) sector in selected States in North, Northeast and Central West Brazil. The project will focus primarily on one sub-set of water users (e.g., water utilities) and support: (a) technical assistance to strengthen institutions and consolidate the incipient progress towards sector regulation and private sector participation; and (b) investments oriented towards improving overall provision of WSS services in the poor urban areas of the N, NE and CW regions. Brazil - PROURB (Ceara). supports the development of basic urban infrastructure, including for water supply, in about 40 cities in the State of Ceara. Because water scarcity is one of the major problems in Ceara, the project includes a water resources component, divided into "hard" (expansion of hydraulic infrastructure) and "soft" (legal and institution-building) sub-components. Brazil - Ceara Water Pilot Project, in preparation of the proposed Ceara Water Resources Management Project (PROGERIRH), is expected to provide valuable lessons concerning effective measures to improve water resources management at the State level. Brazil - Bahia Water Resources Management Project, whose implementation started recently, is addressing, specifically in the State of Bahia (3 priority basins), some of the same issues as the proposed project while promoting a series of policy/institutional measures and financing other priority infrastructure works. Brazil - Northeast Rural Poverty Alleviation Projects (RPAPs), already effective in 6 Northeast States and about to be implemented in 2 others, finance small-scale rural infrastructure, such as simple water supply systems, and other types of investments that are identified, operated and maintained by poor rural communities in the Northeast. Brazil Page 10 Federal Water Resources Management Project Appraisal Document * Inter-American Development Bank: The Brazil Bahia Azul project provides infrastructure and technical assistance to improve urban water resources management in the State of Bahia. 3. Lessons learned and reflected in the project design: The project represents yet another effort in Brazil to implement the gui.dance contained in the Bank's Policy Statement as well as those lessons learned in the Bank's extensive experience in irrigation, rural poverty alleviation and grassroots development of beneficiary participation. The following concepts form the foundation of this effort: * World Bank Water Resources Policy Guidance stresses the importance of establishing an integrated water resources management approach at the basin and local level to reconcile cross-sectoral water demands. For this reason, the project would emphasize institutional strengthening and inter- institutional coordination (Water Resources Management Policy Paper. WB, 1993). * Conflict Resolution. Inter-sectoral allocation of water is a sensitive issue, involving high political costs and challenging decision-making issues. Facilitating consensus among the various parties, conflict resolution mechanisms as well as clearly delineated areas of authority and responsibility, are crucial. For this reason, the project would: (i) strengthen institutions, from local WUAs to the State and Federal entities, that would facilitate conflict resolution; (ii) promote the implementation of the National and State Water Laws, especially those aspects related to water rights allocation, administration and enforcement (Country Experiences with Water Resources Managemaent, WB, 1992). * Cost Recovery, Water Tariffs and Tradable Water Rights . Rational water use can be supported through the establishment of water rights, with water charges reflecting adequate cost recovery. Bank experience has shown that, for proper water rights systems to operate, a minimum level of competence in the institutional, legal and regulatory frameworks is a necessary condition. In addition, effective collection of water charges is a function of the stakeholders' participation in the process and appreciation of the benefits to be derived from the system. Introduction of water use charges prior to delivering demonstrable benefits to users inevitably results in controversy and lack of adequate collection experience. Experience points to the need for sound educational and public information programs. Based on these findings, the project would develop the required legal and institutional frameworks, strongly encourage user participatory involvement, and conduct extensive public education programs. A key project objective is to introduce bulk water charges within the priority basins, at a level that would permit the financial sustainability of the A, O&M of the water systems. These charges would be introduced over the project period (Water Resources Management Policy Paper, WB, 1993). * Decentralization and Beneficiary Participation. Bank's experience has convincingly confirmed the need to decentralize and promote stakeholder participation in WRM. Bank projects in the Northeast have demonstrated that, while firm government commitment to the project objectives is absolutely essential to help compensate and overcome institutional weaknesses, the stronger the participation of users and their sense of "ownership", the more successful the project will be in achieving its development objectives. Building on this experience, the projDct would focus on the water user associations as the primary agents for basin-wide and local water resources management (Design and Operation of Smallholder Irrigation in South Asia, WB, 1995). 4. Indications of Borrower commitment and ownership: The commitment of both the Federal and Northeast State Governments to the project concept is demonstrated by a series of legal and institutional measures taken in the recent past, as follows: Brazil Page I I Federal Water Resources Management Project Appraisal Document * Adoption of a National Water Law (No. 9.433) in early 1997, which emphasizes the concept of participatory and decentralized water resources management and that of water as an economic good with competing multiple users * Establishment of a Federal, inter-ministerial Comite Supervisor to speed up and ensure quality in PROAGUA project preparation; this Committee would become the Project Management Committee (Comite Gestor) that would oversee project implementation * Initiation of a nation-wide program (PROAGUA Nacional) that would follow the same institutional model and the same technical, financial, economic and environmental criteria adopted for the proposed project a Establishment of State Water Laws in 7 of the Northeastern States, and preparation of water laws in the remaining 3 States * Creation of State Secretariats for Water Resources in several Northeastern States * Creation of river basin committees and water user associations in several States * Implementation of bulk water tariffs in Ceara and commitment to implement water tariffs in Bahia. Other States have indicated their intention to charge also for bulk water in the near future. * Willingness by participating States to accept allocation of project funds based on rigorous technical and economic evaluation and on competition directly linked to institutional and implementation performance. 5. Value added of Bank support to tle project is based on the Bank's: (a) Recognized expertise in water resources management projects, including: The Bank's intensive participation in the development of the Brazilian water sector. From 1991 to 1994, 18 water and sanitation loans, totaling US$ 2.03 billion, were approved to support Federal and State water resource activities. * Bank involvement in WRM programs in Chile, Mexico, and Peru. * Formulation of the Bank's Water Resources Management Policy, which formed the foundation of the water sector efforts in Brazil and set the concepts utilized in both the National Water Law and the State Water Laws in Bahia, Ceara and several other Northeast States. (b) Recently completed economic and sector work in water resources in Brazil, enabling the Bank to provide timely and well-founded technical assistance to the Borrower. (c) Extensive expertise in the formation of participatory WUAs in the region and worldwide; and (d) Experience in community-based poverty alleviation programs in Northeast Brazil, which provides the Bank with considerable knowledge about the region, its socio-economic profile and the characteristics of the rural population. E. Summary Project Analyses (Detailed analyses are in the project files, see Annex 9). 1. Economic Assessment (see Annex 4): The economic viability of the project was assessed separately for the "soft" (Water Resources Management, WRM) and "hard" (infrastructure) components. For the WRM component, a "minimum impact approach", established by Cummings et al.I and used in various Bank-supported water resources projects, was adopted. For the infrastructure component, traditional cost-benefit analysis was applied to evaluate the economic feasibility of the group of "priority works" proposed for financing from the first year of the project. Cummings R., Dinar A. and Olson D., "New Evaluation Procedures for a New Generation of Water-Related Projects" (World Bank Technical Paper N° 349), 1996. Brazil Page 12 Federal Water Resources Management Project Appraisal Document WRMComponent. Institutional and policy support designed under this component is expected to lead to an integrated approach to water resources management and promote a shlift in emphasis from water resources development (merely supply-oriented) to water resources management (both supply and demand-oriented). The project's WRM component would, in particular: a) rationalize water infrastructure investment decision- making based on the principles adopted by the recent National Walter Law; b) influence water demand through the establishment of adequate water charges; and c) improve A, O&M of existing and new water infrastructure. The "minimum impact approach" determines the minimum economic impact needed to justify project investments, or the minimum impact (increased benefits and/or decreased costs) that the component must have on relevant values within the water sector to yield a minimum feasibility condition in which benefits would equal costs. Annual relevant values in the water sector that may be influenced by the project's WRM component have been conservatively estimated at US'$ 3,881 million (Table 4.2, Annex 4) vs. annualized costs of US$ 8.7 million (social costs were assumed to be identical to economic costs). The implied value of c (minimum impact coefficient) over the life of the project is therefore .002, that is, feasibility of the WRM component would require that it affects current levels of water sector-related relevant values only by 0.2 percent per annum. A comparison of the component's annualized costs with annualized benefits, estimated at US$ 136.8 million, would further yield a satisfactory benefit-cost ratio of 16. Infrastructure Works Component. A detailed economic analysis was carried out for each of the eight sub- projects (water supply related investments) whose implementation is likely to start in the first year. These works account for around 49 percent of the total base cost of the project's infrastructure component. 2 Economic benefits were estimated with the use of SIMOP , a simulation model that allows calculation of the incremental consumer surplus derived from greater water availability. Input prices reflecting market values during the last quarter of 1997 were corrected with sector-specific conversion factors drawn from a Harvard University study and used in the economic analysis of the Bank's Second Water Sector Modernization Project (PMSS II). Values for other variables required by SIMOP, such as the costs of alternative sources of water for consumers not connected to public water supply systems and the value of price elasticity of demand for water, were taken from a water demand study in Northeast Brazil3. The rate of exchange of the Real was set at R$1.09 per US$. The opportunity cost of capital used was the standard 12%, although this is perceived by Brazilian analysts as high for the type of interventions sought. The period of analysis was 30 years, equivalent to the economic life of the proposed works. All eight sub-projects have positive net economic present values and yield satisfactory internal economic rates of return (IERRs), ranging from 13.7% to 27.6% (see table: below). Sensitivity analysis and calculation of switching values show that these IERRs would remain fairly stable even with relatively large (separate or combined) variations in benefits and costs. In some cases, however, using the SIMOP model brings some limitations to the analysis. In particular, for the Mossor6 sub-project which is expected to have an important impact in avoiding oil intrusion into the Acu aquifer, benefits from joint management of this aquifer and adjacent oil deposits could not be adequately reflected in the analysis. But even taking into account only the benefits derived from improved water availability, the: IERR of Mossor6, the costliest sub- project in this first group, is acceptable at just under 14%. First Year Infrastructure Works: Internal Rates of Return .. ... ~~~~~~~~~~~ ~ ~ ~ ~ ~ ~ ~ . . .. . .. . .. .. . Mo__=r6 (8.9 2 Powers T. and Valencia C., "Modelo de Simulaci6n de Obras Pxblicas" (Monografias de Analisis de Proyectos N° 5), IDB, 1978. Banco do Nordeste do Brasil , "Curva de Demanda de Agua no Nordeste", I 196. Brazil Page 13 Federal Water Resources Management Project Appraisal Document Amn1ia RodTigues (BA) 27.6 14.8 Adutoradoeijo(BA) 19.4 55 Cascavei (CE) 20.3 13.8 Tri3i-Tau (CE) 2294 AguasVormelas (MdG) 24.6 3.4 Arcoverde (PE) 23.6 3.4 Cariri (PB) 16.3 1.2 EFirstYear Works 17.4 107 - 1Excuding environmental costs. 2. FinancialAssessment (see Annex 4): One of the project's objectives, to ensure the financial sustainability of the participating States' WRM institutions and entities, would be achieved through efficiency gains from better management, collection of bulk water tariffs and decentralized and participatory A, O&M of water supply infrastructure down to river basin and local levels. Financial analysis of the first year works was undertaken, on a case by case basis, from the point of view of the water system operator4. Both internal financial rates of return (IFRRs) and the level of "subsidies" that would be required, in theory, for the sub-projects to yield an IFRR of 12%, were estimated. The analysis was performed under alternative scenarios corresponding to different levels of management efficiency, service coverage and prevalence of metered households. In the basic scenario (the same one used for the economic analysis), corresponding to the basic technical proposal for the specific sub-project, water charges --based on existing water tariffs applied by the relevant State water company but currently collected at less than 50%-- would cover, in all cases, full O&M costs and, on average, about 67% of the investment costs. Only three of the sub-projects (Aguas Vermelhas, Arcoverde and Cariri) would require net subsidies, with an average present value, over the 30-year life of the sub-projects, of US$ 96 per beneficiary or US$ 0.07 per cu. m. This can be compared with the costs of supplying water, e.g. with carros-pipa, to the Northeast rural populations ranging, on average, between US$ 3 and US$ 7 per cu. m. and costs to the consumers that are as high as US$ 30 per cu. m. in locations like Cariri, which has no other source of water than the one that will be made available under the proposed sub-project. Due to the large proportion of economic, non-monetary benefits (based on consumer surplus) accruing from the sub-projects, IFRRs are generally much lower than IERRs, and are less than 10% for most of the first 8 sub-projects. However, estimation of these IFRRs does not include social benefits which are difficult to quantify but would be substantial, stemming from improved health of the beneficiary populations and the consequent impact on their living conditions and employment opportunities, as well as from the formalization and active participation of WUAs in the A, O&M of the proposed water supply systems, with further indirect benefits such as social cohesion facilitating, for instance, access to credit. Additionally, as specific management arrangements involving WUAs and/or other stakeholder groups would be set up with support from the project, it is likely that efficiency parameters for the O&M of the systems would improve over time, and that resulting ex-post IFRRs would exceed the ex-ante estimates. Fiscal Impact: Expected long-run fiscal gains would derive from: (i) increased water resources management efficiency; (ii) decreased long-term O&M costs; (iii) longer life-span of the infrastructure before rehabilitation is required, as a result of formalized sustainable maintenance programs; (iv) savings in the cost of publicly-funded 4 A complementary assessment of the financial situation of the relevant State water companies is included in the Project's files (see Annex 8). Brazil Page 14 Federal Water Resources Management Project Appraisal Document social support programs, such as the drought-related emergency and water truck programs; and (v) additional revenues from both the collection of water user charges and increased tax receipts stemming from a stimulated rural economy. Quantifiable fiscal benefits from the project's infrastructure component include increased tax revenues from larger expenditures and sales by water systems operators, as well as decreased expenditures in publicly funded water-related programs. Associated fiscal costs include theoretical government monetary contributions that would be required for the sub-projects to yield IFRRs of 12%. Overall fiscal impact for the first year works is a negative US$ 6.8 million, 70% of which would be generated by the Cariri sub- project. At full development, this sub-project would bring relief to a target population of over 50,000 people (including three small remote rural communities) living over an extended area of Paraiba, which has been drought stricken for two years. This population currently survives lengthy periods of time on less than 20 liters of low quality water per person per day, and those who can afford must purchase water at premium prices of US$ 10-30 per cu. m., as in the case of water brought in from a neighboring state. 3. Technical Assessment: Technical assessment of proposed infrastructure works followed a rigorous multi-criteria approach for selecting the most viable sub-projects. From an original set of 150 works proposed by the States and Federal agencies, a group of 23 sub-projects was first selected. The screening process took into account: (i) the nature of the specific problem; (ii) socio-economic conditions prevailing in the area; (iii) the level of commitment of local institutions; (iv) consistency with WRM plans; and (v) the level of technical preparation of the proposals submitted by the participating States. As a result, unrealistic and unfeasible sub-projects were eliminated, and the most reliable proposals for first year implementation were selected and ranked (see annex 2 for eligibility criteria). For each of these, the Project Preparation Unit (UPP) in SRH and the States' executing agencies prepared detailed feasibility studies, which include analyses of aspects related to: (i) population; (ii) engineering; (iii) institutional development; (iv) public health; (v) financial management; (vi) economic conditions; (vii) environmental assessment; viii) social organization; and (ix) water resources management. From these studies emerged a first group of 8 sub-projects which were recommended, and eventually approved by the inter-ministerial PROAGUA Supervising Committee, for financing in the first year of the project. The selected sub-projecls are: the Mossor6 pipeline in Rio Grande do Norte; the Amelia Rodrigues and Feijao pipelines in Bahia; the Cascavel and Trici-Taua pipelines in Ceara; the Aguas Vermelhas water supply and distribution system in Minas Gerais; the Arcoverde pipeline in Pemambuco; and the Cariri pipeline in Paraiba. In addition, another group of 9 sub- projects (with fairly similar characteristics) have already been identified as potential candidates for second year implementation. They require, however, further complementary studies which the States and the UPP/SRH will be carrying out in the next few months. 4. InstitutionalAssessment: During project preparation, a detailed diagnostic assessment of the legal and institutional set-up was undertaken at both federal and State levels. This assessment allowed a full understanding of the different stages at which each of the participating States finds itself in terms of: (i) the relative importance of the water sector in regional and local economic development priorities; (ii) the state of knowledge and information systems about the sector; (iii) the development of legal and regulatory frameworks for water resources management; (iv) the role devolved to specific State entities in the organization of the sector; (iv) the human and financial resources available, and their planning and implementation capacity; (v) the existence or not of a cadaster of water users in the State; and (vi), where applicable, the level of organization of basin river committees and WUAs. Brazil Page 15 Federal Water Resources Management Project Appraisal Document At federal level, the adoption of the National Water Law constituted a great advance for the sector. Together with the institution of a National Policy for Water Resources, emphasizing the concept of water as an economic good to be managed in a sustainable and decentralized manner, Law 9.433 also created the National System for Water Resources Management (Sistema Nacional de Gerenciamento dos Recursos Hidricos, SINGRH) and formalized the all-important role of the Federal SRH. This Secretariat, although established in 1995, still does not have a formal structure nor a fully functioning cadre of staff. To date, SRH has operated essentially with a limited number of consultants under the direction of a few high-level civil servants seconded from other public agencies. One of the objectives of the project is to assist GOB, after an initial period in which heavy technical assistance inputs to SRH will still be necessary, in completing the institutionalization of the Secretariat and providing it with the human and budgetary resources required for effectively fulfilling its role as defined by the Water Law. At the State level, the emerging picture is one where a group of States (Bahia, Ceara, and Rio Grande do Norte) is fairly well advanced, not only from the legal and institutional standpoint but also in terms of planning and implementation capacity for water resources management. At the other extreme is a small group (Piaui, Alagoas and, to a certain extent, Maranhao, which is the only Northeastern state outside the "drought polygon") which, for various reasons, only has an embryonic interest and capacity for managing the water sector. The remaining participating States (Parafba, Minas Gerais, Pernambuco and Sergipe) are at an intermediate stage, where the conceptual and legal basis exist for effective water resources management but where the appropriate human and other resources are still highly insufficient and where, as in the case of Sergipe, the public entity that should coordinate the sector has been recently designated. While the project would provide limited initial financial resources to the two groups of weaker States in order for them to reach a certain minimum institutional level, it would also strongly encourage, beyond this "start-up" point, competition for accessing project funds for both infrastructure works and studies. 5. Social Assessment: Comprehensive and site-specific social assessments were conducted in four proposed sub-projects: Mossor6 in Rio Grande do Norte, Aguas Vermelhas in Minas Gerais, Cariri in Paraiba and the Pedras Altas reservoir in Bahia. This last sub-project was eventually not retained due to environmental and technical problems that were detected. In addition to these site-specific assessments, a regional assessment was conducted based on available statistical information and data. These assessments involved field visits to assess socio-economic conditions, beneficiaries' interest and support for the proposed sub-projects including participation in their A,O&M, and to identify and evaluate the importance of local organizations and associations. They concluded that, in general, the proposed sub-projects received strong support by local stakeholders. As potential beneficiaries perceive water scarcity as one of the main problems affecting their quality of life, the vast majority of those interviewed were willing to participate in the A,O&M of the sub-projects and supported the idea of water user associations actively taking part in project implementation and O&M. The public information campaigns that the State Governments would be initiating at the start of the project would help fill the knowledge gap that the general population has about the proposed sub-projects. 6. EnvironmentalAssessment (see Annex 8): Environmental Category A. The Project Preparation Unit (UPP) carried out the environmental assessment of the proposed project. The UPP's environmental team, composed of two full-time environmental specialists, a full-time social scientist and two water resources engineers, was supported by a number of highly qualified specialists for the development of specific studies or site- specific analyses. The regional environmental analysis and associated development of a comprehensive geographic information system (GIS) was carried out by a private consulting firm. Brazil Page 16 Federal Water Resources Management Project Appraisal Document The environmental analysis of the project focused on three different levels of investigation: (a) on-site analysis of the potential impacts of each proposed sub-project; (b) regional analysis of cumulative impacts and multiple uses of water resources; and (c) evaluation of the environmental management capability of the proponent agencies. This comprehensive screening process allowed for the identification of possible impacts of those works proposed for implementation in the first year and the development of associated mitigatory measures. Among the 8 infrastructure sub-projects considered, only one (Aguas Vermelhas) presented environmental concems that required differentiated and site-specific mitigatory measures, whose costs have been included in the total sub-project costs. The remaining six sub-projects had no major negative impact and their implementation will be supported by environmental education programs and public information systems. The works selected for the first year primarily involve the construction of pipelines along existing roads, water intakes and pumping stations at existing reservoirs and minor related infrastructure. No involuntary resettlement will be necessary, and therefore no specific resettlement plans are required, for any of the first year sub-projects. However, future sub-projects still to be selected for financing may involve resettlement, and in view of this, standard terms of reference (TOR) for the development of resettlement plans have been prepared. These standard TOR were developed based upon existing resettlement plans which were approved in other Bank projects, more specifically PMSS II, PROURB and the Bahia Water Resources Management Project. Model TOR for Indigenous Peoples' Development Plans were also developed. During project implementation, procedures would be adopted to ensure adequate screening and analysis of new sub-projects. Monitoring and evaluation procedures for the supervision of those works selected for the first project year are being implemented. A detailed project environmental evaluation cycle was developed and the criteria followed in the analysis of the first year sub-projects are being incorporated into the Project Operational Manual, setting the basis for environmental analysis of future works to be financed by the project. In order to strengthen the environmental performance of proponent agencies, the project would finance an institutional strengthening program for environmental management which includes technical assistance and training in environmental issues at the Federal and State levels. The main objective of this program is to internalize environmental concerns in all of the components of PROA.GUA, from the design of State water management plans and regulations, to project specific infrastructure. The program will also cover State environmental agencies, with the objective of streamlining ancd unifying internal procedures for environmental analysis and evaluating water resources projects, environmental licensing procedures, and environmental monitoring. The environmental assessment report and the proposed environmental methodologies and programs were subject to intensive institutional consultation. The report was distributed to all Northeast States' water resources and environmental agencies. A workshop was held in Recife (Pernambuco) on November 24-25, 1997, to discuss these proposals. Over 40 participants from 8 States as well as representatives from federal water and environmental agencies analyzed the proposed environmental programs, and agreed on an Action Plan to be implemented during the first year of the project. This Action Plan includes: (a) State-specific workshops to discuss proposals for submission to each State Environmental Council; and (b) preparation of unified and integrated procedures for environmental licensing of water resource infrastructure projects based on the PROAGUA model. All water resources and environmental agencies made the institutional commitment to support and participate in the environmental strengthening programs. Brazil Page 17 Federal Water Resources Management Project Appraisal Document 7. Participatory Approach: Agents- Identification/ Implementation Preparation Beneficiaries S/CON/COL* IS/CON/COL: Fundamental to the project would be the formation and / strengthening of Water User Associations into entities capable of participating Community in decision-making regarding infrastructure investments and in their A, O&M. groups Academic IS/CON IS/CON: Universities in the Northeast and in other parts of Brazil would be invited to participate in studies associated with water tariffs systems, water rights, tradable water rights, as well as in the design of environmental education programs. NGOs/ IS/CON/COL IS/CON/COL: NGOs and private firms are expected to provide technical Private sector assistance to water users, WUAs as well as State water agencies. Local CON/COL CON/COL: Close collaboration between the Federal SRH with and among overnments State water agencies in the Northeast is expected. * Information sharing (IS); Consultation (CON); and Collaboration (COL). F. Sustainability and Risks. 1. Sustainability of project benefits would be based on the following: Under the proposed project, the strengthening of SRH/MMA and State SRHs and the new regulatory and administrative reforms related to water use would promote the development of an environment conducive to efficient water use and allocation, and thus sustainable development, use and management of water resources. The proposed institutional strengthening, technical assistance and training components would build the necessary human resource capacity and develop an appropriate organizational structure, institutional and legal framework to carry out and oversee the proposed water resources management activities during and after project implementation. Institutional sustainability would be based on: (i) the legal mandate to consolidate the role of water resources management institutions at Federal, State and local level; (ii) decentralized and participatory management of the water resources systems; (iii) stronger managerial skills at the Federal, State and user levels; and (iv) enhanced public awareness of environmental issues related to water resources, through multi-media information and education programs. Environmental sustainability would be based on: (i) rational water resources management; (ii) enhanced user awareness of the value of water; and (iii) application of environmentally sound selection for project infrastructure investments. Economic sustainability would be based on: (i) promoting the establishment of bulk water charges to reflect the real cost of water; (ii) WUAs' contribution and direct participation in the A, O&M of infrastructure works; (iii) adequate economic criteria for the selection of infrastructure investments to ensure that the most viable sub-projects are selected; (iv) stimulating the establishment of tradable water rights systems to increase efficiency in water allocation, thus reducing the need for additional investments to augment water supplies; and (v) renewed rural economic growth, due to the increased agricultural productivity stemming from greater access to irrigation and other employment opportunities. Social sustainability would be based on: (i) improvements in the standards of living in the rural sector related to improved health and income gains; and (ii) increased beneficiary ability to cope with droughts. Brazil Page 18 Federal Water Resources Management Project Appraisal Document Financial sustainability of the SRH would be based on: (i) its enhanced administrative efficiency; (ii) revenues from the collection of bulk water user charges; and (iii) savings realized from users' cost-sharing in A, O&M. 2. Critical Risks (see fourth column of Annex 1): * Government commitment: The present administration has demonstrated its firm commitment to the project. Although this commitment is expected to continue into the next administration, there is always a risk that the latter could decide on different priorities for development. However, the pressures for stable water supplies will continue to grow regardless of the administration in power. Greater awareness by the public of its needs, reinforced by the project's public information eflorts, will tend to institutionalize this pressure, minimizing the impact of changes in administration. * Adequate and timely counterpart funding: Another risk to the project's success would be insufficient or delayed counterpart funding, especially for financing local water distribution infrastructure. Parallel financing by OECF of part of the project's infrastructure component would help mitigate this risk, as would the close institutional coordination, that was established during project preparation and is expected to be strengthened during implementation, between the Federal SRII and the State agencies involved in project oversight and implementation. The fact that the proposed project is part of the "Brasil em Acdo" priority program provides an additional reassurance that timely counrterpart funding would be available. * Effective coordination and reconciliation of competitive water interests within the Region: The risk of inter-agency competing interests causing conflict with the mandate of Secretariats for Water Resources (SRH) could be substantial. The sector has been divided in the past between frequently competing entities. This risk would tend to be minimized, in most participating States, by the support and strong legislative mandate given by State Govemments to their SRHs. However, it can be expected that full acceptance of the new structures and the concept of water rights and water charges will require a great deal of education and time, particularly when it involves the issuance of water rights from SRHs to other State user agencies and the payment of bulk water charges by those agencies. * Social impact mitigation and resettlement: Bank experience has shown that the risk of poor implementation of social impact mitigation and resettlement plans in Brazil is high. Although none of the sub-projects selected for first year implementation involve resettlement, if this were to be required for the construction of future infrastructure under the project, special care would have to be taken to develop and implement a satisfactory and sustainable resettlement plan, assure fair and equitable conflict resolution to prevent inequities from occurring and obtain strong commitment from the Federal and State Govemments in this regard. . Overall project risk rating Medium Non-achievement of development objectives Medium risk More time than expected for full achievement of development objectives Medium risk 3. Possible Controversial Aspects: The implementation of water use charges and rates systems is a new concept in the region. The payment by public agency providers (e.g. State Water Companies) as well as resiclential and industrial water users of bulk water charges to basin agencies and/or SRHs may generate internal controversy. In addition, the requirement that State water providers and private users (including irrigation users) obtain a water right from the relevant Federal or State agency for the use of water resources may be controversial. Effective participation of water users in the decision-making process regarding the implementation of hydraulic infrastructure is another controversial aspect supported by the project. Similarly, the delegation of Brazil Page 19 Federal Water Resources Management Project Appraisal Document authority by the Federal Government to the States may find some resistance within conservative sectors of the Federal Government. The competitive nature of the project, placing emphasis on better performers and the non-allocation of funds to those States that do not meet program criteria, would also probably raise controversy. G. Main Loan Conditions. 1. Conditions for Negotiations: (i) Establishment of the PROAGUA Managing Committee; (ii) Creation of the Federal Project Management Unit (UGP) - SRH/MMA; (iii) Creation of the Federal Project Monitoring and Evaluation Unit (UMA) - SEPRE/MPO; (iv) Draft version of the States' Annual Operating Plans (POAs) and a consolidated POA for the first year of Project implementation would be furnished to the Bank; (v) Draft version of the Project Implementation Plan and Operational Manual would be furnished to the Bank; and (vi) Draft Sector Policy Letter would be prepared. 2. Conditionsfor Board Presentation: (i) Sector Policy Letter signed by the Minister of Environment, Water Resources and Legal Amazon; (ii) Final version of the Project Implementation Plan and Operational Manual approved by the Bank and published by MMA. 3. Effectiveness Conditions: Standard Conditions, including (i) Adequate staffing of the Federal Project Management Unit (UGP); (ii) Adequate staffing of the Federal Project Monitoring and Evaluation Unit (UMA); (iii)A final version of the States' Annual Operating Plans (POAs) and a consolidated POA for the first year of Project implementation would be furnished to the Bank; (iv) Authorization for the Secretariat for Water Resources to directly conduct bidding procedures; (v) Creation and adequate staffing of the State Project Management Units (UEGPs) by the participating States; (vi) Signed technical assistance agreements (convenios) between the Federal Government and a minimum of 5 participating States; (vii)Signed infrastructure agreements (convenios) between the Federal Government and participating States for the execution of at least four of the first year sub-projects. 4. Other - Conditionsfor disbursement ofprojectfunds: (i) Formal approval by the Bank of final design and institutional arrangements for sub-projects to be financed under the Project's infrastructure component; (ii) States must obtain all necessary Installation Licenses and Permits, including those issued by the Environmental Councils, prior to initiating the construction of infrastructure works; (iii)Issuance of the necessary water use right ("outorga de uso da agua") by the relevant Federal or State institution prior to initiating construction of each infrastructure work; (iv)Technical, economic, financial, social and environmental criteria, as detailed in the Project Operational Manual, met for each infrastructure sub-project. These conditions apply to each individual State. Those States that do not meet these conditions will not be eligible for financing under PROAGUA. Brazil Page 20 Federal Water Resources Management Project Appraisal Document H. Readiness for Implementation. [XI A significant part of the engineering design documents for the first year's activities are completed and ready for the start of project implementation. [X] A significant part of the procurement documents for the first year's activities are complete and ready for the start of project implementation. [X] The Draft Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. With the objective of providing for quick project start-up, four procurement seminars were organized during project preparation, providing specific training on procurement issues to the Federal SRH and participating State agencies. In addition, all relevant State agencies participated in a disbursement seminar offered by the Bank in November 1997. All relevant Federal and State agencies participated in an environmental screening and analysis seminar offered by the UPP/Bank to respond to questions regarding the Bank's environmental screening criteria and procedures. A number of bidding documents for first year sub-projects have been prepared by participating States and submitted to the Bank. L Compliance with Bank Policies: This project complies with all applicable Bank policies. In compliance with Bank guidelines and policies regarding Bank-financed construction of dams (OP 4.37), a Dam Safety Panel would be established to approve the final engineering designs, supervise contracting and inspect the construction of any large dams that may be financed with proceeds from this loan. :-4, XMnager: Sector Director, Acting: Director: Brazil Lu,13briel T. Azevedo Luis 0. Coirolo Gobind T. Nankani Brazil Page 21 Federal Water Resources Management Project Appraisal Document ANNEXES Brazil Page 22 Federal Water Resources Management Project Appraisal Document BRAZIL Federal Water Resources Management Project (PROAGUA) TABLE OF ANNEXES ANNEX I Project Design Summary ANNEX 2 Detailed Project Description ANNEX 3 Cost And Financing Summary ANNEX 4 Economic, Financial and Fiscal Impact Analysis ANNEX 5 Procurement and Disbursement Arrangements ANNEX 6 Monitoring and Evaluation Indicators ANNEX 7 Project Processing Budget and Schedule ANNEX 8 Environmental Assessment ANNEX 9 Documents in Project File ANNEX 10 Statement of Loans and Credits ANNEX 11 Country at a Glance ANNEX 12 Map Brazil Page 23 Federal Water Resources Management Project Appraisal Document Annex 1 BRAZIL Federal Water Resources Management Project (PROAGUA) Project Design Summary Narrative Summary Key Performance Indicators Monitoring and Critical Assumptions Supervision CaS objectives 1:. Promote : Establishment of standard criteria Assumptions are: -environmentally for' the implementation of new -(i) Government -sustainable development, hydraulic infrastructure based on commitment to te project includ ing water resources technical, economic, will remain strong; basin nanagement enviroentntal, social and legal (ii) the difficult fiscal feasibility;- situation of most Northeast 2. Emphasize efficient states will improve, resource allocation and Increase the'number'of water ensuring adequate and privatel sector -resources management plans and sustainable project particijpation; water users associations; implementation; and Comparison of pre- and-t- (iii) a stable water.supply Increase in the level of cost post-project data on :will reduce social and i 3. Red:uce rural poverty -recovery and private sector water availability, health-costs induced by in the Northeast. investment in the implementation quality and cost to the drought on the Northeast of water resources systems;: rural- and 'semi-urban populations, create populations living in: employment and income- Increase in numbers of families .project areas; generating opportunities receiving stable and clean'water in: .and alleviate poverty. project areas; Socio-economic and health indicators at the Improvements in living and health community and conditions of beneficiaries. household level. Projecit Development Object ives I. Promote rational use Establishmient of regulatory and Implementation and Introduction of and participatory institutional frameworks to supervision reports of participatory management management of water formulate and implement efficient' Project Management mechanisms, cost recovery resources in Brazil in and sustainable water resources U-nits (UJGPIUEGPs); programs, public /private general, and in the management policies and plans at irrigation and user- Northeast in particular; federal level and in all 10 Project Monitoring and managed systems will participating States; Evaluation Unit (UMA),: improve access to water 2. Provide reliable and . . Secretariat of Regional supplies and employment sustainable access to Preparation of socio-economic PoliciesIMPO; opportunities for the rural water for domestic, baseline studies; and semi-urban mnunicipal and other uses : : : Project Management populations and reduce in priority river basins in Information System; vulnerability to drought; the Northeast. Increase in no. of households in Audits and surveys of project areas with year-round WUAs; access to water for human : Brazil Page 24 Federal Water Resources Management Project Appraisal Document .. ........... .. .... . .. . M 1.0 K: 6:: . 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I I. .. . . . . . . . . . . . . . . . . . . . .. . . . . .. . . . . .. . .... . . . . . .. . . . . . .. . . . .. . . . . . .. . . . . . . . . .. . .. . . . . . .. . . .. . . . . . .. . . . . . . . . . .. . .. . .. . . . . .. . . . . . . . .. . . . .. . . .. . . .. . . . . . . .. . . 0 . . .. . .. . .. .... ... . . ... . ............. .. .... . .. .......... ...... .. . . .. . . .... .. . .. ...... . . .. ... .. . . .... . .. ... .... ..... .... .. .... . .. . . . .. . .. . . . . .. . . . . . . . . . . . . . . . . . .. . . .. . . . . . . . . . . . . .. . .. .. . . . . . . .. . . . . . . . . . . . . .. . . . .. . . . . . . . . . . . 3: Nn S...1-1,1.1 ::XAww10'A4_'-O..t t ... ... ... ... . . .... .. . .. . . ... .. . . .. .. .. . .. . .. . . . . . . . . . . . . . . . . . . .. . .. .. . . . . . . . . . .. . . . . . .. . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . .. . . . .. . .. . . . . . . . . . . . . . .. . . . .. . . . ... . . . . . . . . .. . . . .. . . . . .. . . . . . . . . 0.1.4 ten broemem: OVO WkaeeMe Iil $..i JK I 10a An t"ob/ B tPr tm iit La t-iii I't' SOU d I 'gd' P IC .. . . .. ... ..... n . 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A M .. . .. .... .... . . ......... .. ...... .... ........ .. ... .. .. ........ ... .... .......... .. ........ . .... .. . .. . ... .... .... .. ... ... .. ...... ... .. . .... .. . .. . .. ... .. ....... ......I.. ... .. ... .. . . .... .. .. .. .... ... . ... . ...... .... . ... .... .. .......... ....... .... ........ .. . .. . . . . . . . .. . . . .. . .. . .. .. . . .. . . :w ..... .. . .. ... ...... . ...... . .. . . ...... .. .. st,ta00 OWN= S-1, ...... ... .. ... fed ive nae . ................ ... .. .. . . . .. . .. . .. . . . . .. . . . . .. . .. . . . . . . . . . .. . . . .. . .. . In M.........t ::;C.GGV,Hna,o d ffin''A' b Fb' B.'a'nk Antsffox: zi ee nica S bt wedin ... .... .... Ad, _S an W.: In Va ICUJVi ...... ...... ....... ... ... ....... ... ... .. ... .. bik W..::A . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . .. . . . .. . .. . . . . . . . . . . . .. . . . ana en A -NI t ........... :110SOWCOS Mt... BA" WR .. ... .... .. .. ... OJW o . . .. . . . . . . .. . . . . . . . . . . . . . . . . . . .. . . . . . .. . .. . . . . . .. . .. . . . . . . .. . .. . . . .. . .. .. . . . . .. . . . . . . .. . . .. . . . . .. . . . ... ........ P ..... .... ... .. h'bIh dto ..... .... . ... .. ... . .... ... ... Cearkww I ta hy Sources !SH1 P Am,M ....... JqtatifmO4 . . . . .. . . . . . . . . . . . . . . . . .. . . . . . . . . . .. . . . . . . . . . . . . . . . .. . .. . . .. ...... .. ... . ... .... . PROURR : .... ... :_.e. e.0r.0 Oaical& wat and the tIeVqU 1'. A....... . . . . . . . . . . . . . .. . . . . . .. . . . . .. . .. . . . . . . . . . 11.0 Itwo M N AN SR H b'l k .. ... ..... ... .. .. .. . .. . . . . . . . . . . . . . . . . . . . . . . .. . pi: inkvb in . ........ . .. ....... AJemoh f Sta .0onm t. .U ers:: :q ic. D stfAfiowo e . ... .. ... .. .. ... . .. . . . . . .. . . . . . . . t Ovemmell, K..comini meit o gr eft Zt tt feg6lu b .. ...... XX X:X::::X:!.: 1:d ta, an ........... ge. advqui a e: 't b l. . .. .... ... .. .. ... .. ... . . . .. . .. . .. . . .. . . . . . . . . .. .. . . . .. . . . . .. . . . . dmxni ivei.autonomy W, .... .... . . .... .. .... . ax U rGledIAd 6&' ftenCOtnp 6'il A: nunis towan .reso. d r.!;e%:An 1.1 U .. ...... . .. . .. ina .... vr ng 17- :::::: ....... . .. . .. . . . . . .. . . . . . . .. . I . . . . . . . . . . . . .. . .. ... .. .... Mt 10.' stateiM ih bf th.0 U P. 4M ems, . ........... . . q: mg: 6AwbfiS:h;M:CUWer . .. .... .... . ........ ... .. ... ... .... .. .. ...... 6f b Ik at' S, b- -B W Gc "iidff Mow vi: am..i: .::. Gvemmen Commit sys ein im at: . . .. . ... .... . .. . .... ... . . .. . .. . .. . . . . . . . . . . . . . . . . . . . . . .. . .. . .. . . .. . . .. . . . . . . . . . . . iffm btdk: . itt'r taffiffs. as And .. ........... .. . . .. .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . .. . ... .... . .. ... .. .. ll'W ffir Water. Law . ... ... ..... ..... . .. ....... 6 : asin X" Wh v U, I ......... .. I.. ---.- , - . .: " - , M : N&': 9:433 - . . .. . ...... .... .... . . . ..... .. iistfbnk userxieffesentation 0.0 W' th iva :X: :X: . .... ..... . Admini W MAWR . .......... .6pe aijon: ni#Meni MC WuAk _g ... .. t0666 :Sb%bf sman 16 1: pr!D th Usdig: wiltingness o WAS inthe DrOleC 2reff.::Mpo il ,Ahancially: il e.]Dro' repo s.6 Rrovi,:,: Uif t tt, ina ive ypart t 'A O&M......UMA it to pi. 06!p te. in es op., X: Brazil Page 25 Federal Water Resources Management Project Appraisal Document of water supply systems governed organizations. constructed under the project;- No. of financially sustainable WUAs. Sustainable A, O&M Establishment of bulk water Supervision by:Bank Users are willing to pay-if systems and cost- charges, based upon.rational staff and consultants; they feel ththey can recovery ymechanisms, operational and management costs participate in and influence: .based upon, benefits and beneficiaries'. socio-neconomic- Monitoring reports: of the A, O&M of these derived and costs conditions; - TMA; systems. incurred, supported by :wWillingness-to--pay":and Rate of water tariffs collection and Project mid-term and "ability-to-pay": analyses.. no. of delinquencies. final evaluations. Infrastructure Outputs Integrated infrastructure Start of construction, A, O&M .of 8 Administration and management systems for water supply systems in the first coordination by state existing and proposed project year, and of another 5 in U: Ps; ,new facilities for water the second project year; storage and distribution Project Management *in priority river basins. Project Operational Manual by first Information Systemn;. Eligibility criteria met: and project year; . availability of Monitoring reports of public/private financing, Infrastructure Operation: and UMA; where.applicable;, Maintenance Manual for Basin and User Levels Organizations, by end Supervision by Bank of second project year; staff and consultants; Updating of Socio-economic Base- Project mid-term and line at,project mid-term and final evaluations. completion. Project Components Water Resources Management Component Institutional As specified in the Project Progress reports of Counterpart funding will Implementation Plan: Federal and State UGPs; be sufficient and timely; no. of training courses given; no. of WUAs created; no. of WUA meetings Techniclal Base public information program events;- Project Management Efficient project Development no. of public/private entities Information System. implementation teams are (tHydro-meteorological reached; and no. of persons quickly formed and given network and Information contacted. Annual Operating Plans adequate authority and systems); administrative steps towards finalizing the creation of a permanent State WRM agency, which could possibly be an outgrow of the UEGP; ** submission of a draft State water law to the State Legislative Assembly; * evaluation of the operating conditions of the existing hydraulic infrastructure, at the river basin level, and of the current hydrologic data collection system. 8. Both at federal and State levels, the formal WRM agency would be responsible for activities not previously performed by Government, but defined in Law 9.433 as regulating activities that cannot be dlelegated to the private sector. Consequently, these entities should be staffed by specialists, hired through a competitive process. PROAGUA would finance salaries of these staff for a limited period (2-3 years in most cases), until the corresponding cost could be absorbed by the federal or State governments. Only in this instance would the project support the costs of permanent personnel. For other components, specialized services would be provided, on a temporary basis, by consulting firms or individual consultants. 9. Major items of each of the WRM sub-components are described in Table 3 below: Table 3: Description of WRM Component ]:nstitutional Development Description National Water Because the National Water Law is very recent, the Federal Government is Resources Management not yet equipped, both in terms of methodology and human resources, to System (SINGRH) enforce it. The project would provide technical assistance for the implementation of SINGRH. This assistance would be phased out in the final years of the project as the Law, if properly applied, assures sufficient revenues for the system to make its operation sustainable. State Water Resources Specific WRM Agencies exist in the Government structure of only some of Management Agencies the participating States. In many cases, the agency is legally constituted but not very active, in terms of water resources assessment and planning, granting of water rights, issuing of permits for the construction of hydraulic infrastructure and mediation of water conflicts. The project would adopt a tailor-made procedure to help the establishment of capable water resources agencies in all Northeast States. State Project Management Units (UEGPs), created to launch PROAGUA at state level, could be the seed for the _____________________ formation of fully-fledged State WRM Agencies. Legislation Not all States already have a specific water law, which is a necessary complement to the National Water Law. The project would adopt a tailor- made procedure to help establish water laws in all Northeast States. Brazil Page 30 Federal Water Resources Management Project Appraisal Document Bulk water rights and Ceara was the first Brazilian state to implement bulk water tariffs. The project tariffs would help the other participating States tD follow this example. It would also assist the states in developing a cadasl:er of users, which is a necessary condition for the initial allocation of wateir rights. Economic and financial Historically, most of the hydraulic infrastructure in the region was constructed tools by the Federal Government, with little concern for economic feasibility and financial sustainability. The whole concept of SINGRH is to reverse this trend. The project would help to develop specific studies and research to support this transition, such as assessment of the willingness to pay as a function of participation in the decision-mnaking process, or evaluation of the economic impact of bulk water tariffs in dlifferent user sectors. Human resources The project would support several training programs designed to produce skilled water resources professionals (a specialization that is currently difficult to find on the market) as well as train water users and their associations. Water user associations There is already some evidence in two states of the region, Ceara and Rio and river basin Grande do Norte, of impressive, positive results achieved through the committees organization of water users on local wvater resources management. For example, water yields from the two largest reservoirs of Ceara (Or6s and Banabuiu) were in the past decided by technicians, without too much attention to users' concerns. This changed after the establishment of the State bulk water company (COGERH), and the discussions amongst users, helped by decision support systems installed on computers, is a major element in the decision-making process. The project would help to spread this kind of .__________ _ experience, possibly enriching it, to all States in the region. National PROAGUA The Federal Government has launched ]?ROAGUA on a nation-wide basis. While the proposed project would directly support the implementation of this program in the semi-arid Northeast, it would also help to implement a quality control process to ensure that the same standards and criteria are used ._______________________ everywhere else in Brazil. Hydrologic Panel The project would support assessment studies of water availability, to be developed at the State and river basin levels by quality technical teams. Because investment decisions would be made based on competitive evaluations of these assessments, it will be necessary to ensure consistent and homogeneous treatment of data. This holds for collection, analysis and interpretation of data, tasks that should be performed under the supervision of a high-level hydrologic panel. T--- Bas ..-......s : .: Hydrometeorological The number of hydrometeorological gauging stations in the region is well Networks below the recommendations of the World Meteorological Organization for semi-arid regions. Because all assessments of water availability depend on raw data collected by the network, the project would help to expand the network, selecting the best sites for installing new gauges based on cost- benefit analysis. Information Systems Water resources planning depends on information about water rights, water tariffs, hydraulic infrastructure, user associations, and water availability, in quantitative and qualitative terms. T he project would help make this information readily available to Government, WUAs and civil society rincluding an Internet information system. Brazil Page 31 Federal Water Resources Management Project Appraisal Document Infrastructure Component - US$ 212.0 million (incl. contingencies) 10. This component would finance the construction of water storage and conveyance infrastructure to provide reliable water supplies (in terms of both quality and quantity) for towns and communities with enduring problems of water supply for domestic consumption. The local Project Preparation Unit (UPP), responsible to the federal Secretariat of Water Resources (SRH), selected the first- year works based on rigorous multi-criteria screening, including: (i) the nature of the problem; (ii) socio- economic conditions prevailing in the area; (iii) the level of local institutions' commitment; (iv) consistency with water resources management plans; and (v) the level of technical preparation of the proposals submitted by the participating States. 11. The eligibility criteria to be used for selecting proposed sub-projects are being incorporated into the Operational Manual. The major criteria are related to the following indicators: a) Technical - while specific criteria will be used for assessing the technical feasibility of the different types of infrastructure envisaged (e.g. pipelines, dams, wells, etc.), the technical design of each of these works will be developed based on the following standard assumptions: beneficiary population growth ranging between 1.1% and 2.1% p.a., depending on the local context; per capita water consumption of 150 I/day for towns with populations between 4,000 and 50,000 inhabitants and, for communities of less than 4,000 inhabitants, 60 I/day currently but increasing to 120 I/day in 20 years; maximum daily flow rate of 1.2 times the average daily flow; and levels of coverage of water supply systems of 90% for populations above 5,000 people and 100% for populations below 5,000; b) Economic/f nancian - for each sub-project, over a period of analysis corresponding to the economic life of the investments and based on an opportunity cost of capital of 12%: positive net present values and internal economic rates of return (IERRs) of at least 12 %; water charges (based on applicable tariffs) covering 100% O&M cost and at least 25% of investment cost, unless otherwise justified on strong social grounds; financial rates of return higher than -5% , unless otherwise justified on social grounds; payback period of 30 years; projected water tariffs inferior to 15% of household income; fiscal "subsidy" (defined as grants or monetary contributions that would be needed for the specific sub-project to attain an IFRR of 12%) lower than 75% investment cost, unless otherwise justified on social grounds; and tax to subsidy ratio higher than 10%; c) Institutional - construction of sub-projects will be preceded by the issuance of formal water rights for the proposed works and approval by the Bank of a plan for A,O&M of the infrastructure considered (established criteria for acceptance of the A,O&M plans are also incorporated into the Operational Manual). In addition, access to project funds by each participating State will be conditioned by individual State institutional performance in accordance to tailor-made matrices of benchmarks as described in the first part of this Annex; and, d) Environmental criteria will be applied in strict compliance with Bank procedures and guidelines, including for resettlement and indigenous development plans (see Annex 8). First Year Subprojects 12. Based on the above studies, final decision was made by the PROAGUA inter-ministerial Managing Committee on the sub-projects to be included for financing and implementation during the first project year. The selected sub-projects are the following: Mossor6, Amelia Rodrigues, Feijao, Cascavel, Trici-Taua, Aguas Vermelhas, Arco Verde, and Cariri. The status of the existing water supply systems at these sites is summarized in Table 4 below: sTaken together this financial criteria provide a "price band" for the amount of fiscal subsidy acceptable. This is important since the project is trying to promote cost recovery and sustainability over time. Bfazil Page 32 Federal Water Resources Managemnent Project Appraisal Document Table 4: First-Year Sub-projects - Current Situation .. -.... .. ..... . -.-.... 9 ..: ... :. ..... . il00 l0-00 0 g:l0420 :0.. g -- --g|-- ---gg--,--- 4-: --g. . . . . . . . . . . . . ... .. - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... -i-i. -,-, Mossor6 Rio Grande 231,386 A,u ground * Potential problem of aquifer Pipeline do Norte water aquifer contamination by oil and/or saline water * Average annual depletion of the ground water levels by 5 meters * Increasing operational costs * Water quality issues (aragonite and chlorates) Amelia Bahia 30,061 Crystalline * Limited reliable supply Rodrigues ground water * Surface water quality problem Pipeline aquifer; two * D)ecreasing yields of the existing small dams wells Feijao Main Bahia 22,960 Small reservoirs * Reservoirs depleted during drought Pipeline and water trucks periods (carros-pipa) * Water quality affected by lack of during drought basin protection measures periods * Lack of other local water supplies * UJnreliable water supply Cascavel Ceari 26,106 Crystalline * Very low yield of the existing water Pipeline ground water wells aquifer * Water with high contents of chlorates * Unreliable water supply Trici-Taua Ceari 22,989 Broco Reservoir * Water trucks during drought periods Pipeline * Broco reservoir depleted during drought periods * E'ollution of surface water by agricultural and industrial uses * Unreliable water supply Aguas Minas Gerais 19,188 Small reservoirs * Water trucks during drought periods Vermelhas * Leservoirs depleted during drought System periods * Pollution of surface waters by agricultural practices J* nreliable water supply Arco Verde Pemambuco 52,918 Small reservoirs * Water trucks during drought periods Main Pipeline * Reservoirs depleted during drought periods * Unreliable water supply Cariri Main Paraiba 35,736 Small reservoirs * Water trucks during drought periods Pipeline * RLeservoirs depleted during drought periods * Lack of other local alternative sources of water * Unreliable water supply Total 441,344 _ Brazil Page 33 Federal Water Resources Management Project Appraisal Document 13. Most of the projects to be financed during the first year are conveyance structures that utilize existing storage reservoirs in the Northeast. A medium to long-term perspective (20 years or more) was used to prepare the strategic plans for systems development. These plans involved the definition of all inputs needed to achieve target services levels, including design of physical facilities and supporting activities, institutional improvements, community organization, operation and maintenance plans, staff training, etc. Once alternative options for the provision of water supply were identified, they were evaluated to determine the least-cost solution. This involved expressing all costs (capital and operating) for each year in economic terms, discounting future costs to present values, and selecting the sequence with the lowest present value. 14. In estimating the future requirements of the systems, the UPP took into account future population growth within the sub-project areas. As the overall population growth rates over the last decade have been negative in the Northeast Region, the UPP used site-specific annual growth rates6 which took into account historic trends and specific demands (e.g. industry, irrigation, etc.) to estimate the future population served by each of the sub-projects considered for financing. Other design criteria established by the project included standard consumption rates (including physical and unaccounted losses) equivalent to 150 liters/person/day for the medium- sized towns, and 120 liters/person/day for small communities and villages. Table 5: Main Features of the First Year Sub-projects Sub-projects Estimated Base Future Main Physical Features Executing/ Cost Population Operating Agency wS$ million) (Year 2018) Mossor6 36.1 330,810 . Water intake in the Armando State Secretariat for Pipeline Ribeiro Goncalves reservoir Water Resources Water treatment plant (SRH/RN)/ Two pumping stations Private Operator . 63 km of pressure pipeline through concession (diameter 22") or management Pressure connector ring (14 contract km long) Amelia 4_5 38,270 . Water intake in the Pedra do State Secretariat for Rodrigues Cavalo Reservoir Water Resources Pipeline . 18 km of pressure pipeline (SRH/BA) (diameter 12") EMBASA/WUA One pumping station (150 HP) One reservoir (1000 cm) Feijao Main 4_8 31,310 * Water intake at the existing SRH/BA Pipeline pipeline EMBASA/WUA . 95 km of pressure pipelines (diameter from 12" to 4") 6 Depending on the sub-project area and population profile (semi-urban vs. rural), annual population growth rates used in the calculations ranged from a minimum of 1.1% to a maximum of 2.1% . The average rate used for the eight sub-projects considered for implementation in the first year is 1.6%. Brazil Page 34 Federal Water Resources Management Project Appraisal Document Cascavel 1.2 33,211 * Water intake at the Pacajus State Secretariat for Pipeline reservoir Water Resources * One pumping station (90 HP) (SRH/CE) * 8.8 km of pressure pipeline SOHIDRA (diameter 10") COGERH Trici-Taua 1.6 29,246 * One pumping station at the SRH/CE Pipeline Trici reservoir SOHIDRA * 17.9 km of pressure pipeline COGERH (diameter 12") * One pumping station (75 HP) Aguas 7.6 26,624 * Small water simplified State Secretariat of Vermelhas systems including pressure Environment System pipelines from existing (SEMAD/ MG) surface water sources COPASA/WUA * Two small reservoirs in the Mosquito river * Sewage systems in the small towns Arco Verde 11.7 67,370 * Three deep wells (700 m State Secretariat of Main Pipeline each) Water Resources * Two pumping stations (200 COMPESA/WUA HP each) * 58 km of pressure pipelines (diameter 16" to 4") Cariri Main 18.0 48,733 * Intake at the existing State Secretariat of Pipeline Campina Grancle pipeline Water Resources * Water treatment plant (92 I/s) COGERH/IIWUA * Two pumping stations (600 HP each) * 65 km of pressure pipelines (12" to 4" Total 85.6 605,574 Institutional impact of the first year sub-projects 15. Mossor6 Sub-project: This sub-project will require the conjunctive use of the Acu groundwater aquifer and the Armando Ribeiro Gon,alves reservoir. To this end, a Users Association for the A,u Groundwater Aquifer will be established with the support of the SRH4/RN. This association will be formed by SRH/RN, the Mossor6 Water Company, two large private irrigal:ion companies, and others users of the aquifer. Main tasks of the Association will be the evaluation of the: economic potential of the aquifer, the preservation of the groundwater quality, the establishment of explloitation rules, the allocation of water rights, the establishment of water tariffs, and monitoring of ground water levels, withdrawals and quality. 16. Simultaneously with the construction of the Mossora main pipeline, the state of RN will undertake the modernization of the Mossor6 Water System, composed of the new pipeline, ground water wells, and the existing distribution and sewerage networks currently under CAERN's management. The SRH/RN has recently initiated the selection of consultants to conduct the preparation of documents for a private management contract leading to a full concession of the system. In the case of the rural communities, existing associations would be strengthened to take over the A,O&M of the systems. Brazil Page 35 Federal Water Resources Management Project Appraisal Document 17. Amelia Rodrigues. Cascav6l. and Trici-Taua sub-projects: The source of water for these three sub-projects will be surface water stored in existing multi-year, multi-purpose reservoirs. Preservation of water quality and conflict management will require the creation of a Water User Association for each reservoir. These associations, along with the implementing agencies, will be responsible for the allocation of water rights among different users, the establishment of operational rules for reservoir management during drought periods, the implementation of protective measures at the catchment area, and the promotion of water conservation practices and the operations and maintenance of projects. 18. Arcoverde sub-project: This is the only sub-project that will exclusively use a ground water supply. The State Secretariat for Water Resources and the State Water Company (COMPESA) in Pemambuco will cooperate in the establishment of the Groundwater Aquifer Association (before completion of the works) to be formed by aquifer users (irrigation, industries, and water supply providers) and the State Government's representatives. Functions of the association will be similar to those described above for the Mossor6 Groundwater Association, including active participation of the A,O&M of projects. 19. Aguas Vermelhas. Feijao. and Cariri sub-projects: Most of the communities to benefit from these sub-projects will need to create water user associations to manage the distribution of water (including the collection of fees to cover operation and maintenance costs) among the local populations. Integration with other government initiatives in the social area (e.g. the Rural Poverty Alleviation Projects, supported by the Bank in the Northeast Region) will also be promoted by the project in these cases. Water user associations will be created to perform A,O&M of rural water system. 20. The criteria for selection of infrastructure projects took into account commitment to promoting a significant change in the paradigm for water resources management in the Northeast. The project will emphasize reduction of water losses, cost recovery, the development of sustainable operation and management systems, the participation of water users in decision- making and sustainable use of supplies. A project specific proposal for the A,O&M of sub-project must be submitted by proponent states and approved by the Bank prior to initiation of construction. Criteria for acceptance of proposed arrangements is consistent with other Bank financed projects. Future PROAGUA Sub-projects 21. The UPP maintains an adequate stock of sub-projects that could be eligible for financing under the project after Year 1. Some of these sub-projects (listed in the table below) will require minor complementary studies before being submitted for approval by the PROAGUA Management Committee. These sub-projects would have similar positive institutional impacts as those of the sub-projects selected for implementation in the first year, including: allocation of water rights; water quality improvement; catchment preservation; users' participation; and cost recovery. Table 6: Potential Sub-projects for Financing under PROAGUA after Year 1 Sub-project State Estimated Base Population Served Cost (USS million) Seabra Pipeline Bahia 4.1 24,413 Pesqueira Pipeline Pernambuco 6.3 68,350 Custodia Pipeline Pernambuco 6.4 23,833 Ameiroz Reservoir Ceara 13.3 124,698 Lima Campos Pipeline Ceara 1.9 50,081 Brazil Page 36 Federal Water Resources Management Project Appraisal Document T.rai n e 0.- . ..... ... .. . ...... Rio Grande do Norte 16.0 74,851 .i.i................. . .. ...... . ..._ Cg Pipe-.0.t Parafba 8.5 45,997 CamarAF .ielime.. -. Paraiba 26.0 183,650 Iguatu Pipeline Ceara 6.3 69,276 Total .- .0 ::.:- SiC2i.t:000t i:-0-ig-E.i0 ......88.8 665,149 Planning, Studies and Project Design Component - US$ 41.6 million (incl. contingencies) 22. This component would have two major elements: (i) planning, at both the State and river basin levels, and (ii) specific studies and other pre-investment studies, necessary for the identification of solutions to the imbalance between water demand and availability, during dry spells, in river basins of the semi-arid region. The Federal and State Governments would share resources and responsibilities in the implementation of this sub-component according to the table below. Part of the resources to be managed by the States, US$ 35.8 million (out of a total of US$ 38.1 million), would be allocated on a competitive basis, from the project-supported State Studies Fund (SSF), using the same procedure as for the WRM component. States that are "beginners" would receive an initial financial support, outside the scope of SSF. This support would help establish an initial basic knowledge that would serve as a launching platform for competing for resources under the SSF. Table 7: Planning, Studies and Project Design Component - Federal and State Government Sihares (in US$ million) tSubcomponent lG: 00eder G.vernmen Stae te4 Goermets PRO.... Planning ~~~~~~~~ ~ ~~3.1 11.4 14.5 :Specificstudiesdandl prets 0.4 26.7 27.1 . .I. TOTAL 3.5 38.1 41.6 There would be an upper bound on the share that each State could receive from SSF, as follows: Table 8: State Studies Fund (SSF) -- Upper Limits to Individual State Shares A _Yer Ya [ e 3 4 [ Year 5 . iR PP, s. ; . 0r. Ed f 4R-l E Ei - i Ei iE.2.i l.tE \ E ,Ed?i T E 777 °ofSSF: l 2.5 s.5.0 10.0 15.0 20.0 23. The objectives of this component are: (i) to produce water resources plans, which are the basic tools for implementing a sustainable water resources management system in the region; (ii) to develop specific studies aimed to increase rationality in the use of water (actiion on demand) and to increase water availability (action on supply); and (iii) to develop a portfolio of sub-projects of needed infrastructure expansion, sufficiently detailed to be procured, for construction under the infrastructure component of the project. 24. The project would only support the elaboration of a river basin plan that would be valuable in the decision-making process for the WRM. In other words, the project will not support plans that end up on shelves, without ever being used. For example, a plan would be neecled if there is some conflict related to water use in the basin, or if there are independently conceived sectoral plans requiring harmonization. Brazil Page 37 Federal Water Resources Management Project Appraisal Document 25. Major items of the component are described in the following table. Table 9: Description of Planning, Studies and Project Design Component Plauu:ing - Initial Assessment of Some States need assistance to produce an overview of the basic water Water Resources resources problems, in terms of O&M problems, lack of proper governmental and non-governmental institutions, and need to enlarge their knowledge about the sector. This item would be implemented only in those States where this need exists. Implementing State Once the initial assessment is completed, it would be possible to develop WRM systems a strategy for implementing the State WRM system. This strategy would be specific to each State. State Water The project would support development of a water resource master plan Resources Master for States which do not have one yet, and updating of the plan for those Plans which already have one. A State master plan would be more than just an ensemble of river basin plans because the master plan would include a ranking of initiatives, that further constitute inputs into the State budget. River Basin Water The project would support the development of selected water resources Resources Plans plans in those river basins that have an actual or potential conflict in the use of water, taking into account the need to preserve the environment. Plan for The existing hydraulic infrastructure in the Brazilian Northeast is worth Rehabilitating several billion dollars, that were invested over the last century, mostly by Existing the Federal Government. Inadequate and unreliable O&M practices over Infrastructure many years have, in many cases, eroded the operational capability of some of this infrastructure. The project would finance a rehabilitation plan, whose recommendations would be incorporated into the project's infrastructure component. Specific studies and pre- investment studies Study of Water Because groundwater in most of the Northeast is saline, most urban Availability supply systems rely on surface supplies. However, recent technological advances on the extraction of salt from water suggests the need to re- evaluate the availability and the role of groundwater, at regional level. Feasibility Studies The project would support the elaboration of pre-investment feasibility and Basic Projects studies, sufficiently detailed to be procured and financed under the project's infrastructure component. These studies would encompass engineering designs, cost estimates, social and environmental impact assessments, resettlement plans and compensation plans. Reservoir Operation Several large reservoirs of the region are operated based on local Rules interests, without long-term considerations of the consequences of each decision on downstream areas. The stochasticity of inflows into the reservoirs are also often ignored, resulting on deterministic and myopic operation rules that quite likely differ from what would be the optimal solutions. The project would support studies aiming to refine these operation rules for the important reservoirs in the region. Brazil Page 38 Federal Water Resources Management Project Appraisal Document Emergency Plans When severe droughts strike the Ncrtheast, millions of people in rural areas face serious problems, even starvation, and have to be assisted, including the provision of water-trucks by local, State and Federal Governments. Experience has shown that there are huge losses in this process, due to lack of coordination among the various agencies involved. The project would support the development of drought emergency plans. Sao Francisco Watershed Component - US$ 8.6 million (incl. contingencies) 26. A program that attempts to change the paradigm for water resources management in the Northeast towards efficient and effective allocation and use of the region's scarce water resources has to include a sound management plan for the Sao Francisco river basin, the major river in this region, which traverses five of its States. The Sao Francisco river basin is experiencing a number of problems among which are: the degradation of its upper-basin where over 75% of the river total water flow is generated; intensification of water conflicts within the basin, especially between hydropower and irrigation; and significant potential regional conflicts as the proposal of a trans-basin diversion to supply water to other States (Paraiba, Ceari and Rio Grande do Norte) continues to be the most controversial water issue in the Northeast. Solutions to these complex problems require the creation of a basin committee as well as of local WUAs; participatory management of the basin's water resources; the implementation of sound water resources management practices; the establishment of A,O&M plans for existing and new infrastructure; the development of a well-coordinated systems for the allocation of water rights in the basin; the strengthening of Federal, State and local institutions. In particular, solutions clepend on political agreement on the principles that should guide the allocation of water rights by the Federal and State Governments, for users in the Sao Francisco river basin and for the eventual trans-basin diversion. Such agreement may be reached through a National Water Resources Council, the establishment of which is stipulated in the National Water Resources Law, with participation of authorities of the highest possible level (ministers and Governors). One basic principle for negotiation is that of water as an economic good, as defined by the Water Law. This implies that more efficient uses of water, in economic terms, should be of high priority, while some financial compensation could be envisaged for the less efficient, lower priority uses of water. Depending on the magnitude of these compensations, Government subsidies aiming at social equity, currently implicit, could be reduced and become more explicit. 27. This component would support primarily the creation and effective start-up of the Sao Francisco River Basin Committee, as defined by the National Water Law; provide financial support towards the development of WUAs in the basin; and develop a simulation model for water allocation under the principle that water is an economic good, with emphasis on aspects such as: (i) the system of water allocation; (ii) the costs for the different groups of users; (iii) revenues of the Water Agency, also to be created as per the Water Law; (iv) the priority investments, at river basin level, that would be financed by the future Sao Francisco Water Agency. The component would be carefully designed to avoid duplication with a number of other initiatives taking place in the basin. To support the creation of WUAs, the component would finance small pilot activities in micro-watershed management, recuperation of river gallery forest, pollution and erosion control, training and education programs, among others. Management, Monitoring and Evaluation Component - US$ 14.7 million (incl. contingencies) 28. This component is subdivided into three major elements, distinct and autonomous from one another but closely inter-related: (i) project oversight at the highest level; (ii) project management at federal level, in support of State UEGPs (see WRM component); and (iii) project monitoring and evaluation (M&E), as well as auditing. Brazil Page 39 Federal Water Resources Management Project Appraisal Document 29. At federal level, the inter-ministerial PROAGUA Managing Committee or Comite Gestor (essentially the same as the Executive Committee that was established to supervise project preparation), composed of high-level representatives of the Ministry of Environment, Water Resources and the Legal Amazon (MMA) and the Ministry of Planning and Budget (MPO), would have responsibility for overall project oversight and decision-making on major issues affecting the course of project implementation. With the federal Secretariat for Water Resources (SRH) acting as its Executive Secretary, the Comite Gestor would fulfill the following functions: a) definition of the operational procedures to be followed for the planning, programming and physical execution of project activities, including procurement and contracting; approval of project Annual Operating Plans (Planos Operativos Anuais, POAs), both at the individual State level and in consolidated form for the whole project; approval of contract agreements (convenios) between the Federal Government and participating States for project/sub-project execution; and (iv) appreciation of project performance results as well as deficiencies, in order to issue opinion on and recommend corrective actions whenever necessary. 30. The core project management and coordinating unit would be the Federal Project Management Unit (Unidade de Gerenciamento do Projeto, UGP), to be established within SRH, initially with consultants and private firm inputs. Consisting of a small general coordination team and two operational units, the central UGP would work in close collaboration with sister UEGPs at State level, ensuring common standards and procedures for implementing and monitoring project activities in each of the participating States. The project would also support the development of a general database and a project Management Information System (MIS). The MIS would include project performance and impact indicators and would be maintained jointly by Federal and State Project Management Units (UGP and UEGPs). 31. Primary responsibility for project monitoring and evaluation would rest with the Project Monitoring and Evaluation Unit (Unidade de Monitoria e Avaliaqdo, UMA), a special unit to be created within the Secretariat for Regional Policies (SEPRE), MPO. Together with the federal and State UEGPs, the UMA would, in regular consultation with river basin committees, WUAs and other local stakeholders, operate a permanent system of monitoring project progress and identifying implementation bottlenecks, in terms of both physical and institutional performance. In particular, UMA would monitor the adequate allocation of water rights and enforcement of water use rights, efficient utilization of project infrastructure, participation of beneficiaries in A, O&M and/or satisfactory resolution of water conflicts in project areas. It would also evaluate the project's socio-economic impact, and monitor the existence of adverse environmental impacts, should these emerge during project implementation. UMA would be in charge of: analyzing POAs and annual reports submitted by the States, before final submission to the PROAGUA Managing Committee; assisting the States in supervision of project activities; reporting project progress to the PROAGUA Managing Committee and the Bank on an annual and semi-annual basis, complemented by ad hoc reports on particularly important issues; and conducting baseline studies and formal mid-term and final project evaluations. 32. Project auditing would be undertaken under the supervision of the Federal Secretariat for Control (SFC) of the Ministry of Finance. Since Bank requirements for audit may not follow the same procedures as those normally utilized by SFC, the project would finance five annual audits by a private local firm. Brazil Page 40 Federal Water Resources Management Project Appraisal Document Annex 3 BRAZIL Federal Water Resources Management Project (PROAGUA) Cost and Financing Summary (Years ending December 3 1) (US$ millions) Project Costs by Component (US$ millions) Water ResourcesManage t 41.3 6.8 48.1 :;Infastructure Investment 108.6 62.8 171.4 ;f.lisadPDe in........ ..... ..... : S.:ij.j- :g i; .::-:- .6...... _3. Stdes and Prjc Dei 4612.4 37.0 0- FtM;ioWe N= rs-Va 5.9 1.7 7.6 Ma, na n t, Monitoring 12.4 1.1 13.5 .Evialua:tion- g-g4gjg- X;:X:00-jg0::jgg:;:y-:g:0:0jp:0::; ....... . .9...84. 277.6- i -. f 3 ! i i - -. ...... ... .... ... ..... .. .......... Physial Cntiae is18.4 10.6 29.0 . P.rice Contingencies.-. 15.7 7.7 23.4 g .E . .. ..E ...-:..L i i-S. Ei iL EE.. . ... .. iS .dE . .. ... ... ... .. .. .E E F-iRE dR : Li-R- RiEiEIDii- | itTo:tal S K iC t;;40000tl00 l: ;00000 t;::000tt 0 0 < _ lX; . . 40 ; . i 0 . .. ..... .... .. .. . .. Project Investment and Recurrent Costs (US$ millions) Ye0>arst: 1998- 199909 200 200 2002 To I-nestmente Cots 64.3 113.4 71.7 40.0 36.2 325.6 Recnrren tCosts 0.9 1.1 1.1 0.8 0.5 4.4 Total, X-- 65.2 14 .7 330.0 Project Costs by Component by Year (US$ millions) ...... ~99 99 2 00 201 202. Toa % WWater:ResourceseManagement Fderal Wat- r Reow 0es 5,083 6,364 2,537 2,057 1,725 17,765 6.4 Management State WtAr Re ources a fagmen 5 572 10,032 7,548 5,104 2,062 30,318 10.9 Subtotal WRM 10~~~~~65~~ 16,39~~~ 10,084. 7,161: X,78.7 4818 17.~ :::::::-:::i:i:E .i:7::. ::: ::::: :::i:::Ei::E: iiSEi:i:::- - iB:i:iE .B:i::::g:E:S:::::::i:i2:::::i:. .ig.i:E ::EiiS:f ...:::: .... ...: ..gi:- Brazil Page 41 Federal Water Resources Management Project Appraisal Document 2. Infrastructure Investments 1998 1999 2000 2001 2002 Total % 1. Feijao Pipeline, BA 2,279 2,279 = - 4,557 1.6 2. Amelia Rodrigues Pipeline, BA 2,433 2,433 - - 4,865 1.8 3. Mossor6 Pipeline, RN 6,740 13,480 13,480 33,701 12.1 4. Cariri System Pipeline, PB 10,065 10,065 - 20,130 7.3 5. Aguas Vermelhas System, MG 3,538 3,538 - 7,075 2.5 6. Arcoverde Pipeline, PE 4,748 4,748 - - 473 9,970 3.6 7. Cascavel Pipeline, CE 576 576 - - - 1,151 0.4 8. Trici-Taua Pipeline, CE 866 866 - - - 1,731 0.6 9. Second and Third Year Works - 26,340 26,340 - - 52,680 19.0 10. Fourth and Fifth Year Works - - - 17,749 17,749 35,499 12.8 Subtotal Infrastructure Investments 31,244 64,324 39,820 17,749 18,223 171,360 61.7 3. Studies and Project Design a. Planning Plans - Federal 1,610 860 208 112 112 2,903 1.0 Plans - State 3,601 5,973 550 331 182 10,636 3.8 Subtotal Planning 5,211 6,833 758 443 294 13,539 4.9 b. Specific Studies and Projects Studies and Projects - Federal 373 - - - 373 0.1 Studies and Projects - State 5,344 4,587 4,587 4,587 3,957 23,062 8.3 Subtotal Specific Studies and Projects 5,717 4,587 4,587 4,587 3,957 23,434 8.4 Subtotal Studies and Projects 10,928 11,420 5,345 5,030 4,251 :36,973 13.3 4. Slo Francisco Watershed 2,874 1,870 1,870 768 272 7,653 2.8 5. Management, Monitoring and 2,770 3,007 2,772 2,602 2,358 13,509 4.9 Evaluation TOTAL BASE COSTS 58,470 97,016 59,891 33,311 28,890 277,578 100.0 Physical Contingencies 5,578 10,832 6,573 3,032 2,931 28,946 Price Contingencies 1,083 6,681 6,313 4,514 4,891 23,481 TOTAL PROJECT COSTS 6!5131 114,529 72,777 40,856 36,712 330,005 Taxes 11,752 21,520 13,525 7,327 6,747 60,872 Foreign Exchange 19,880 37,457 23,152 11,664 10,960 103,114 Brazil Page 42 Federal Water Resources Management Project Appraisal Document Financing Sources (US$ millions) Years 198 1999 2000W 2001 2002 Totalt I-TBRDj\} 0 t;0i;QljXtl-0 l)0)53.0 77.0 42.5 14.8 10.7 198.0 O-ECF'0000000 jfi :0i0: g-;j;0yg 0.0 15.8 16.5 18.7 19.0 70.0 :Goernmenrne-nt:::02 12.2 21.7 13.8 7.3 7.0 62.0 :STo tal 65.2 114.5 72.8 40.8 36.7 330.0 Financing Sources8 (% of total annual project costs) l0Yearsj i-ji000 000;00040- -71:998, 01999. i: 2000 2001 i 2002 Total TAl-iBRD00 t000;;t00000l-;0 i482.0 67.0 58.0 36.0 28.0 60.0 .OECF 0.0 14.0 23.0 46.0 53.0 21.0 Go00Evernmentt00-00-00j000000 : 18.0 19.0 19.0 18.0 19.0 19.0 Totai 100.0 100.0 100.0 100.0 100.0 100.0 7It is likely that OECF/JAPAN will participate in the financing of the project in the amount of US$ 70.0 million. A project review at I year of project start up is scheduled in the Loan Agreenment to evaluate the financing scheme. Brazil Page 43 Federal Water Resources Management Project Appraisal Document Annex 4 BRAZIL Federal Water Resources Management (PROAGUA) Economic, Financial and Fiscal Impact Analyses The economic viability of the project was assessed separately for the "soft" (Water Resources Management, WRM) and "hard"(infrastructure) components. For the WRM component, a "minimum impact approach", established by Cummings et al.9 and used in various Bank-supported water resources projects, was adopted. For the infrastructure component, traditional cost-benefit analysis was applied to evaluate the economic (and financial) feasibility of the group of "priority works" proposed for financing from the first year of the project. Water Resources Management Component The project's Water Resources Management (WRM) component would promote rational and efficient water resources use by: (i) helping establish relevant institutions and entities in those States where they do not exist; (ii) providing technical and financial assistance to strengthen relevant institutions and entities; and (iii) developing the tools for establishing and implementing integrated WRM systems. The principal outputs of the WRM component would be: Better coordination of water resources management activities Better coordination of water program planning and implementation among the agencies involved in WRM would yield significant economic benefits for all ten participating States. An integrated approach to WRM in each state and among the different states would foster resource consolidation and complementarity, and better use of each agency's respective expertise. Coordination of the national and State WRM systems would lead to more efficient project design and implementation, reduced cost overruns and more efficient use of existing infrastructure. By supporting the upgrading and further development of a modem hydrological information network, more efficient water use would be promoted, since both availability and use would be more closely monitored. Change offocus from water supply management to water demand management With the establishment and improved collection of water charges, more rational water use would be promoted. There would be less pressure on water supply development, and a greater share of the economic cost of water consumed/used would gradually be borne by consumers/users. Through education of water users and promotion of their participation in WRM, a more discerning and environment- conscious management of water resources would be achieved, assuring the long-term sustainability of the water supply. Development of proper Operation and Maintenance plans for existing infrastructure would help to extend the economic life of this infrastructure and prevent costly rehabilitation that is currently resulting from deferred maintenance and poor operation practices. Table 4.1 - WRM Component: Activities, Expected Impacts and Magnitude Impact Value Supporting Evidence Source I Level Better WRMCoordinatDn. [Increased benefits High Ganges Basin 20% more benefits (Rogers, 1993) 9Cummings R., Dinar A. and Olson D., "New Evaluation Procedures for a New Generation of Water-Related Projects" (World Bank Technical Paper N' 349), 1996. Brazil Page 44 Federal Water Resources Management Project Appraisal Document Reduced investment High PROAGUA, Bahia 200o-32% savings costs WRM Project Reduction/elimination of High Bank's experience 15% cost overruns in a number of WR projects cost overruns l Better control of WR use High Bhatia et al, 1995 42%-62% decrease in industrial water use, and through charges 30%-38% in effluents discharged when effluent/sewer charges imposed in Brazil Better control of WR use High Cestti et al, 1997 Reductions of 4.5% in residential, 7.7% through charges industrial, and 2.4% commercial water use for every 10% increase in water price Better control of WR use Medium- Bhatia et al, 1994 26% decrease in residential use through targeted through education High educational campaigns for high volume users Better control of WR use High Frederiksen, 1992 Average 112% greater efficiency of water through better distribution systems in the USA than in management developing countries (85% Vs 40%) Increased user High de los Reyes et al, 50%-75% jincreased agricultural productivity participation in WRM 1989 100% increase in irrigated area Bank Experience and Economic Evidence. Bank experience, complemented by other evidence derived from the economics literature, convincingly demonstrates that the economic gains to be realized from improved water resources management more than justify the associated costs. Table 4.1 summarizes the project WRM component's main activities, the nature of their economic impact and an estimation of the magnitude of these impacts. Minimum Impact Approach. A minimum impact approach was used to assess the economic feasibility of the WRM component (Cummings et al., 1996; Mexico Water Resources Project, 1996; and Bahia Water Resources Management Project, 1997). This approach determines the minimum economic impact needed to justify the project investment. It determines the minimum impact (increased benefits and/or decreased cost) that the component must have on the relevant values within the water sector, to yield a minimum feasibility condition whereby benefits equal costs. Social costs were assumed to be identical to economic costs. The WRM component would: a) rationalize water infrastructure investrment decision-making (through better coordination and planning, as well as demand management), which in turn would impact the States' expenditures in water-related emergency and health expenditures; b) positively affect water demand, by establishing charges for water rights and water use; and c) improve the A, O&M of existing and new water infrastructure. Table 4.2 provides estimates of annualized benefits and costs of some the activities in the water sector that would be affected by the project, and where feasible, their estimated economic impacts. Estimated relevant annual values total US$ 3,881 million, while annualized costs of WRM4-related components over the life of the project are estimated at US$ 8.7 million. Thus, the implied value of the minimum impact to justify the investment would be equivalent to 0.2 percent of the social value of the water sector. This means that economic feasibility of the project's WRM component would only require that it affects (either by increasing benefits or decreasing costs) the current levels of water sector-related benefits/costs by an aggregate equivalent to 0.2 percent of the social values involved. Even when applying a partial list of conservatively estimated benefits, the annualized possible benefits stemming from the component would be about US$ 137 million. Comparing annualized benefits with the annualized costs yields a benefit cost ratio of 16. Brazil Page 45 Federal Water Resources Management Project Appraisal Document Table 4.2 - Impact of the Economic Values of the Water Sector (US$ million) Economic Values (Beneflt and Present Estimated Impact Costs) Level l_______ Type Annual level Annual water related investments - water supply (50% of needs) 245.0 15% efficiency gain 36.8 - sanitation (50% of needs) 467.0 - public irrigation 35.5 15% efficiency gain 5.3 Total 747.5 Costs overruns on water related investment 112.0 25% reduction 28.0 Minimum expected benefits from water-related investments, including: - eliminating 50% of water truck programs 293.3 - reducing 50% hospitalization costs 2.0 - reducing 50% water related emergency 63.8 programs 110.0 - reducing 50% time spent in procuring water 249.0 - other 718.1 5% increase due to 35.9 Total coordination Market value of water demand 1,694.5 1% reduction 16.9 through supply -_______ management Physical water losses by Water Supply 608.9 Promote reduction 13.9 Companies to 25% over 20 l ___________________________________________ X _ _ _ _ _ _ _ -y ears Total value cornsidered 3,881.0 136.8 Priority Infrastructure Works Component The project's infrastructure component focuses on providing or expanding water supply to systems for rural and semi-rural populations, severely affected by water scarcity at present. Using traditional benefit-cost analysis, detailed economic and financial assessments were undertaken for the first group of 8 priority works (Annex 2), whose implementation is likely to start in Year 1. These sub-projects include interventions aimed at solving the two most common water-related problems in Northeast Brazil: year- round availability and quality. They account for about 49 percent of the total project's infrastructure investments (see Annex 2). Economic analysis. Economic benefits were estimated through the application of a simulation model (SIMOP) that allowed calculation of the incremental consumer surplus derived from increased water availability, often at lower unit costs. Incremental costs and benefits for each sub-project were estimated for "with" and "without" project scenarios. The "with" scenario portrays the proposed investment plan and associated target parameters, while the "without" scenario considers that the present situation would remain unchanged. This standard "without" scenario, however, is not applicable to the Mossoro sub-project (in Rio Grande do Norte), where remedial measures (reduced water mining from the Aru aquifer) cannot be avoided if the probability of oil intrusion into the aquifer, of which there is already some evidence now, increases further. Prices reflect market values during the last quarter of 1997. Financial prices are corrected with sector- specific conversion factors, specifically calculated by Harvard University for the sanitation sector in Brazil Brazil Page 46 Federal Water Resources Management Project Appraisal Document and used in the economic analysis of the Bank-financed PMSSII projectl'. The principal conversion factors are: skilled labor, 0.81; unskilled labor, 0.46; goods, 0.88; equipment, 0.80; chemicals, 0.83; and power, 0.97. Values for other variables required by SIMOP, such as the costs of alternative sources of water for consumers not connected to public water supply systems and the valiae of price elasticity of demand for water (-0.55), were taken from a water demand study in Northeast Brazil' l. The rate of exchange used is R$ 1.09 per US Dollar. The opportunity cost of capital is 12%, although this is considered high by Brazilian analysts for the types of interventions proposed. The time horizon is 30 years, which is taken to be the economic life of the investments. Investment costs include project preparation and supervision, civil works, purchase of goods and equipment, environmental compensatory actions, and physical contingencies. Operation and maintenance costs are calculated on a per m3 basis, and include the cost of labor, chemicals, power and other third party services; the primary source of O&M cost data are current systems operators. The opportunity cost of water is assumed to be zero. Dimensioning of technical proposals is established on current and piojected population figures for each specific area, based on the latest IBGE census data. Per capita water consumption for the "with" scenario is assumed equal for metered and non-metered households of similar income. Projection of coverage, metering index and unaccounted-for water is established on a case by case basis, depending on the existence of associated investment plans in the expansion and improvement of systems operation. The tariff structure and levels in the "with" scenario were assumed to be the same as in the 'without" scenario. Table 4.3 - Infrastructure Priority Works Component: Economic Analysis Main Assumptions, Benefits and Direct Beneficiaries I -DiDs;ouXnt rate:00V X::0- 12% |Tie honrzon-i- 30 years Growth in real pricesaolu tut:-u constant Real ExchangeRate- constant (R$1.09 = US$ 1.00) IMnputprices constant; last quarter of 1997 .ututprices constant; last quarter of 1997 Coverge - kept constant if initially larger than 90%; otherwise increased to ..ll,},,- ....;i ...- .:: 095% after project implementation. Unac noted for water.- - physicda losses kept constant if initially 25% or lower; otherwise reduced to 25% ................... v:over a 20-year period after project implementation when initial losses larger than 40%, and over a 5 to 10 year period if initial lf-t':0.0yit-00-: .....::;:0 .:;t-f0g ;-;:yg-:::-. ; . g .. g-...:g.:;::-0- losses low er than 40% . C- commrcial losses----. - lowered to 3% over 15 years when initially higher than 10%, or Metering i increased to 85% if externally funded associated investment plan available; otherwise kept constant at present levels. W-aterwl Sup increased, safe, year round water supply, and access to sewage '0 PMSS 11 (Projeto de Modernizaf do do Setor Saneamiento II). " Banco do Nordeste do Brasil, "Curva de Demanda de Agua no Nordeste", 1996. Brazil Page 47 Federal Water Resources Management Project Appraisal Document service Direct Beneflciaries Water Supply First year priority works would benefit 94,430 urban, and 3,970 rural households (50,300 in Rio Grande do Norte, 4,220 in Minas Gerais, 10,350 in Bahia, 10,650 in Ceara, 15,580 in Pernambuco, and 7,300 in Paraiba), and a total target population of 695,575 people by the year 2018. Results of the Analysis. For the group of first year works, the aggregate present value of net economic benefits, over a 30-year time horizon, is estimated at US$ 47.4 million, and the overall internal economic rate of return (IERR) at 17.4% . All subprojects show positive net present values and satisfactory IERRs. Traditional sensitivity analysis and use of switching values (Table 4.4) show that these IERRs are very stable to large separate or combined changes in both benefits and costs. The Mossor6 sub-project shows the lowest IERR, but this is partially due to the difficulty in reflecting benefits from averting oil intrusion into the Aqu aquifer with the standard software used for the analysis. As shown, the IERR for Mossor6 reflects only benefits derived from improved water availability, but not from avoidance of oil 12 intrusion into the aquifer, as explained in Zeitouni and Dinar Table 4.4 - Economic Analysis Summary of First Year Sub-projects Subproject Net Present Value iERR Switching Values (in US$'000) (%3) Benefits Costs Net-Benefits % inv. Net Costs Benefits - Ad.-Mossor6 (RN) 34,459 29,718 4,741 13.7 16 -10 - Sis. Aguas Vermelhas (MG) 12,321 2,410 9,911 24.6 >250 -71 - Ad. Cascav61:(CE) 2,323 919 1,404 20.3 153 -37 - Ad. de Trici-Taua (CE) 3,241 1,326 1,915 23.2 144 -44 - Sis. Ad. do Cariri (PA) 28,191 17,472 10,719 16.3 61 -34 - Sis. Arcoverde (PE) 16,853 8,322 8,531 23.6 103 -42 -Ad. doFeijo (BA) 6,667 3,374 3,293 19.4 81 -37 - Ad. Amelia Rodriguez (BA) 10,634 3,775 6,859 27.6 182 -54 First year Priority Works 114,689 67,316 47,373 17.4 65 -34 12 Zeitouni N. and Dinar A., "Mitigating negative water quality and quality externalities by joint management of adjacent aquifers" (Environmental and Resource Economics, 9:1-20), 1997. Brazil Page 48 Federal Water Resources Management Project Appraisal Document Table 4. 5 - Priority Works: Aggregate Flows and Internal Rates of Return of First Year Sub-projects'3 (in '000 US$, 1997 = 0) Prset Value ofi Flows~ Fisca Impat Economic:~~ Fintancial.. Receiis Gross Analyi Ana9lysis 0 utly Subsidies' |Benefts 114,689 74,203 18,550 t;tlCosts00;0-g;:yg: 67,316 76,490 23,915 Net Benefits. t-g- 47,373 (2,287) tttiFRR%E°Mfff-i0000 i 17.4 10.7 Switching Values: Investment costs: 70% Net Benefits: -34% Financial analysis. Financial analysis of the first year works was undertaken, on a case by case basis, from the point of view of the water system operator'5. Both internal financial rates of return (IFRRs) and the level of "subsidies" that would be required, in theory, for the sub-projects to yield an IFRR of 12%, were estimated. The analysis was performed under alternative scenarios corresponding to different levels of management efficiency, service coverage and prevalence of metered households. In the basic scenario (the same one used for the economic analysis), corresponding to the basic technical proposal for the specific sub-project, water charges --based on existing water tariffs applied by the relevant State water company but currently collected at less than 50%-- would cover, in all cases, full O&M costs and, on average, about 67% of the investment costs. Only three of the sub-projects (Aguas Vermelhas, Arcoverde and Cariri) would require net subsidies, with an average present value, over the 30-year life of the subprojects, of US$ 85 per beneficiary or US$ 0.06 per cu. m. This can be compared with the costs of supplying water, e.g. with carros-pipa, to the Northeast rural populations ranging, on average, between US$ 3 and US$ 7 per cu. m. and costs to the consumers that are as high as US$ 30 per cu. m. in locations like Cariri, which has no other source of water than the one that will be made available under the proposed sub-project. Due to the large proportion of economic, non-monetary benefits (based on consumer surplus) accruing from the sub-projects, IFRRs are generally much lower than IERRs, and are less than 10% for most of the sub- projects. The aggregate present value of net financial benefits is minus US$ 2.3 million, and the overall financial rate of return (IFRR) 10.7%. However, estimation of these IFRRs does not include social benefits which are difficult to quantify but would be substantial, stemming from improved health of the beneficiary populations and the consequent impact on their living conditions and employment opportunities, as well as from the formalization and active participation of WUAs in the A, O&M of the proposed water supply systems, with further indirect benefits such as social cohesion facililtating, for instance, access to credit. Additionally, as specific management arrangements involving WUAs and/or other stakeholder groups would be set up with support from the project, it is likely that efficiency parameters for the O&M of the systems would improve over time, and that resulting ex-post IFRRs would exceed the ex-ante estimates. 3 All figures are referred to the portion of infrastructure investments (49%) accually evaluated for the project. 4 Throughout this analysis, unless otherwise specified, subsidies refer to grants or monetary contributions which would be needed for the specific sub-project to attain a 12% financial rate of return. From a social point of view, it should be clear that if a sub-project carries a positive IFRR, no subsidies are strictly necessary. A complementary assessment of the financial situation of the relevant State water companies is included in the Project's files. Brazil Page 49 Federal Water Resources Management Project Appraisal Document Table 4.6 - Financial Analysis Summary Subproject Net Present Value IFRR (US$'000) Benefits Costs Net % Benefits - Ad. Mossor6 (RN) 52,366 32,100 20,266 18.9 - Sis. Aguas Vennelhas (MG) 1,351 3,460 -2,109 3.4* - Ad. Cascav6l(CE) 2,913 2,537 376 13.8 - Ad. de Trici-Taua (CE) 1,347 1,660 -313 9.4 - Sis. Ad. do Cariri (PA) 5,656 18,860 -13,204 1.2 - Sis. Arcoverde (PE) 2,676 8,948 -6,272 3.4 - Ad. do Feijao (BA) 2,302 4,302 -2,000 5.5 - Ad. Am6lia Rodriguez (BA) 5,592 4,623 970 14.8 Firstyear Priority Works 74,203 76,490 -2,287 10.7 * Excluding environmental costs (IFRR of 0.6% including these costs). The analysis of fiscal impact considered the effect of the infrastructure investments on revenue from (i) taxes generated by expanded water supply services; (ii) lower expenditures in water related public support programs. Quantifiable fiscal benefits for the priority works component include increased tax revenues from larger expenditures and sales by water systems operators, as well as decreased expenditures in publicly funded water truck programs. The associated fiscal costs would include theoretical government monetary contributions necessary to reach an IFRR of 12%. These sub-projects would contribute a gross fiscal gain of US$ 18.6 million from increased tax revenues and lower fiscal outlays, and involve US$ 23.9 million in gross "subsidies", for a net balance of minus US$ 5.4 million. The latter figure could be greatly reduced if additional investments in expansion of metered charges were considered. There is also evidence that a 12% rate of return may be too high for these type of investments in Brazil, which would make the amount of net subsidies involved look artificially high. Table 4.7 - Fiscal Analysis Summary Sub.project Net Present Value (US$'000) -- :Fiscal: Gross Net Fiscal |__________________ _ : - -Ben sfi s Subsidies Impact:: Ad. Mossor6 (RN) 865 -.- 865 - Sis. Aguas Vermelhas (MG) 2,062 3,892 -235 - Ad. Cascavel (CE) 950 -.- 950 -Ad&de Trici-TauA (CE) 1,275 316 959 - Sis. Ad. do Cariri (PA) 8,097 12,829 -4,732 - Sis. Arcoverde (PE) 714 6,427 -5,713 - Ad. do Feijao (BA) 2,727 2,045 682 - Ad. Amelia Rodriguez (BA) 1,860 -. 1,860 F rstyerPriority Workswb 18,550 23,915 -5,365 Increased tax receipts and decreased fiscal outlays. Conclusions. The main results of the economic, financial and fiscal analyses for the first group of sub- projects are summarized in the table below. Brazil Page 50 Federal Water Resources Management Project Appraisal Document Table 4.8 - Main Economic, Financial and Fiscal Results for First Year Sub-projects n:~Sb-project IERR: JFRR Ir vestnment ~ Net Subsidy Toa- e per .. ......... ~ ~ ~ ~ ~ ~ (as cost bnpeficiary reoey beneficiary*. :Ad.:Mossor6(N 13.7 18.9 33,701 .102 100- -Sis.Aguas Vmielhas (MG) 24.6 3.4 3,504** .143 40 .010 -Ad.Cascav~~~1 (CE) 20.3 13.8 1,151 .035 100 - d dT ici-TU4(CE). 23.2 9.4 1,731 .059 8 1-- !..Sis.Ad:doCariri(J?A). 16,3 1.2 20,130 .413 33 .110 .Sis ArcovordeoPE 23.6 3.4 9,970 .114 33 .097 -Ad..:&feijjgd(BA),: 19.4 5.5 4,557 .146 55 -Ad. AWI odrge (B) 27.6 14.8 4,865 .127 100 Firstyear nfrasrn~re: Works, 17.4 10.7 79,609 .137 70 0.085 *Average number of beneficiaries over sub-project's life. ** Excluding Aguas Vermelhas environmental costs. Based on the results of the economic analysis, it can be concludedi that all sub-projects proposed for implementation in the first year of the project are suitable for financinig. Wbile financial sustainability of some sub-projects looks less evident, it must be borne in mind that thke analysis does not capture benefits that could accrue with better systems management efficiency, as may be expected from the improved A,O&M arrangements that would be supported under the project. Brazil Page 51 Federal Water Resources Management Project Appraisal Document Annex 5 BRAZIL Federal Water Resources Management Project (PROAGUA) Procurement and Disbursement Arrangements Procurement Project components for civil works and goods financed under the proposed Loan would be procured in accordance with Bank Guidelines for Procurement (January 1995, revised January, August and September 1997). Contracts for works estimated to cost more than US$ 5.0 million equivalent, and for goods estimated to cost more than US$ 350,000 equivalent, would be procured through International Competitive Bidding (ICB) procedures in accordance with Bank Guidelines and using relevant standard bidding documents issued by the Bank. Contract for civil works estimated to cost less than US$ 5.0 million and more than US$ 350,000 equivalent and goods estimated to cost less than US$ 350,000 and more than US$ 100,000 equivalent will be procure under National Competitive Bidding (NCB) procedures using standard bidding documents acceptable to the Bank. International or local shopping procedures will be used for the purchase of goods estimated to cost less than US$ 100,000 up to an aggregate amount not to exceed US$ 3.4 million and for civil works costing less than US$ 350,000 up to an aggregate amount of US$ 17.8 million. Any modifications to such documents which may be necessary would have to be agreed with the Bank. Consultant services will be procured in accordance with Quality-and-Cost-Based Selection (QCBS) procedures. Complex or highly specialized assignments may be procured under Quality-Based Selection (QBS) procedures. Simple assignments not exceeding the equivalent of US$ 200,000 that can be precisely defined may be selected under a fixed budget. Assignments of a standard or routine nature not exceeding equivalent of US$ 100,000 may be procured under least-cost selection (LCS) procedures. Individual consultants will be selected on the basis of their qualifications. Consultant contracts will follow Bank guidelines for the selection of consultant services (January 1997, revised September 1997). Civil works to be financed under this loan would include primarily the construction of pipelines, medium size reservoirs, rural water supply systems, and related hydraulic infrastructure (e.g. pumping stations, water treatment systems, etc.). Goods will include primarily the purchase of pipes (different types of materials) and connections, pumps, hydro-mechanical equipment, automation boards, and hydrometric equipment for gauging stations (flow, water quality, rain stations and sediment). Consultant services contracts will include engineering design of water resources systems, feasibility studies, watershed and/or state master plans, the development of decision support systems, development of information systems, institutional and organizational studies, development of legal frameworks for water resources management, development of operation and maintenance programs (including private sector participation in water supply systems through management contracts, concessions, etc.) and the development and implementation of cost recovery (water tariffs and rates) systems. These procurement arrangements are summarized in the tables that follow. Brazil Page 52 Federal Water Resources Management Project Appraisal Document Table Al: Project Costs by Procurement Arirangements (in US$ million equivalent) Expenditure Category Procurement Method Total CostI ICB NCB | Other N.B;Y.F 1. Works 8.7 29.1 17.8 | 55.6 ____________________________ (6.1) (22.1) (0.5) 17.5 (28.7) _______ _______ 17.517.5 2. Gooda 101.7 55.9 3.4 _ 161.0 (71.9) (5.4) (2.7) (80.0) _ 52.5 52.5 3. Consultant Services 3 109.0 - 109.0 ________ D__ _ (88.3) _ (88.3) 4. Incremental Recurrent Costs --4.4 - 4.4 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _______ (1.0) - _ _ _(1.0) Totwa -110.4 85.0 134.6 _ 330.0 _________________________ _ ,(78.0) (27.5) (92.5) l(198.0) Figures in parentheses are the amounts to be financed by the Bank loan ITotal Cost includes contingencies 2N.B.F= Not-Bank-Financed (likely to be financed by OECF) 3 Includes individuals and firms Table A2: Consultant Selection Arrangements (in US$ million equivalent) Consultant Category Selection Method Total Cost' QCBS' QBS3 LCS4 Other' A. Eirms 43.0 17.3 9.0 19.6 88.9 (34.9) (14.1) (7.5) (15.9) (72.4) B. Individuals 6 20.1 20.1 ___ __ __ __ _ _ _(15.9) (15.9) _________________ 43.0 17.5 9.0 39.-7 109.0 (34.7) (14.1) (7.5) (31.8)- (i88.3) Figures in parentheses are the amounts to be financed by the Bank loan 2 Total Cost includes contingencies 2 QCBS = Quality-and Cost-Based Selection 3. QBS = Quality-Based-Selection 4. LCS = Least-Cost Selection 5. Fix budget or Selection Based on Consultants' Qualifications. 6 Individuals (selected on the basis of qualifications of consultant). Brazil Page 53 Federal Water Resources Management Project Appraisal Document Table B: Thresholds for Procurement Methods and Prior Review Expenditure Category Type of Procurement Prior Review 1. WorkS US$ 5,000,000 ICB All 2. Goods US$ 350,000 ICB All 3. Consultant Services (a) Individual Consultant Guidelines US$ 50,000 Qualifications All (b) Firms Consultant Guidelines US$ 100,000 QCBS or LCS ALL Random Ex-post review 2 For each implementing agency only the two initial NCB contracts will require prior review. The remaining contracts of each agency will be post-reviewed. 3. Except for single source selection of consultants, assignments of a critical nature and amendments to contracts raising the original contract value above the threshold. 4. Maximum aggregate amount of US$ 3.5 million for goods and US$ 17.8 million for works. Disbursement The project is expected to be completed by June 30, 2003. The proposed loan will disburse over a period of five years. It will finance 100% of foreign expenditures; local expenditures will be financed at 80% for civil works and consultant services and at 75% for goods. The Bank will finance 60% of overall project cost following a decreasing profile as presented on Annex 3. The project is likely to be cofinanced by Japan OECF (US$ 70.0 million) that will cover the financing of all infrastructure sub-projects scheduled to start during the project's second year. The actual allocation of loan proceeds by category of disbursement is shown in Table C. Special Account During project preparation assurances were provided by the Borrower that it will open and maintain a Special Account in US dollars, for disbursement of the loan proceeds. The initial deposit will be US$ 10.0 million until the aggregate amount of withdrawals from the loan account plus the total amount of outstanding special commitment shall be equal to or more than US$ 25.0 million. At that point, all future deposits to the Special Account will be the authorized allocation of US$ 20.0 million. Retroactive Financing Project expenditures made after October 1, 1997, or 12 months prior to loan signature, whichever occurs later, not to exceed US$ 15.0 million, will be eligible for financing from the loan. Brazil Page 54 Federal Water Resources Management Project Appraisal Document Table C: Allocation of Loan Proceedls Expenditure Category Amount in US$ million Financing Percentage Works 23.7 100% of fDreign expenditures and 80% of local expenditures Goods 65.0 100% of fDreign expenditures and 75% of local expenditures Consulting Services 88.3 100% of fDreign expenditures and 80% of local expenditures Incremental Recurrent Costs 1.0 25% Unallocated 20.0 Total 198.0 60% The Bank will finance 60% of total project cost. 2 This amount will be allocated between works and goods categories for the third and fourth years subprojects. Brazil Page 55 Federal Water Resources Management Project Appraisal Document Annex 6 BRAZIL Federal Water Resources Management Project PROAGUA MONITORING AND EVALUATION INDICATORS Component: Water Resources Management ACTION PLAN GOALS/ACTIVITIES KEY INDICATORS 1. Institutional Development (i) Federal Level - National Water Resources * Development of regulatory framework for the water * Council created and operating as high-level, regulatory and Management System sector and installation of National Water Resources deliberative agency, in the water sector Council (as defined by National Water Law 9.433/97) * SRH/MMA coordinating National Water Resources Management System; with logistics infrastructure improved * Institutional strengthening of SRH/MMA as the national and equipment being utilized; with (existing and/or new) Water Resources Management (WRM) agency, technical staff performing their respective tasks and including hiring of 40 new technical staff consultants providing technical assistance * Regulation of the National Water Law No. 9.433/97 * Law 9.433/97 regulated - Development and * Development of additional legislation, especially * Additional legislation for water use rights and charges Application of Legislation regarding technical instruments/ mechanisms for water promulgated and applied; legislation on ground water, for management (e.g. for water use allocation, water water pollution control and on stream classification charges, creation of river basin committees and "water promulgated and applied agencies", etc.) in Federal waters * Promulgation of legislation combining requirements of the two laws on water resource management and environmental * Studies leading to proposals for supplementary protection legislation adapting new National Water Law to requirements of existing laws on environmental protection Brazil Page 56 Federal Water Resources Management Project Appraisal Document - Implementation of Water * Completion of listing of surface and ground water * Wells and hydraulic structures cadastred; users cadastred; Use Rights and Water Use intakes water use rights and permits granted; river basin Charges System in * Cadastre of surface and ground water users committees and water agencies functioning Federally-owned river * Water use rights and permits granted basins * Collection of bulk water charges in Federal river basins * Establishment of river basin committees and agencias de dgua (as defined by Law 9.433/97) - Economic-Financial Tools * Development and implementation of mechanisms for * New mechanisms for water use charges applied by water water use charges agencies; * Promotion of tradable water rights systems * Effective start-up of bulk water charge collected in the Northeast States; * Elaboration of institutional framework and mechanisms allowing the development of a tradable water rights system * Preparation of National Water Resources Training Plan * National training plan carried out and evaluated; courses * Provision of training through national "centers of and training carried out and evaluated (especially with - Training excellence" regard to technical usefulness and practical application by * Organization of 290 training events trainees); workshops carried out and evaluated * Training of 200 technicians of Federal SRH * Training applied by technicians * Training of 100 additional technicians of related Federal agencies * Application of criteria developed by PROAGUA/Semi- * Criteria developed by the project (PROAGUA/Semi-arido) - Preparation of National arido for selection of other water supply infrastructure applied in all Northeast PROAGUA program works and studies in Northeast * Definition of criteria for selection of water supply infrastructure works in other regions of Brazil * Second phase of PROAGUA/Semi-arido prepared Preparation of second phase of PROAGUA/Semi-arido Brazil Page 57 Federal Water Resources Management Project Appraisal Document (ii) State Level - Support to State WRM * Institutional strengthening (technical assistance, training * Staff (existing and/or new) working and receiving on-hands Agencies etc.) of 10 State WRM Agencies, including hiring of a training; consultants hired and providing TA total of 32 new technicians for the 10 States * Data processing systems operating; logistics infrastructure * Support for additional logistics infrastructure of State (including water quality assessment laboratories) improved; WRM Agencies, including modernization/installation of vehicles and equipment purchased and utilized laboratories for monitoring water quality * Completion of basic water legislation in 3 States * Approval of 3 new State Water Laws by 1999; * Regulation of State Water Laws in all 10 participating States * Additional legislation for water use rights and charges - Development and * Development of additional legislation, e.g. regarding promulgated and applied; legislation on ground water, for Application of Legal technical instruments/ mechanisms for water water pollution control and on stream classification Frameworks for Water management (e.g. for water use allocation, water promulgated and applied Resources Management charges, creation of river basin committees and "water agencies", etc.) in State waters in all participating States * Water Resources Funds created in all participating States * Legal/institutional support to 85 Water Users' Associations * 85 WUAs functioning * Cadastre of surface and ground water users * Wells and hydraulic structures cadastred; users cadastred; - Implementation of Water * Water use rights and permits granted water use rights and permits granted accounting for 80% of Use Rights System * Collection of bulk water tariffs in State river basins total used volume; river basin committees and water - Implementation of Water * Formation of river basin committees and water agencies agencies functioning; bulk water charges collected Tariffs System (as defined by State water laws * Training of 1000 technicians of State WRM Agencies * Training programs carried out and evaluated * Training of 300 technicians of related State agencies * Training applied; innovative proposals on water resources - Training * Training of representatives of 85 WUAs management put to use * Support for formation of 85 WUAs * Evaluations of participation of user's associations in water - Formation of Water Users' * Preparation/organization of 10 training programs in resources management Associations participatory management * Training programs carried out * Follow-up assistance to 85 WUAs * Decreased conflicts among water users * Improved water resources management and conservation. Brazil Page 58 Federal Water Resources Management Project Appraisal Document 2. Technical Bases (i) Federal Level - Hydro-meteorological and * Analysis of current status and development of proposals * Existing and new hydro-meteorological networks operating Water Quality Monitoring for improved operation of existing network at national satisfactorily Networks at National Level level * Water quality monitoring stations installed and in operation * Installation of 50 hydro-meteorological and water quality * Inspections carried out; data collected and analyzed monitoring stations * Set-up of Hydrological Data Base at national level * Data Bases established * Establishment and implementation of Geographic * GIS operating - Information System Information System (GIS) * Development and implementation of Decision Support * Simulation models being used Systems (DSS) models * Data management and updating * Surveys and studies carried out (ii) State Level - Hydro-meteorological and * Analysis of current status and development of proposals * Existing and new hydro-meteorological networks operating Water Quality Monitoring for improved operation of existing networks at State satisfactorily Networks at State level level * Water quality monitoring stations installed and in operation Installation of 100 hvdro-metenrn1noicq1 and water . Tnsqnectiong carried out; data collected and analyzed quality monitoring stations * Set-up of Hydrological Data Bases and Water Resources a Water Resources Information Systems working in all - Information Systems Information Systems in all 10 participating States participating States and linked to the national system; * Data Bases established; simulation models being used; surveys carried out; decision support systems being used; maps digitized * Assessments of quality/utility Brazil Page 59 Federal Water Resources Management Project Appraisal Document Component: Infrastructure Works ACTION PLAN GOALS/ACTIVITIES KEY INDICATORS State Level (execution by State WRM Agencies) - Construction of Pipelines * Construction of 7 or more pipelines * Demand for bulk water met and treated water systems operating - Construction of Simplified . Construction of 50 or more simplified water supply Users being charged for water tariffs and systems being Water Supply Systems systems with sewage systems maintained and operated; - Construction of Dams * Construction of 5 or more dams (to be built in * 55,000 beneficiary households reached by compliance with World Bank instructions on dams) year 2; 115,000 beneficiary households reached by year 5; - Implementation of Groundwater Development . Implementation of 5 or more groundwater development * Improved beneficiary health and living conditions; decrease Systems systems in incidence of diseases related to water use; * Implementation of measures (as recommended by * Environmental impacts mitigated specific environmental impact assessment studies) to mitigate environmental impacts Component: Studies and Projects ACTION PLAN GOALS/ACTIVITIES KEY INDICATORS 1. Planning (i) Federal Level - Federal River Basin Master . Preparation of Master Plans for 4 Federal River Basins * 4 Federal River Basin Master Plans Plans (ii) State Level - Basic Data Collection and * Data collection and analysis for 3 or more States (PI, * Data collected and analyzed Analysis on Water MA, AL) Resources Brazil Page 60 Federal Water Resources Management Project Appraisal Document * Water Resources Strategies formulated for 8 States and * Strategies analyzed by all concerned agents and being used - State Water Resources consolidated for all participating States to define State policies, plans, programs and projects Strategies - State Water Resources Plans * Water Resources Plans prepared for 7 States (CE, BA * State Water Resources Plans prepared and executed in all and RN already have) participating States - State River Basin Master * Preparation of Master Plans for 4 State River Basins * 4 State River Basin Master Plans prepared Plans - Plans for Rehabilitation, * Survey of status of existing infrastructure in 7 States Operation and Maintenance * Preparation of 7 plans for rehabilitating existing * Rehabilitation Plans prepared and executed of Existing Infrastructure infrastructure 2. Specific Studies and (i) Federal Level Projects * Preparation of 4 water availability studies * Studies prepared and proposals for use of available - Water Availability Studies resources discussed with major stakeholders * Assignment of institutional responsibilities for - Drought Contingency * Preparation of drought contingency programs implementation of drought contingency programs at Federal Program Level. (ii) State Level - Water Availability Studies * Studies prepared and proposals for use of available * Preparation of 24 water availability studies resources discussed with participants States. - Feasibility Studies and * Preparation of 40 feasibility studies and basic * Feasibility studies carried out and basic engineering designs Engineering Designs engineering designs for additional priority works under prepared; infrastructure works selected and implemented PROAGUA as well as other programs according to criteria established under PROAGUA/Semi- arido Page 61 Federal Water Resources Management Project Appraisal Document - Reservoir Operation and * Preparation of studies to define procedures for * O&M manuals prepared, and used for training of operators Maintenance Studies maintenance and operation of pipelines, dams, dam and users systems, etc. Component: Management. Monitoring and Evaluation ACTION PLAN GOALS/ACTIVITIES KEY INDICATORS (i) Federal Level . Establishment of Project Management Committee * Project coordination, management and monitoring and - Management . Creation of Federal Project Management Unit (UGP) in evaluation units created and in operation at Federal level; Secretariat of Water Resources, MMA consultants recruited; equipment purchased and functioning . Creation of Federal Project Monitoring and Evaluation Unit (UMA) in Special Secretariat of Regional Policies, MPO * Hiring of 16 specialized technicians (short-term consultants) * Preparation/Application of Project Operational Manual * Budgetary and financial procedures prepared and in use (POM) * Procedures for preparation and analysis of POAs and of Quarterly Reports prepared and in use - Planning and Programming * Development of baseline study . Follow-up, monitoring and evaluation indicators prepared and in use Brazil Page 62 Federal Water Resources Management Project Appraisal Document * Implementation of integrated Project Management * GIS operating in Brasilia and in all States Information System (GIS) * Project reports prepared and reviewed by Management * Preparation of 5 Consolidated Annual Operating Plans Committee, States and users associations - Management, Monitoring * Preparation of 20 Consolidated Quarterly Progress and Evaluation Reports * Preparation of 20 Consolidated Quarterly Monitoring Reports * Preparation of 10 annual Independent Evaluation * Baseline study undertaken Reports on Federal and States' project performance * Carrying out of baseline study on project beneficiaries * Preparation of 20 case studies (2 per State) to evaluate * Physical/financial supervision carried out Project outcome and impacts * Physical and financial supervision * Carrying out of supervision for evaluation of use of products generated by the beneficiaries * Carrying out of 2 supervision missions/year to each * Mid-term evaluation performed and proposed modifications State, jointly with World Bank (if any) carried out * Final evaluation carried out * Carrying out of mid-term and final evaluations (ii) State Level - Management * Formal designation of State WRM Agencies in all * Project coordination, management and monitoring and participating States evaluation units created and in operation in all participating * Creation of State Project Management Units (UEGPs) in States; consultants recruited; equipment purchased and each State WRM agency functioning * Hiring of 40 (4 per State) specialized technicians (short- term consultants) Brazii Page 63 Fcderal Water Resources Management Project Appraisal Document * Implementation of integrated Project Management * Project GIS operating in all States Information System (GIS) in all participating States * Project reports prepared by State UEGPs/WRM Agencies - Monitoring and Evaluation * Preparation of 5 Annual Operating Plans per State and results discussed with major stakeholders * Preparation of 4 Quarterly Progress Reports per State * Modifications proposed by Mid-term evaluation (if any) * Preparation of 4 Quarterly Monitoring Reports per State carried out * Carrying out of physical and financial supervision Brazil Page 64 Federal Water Resources Management Project Appraisal Document Annex 7 BRAZIL Federal Water Resources Managemenit Project Project Processing Budget and SchLedule Planned Actual 16330430 A. ProjectBudget (US$000) 330.0 433.0i' B. Project Schedule Time taken to prepare the project (months) 24 20 First Bank mission (identification) 02/1996 02/1996 Appraisal mission departure 11/1997 11/1997 Negotiations 02/1998 02/1998 Date of Effectiveness 05/1998 06/1998 Prepared by: Secretariat of Water Resources (SRH) of the Ministry of Environment, Water Resources and Legal Amazon (MMA), with participation of Secretariat of International Affairs (SEAIN), Secretariat of Regional Policies (SEPRE) and Secretariat of Urban Policies (SEPURB). Preparation assistance: TA funds from the on-going Irrigation Sub-Sector Project (Ln. 2950-BR); GOB's own funds. Bank staff who worked on the project included: Luiz Gabriel Azevedo (Task Manager), Larry Simpson, Musa Asad, Peter Wittenberg; Juan Quintero (LCSES); Alberto Ninio (LEGLA); Livio Pifno; as well as Loretta Sonn, Carlos Elmanuel, Alvaro Soler, Jerson Kelman, Manuel Rego, and Frances Maundrell (FAO/CP); George Tobar and Paula Freitas. 16 Including only Bank and FAO/CP budget. The GOB spent over US$2.0 million on the preparation of PROAGUA. 17 US$ 157,000 on direct Bank budget and US$ 276,000 on FAO/CP cost. Brazil Page 65 Federal Water Resources Management Project Appraisal Document Annex 8 BRAZIL Federal Water Resources Management Project (PROAGUA) Environmental Assessment Part A: Environmental Assessment Summary 1. Introduction. The approach to performing the environmental analysis of the proposals submitted to PROAGUA focused on three different levels: (a) on-site analysis of potential impacts of the projects, with field verification and use of secondary data; (b) regional analysis of cumulative impacts and multiples uses of water resources, using spatial information and mathematical modeling; and (c) the evaluation of the environmental management capability of the proponent entity. This approach is consistent with the fact that the project includes a number of interventions that may, cumulatively, have both negative as well as positive impacts. It was then agreed that the analysis of individual works could not substitute for the need of a global environmental analysis of the project as a whole, based on precise criteria and performance indicators previously defined. This cumulative analysis in turn had to be consistent with the principle of using the river basin as the planning unit for water resources management. 2. Local Environmental Analysis. In addition to a number of field visits performed by the environmental team within UPP/SRH, each project was analyzed according to the following information: (a) summary description of the sub-project (location, social benefits, target population, justification); (b) environmental analysis of the basin (anthropic activities, land tenure structure, economic activities, main ecosystems and present state of conservation); (c) main water uses; (d) water availability; (e) water quality; (f) water resources master plans; (g) analysis of the basic infrastructure of the region; (h) management instruments and environmental controls of the state; (i) govemment programs in the region related to sanitation and water resources; (j) institutional capability of the state secretariats of water resources; (k) licensing status of proposed projects; (i) reliability of selected water supplies, specially, during the periods of drought; (j) interference with other uses; (k) interference with protected areas (conservation units, indigenous areas or areas of relevant ecological or cultural interest); and (I) resettlement needs. Following this analysis specific reports and summary cards were prepared for each sub-project. These reports include: (i) environmental indicators; (ii) probable positive and negative impacts; (iii) mitigating or compensatory altematives; and (iv) conclusive opinion about the environment feasibility of each proposed sub-project. A summary of the site specific analysis for the first year sub-projects is presented on table 1. 3. Regional Environmental Analysis. Thematic maps of each state were prepared, using a cartographic basis, which was implemented into a GIS with information on demography, income, economic activity, health, education, sanitation, municipalities and sub-basins limits, etc. Considering the river basin as a planning unity, these thematic maps were overlaid with irrigated areas, existing dams, monitoring station (flow rainfall water quality), polluting loads, estuarine environments, conservation units, indigenous areas etc. The regional environmental analysis provided general indicators about the states, the river basins and possible impacts derived from proposed sub-projects. This work is complete and available in CD ROM form that can be used in future projects in the region and to assist: monitoring and evaluation during project implementation. Brazil Page 66 Federal Water Resources Management Project Appraisal Document Table I - First year sub-project - Summary of project specific environmental analysis States Work Main Problems Costs of Recommended Activities Environmental Component (1000 US$) Bahia Feijao None 55.05 Program of Sanitary Education and Pipeline Information Campaigns Amelia None 36.70 Program of Sanitary Education and Rodrigues [nformation Campaigns Conceicao do Jacuipe Pipeline Ceara Cascavel None 55.05 Program of Sanitary Education and Pipeline [nformation Campaigns; and iProgram for Recuperation of the ]Riverine Gallery Forest Trici-Taua None 36.70 Program of Sanitary Education and Pipeline Information Campaigns Minas Gerais Aguas Endemic Area of 575.79 Program of Sanitary and Vermelhas Schistosomiasis E]nvironmental Education; Program System of Monitoring of the Schistosomiasis; Proposal for Disease Eradication Program and ]'rogram of Recuperation of the Riverine Gallery Forest Paraiba Cariri Pipeline Water 330.28 Plrogram of Sanitary Education and Availability Information Campaigns and Program of Operation and Monitoring of the Boqueirao Reservoir Pernambuco Jatoba / Sao None 36.70 Program of Sanitary Education and Jose do Information Campaigns Belmonte System Rio Grande Mossor6 None 36.70 Program of Sanitary Education and do Norte Pipeline Information Campaigns i = g2g 0 gj= WE g . ., ....... ''', ,' W ' _ ....... ,., , .... , "~~~~~~~~~~~~~~~~~~. . . . . .. Tta These indicators are both qualitative as well as quantitative. A. number of comparisons between scenarios with and without project were developed, among which are the following: (i) improvement of the quality of the aquatic environment, reflected by an increase in the dissolved oxygen; (ii) improvement on the quality of life reflected by an augmentation of reliable water supplies; (iii) "habitats" reduction due to the destruction of native vegetation. The methodology was tested in the proposed Aguas Vermelhas System, where the influence of multiple and conflicting water uses in the Brazil Page 67 Federal Water Resources Management Project Appraisal Document Mosquito river basin was analyzed. The simulation involved the water quality alterations for different levels of sewage treatment and withdrawals for irrigation. For the validation of the methodology it was again used in the Piranhas-A,u river basin, between the States of Paraiba and Rio Grande do Norte, where intense water use conflicts exist. 4. Evaluation of the environmental management capability of the proponent entity. In order to strengthen the environmental performance of proponent agencies, the project will finance an institutional strengthening program for environmental management which includes technical assistance and training in environmental issues at the Federal and State levels. The main objective of this program is to internalize environmental concerns in all of the components of PROAGUA, from the design of state wvater management plans and regulations, to project specific infrastructure. The program will also include state environmental agencies with the objective of streamlining and unifying internal procedures for environmental analysis and evaluation of water resources projects, environmental licensing procedures, and environmental monitoring. 5. Institutional consultations and availability of environmental assessment to interested groups. The environmental assessment report and the proposed environmental methodologies and programs were subject to intensive institutional consultation. The report was distributed to all Northeastern states' water resources and environmental agencies. A workshop was held in Recife, Pernambuco, November 24-25, 1997, to discuss these proposals. Over 40 participants from 8 states as well as representatives of federal water and environmental agencies analyzed the proposed environmental programs and concluded in an Action Plan to be implemented during the first year of the project. this Action Plan includes: state specific workshops to discuss the proposals at each State environmental Council; and preparation of unified and integrated procedures for environmental licensing of water resources infrastructure projects based on the PROAGUA model. All water resource and environmental agencies made institutional commitments to support and participate in the environmental strengthening programs. Part B: Resettlement Plan 6. As a consequence of the specific characteristics of proposed works (specially of reservoirs, pipelines and water pumping and treatment stations) special attention was directed to investigating impacts to both urban and rural populations and the needs for developing project-specific resettlement plans. The works selected for the first year involve primarily the construction of pipelines along existing roads, the construction of water intakes and pumping stations at existing reservoirs and the implementation of related minor infrastructure. These projects do not involve any significant resettlement and therefore specific resettlement plans were not required for first year sub-projects. However, due to the possibility of future projects involving resettlement, standard terms of reference (TOR) were prepared for the development of resettlement plans, specifying relocation policies, planning principles, institutional and project criteria. These standard 1OR were developed based upon existing plans which have been approved in other World Bank projects, more specifically the work developed for the Water Sector Modernization IT Project, Bahia Water Resources Management Project and Ceara Urban Development Project. Part C: Environmental Procedures during the implementation of PROAGUA 7. During the implementation of PROAGUA procedures will be adopted to ensure adequate screening and analysis of any new projects. Monitoring and evaluation procedures for the supervision of those projects selected for the first year are being implemented. For analysis of new projects the procedures are identical to those used in preparation (Part A). The implementation of the projects Brazil Page 68 Federal Water Resources Management Project Appraisal Document already approved should be supervised by UGP at the SRH to insure that an environmental criteria of the program are observed. 8. The flowchart, presented in Figure 1, shows the project's environmental evaluation cycle. Projects type "a" are those that can cause significant negative environmental impacts (works that involve resettlement, affect indigenous areas, conservation units)l. Projects type "b" are those that can cause moderate negative environmental impacts (projects that require a protection plan of water supply, including land use, reforestation, water quality and quantity monitoring and operational rules). Projects type "c" can cause irrelevant negative environmental impacts (a pipeline along the safe zone of an existing road). Flowchart Projects Environmental Evaluation Cycle EVALUATION AND ANALYSIS STACG E PROJECTS Characterization of Intervention and : Potential Impacts I Presentation to PROAGUA Environmental License Request e e Ea i fbention ano : L ~~~~~~~~~~~~~~~~~~~~~Evaluation: :rSend to In,pection Neenimnt on~~~~~~~~e IBRD ~~~~Analysis | ElaPlraans f . ~~~~~~~~~~~~~ ~~ENVIRONMENA Tye"' to CCa Elboatono Elaboration of Eniomna Lo niomnal _ m ~~~~~~Gra u, ? ~~~~~~~~~~~~~~~~~Afonsai X &PRG~IPE Asacaou TOCANTINS ~~~~~~~~~~~~~~~~B A H I A '-Es;ncic OFEIJACO Barreiras i~~~~~~~~~~~~~~~' ~~YEAR Pi PELINE sn "'> ,,, ~~~~~~~ ~~~~~~Seabra Perad. Aao nhas NYERPELE Santana/~ A IPLN A ~~~~~~SEABRAQ- -"'~-\ d Canquic t STATE BOUNDARIES12 h6 a~~~~~~~~~~~~~~~~~Canavieiras Lunopinc MINAS GERAI/S AGU~IJAS~ClA 0S 0~~~~~~~~~~~~~~Montes C a rs I ?VENEZULE5y~ 155 a ~ ~ ~ ~ ~ ~~~~~~~~~~~aCCLCS NA .Pnapora -------Are n__ pI~~~~~~~~~~~. Conrint ± , 0Arn;uari C ,eln0 > n> RA4 5 Z o LUberl,dn6n TPEU IESPIRITO RrsaT 200 1 00 200 300 KILOMETERS / S NO2 0VA510 20' 1 20" -~~~~~~~~~~~~~~~~~~~~~4 1> Paite NMonCIp n'PARAGUAYX '-' 5c'nao5lc TIPs n,ap -o p,od,ced by the Mop Denig, Unit oP The Worid Bonk,n)Vtri H[1 Tan thinstop d. oot nply on the pars of The World Rank DG-p, -y 0Cachoeiro De stpeni, riFNIAm- E ju,dgrsent on Ithe lego! stows at c-y territory, or any erdoroenen or &1 I' / RETN /05C aretne fsr hsdrca anUn 0~RU&UAY MARCH 1998