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PROJECT INFORMATION DOCUMENT (PID) 
CONCEPT STAGE 
Report No.:  AB4106 
Project Name 
Santa Maria - RS Integrated Municipal Development Program 
Region 
LATIN AMERICA AND CARIBBEAN 
Sector 
Roads and highways (36%);General water, sanitation and flood 
protection sector (23%);Other social services (20%);Sub-national 
government administration (13%);General industry and trade 
sector (8%) 
Project ID 
P111513 
Borrower(s) 
MUNICIPALITY OF SANTA MARIA 
Municipal Government of Santa Maria 
Brazil 
 
Implementing Agency 
 
Municipal Government of Santa Maria 
Brazil 
 
Environment Category 
[
]
A
[X] B   [ ] C   [ ] FI   [ ] TBD (to be determined) 
Date PID Prepared 
August 21, 2008 
Estimated Date of 
Appraisal Authorization 
June 26, 2007 
Estimated Date of Board 
Approval 
December 16, 2008 
1.  Key development issues and rationale for Bank involvement 
The State of Rio Grande do Sul
 (RS), located in the south-western corner of Brazil, has an area 
of 280,000 km
2
(3.2% of Brazil’s total area) and a population of 10.5 million. The State produces 
about 8% of Brazil’s GDP, making it economically the fourth most productive state. With a 
population density of 36 inhabitant/km2, RS is more concentrated than the national average of 
19.9 inhabitants/km2.  The State is characterized by a large number of small municipalities - 
more than 60% of its 496 municipalities have less than 10,000 people. On the other hand, the 
State has a large number of medium-sized cities (details forthcoming). 
 
Project Area: Addressing the Needs of the Southern Municipalities: 
The proposed program would 
be implemented in the five largest municipalities of the Southern half of RS, namely Bagé, 
Pelotas, Rio Grande, Santa Maria and Uruguaiana. This part of RS (“a Metade Sul”) is poorer 
than the northern part: it contains 25% of the population but only 19% of the GNP. The per 
capita income disparity between the south and north is even more striking at 6,787 reais versus 
10,257 reais (source FEE 2004).  The five project municipalities cover an area of over 17,000 
km
2
(6% of the State’s total area), and have a total population of about 1,000,000 (9.5% of state 
total population). About 25% of the population is estimated to live below the poverty line. 
Together, the 5 municipalities produce 10.8%
1
of  State’s GDP.  
1
Source: IPEA (Economic Research Institute) 
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State Development Plan 
–
Rumos 2015: 
this recently-produced study, partially funded from a 
previous WB loan, sets forth for the public and private sectors a sustainable regional 
development plan, based on the territorial organization of the “gaucho” state, geared towards 
achieving a more balanced income distribution across regions. Nine regional planning units have 
been defined (COREDEs), as well as 6 strategic areas of thematic focus, as follows: State 
Competitiveness, Strengthening of Hub-Cities, Social Inclusion, Environmental Preservation, 
Participatory and Modern Governance and Regional Development Plans to Overcome 
Inequalities.  The document also emphasizes the fundamental role of medium-sized cities to 
promote regional development based on an increasingly urban and knowledge-driven economy. 
All five project municipalities are included in this list of hub-cities.
 
Municipal Governance in Brazil: 
With its 1988 constitutional reform, Brazil has one of the 
most decentralized public sectors in Latin America. States and municipalities account for almost 
half of all public sector revenues and expenditures. Municipalities make up 19% of total public 
revenues (5.4% of GDP), 13% of public spending and 24% of gross investment. They are at the 
forefront of economic development and poverty alleviation of their population. Municipal 
governments are responsible for the provision of most basic services, such as urban drainage, 
water and sanitation, solid waste management, rural roads, and public transport. Additionally, 
municipalities share the responsibility with their respective State Governments for the provision 
of health, education and social infrastructure. However, there is a mismatch between the 
municipal responsibilities and their access to financial resources to meet them.  
 
Municipal management
 has improved significantly in recent years, largely as a result of federal 
measures to control inflation implemented in the mid-1990s and the passing of the Federal Fiscal 
Responsibility Law (LRF) in 2000. In 2001, 68.5% of the municipalities achieved fiscal 
surpluses, against only 13% in 1995.  Municipal debt is well under control, but municipalities 
have very limited access to sources of borrowing due to the restrictions placed by the Monetary 
Council to restrict municipal borrowing to levels much lower than allowed in the LRF.  
However, the LRF also allows for municipalities that receive approval from the Ministries of 
Planning and Finance (through the COFIEX process) to borrow from IFIs, including the World 
Bank.  
 
Project Origin: 
The five municipalities expressed interest in borrowing from the WB in 
response to a letter sent to all mayors in January 2003.  The first requests for support were 
submitted by each municipality to SEAIN for COFIEX approval in December 2003. At that time, 
the five municipalities were encouraged to join efforts to create a common development 
program. The municipal governments spent much of 2004 negotiating with COFIEX the 
program content and counterpart obligations. The 
Cartas-Consulta 
were approved in December 
2004 and the WB conducted an identification mission in January 2005. The Bank helped the 
municipalities mobilize a $700,000 PHRD grant, which became effective in June 2005, for the 
purposes of project preparation. These five municipalities share a common regional and 
territorial development vision, and are striving to address very similar development challenges, 
including that of improved municipal governance, addressing rural and urban poverty, 
improvement of infrastructure service provision, as well as a greater participation of their region 
into the State’s economic growth agenda.   
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CAS Objectives.  
The proposed project would contribute to the CAS objective of a more 
equitable, sustainable and competitive Brazil, as laid out in the country’s multi-year plan (PPA), 
by reducing social and environmental problems and promoting a more efficient use of resources 
in selected municipalities.  Moreover, the project follows the CAS recommendation of adopting 
an integrated approach in support of multi-sectoral strategies to address the problems at the local 
level, with municipal governments as key partners in the promotion of an environmental, 
economic and socially sustainable development.  The WB has also had a long-standing presence 
working in RS, with two loans recently closed and one under preparation (
Desigualdades
). WB 
participation in a municipal project of this nature will allow us to continue to work in the state in 
areas of greater development needs. 
 
Program Fit with Municipal Strategy
:
the program fits neatly into the four pillars set forth by 
the Bank for our support to municipal development in Brazil: (a) improving municipal fiscal and 
administrative management, (b) increasing the competitiveness of the municipality through local 
economic development, (c) supporting partnerships across municipalities and with others and (d) 
strengthening municipal capacity to deliver key services. It also meets the requirements set forth 
by the Federal Government for WB municipal lending: (a) addressing difficult and cross-sectoral 
development challenges, (b) supporting municipalities larger than 100,000 people, (c) promoting 
cross-municipal partnerships, and (d) allowing flexible lending terms using either Reais or hard 
currency.  The program would be different from other municipal lending as it would be the first 
one to support the development of the entire municipal territory, covering both the urban and 
rural population. In addition, this would be one of the first WB municipal programs that would 
have the individual municipal borrowers working together to implement a common development 
program.  Finally, this program would contribute to our overall learning and policy analysis for 
municipal development in Brazil. 
 
2. Proposed objective(s) 
 
The program objective is to strengthen the capacity of the five municipal governments in fiscal 
management, delivery of selected infrastructure services and promotion of employment and 
income generating activities within their territorial jurisdiction, in a fiscally and environmentally 
sustainable manner. As a result of the project, it is expected that the quality of life of the 
population will improve.  In addition, the municipalities will have benefited from improved 
partnerships and enhanced capacity strengthening by working together on a common 
development agenda. 
 
3. Preliminary description 
 
Lending instrument: 
The program is designed as a horizontal APL, comprised of five 
individual loans to each municipality.  The purpose of using an APL is to:  
(a) contribute to establishing a common development agenda across the municipalities, and 
in support of the State development plan – Rumos 2015, while strengthening the 
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autonomy and capacity of each municipal government to implement an externally funded 
project of this magnitude  
(b) promote an increased focus on results-orientation by having common project components 
and, where relevant, similar results indicators across the 5 municipalities 
(c) promote economies of scale across the municipalities through common project 
implementation procedures, technical assistance, learning and sharing of best practices, 
(d)  reduce World Bank supervision and other transaction costs, and 
(e) contribute to the municipal learning agenda that the Bank is seeking to establish with 
federal authorities as a means to inform policy making based on practical experience.  
 
It is expected that all 5 projects would be appraised simultaneously, however, would be 
negotiated on an individual basis as soon as each municipality has received its respective 
authorization from the Ministry of Finance.  The first loan(s) would be presented to the Board 
with the Program Appraisal Document, and subsequent loans approved by the RVP. 
 
Project Costs: 
 SEAIN approved Cartas-Consulta in for the 5 municipalities in the following 
amounts: 
 
Bank Loan 
(US$M ) 
Counterpart 
(US$ M) 
Total Amount 
(US$) 
Bagé 6.83 
4.87 
11.70 
Pelotas 18.91 12.61  31.52 
Rio Grande 
16.35 
10.6 
26.95 
Santa Maria 
13.95 
9.3 
23.25 
Uruguaiana 6.84 
4.56 
11.40 
Total 62.88 
41.94 
104.82 
Project components:
 A common set of result indicators and project components will be 
implemented across the five municipalities, although the specific investment plans and activities 
will be customized to meet the respective development plans of each municipality.  The three 
project components and eligible expenditures are as follows  
 
Component 1: Municipal Strengthening (about 13% program total, $13M)
:
this component 
will focus on improving the capacity of the municipal government in:  
·
Fiscal management
,
including tax collection, cadastre and internal resource 
mobilization  
·
Strategic planning and budgeting
:
participatory planning processes for the PPA 
(and/or 
Plano Diretor
)
and improved transparency on plan implementation 
·
Project management
:
planning, budgeting, sub-project formulation and appraisal, 
implementation (procurement, works supervision, safeguards), financial management 
and reporting, M&E 
·
Strategies for improved delivery of selected 
infrastructure services
 (in support of 
Component 3) and addressing environmental aspects 
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·
Promoting income generation and employment: 
simplification of administrative 
procedures for business registration, operation and closing, as well as design and 
implementation of strategies for local economic development (financed through 
Component 2)  
·
Cross-municipal partnerships, knowledge exchange
 and learning with stakeholders 
involved in the program 
 
Component 2: Income and Employment Generation (about 18% of program total, $18M)
.
This component would support initiatives to generate employment and income in both urban and 
rural areas. Each municipality is being assisted to prepare a strategy to identify its productive 
potential, comparative advantages and competitive niches.  The analytical work produced as part 
of the State Development Plan (Rumos 2015) will contribute to this effort.  Although there will 
be special emphasis on direct project interventions to benefit the poor (such as facilitating access 
to micro-credit), support will also be provided to address key obstacles to growth faced by the 
larger and/or with greater potential productive sectors (for example, access to the knowledge 
economy).  Any activity financed under this component would need to be based on a sound 
business plan which shows the expected income and/or employment generation that is expected 
from the intervention.  Finally, the role of the municipal government will need to be clearly 
identified vis-
ŕ-vis the other state agencies that promote employment (such as SEBRAE, 
EMATER, etc), to avoid duplication of effort and ensure complementarity.  
 
The following types of activities have been identified: 
·
Supporting potential clusters of SMEs and encouraging the formalization of the 
informal sector
,
promoting entrepreneurship, training and technical assistance to 
companies, SMEs and cooperatives;  
·
Facilitating access of the very poor to (existing)
 micro-credit programs;
 
·
Provision of 
municipal markets
 and improved physical space for street vendors and 
creating incentives to formalize and regularize businesses ;  
·
Technology parks
 (in 2 municipalities) to promote innovation, R&D and value added 
expansion by bringing together skilled human capital, research institutes, public sector 
and private initiative;   
·
Promoting 
diversification and further processing levels in rural productive activities
,
including agriculture and fisheries, and increasing access of rural production to urban and 
more profitable markets. 
 
Component 3: Territorial Improvements  (about 70% of program total, $70M).
 
The project will assist the municipalities improve their ability to provide priority and selected 
infrastructure services to all inhabitants in their jurisdiction in an efficient and sustainable 
manner within the framework of a longer term development strategy.  However, due to limited 
resources, the project would in most cases only finance a portion of the total required 
investments (for example, upgrading just one neighborhood or expanding part of the sewer and 
treatment network), in order to assist the municipal government develop and test a 
methodological approach that could be replicated throughout the municipality.  
 
The following investment categories will be eligible: 
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·
Improvements in existing 
urban and rural transport systems
:
road rehabilitation, street 
paving, upgrading existing roads and small bridges, improved drainage, bicycle paths 
·
Water supply, sanitation, drainage and solid waste management
 in urban and rural 
areas 
·
Urban upgrading, housing
 and social improvements in poor neighborhoods  
·
Environmental protection
 including recovery of urban parks and watershed protection 
 
4.  Safeguard policies that might apply 
 
The project is expected to have positive environmental impact in the long-run, since it aims at 
reducing environmental degradation and improving the quality of basic services and public 
transport and non-motorized transport systems.  
 
While environment and cultural property may be triggered by the project, eligibility for funding 
is based on a strict screening to ensure that these safeguards are in accordance and satisfy the 
Bank’s appropriate guidelines.  Although it is envisaged that the Involuntary Resettlement Policy 
(OP/BP 4.21) may not be triggered, a framework will be developed to be used in case of any 
resettlement action plan being needed.  In addition, the application of other safeguard policies, 
such as natural habitats, pest management and indigenous peoples, although not expected to be 
triggered, will be assessed during project preparation once the detailed list of sub-projects is 
defined. 
 
The environmental and social work for this project will include the following:  (i) a standardized 
environmental and social screening
 form will be prepared and training will be provided to 
responsible agencies in each city for screening of sub-project sites; (ii) 
Terms of Reference for 
Preparing a Strategy for Slum Upgrading 
will be finalized prior to appraisal to address slum 
dwellers and poor communities living in environmental risk areas in selected cities; (iii) an 
Environmental and Social Management Framework (EMSF)
 
will be prepared prior to appraisal; 
(iv) a 
Resettlement Policy Framework (RPF)
 will be prepared prior to appraisal in accordance 
with OP 4.12; (v) an 
environmental and social management capacity building plan
 will be 
prepared at the regional level and included in the municipal strengthening component of the 
project.
 
5. Tentative financing 
Source: ($m.) 
Borrower 9.25 
International Bank for Reconstruction and Development 
13.95 
 Total 
23.2 
 
6. Contact point 
Contact: Jennifer Sara 
Title: Sector Leader 
Tel: 55-61-3329-8606 
Fax: 55-61-3329-1010 
Email: jsara@worldbank.org
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