Document of The World Bank FOR OFFICIAL USE ONLY Report No: PAD2057 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$200 MILLION TO THE ARGENTINE REPUBLIC FOR A INTEGRATED HABITAT AND HOUSING PROJECT February 3, 2017 Social, Urban, Rural and Resilience Global Practice LATIN AMERICA AND CARIBBEAN REGION This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective January 20, 2017) Argentine pesos Currency Unit = (AR$) AR$15.87 = US$1 US$ 0.063 = AR$1 FISCAL YEAR January 1 - December 31 Regional Vice President: Jorge Familiar Country Director: Jesko S. Hentschel Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez Practice Manager: Ming Zhang Task Team Leader(s): Angelica Nunez del Campo, John Morton ABBREVIATIONS AND ACRONYMS AABE Agency for Public Assets Administration (Agencia de Administración de Bienes del Estado) AFIP Internal Revenue Administration (Administración Federal de Ingresos Públicos) ANSES Social Security Administration (Administración Nacional de Seguridad Social) BCRA Central Bank of the Republic of Argentina (Banco Central de la República Argentina) CPS Country Partnership Strategy DA Designated Account GDP Gross Domestic Product EA Environmental Assessment ESMF Environmental and Social Management Framework ESMP Environmental and Social Management Plan FGS Sustainable Guarantee Fund (Fondo de Garantía de Sustentabilidad) FM Financial Management GOA Government of Argentina GRS Grievance Redress Service IADB Inter-American Development Bank IBRD International Bank for Reconstruction and Development INDEC National Statistics and Census Institute (Instituto Nacional de Estadística y Censos) IPPF Indigenous Peoples Planning Framework IPV Provincial Housing Institute (Instituto Provincial de Vivienda) IRR Internal Rate of Return LGBTI Lesbian, Gay, Bisexual, Trans and/or Intersex LTV Loan To Value M&E Monitoring and Evaluation MW Minimum Wage (Salario Mínimo, Vital y Móvil) MIOPV Ministry of Interior, Public Works and Housing (Ministerio del Interior, Obras Públicas y Vivienda) NGO Non-Governmental Organization NFSA Trust Fund (Nación Fideicomiso Sociedad Anónima) NPV Net Present Value PDO Project Development Objective PROCREAR Argentina’s Bicentenary Credit Program (Programa Crédito Argentino del Bicentenario) PROMEBA Neighborhood Improvement Program (Programa de Mejoramiento de Barrios) SCPP Housing Solution Program (Línea Solución Casa Propia) SSDUV Under Secretariat for Urban Development and Housing (Subsecretaría de Desarrollo Urbano y Vivienda) SSHDH Under Secretariat for Habitat and Human Development (Subsecretaría de Hábitat y Desarrollo Humano) SVH Secretariat for Housing and Habitat (Secretaría de Vivienda y Hábitat) TOR Terms Of Reference UCN National Coordination Unit (Unidad de Coordinación Nacional) UVA Indexed Value Unit (Unidades de Valor Adquisitivo) The World Bank Integrated Habitat and Housing Project (P159929) BASIC INFORMATION Is this a regionally tagged project? Country(ies) Lending Instrument No Investment Project Financing [ ] Situations of Urgent Need of Assistance or Capacity Constraints [ ] Financial Intermediaries [ ] Series of Projects Approval Date Closing Date Environmental Assessment Category 27-Feb-2017 31-Aug-2022 B - Partial Assessment Bank/IFC Collaboration No Proposed Development Objective(s) The proposed Project's development objectives are to: (i) increase access to formal housing for eligible households; and (ii) improve living conditions for households in selected precarious urban settlements. Components Component Name Cost (US$, millions) Increased Access to Formal Housing 45.00 Integrated Habitat Improvement 145.00 Institutional Strengthening 11.00 Project Management 4.50 Front End Fee 0.50 Page 1 of 91 The World Bank Integrated Habitat and Housing Project (P159929) Organizations Borrower : Republic of Argentina Implementing Agency : Secretaria de Vivienda y Habitat [✔] [ ✔ ] IBRD [ ] IDA Credit [ ] IDA Grant [ ] Trust [ ] Counterpart Funds Parallel Funding [ ] Crisis Response [ ] Crisis Response Financing Window Window [ ] Regional Projects [ ] Regional Projects Window Window Total Project Cost: Total Financing: Financing Gap: 206.00 206.00 0.00 Of Which Bank Financing (IBRD/IDA): 200.00 Financing (in US$, millions) Financing Source Amount Borrower 6.00 IBRD-87120 200.00 Total 206.00 Expected Disbursements (in US$, millions) Fiscal Year 2017 2018 2019 2020 2021 2022 2023 Annual 0.00 54.00 32.00 50.00 46.00 18.00 0.00 Cumulative 0.00 54.00 86.00 136.00 182.00 200.00 200.00 Page 2 of 91 The World Bank Integrated Habitat and Housing Project (P159929) INSTITUTIONAL DATA Practice Area (Lead) Social, Urban, Rural and Resilience Global Practice Contributing Practice Areas Finance & Markets Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of country gaps identified through SCD and CPF Yes b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment Yes c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance � Moderate 2. Macroeconomic � Substantial 3. Sector Strategies and Policies � Moderate 4. Technical Design of Project or Program � Substantial 5. Institutional Capacity for Implementation and Sustainability � Substantial 6. Fiduciary � Substantial 7. Environment and Social � Moderate 8. Stakeholders � Substantial 9. Other 10. Overall � Substantial Page 3 of 91 The World Bank Integrated Habitat and Housing Project (P159929) COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✔] No Does the project require any waivers of Bank policies? [ ] Yes [✔] No Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 ✔ Natural Habitats OP/BP 4.04 ✔ Forests OP/BP 4.36 ✔ Pest Management OP 4.09 ✔ Physical Cultural Resources OP/BP 4.11 ✔ Indigenous Peoples OP/BP 4.10 ✔ Involuntary Resettlement OP/BP 4.12 ✔ Safety of Dams OP/BP 4.37 ✔ Projects on International Waterways OP/BP 7.50 ✔ Projects in Disputed Areas OP/BP 7.60 ✔ Legal Covenants Sections and Description Project Implementation Unit. Section I.A.1 of Schedule 2 to the Loan Agreement. The Borrower, through SVH, shall establish, and thereafter operate and maintain, at all times during Project implementation, a Project implementation unit (“PIU�), with structure, functions and responsibilities acceptable to the Bank, as set forth in the Operational Manual. Safeguards. Section I.F.1 of Schedule 2 to the Loan Agreement. The Borrower, through SVH, shall, and shall cause each Participating Entity, to implement the parts of the Project under their responsibility in accordance with the Environmental and Social Management Framework (ESMF), the Resettlement Policy Framework (RPF) and the Indigenous Peoples Planning Framework (IPPF). Page 4 of 91 The World Bank Integrated Habitat and Housing Project (P159929) Environmental/social management plan. Section I.F.2 of Schedule 2 to the Loan Agreement. Upon the definition of detailed technical designs in respect of each investment (involving works) under any given Subproject (including, if applicable, the definition of detailed technical designs for the construction of houses in the event that, as part of Resettlement compensation under any given Subproject, it is determined by the Borrower that construction of houses will be required, as provided for in Part 2 (e) (ii) of the Project), and prior to the carrying out of each said works, the Borrower, through SVH, shall or shall cause each Participating Entity to: (a) carry out and/or cause to be carried out an environmental/social assessment of the pertinent works, and based on the results of said assessment as determined by the Bank, approve and/or cause to be approved an environmental/social management plan, acceptable to the Bank, for each said works (which plan shall be based on the results of the environmental/social assessment mentioned herein, and the Bank’s comments on the results of said assessment, if any), all in accordance with the provisions of the Environmental and Social Management Framework; and (b) immediately after said approval, implement and/or cause to be implemented (as the case may be) the corresponding environmental/social management plan in accordance with its terms, and in a manner acceptable to the Bank. Resettlement plan. Section I.F.3 of Schedule 2 to the Loan Agreement. Upon the definition of detailed technical designs and precise siting alignments in respect of each investment (involving works) under any given Subproject (including, if applicable, the definition of detailed technical designs and precise siting alignments in respect of the construction of houses in the event that, as part of Resettlement compensation under any given Subproject, it is determined by the Borrower that construction of houses will be required, as provided for in Part 2 (e) (ii) of the Project), if it is determined by the Bank that Resettlement will be involved, the Borrower shall, or shall cause the Participating Entity to, prior to the carrying out of each said works: (a) prepare and furnish to the Bank, a resettlement plan, acceptable to the Bank (which plan shall be consistent with the pertinent provisions of the Resettlement Policy Framework); and (b) immediately thereafter, implement said resettlement plan in accordance with its terms and in a manner acceptable to the Bank. Indigenous Peoples Plan. Section I.F.4 of Schedule 2 to the Loan Agreement With respect to the carrying out of any given activity under Part 2 of the Project (including, the construction of houses in the event that, as part of Resettlement compensation under any given Subproject, it is determined by the Borrower that construction of houses will be required, as provided for in Part 2 (e) (ii) of the Project), and when so determined by the Bank as set forth in the IPPF, the Borrower, through SVH, shall, or shall cause the Participating Entity to, prior to the carrying out of any said activities and/or works (as the case may be): (a) prepare and/or cause to be prepared and furnish to the Bank, an indigenous peoples’ plan, acceptable to the Bank (which plan shall be consistent with the pertinent provisions of the IPPF); and (b) thereafter, adopt and implement (and/or cause to be adopted and implemented) said indigenous peoples’ plan in accordance with its terms and in a manner acceptable to the Bank. Technical Assistance. Section I.F.5 of Schedule 2 to the Loan Agreement The Borrower, through SVH, shall ensure that the terms of reference for any consultancies related to the technical assistance provided under Part 3 of the Page 5 of 91 The World Bank Integrated Habitat and Housing Project (P159929) Project, shall be acceptable to the Bank following its review thereof and, to that end, such terms of reference shall duly incorporate the requirement of the Bank’s Safeguard Policies then in force, as applied to the advice conveyed through such technical assistance. Conditions Type Description Effectiveness Article V, 5.01: The additional effectiveness conditions consist of the following: (a) that the PIU has been established as provided in Section I.A of Schedule 2 to the Loan Agreement, and in a manner satisfactory to the Bank; (b) that the Borrower has adopted the Operational Manual in a manner satisfactory to the Bank; and (c) that at least two Framework Agreements have been executed. Type Description Disbursement PROCREAR Agreement. Section I.A.3 (a) of Schedule 2 to the Loan Agreement. Prior to the provision of any Upfront Subsidies under Part 1 of the Project, the Borrower, through SVH shall enter into an agreement with PROCREAR (the PROCREAR Agreement), under terms and conditions acceptable to the Bank and detailed in the Operational Manual Type Description Disbursement Financial Institution Agreement. Section I.A.3 (b) of Schedule 2 to the Loan Agreement. Prior to the provision of any Upfront Subsidies under Part 1 of the Project, the Borrower, through SVH shall enter into an agreement with NFSA (on behalf of PROCREAR) and the pertinent Participating Financial Institution (the Financial Institution Agreement), under terms and conditions acceptable to the Bank and detailed in the Operational Manual. Type Description Disbursement Framework Agreement. Section I.B.1 of Schedule 2 to the Loan Agreement. Prior to the carrying out of any Sub-project under Part 2 of the Project, the Borrower, through SVH, shall enter into an agreement with the pertinent Participating Entity (the Framework Agreement) under terms and conditions acceptable to the Bank. Page 6 of 91 The World Bank Integrated Habitat and Housing Project (P159929) PROJECT TEAM Bank Staff Name Role Specialization Unit Team Leader(ADM Angelica Nunez del Campo Senior Urban Specialist OPSPQ Responsible) John Morton Team Leader Senior Urban Specialist GSU10 Procurement Specialist(ADM Ana Maria Grofsmacht Procurement Specialist GGO04 Responsible) Juan Carlos Serrano- Financial Management Senior Financial Management GGO22 Machorro Specialist Specialist Carlos Alberto Molina Safeguards Specialist Social Development GSU04 Prieto Catalina Marulanda Team Member Practice Manager GSU12 Fabiola Altimari Montiel Counsel Senior Counsel LEGLE Jose C. Janeiro Team Member Senior Finance Officer WFALA Loic Chiquier Team Member Senior Adviser GFM3A Luis Miguel Triveno Chan Team Member Urban Specialist GSU10 Jan Maria Pia Cravero Team Member Junior Counsel LEGLE Martin Ariel Sabbatella Team Member Procurement Specialist GGO04 Ondina Francisca Rocca Team Member Urban Specialist GSU10 Paula Agostina Di Crocco Team Member Financial Management Analyst GGO22 Santiago Ezequiel Arias Team Member Transport Specialist GTI04 Santiago Scialabba Safeguards Specialist Social Development LCC7C Senior Financial Sector Steen Byskov Team Member GFM04 Economist Tuuli Johanna Bernardini Safeguards Specialist Environmental Specialist GEN04 Extended Team Name Title Organization Location Page 7 of 91 The World Bank Integrated Habitat and Housing Project (P159929) ARGENTINA INTEGRATED HABITAT AND HOUSING PROJECT TABLE OF CONTENTS I. STRATEGIC CONTEXT ...................................................................................................... 1 A. Country Context ................................................................................................................. 1 B. Sectoral and Institutional Context ..................................................................................... 2 C. Higher Level Objectives to which the Project Contributes ............................................... 4 II. PROJECT DEVELOPMENT OBJECTIVES .............................................................................. 5 A. PDO ..................................................................................................................................... 5 B. Project Beneficiaries ........................................................................................................... 5 C. PDO-Level Results Indicators ............................................................................................. 5 III. PROJECT DESCRIPTION.................................................................................................... 6 A. Project Components ........................................................................................................... 6 B. Project Cost and Financing ................................................................................................. 9 C. Lessons Learned and Reflected in the Project Design ....................................................... 9 IV. IMPLEMENTATION........................................................................................................ 10 A. Institutional and Implementation Arrangements ........................................................... 10 B. Results Monitoring and Evaluation ................................................................................. 11 C. Sustainability .................................................................................................................... 11 D. Role of Partners ................................................................................................................ 12 V. KEY RISKS ..................................................................................................................... 12 A. Overall Risk Rating and Explanation of Key Risks ........................................................... 12 VI. APPRAISAL SUMMARY .................................................................................................. 13 A. Economic and Financial (if applicable) Analysis .............................................................. 13 B. Technical ........................................................................................................................... 14 C. Financial Management ..................................................................................................... 14 D. Procurement ..................................................................................................................... 15 E. Social (including Safeguards) ............................................................................................ 15 F. Environment (including Safeguards) ................................................................................ 16 G. Other Safeguard Policies (if applicable) .......................................................................... 17 Page 8 of 91 The World Bank Integrated Habitat and Housing Project (P159929) H. World Bank Grievance Redress ....................................................................................... 17 VII. RESULTS FRAMEWORK AND MONITORING .................................................................... 19 ANNEX 1: DETAILED PROJECT DESCRIPTION ......................................................................... 29 ANNEX 2: IMPLEMENTATION ARRANGEMENTS .................................................................... 44 ANNEX 3: IMPLEMENTATION SUPPORT PLAN ...................................................................... 67 ANNEX 4: EXPERIENCE OF NEIGHBORHOOD IMPROVEMENT PROGRAMS IN ARGENTINA…….82 ANNEX 5: ECONOMIC ANALYSIS…………………………………………………………………………………………..86 Page 9 of 91 The World Bank Integrated Habitat and Housing Project (P159929) I. STRATEGIC CONTEXT A. Country Context 1. After taking office in December 2015, the new Argentine Government moved with speed to implement macroeconomic and structural reforms. These include inter alia (a) the elimination of export taxes on major crops, beef, and most industrial manufacturing products and the reduction by 5 percent of export taxes on soy; (b) the unification of the exchange rate, effectively ending most foreign exchange restrictions; (c) moving from a system of discretionary- to automatically-provided import licenses in line with World Trade Organization procedures; (d) resolution of the dispute with holdout creditors; and (e) measures to enhance public transparency and accountability. In addition, the National Institute for Statistics launched a new inflation index and improved the overall quality and reliability of statistics. Electricity tariffs and transport fees were increased to improve financial and fiscal, while protecting low-income users with a social tariff. Broader efforts to reduce energy subsidies (which account for a large portion of fiscal deficit) are under way, paired with measures to protect the poor. 2. Economic activity is estimated to have contracted in 2016, but growth is expected in 2017. Economic activity is estimated to have contracted by 2.3 percent1 during 2016, taking a toll on labor markets, where 92,0002 formal private sector jobs were lost since October 2015 (1.5 percent of total employment). The economic contraction has been decelerating during the second semester of 2016 and economic growth is expected in 2017 (+2.7 percent3) on the assumption that the positive impact of recent policy changes kicks in and the global economy recovers. Demand from key trading partners is expected to strengthen. During the last two months of 2016, exports to Brazil and China grew by 30 percent and 18 percent, respectively, compared to the same period in 2015.4 The median estimate for inflation for 2016 is 40 percent,5 mostly due to currency depreciation and the reduction of energy and transport subsidies. Inflation has decelerated since August 2016. The central government primary deficit in 2016 was in line with the target established (-4.8 percent). Fiscal consolidation in 2017 will be more gradual than originally planned in part due to increased social spending, including the adjustment of pension transfers, and higher public investment. 3. The Argentine Government has started to address the key macroeconomic imbalances with the objective of creating an environment conducive to economic growth and employment creation. Argentina offers many opportunities in a weak global environment, and there is a strong interest from foreign investors and firms. Going forward, Argentina aims to continue building a growth enabling policy framework to enhance credibility and support broad based growth and quality employment. In 1 Source: World Bank Group. 2017. Global Economic Prospects, January 2017 Weak Investment in Uncertain Times. Washington, DC: World Bank. doi:10.1596/978-1-4648-1016-9. 2 Source: Ministerio de Trabajo, Empleo y Seguridad Social 3 Source: World Bank Group. 2017. Global Economic Prospects, January 2017 Weak Investment in Uncertain Times . Washington, DC: World Bank. doi:10.1596/978-1-4648-1016-9. 4 Source: National Institute of Statistics and Census of Argentina (Instituto Nacional de Estadística y Censos - INDEC) 5 Source: Banco Central de la República Argentina. 2016. Resultados del Relevamiento de Expectativas de Mercado (REM), December 2016. Page 1 of 91 The World Bank Integrated Habitat and Housing Project (P159929) particular, the following policies will be important to permanently reduce inflation and put Argentina on a sustainable growth path: (a) increase public spending efficiency as well as its efficacy and reduce the fiscal deficit in line with government targets; (b) continue fostering the credibility of the Central Bank so that monetary policy can further anchor inflation expectations; (c) strengthen competitiveness and productivity through an improved business environment and investments in infrastructure and increasing competition in markets and improving the regulatory framework in sectors; (d) continue strengthening the credibility of official statistics; and (e) continue improving the provision of public goods (including transportation, health, and education) and reducing regional disparities. B. Sectoral and Institutional Context 4. Argentina’s housing deficit increased during the last decade and the sector has been dominated by limited provision of public housing. Around 230,000 households are formed every year, yet the formal market is only able to produce an estimated 190,000 housing units annually. As a result, every year, the deficit (which already affects 29 percent of total households), continues to increase. Almost two thirds of this deficit is qualitative (units built with precarious materials, without access to basic services and/or without tenure security), yet the quantitative deficit (households living in overcrowding conditions, or in unrecoverable dwellings) has been increasing at a higher rate, compared to the qualitative deficit, in recent years (44 percent) mostly due to lack of access to housing finance. High nominal interest rates inhibited the provision of long term housing finance from the private sector (even for middle-income households) as inflation-indexed lending was unavailable until recently. As a consequence, the value of mortgages as a proportion of GDP has steadily declined (from 4 percent in the early 2000s to 0.6 percent in 2015)6 and only 12 percent of bank transactions are related to housing finance. The result has been a stagnant housing sector dominated by a limited provision of public housing (directly or through the provision of subsidized housing finance from public banks) which has limited access and affordability7. 5. The housing deficit combined with domestic and international migration to urban centers has led to the proliferation of informal settlement with limited access to basic services . Approximately 18 percent of the population in the country lives in informal settlements (“villas� and “asentamientos urbanos�) and 24 percent of these settlements are less than 10 years old. This trend contrasts with many other countries in the Region that have managed to increase housing supply and contain the proliferation of informal settlements. In 2010, one in four households in these areas lacked access to the water network, and one in two households lacked access to both water and sanitation networks. The likelihood of not having waste collection services is five times higher for residents in informal settlements and 40 percent of households in these settlements are less than three blocks away from an open dumpsite8. In addition, the location of many communities in flood prone areas makes them subject to regular flood events and vulnerable to the anticipated increased impacts of flooding in Argentina as a result of climate change9. 6 National Statistics and Census Institute (Instituto Nacional de Estadística y Censos, INDEC), 2016 7 Recent studies have suggested that under current market conditions only 10 to 20 percent of the population would have access to housing through traditional financing. 8 Building Clean and Inclusive Cities in Argentina, World Bank, 2016. 9 The Project was screened using the Bank's Climate and Disaster Risk Screening Project Level Tool. The Project ’s investments in precarious urban settlements are considered to be “Moderately Exposed� to risks, with the highest exposure related to heat Page 2 of 91 The World Bank Integrated Habitat and Housing Project (P159929) 6. The low socio-economic indicators and lack of social services in informal settlements is a major barrier to inclusive growth. On average, only one third of adults aged 25 in informal settlements have completed high school, compared to three quarters nationally. Unemployment and underemployment are common and job opportunities are often limited to informal sector jobs. In addition, infant mortality is 25 percent higher than the national average; violent death of teenagers is three times the national average and the incidence of tuberculosis is four times the national average. Social issues identified in informal settlements also include gender-based violence, lack of gender sensitive social programs (e.g., those catering to single mothers), property ownership, as well as rights and roles in decision making processes. Although the needs are high, households living in precarious urban settlements lack social and community services, including health care, day care for children, green areas, schools, recreational activities and community centers. This lack of access to services reinforces the vicious cycle of poverty and inequality, leads to social divisions, and prevents households from full inclusion in the formal economy. 7. The National Housing and Habitat Plan (Plan Nacional de Vivienda y Hábitat) contains a two pronged strategy to increase access to housing and reduce the proliferation of informal settlements. The recently launched Plan includes a US$ 6.4 billion investment program to be implemented between 2016 and 2019 that aims to provide over 1 million housing interventions by 2019 (tackling both quantitative and qualitative deficits). The Plan, to be implemented by the Secretariat of Housing and Habitat (Secretaría de Vivienda y Hábitat, SVH) of the Ministry of Interior, Public Works and Housing (Ministerio del Interior, Obras Públicas y Vivienda, MIOPV) includes a new program to increase access to affordable formal housing to address the unmet demand for housing that causes the growth of informal settlements (the flow); and specific programs to improve the living conditions of those currently living in precarious settlements (the stock). The proposed Project will support these two initiatives by providing financing for the following programs: a. The Housing Solution Program (the Línea “Solución Casa Propia� Program, SCPP), represents a policy shift from public housing provision into a more sustainable system that leverages private sector financing and household savings. Before 2016, the most important national government housing program, Argentina’s Bicentenary Credit Program (Programa Crédito Argentino del Bicentenario, PROCREAR), focused on government-led supply of housing units and interest rate subsidies for housing acquisition or construction. The traditional programs providing credit lines for housing construction under the PROCREAR Program have been phased out; instead, a demand-side up-front subsidy program was introduced with the World Bank’s technical assistance. The new scheme, to be operated by the Under Secretariat of Urban Development and Housing (Subsecretaría de Desarrollo Urbano y Vivienda, SSDUV), will provide a lump-sum subsidy linked to a mortgage loan from the open market to eligible households to improve affordability for the purchase of a housing unit. The new SCPP, builds upon the recent legal introduction of indexed waves and floods. Climate model projections indicate that, in the future, north of Patagonia (including all the selected urban agglomerations), extreme precipitation over 1-5 days will increase in amount and frequency. The average temperature is expected to increase 0.5 degrees by 2050 countrywide and the projected number of days with heat waves is higher in the north and especially in the northwest (including two agglomerations initially targeted under the project, Greater San Miguel and San Salvador) of the country where it would increase to more than 60 days in the near future. Source: Third National Communication of the Argentine Republic. Page 3 of 91 The World Bank Integrated Habitat and Housing Project (P159929) lending, which enables the provision of mortgage loans with lower real interest rates, making the repayment more feasible for many.10 The Bank’s support to the new Program is important as it is contributing technical capacity and lessons learned from international experiences, as well as providing credibility to the SCPP in the medium term. b. Under the National Housing and Habitat Plan, investment programs in precarious settlements will be consolidated and mainstreamed into the Under Secretariat for Habitat and Human Development (Subsecretaría de Hábitat y Desarrollo Humano, SSHDH)’s priorities and functions and scaled up. There have been a variety of programs11 in Argentina using multi-lateral and federal funding sources to support investments in precarious urban settlements. As part of the National Housing and Habitat Plan, the SSHDH is seeking to consolidate these programs and build on their successes by aligning the SSHDH’s institutional priorities and functions to deliver better results with significantly higher levels of investment. The number of interventions per year will be increased by an order of magnitude; methodologies for investment development and design used in these programs have been adjusted and applied more systematically; and a reorganization has taken place in the SSHDH to include in their core functions, task related to the management of these investments. The SSHDH plans to roll out this new institutional structure over the next two years. C. Higher Level Objectives to which the Project Contributes 8. The proposed Project is well aligned with the GOA’s objective of zero poverty and with its sectoral priorities reflected in the National Housing and Habitat Plan for 2016-2019, in particular to reduce the housing deficit and socio-spatial fragmentation. The Project will directly support the implementation of the Plan through: (i) supporting the new housing strategy to increase access to affordable formal housing for families that cannot access formal housing and therefore contribute to government efforts to prevent the creation of new and the expansion of existing slums ( the flow), and (ii) improving the living conditions of the poorest households living in precarious urban settlements (the stock). 9. The Project design also directly contributes to the World Bank corporate goals of reducing poverty and promoting shared prosperity, in a sustainable manner. The Project will contribute to the World Bank corporate goals by tackling the qualitative and quantitative housing deficits in the country. Several studies have shown that qualitative improvements in housing units are linked to a decreased incidence of digestive and respiratory illnesses, particularly in children and infants; improvements in 10 Law S-976/16, August 2016. With nominal interest rate loans priced around 25 percent, nominal mortgages are today unaffordable for many households. The amortization schedule for real interest rate lending maintains constant real payments, whereas nominal loans maintain constant nominal payments. This difference leads to greater affordability in the early years of the loan. 11 These programs include the National Neighborhood Improvement Program (PROMEBA I, II and III); the Social Development Program in Border areas of the Northeast and Northwest (PROSOFA I and II), the Program for Housing and Basic Infrastructure Improvement (PROMHIB), and the Potable Water, Social Help and Basic Sanitation (PROPASA) and Rosario Habitat. The PROMEBA program in particular has used Inter-American Development Bank (IADB) financing to provide US$852 million in financing for neighborhood improvement and cumulatively benefitting 200,000 people. Page 4 of 91 The World Bank Integrated Habitat and Housing Project (P159929) school attendance and performance rates; and reductions in violence and unemployment rates.12 Conversely, the provision of subsidies for affordable housing will assist in containing the creation of new settlements, while improving living conditions of the beneficiaries (through positive externalities such as better public health, better education outcomes for children, wealth creation13), and stimulating inclusive urban growth. The Project will also help build more resilient communities through better services and the implementation of works to reduce environmental risks, including those related to climate change. This is consistent with Sustainable Development Goal No. 11 - “Make cities inclusive, safe, resilient and sustainable�. 10. The Project is fully aligned with the Argentina Country Partnership Strategy (CPS) FY15-18.14 The Project will contribute to: (i) CPS Objective 2, ‘Supporting Agglomeration Economies’ Reach Low- income Areas’, by better integrating informal settlements into the urban fabric; and (ii) CPS Objective 4, ‘Increasing access to electricity, safe drinking water, housing and sanitation and services for the bottom 40 percent in low-income provinces and areas’, by enhancing the delivery of basic services in disadvantaged neighborhoods and by providing access to formal housing for households with no access. The Project builds on the recent analytical work developed under the Agglomeration Economies and Resilience Programmatic Approach (P153198). Together with the Metropolitan Buenos Aires Urban Transformation Project (P159843)15, this proposed operation is part of a programmatic engagement to improve the performance of, and boost the opportunities associated with, urban agglomerations in Argentina. II. PROJECT DEVELOPMENT OBJECTIVES A. PDO 11. The Project Development Objectives (PDO) are to: (i) increase access to formal housing for eligible households; and (ii) improve living conditions for households in selected precarious urban settlements. B. Project Beneficiaries 12. The Project will directly benefit: (i) an estimated 3,000 households with access to formal housing; and (ii) an estimated 18,000 households in selected precarious settlements with improved living conditions. C. PDO-Level Results Indicators 13. The key PDO level results indicator for the proposed Project are the following (all three indicators will be gender disaggregated): 12 For the relationship between housing and education attainment and between housing and job creation see Annex 5. 13 Maintenance and appearance of the house have strong spillover effects on the neighborhood. Houses tend to be better maintained by owner-occupiers than by renters, and the evidence tends to confirm that the former appreciate more than the latter. (Rossi-Hansberg, E., P.D. Sarte and R. Owens III (2010) Housing Externalities, Journal of Political Economy, 2010, vol. 118 (3), the University of Chicago.) 14 Report No. 81361-AR, discussed by the Board on September 9, 2014. 15 The project focuses on interventions to improve access to basic services for populations living in disadvantaged neighborhoods within the Metropolitan Area of Buenos Aires. Page 5 of 91 The World Bank Integrated Habitat and Housing Project (P159929) (i) Direct Project beneficiaries (ii) Number of eligible households with access to formal housing (iii) Number of households with improved living conditions in selected precarious urban settlements III. PROJECT DESCRIPTION A. Project Components 14. The Project will support selected elements of the Government’s National Plan for Housing and Habitat, which aims to advance policies to increase access to affordable formal housing (Component 1), thereby preventing the creation or expansion of slums; and improve the living conditions in existing precarious urban settlements (Component 2). 15. Component 1: Increased access to formal housing (US$ 45 million, 100 percent IBRD financing). This component will finance the provision of up-front subsidies to selected beneficiaries16. It will support the roll-out of the first nation-wide demand-driven housing subsidy program, the Solucion Casa Propia Program (SCPP). The SCPP is the new scheme launched under the PROCREAR umbrella. It follows the ABC scheme (Ahorro, Bono, Crédito or Saving, Subsidy and Mortgage) where beneficiary households receive an upfront subsidy to supplement their savings, and a mortgage loan from a financial institution (public or private). The subsidy amount depends on the demographic composition of the household and house price (e.g. a smaller subsidy for higher price units), and has been calibrated to cover around 10 to 30 percent of the value of the house (see Table 1). See Annex 1 for more details on SCPP. 16. The Program offers a relatively high subsidy amount (in particular compared to other countries in the Region) given: (i) the very high prices of real estate in the country, as supply has decreased in the last decade; (ii) the fact that the SCPP intends to act as a powerful incentive for banks and developers and will be operating initially in the absence of a real housing finance market for the eligible income bracket, and (iii) the high construction costs that are partially due to high building standards for affordable housing. It is expected that in the medium term, as developers and banks return to the affordable housing segment, the subsidy amount and eligibility parameters will be gradually calibrated down-market. Table 1: Subsidy amount (AR$) House price: Equal or below AR$1 million Above AR$1 million and equal or below AR$1.5 million Demographic situation Without dependent children 200,000 100,000 With dependent children 300,000 200,000 16 Eligible Households are defined in the Program´s Operational Manual. Among other requirements beneficiaries must be formally-employed, earn between 2 and 4 MW, and not be homeowners Page 6 of 91 The World Bank Integrated Habitat and Housing Project (P159929) 17. Selected beneficiaries apply for an indexed mortgage loan in one of the participating banks (currently 14 banks are participating under the Program) and select a house in the open market. 17 The house should meet the subsidy program’s parameters in terms of price and quality and the bank’s requirements for mortgage origination (a third party appraisal is mandatory for mortgage financing). 18. Component 2: Integrated habitat improvement (US$ 145 million, 100 percent IBRD financing). This component will finance subproject interventions in precarious urban settlements that meet basic eligibility criteria. Each subproject will aim to transform the settlements (both physically and socially) through integrated interventions to provide secure legal tenure, access to basic services, public spaces, community infrastructure, works to reduce environmental risks, including those related to climate change and social programs, such as gender specific programs. Each subproject will be designed and implemented in a participatory manner (consultations will include the GOA, civil society and private sector service providers), leveraging existing programs and services. This component will finance the following investments: (a) Provision of infrastructure and technical assistance for basic services, through, inter alia: (i) the carrying out of the design, implementation and supervision of an integrated package of investments, including potable water, storm drainage and sewerage investments, gas distribution networks and electricity connections; (ii) the carrying out of infrastructure and provision of equipment to connect houses to the existing main water, sewerage and drainage, gas and/or electricity networks, as the case may be; (b) Provision of infrastructure for improved public spaces and community infrastructure, including, inter alia: (i) street lighting; (ii) road and pedestrian paths; (iii) improvement of public spaces and green areas; (iv) environmental mitigation works to reduce environmental risks; and (v) community, recreational and social service facilities; (c) Carrying out of human development activities, including, inter alia: (i) activities to promote community and civil society participation in the Project design and implementation; (ii) design and implementation of community social, economic and cultural programs; (iii) establishment and startup of community centers, including the provision of equipment; (iv) provision of legal and logistic support to strengthen community based organizations and community activities; and (v) provision of support to interdisciplinary field teams; (d) Provision of technical assistance to support improved security of land tenure, including, inter alia, the provision of legal assistance for parcel formalization, including an analysis of the applicable legal and regulatory framework related to land tenure, and the carrying out of measurement plans, physical demarcation, cadastral incorporation of new plots and activities (including administrative support), to facilitate the physical and legal regularization of land parcels, and (e) If applicable the project may finance: (i) provision of land and compensation; and (ii) construction of houses; all in connection with Resettlement under subprojects. 17 More details on the recently issued indexation mechanism are included in Annex 1. Page 7 of 91 The World Bank Integrated Habitat and Housing Project (P159929) 19. The eligibility criteria for subprojects are described in Table 2 below. Five urban agglomerations (Greater San Miguel de Tucumán, Greater Córdoba, Greater Mendoza, San Salvador de Jujuy - Palpalá and Mar del Plata-Batán) have been initially selected as areas for intervention. These were chosen on the basis of: (i) ensuring the inclusion of lower income provinces and municipalities in the North consistent with the CPS’s strategic goal of increasing financial flows to these areas; (ii) allowing a diverse geographic distribution so as to provide a representative sample of agglomerations in the country and ensure that benefits reach a diversity of regions; and (iii) helping facilitate execution by using implementing agencies with experience under PROMEBA or with other multilateral lending projects. 20. The geographical scope of Component 2 may be expanded to include subprojects in more of the 31 main urban agglomerations in the country and for this purpose it is expected that between five to ten additional provinces or municipalities may be included in the project. These could be added provided there is (i) demand for eligible subprojects in eligible precarious urban settlements that are prioritized by SSHDH; and (ii) upon confirmation that adequate capacity exists in the provincial or municipal executing agency (see Annex 2 for details on the criteria and process). A list of potential subprojects is included in Annex 1. Table 2: Eligibility Criteria for Precarious Urban Settlement Interventions Criteria Definition / Source Located in an urban agglomeration As defined by INDEC (Encuesta Permanente de Hogares) Index of quality of living conditions in the settlement is INDEC - Calidad de la Situación Habitacional lower than the average for the agglomeration. Minimum size of the settlement is 200 households. Subproject description (Ficha de Subproyecto) The beneficiary population at the time of identification Subproject description (Ficha de Subproyecto) has an average time of residency of 4 years. Land where the settlement is located is Public or it can As confirmed by the local land authority; to be be legally subdivided and transferred to households. included in the subproject description Settlement area is included in the local territorial plan As confirmed by the municipality; to be included in and land use is consistent urban development plan the Subproject Description Settlement is located is in hazard-free area or where Based on the available official hazard maps provided risk can be mitigated at reasonable cost by the competent national or local agency 21. Component 3: Institutional Strengthening. (US$11 million, of which US$9 million IBRD financing and US$2 million Borrower contribution). The objective of this component is to strengthen the institutional capacity of the Federal, Provincial and Municipal governments in the housing, habitat and urban sectors through, inter alia, the provision of support to strengthen SVH’s capacity to implement the project, including: (a) carrying out of assessments of the existing national-level housing initiatives; (b) design and implementation of an evaluation study for SCPP; (c) provision of support for the design and implementation of the management, operational and reporting systems for federal housing programs; (d) strengthening land regularization processes, improving urban design and sustainability of basic services and improving economic, cultural and social aspects of the subprojects under Component 2; and (e) carrying out of capacity building and training activities for the national and local governments’ staff and the participating entity’s staff for subproject preparation, in line with the National Habitat Plan. Page 8 of 91 The World Bank Integrated Habitat and Housing Project (P159929) 22. Component 4: Project Management (US$4.5 million, of which US$0.5 IBRD financing and US$4 Borrower contribution) This component will finance support for the management, implementation, monitoring and evaluation of the Project, including, inter alia: (a) carrying out of the Project audits; (b) conducting outreach campaigns to disseminate the Project; (c) carrying out of mid-term and final impact evaluation surveys to evaluate the Project’s impact; (d) provision of technical support on procurement, safeguards and financial management requirements, including the hiring of the National Coordination Unit (UCN) staff; and (e) financing of Operating Costs. B. Project Cost and Financing Table 3: Project financing (US$ million) IBRD or IDA Trust Counterpart Project Components Project cost Financing Funds Funding Component 1 - Increased access to formal housing 45 45 - - Component 2 – Integrated habitat improvement 145 145 - - Component 3 – Institutional strengthening 11 9 - 2 Component 4 – Project management 4.5 0.5 - 4 Total Costs 200 - 6 Total Project Costs 205.5 199.5 - 6 Front End Fees 0.5 0.5 - - Total Financing Required 206 200 - 6 C. Lessons Learned and Reflected in the Project Design 23. The Project draws on lessons from international best practices; experiences in housing and slum upgrading projects implemented by the Bank in several countries; recently published reports, such as “Leveraging the Potential of Argentine Cities: A framework for action� (World Bank, 2017)18; and from programs to support investments in precarious urban settlements in Argentina. These include, inter alia: (i) the importance of an integrated approach that addresses both the housing stock and flow; (ii) the importance of well-functioning finance markets for the success of the subsidy program; and (iv) the need to establish an urban layout conducive to community identity and livability, and to ensure integration into the broader urban area. 24. Specifically for Component 2, the proposed Project builds upon a decade-long track record of implementation of a nation-wide slum upgrading program, which is now being enhanced and mainstreamed as the main slum upgrading policy. Thorough evaluations of this program have been conducted and the key lessons learned have been reflected in the project design. A key lesson has been the importance of including complementary social and community interventions in addition to 18 E. Muzzini, B. Eraso Puig, S. Anapolsky, T. Lonnberg, and V. Mora. 2017. Leveraging the Potential of Argentine Cities: A Framework for Policy Action. Directions in Development. Washington, DC: World Bank and World Bank Group Support for Housing Finance: An IEG Learning Product 2016. World Bank. Page 9 of 91 The World Bank Integrated Habitat and Housing Project (P159929) works. Experience has shown that reduction in poverty in informal settlements cannot depend solely on infrastructure and that complementary programs are needed to increase economic opportunities, maintain a sense of community, provide basic social services, ensure inclusiveness and address issues such as crime and violence. A full list of key lessons learned is included in Box A1-3 in Annex 1. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 25. The SVH through the National Coordinating Unit (Unidad de Coordinación Nacional, UCN), and the technical support of the SSDUV and the SSHDH, will be responsible for Project implementation at the national level. The UCN will be in charge of implementing all fiduciary processes and will be led by an Executive Coordinator. 26. Component 1: Increased access to formal housing. The SVH, through and with technical support from the SSDUV, will be responsible for the implementation of Component 1. The SSDUV heads the PROCREAR’s Executive Committee, which defines the Program’s operational rules and processes. Other members of the Committee include ANSES; the Ministry of Finance; the Ministry of Production, and the Agency for Public Goods Administration (AABE). 27. The SVH will sign the following cooperation agreements to enable Project implementation: o A cooperation agreement between the SSDUV and the Executive Committee of PROCREAR (the “PROCREAR Agreement�). o A cooperation agreement between SSDUV, the trust fund Nación Fideicomisos (NFSA) and the participating banks (the “Financial Institution Agreement�). 28. The Program will rely on the existing institutional set-up used for the PROCREAR program, which includes a series of pass-through trust-funds to manage and disburse the funds; see Annex 1 for further details. 29. Component 2: Integrated Habitat Improvement. The SVH, through and with technical support from the SSHDH, will have overall responsibility for the component, and will execute the subprojects in a decentralized way, in partnership with local executing agencies. A detailed description of the implementation roles is presented in Annex 2. 30. Component 3: Institutional Strengthening & Component 4: Project Management. These components will be implemented by the SVH, in close coordination and with technical inputs from the SSDUV and SSHDH. Page 10 of 91 The World Bank Integrated Habitat and Housing Project (P159929) B. Results Monitoring and Evaluation 31. Monitoring and evaluation of the Project will be the responsibility of the UCN, which will provide progress reports to the Bank on a bi-annual basis. 32. For Component 1, the SVH will rely on the management system (Sistema de Gestion, SG) developed by NFSA and used by all organizations participating in the SCPP (participating banks, the Executive Committee and NFSA) to upload and share information, particularly the supporting documentation on the receipt and application of the subsidy by the beneficiary. The UCN will regularly consolidate and report to the Bank. 33. For Component 2 investments, the execution of monitoring and evaluation will rely on the system used by the SSHDH to monitor all its programs. The review monitors a comprehensive set of indicators with five cross cutting themes including gender, integration into the city, human development, and security and land regularization. The SSHDH´s Department of Sustainable Development will coordinate the monitoring system and database, and supervise the evaluations prepared by each subproject. All results will be regularly updated and reported to the UCN for consolidation and reporting to the Bank. C. Sustainability 34. Government Commitment. The Government has made habitat and housing a priority as a means of achieving its objective of zero poverty. It has allocated approximately US$ 6.5 billion to the Plan Nacional de Vivienda y Habitat for the period 2016-2019, with 22 billion pesos (about US$1.5 billion) allocated to the new SCPP, and 36.5 billion pesos (US$2.4 billion) to the habitat programs. This represents 61 percent of the total budget assigned to the urban sectors. The multi-year plan and the high level of commitment are a signal that the Government intends to support these programs over time, and that they indeed represent a priority for the current administration. 35. Fiscal sustainability of the SCPP. The new program is efficient in the use of Government resources, leverages private sector funds, and does not create a contingent liability for the Government. Contrary to traditional programs providing credit lines for housing construction under PROCREAR, which were financed through a mix of budget funding and implicit interest rate subsidies, the cost of SCPP will be included in annual budgets, making it more transparent for accounting purposes. The government expenditure per solution is one third less than under the construction programs, increasing its efficiency and the likelihood of fiscal sustainability.19 36. Land-use planning and infrastructure provision. The SCPP is contained within a broader Government Plan, which includes complementary actions to strengthen urban planning at the local level, and provide services and land for housing development. The SSDUV has developed, through its access to land program, a “traffic light system� that facilitates planning, decision-making and the 19 The Average Government cost per solution under the Federal Programs is AR$700,000, versus AR$200,000 under the SCPP. Also, under SCPP, the house delivery is expected to be achieved in a significantly shorter time period, due to private sector participation and increased competition. Page 11 of 91 The World Bank Integrated Habitat and Housing Project (P159929) identification of land suitable for housing development for local governments. Activities included under Component 3 will also contribute to strengthening municipal and provincial capacity. 37. Sustainable transfer arrangements for the works provided to precarious settlements. After construction, the infrastructure will be transferred to the provinces, municipalities and service providers. A transfer agreement will be signed that outlines these responsibilities and norms. Six months after the conclusion of the works and installation of equipment, the investments will be subject to inspections by the SSHDH and their field team who will suggest improvements, as necessary. The Project will also include as part of the subproject execution a financial analysis and the design of social tariffs covering the improved services. D. Role of Partners 38. In addition to World Bank financing, the Government’s neighborhood upgrading programs are funded by the IADB (the PROMEBA), the Andean Development Cooperation (Corporación Andina de Fomento, CAF), the Development Fund for the Plata Basin (FONPLATA) and the Central American Bank for Economic Integration (BICE). The Bank is working in coordination with the IADB to incorporate lessons learned from the extensive experience in financing neighborhood upgrading programs. V. KEY RISKS A. Overall Risk Rating and Explanation of Key Risks 39. The overall risk of the proposed Project is rated Substantial, due to risks associated with the macroeconomic environment, technical design, institutional capacity for implementation, fiduciary, and stakeholders. 40. Macroeconomic Risk has been rated Substantial. Uncertainty over the pace of economic recovery and the success of macroeconomic reforms may negatively impact the development of longer term finance. A slower than expected reduction in inflation would negatively impact the achievement of the objective of this operation, as inflation undermines the ability of financial institutions to accurately assess credit risks based on borrowers’ capacity to repay, and develop sustainable housing finance. A possible risk associated with the indexed loans is that inflation grows materially faster than wages, which would increase the share of income used for loan payments. However, a deceleration of inflation in recent months has led to a declining trend in interest rates. Additionally, the risk is contained by the small size of Component 1 which, with US$ 45 million, is only expected to finance 3,000 subsidies, linked to corresponding mortgages. 41. Technical Design and Institutional Capacity for Implementation Risks have been rated Substantial to reflect the innovative and complex project design, as well as the high number of executing agencies. The novelty of the subsidy program supported under Component 1 might pose a challenge to its implementation, while Component 2 entails a large number of municipal and provincial executing agencies. The technical assistance provided as part of Component 3 will serve to mitigate these risks, providing capacity building to the executing agencies involved, and bringing in technical expertise. Page 12 of 91 The World Bank Integrated Habitat and Housing Project (P159929) 42. Fiduciary Risk: Fiduciary Risk is rated Substantial. The project entails complex implementation arrangements with multiple entities (under the coordination of SVH) managing the funds before they reach their final beneficiaries. The generation of reliable financial information which promotes project accountability will thus be complex, and should be supported by a sound control environment. Additionally, the framework approach of the Project, which leaves the definition of the sub-executing agencies and the procurement activities to the implementation phase, may produce delays on the implementation of a Procurement Plan. This could impact directly the achievement of the agreed PDOs. These risks would be mitigated through an action plan (See Annex 2 for details). 43. Stakeholders Risk has been rated Substantial to reflect the complex implementation arrangements. Component 1 includes several implementation actors from the public and private sectors, such as the SSDUV, NFSA, the participating banks, the Executive Committee and ANSES. The positioning of the SSDUV as the chair of the Executive Committee of PROCREAR and the signing of the cooperation agreements will contribute to streamlining these arrangements and facilitating implementation. Component 2 will also entail a significant coordination effort between the SHDH, subnational governments and sub-implementing units, beneficiary communities and private sector stakeholders. VI. APPRAISAL SUMMARY A. Economic and Financial (if applicable) Analysis 44. The Economic Analysis showed that the proposed interventions are expected to bring about substantial social, environmental and economic benefits to low and middle income households. Annex 5 presents in detail the methodology and results. 45. Component 1. The main benefits identified are improvement of living conditions and health outcomes, households’ feelings of self-confidence and civic engagement, asset wealth creation and positive intergenerational effects, higher property tax collection, and mobilization of private savings and funding from the financial sector. The proposed intervention could increase the number of homeowners by 312,000 persons in the next decade and improve the living conditions of 100,000 currently living in substandard housing units. An analysis of the efficiency of use of public funds showed that the SCPP is a superior option compared to the existing programs PROCREAR, FONAVI – “Programas Federales� and an equivalent interest rate subsidy of the kind used by the City of Buenos Aires in its “Primera Casa� Program between 2012 and 2014. 46. Component 2. A cost benefit analysis was conducted using similar completed PROMEBA subprojects in Córdoba, Jujuy, Mendoza and Tucumán and benefits were estimated using the hedonic pricing method. Results show that the planned intervention would yield a 21.2 percent return and deliver a net present value (NPV) of US$15.8 million. The average benefit per household in the intervention and surrounding areas, as estimated by the increase in the property values generated by the neighborhood improvements, is US$14,929 and US$3,404 respectively. The sensitivity analysis shows a positive IRR even with higher operation and maintenance costs or lower expected increases in home prices. The sustainability analysis suggests that the investments would require some direct support to households, service providers and/or municipalities for maintenance and operation. Page 13 of 91 The World Bank Integrated Habitat and Housing Project (P159929) B. Technical 47. The technical choices that apply to Project design relate to the choice of the type of housing subsidy used in Component 1 and the process that will be used for ensuring there are adequate technical solutions for the interventions under Component 2. 48. Component 1: Increased access to formal housing. Demand-side subsidies can broaden housing choices for the consumers, address the varied housing needs and constraints, leverage households’ own contributions and, therefore, reduce the subsidy amount per household. Finance-linked upfront subsidies, such as the ones supported under this Project, are considered the most efficient and equitable, and can be applied to closing costs, the down payment, the premium for private mortgage insurance, or the loan amount. Since the beneficiary makes the choice to buy or rent a particular house, demand-side subsidies are also considered more efficient at improving a household’s satisfaction than either supply-side subsidies (which are instead linked to specific housing solutions) or implicit subsidies to the finance sector (which can have highly distortive effects on the housing and financial markets). Demand-side finance linked subsidies also show better outcomes relative to supply-side subsidies to developers, since these are typically only partially transferred to the beneficiary in the form of better housing products or lower prices. Moreover, suppliers will limit production to the number of available subsidies, rather than explore the opportunities offered by a growing lower-middle income market. For these reasons, many countries have shifted away from supply-side subsidies and have chosen an up- front grant or other demand-side subsidy system tied to the individual or household, such as the ones supported under the proposed Project. 49. Component 2: Integrated Habitat Improvement. The interventions under Component 2 will be prepared by qualified technical consultants and will undergo technical evaluation and supervision as part of a comprehensive planning process, and review and clearance by SSHDH. In particular: (i) the basic viability will be confirmed at an early stage providing verification from sector authorities, hydraulic studies, prefeasibility studies of basic services, and availability of land; (ii) integrated subproject designs and technical specifications will be required to meet design standards and be approved by the local authorities; (iii) bid evaluations will be reviewed and construction supervision will be carried out by qualified engineers to ensure conformity to the technical specifications; and (iv) after construction, arrangements will be made to transfer the works and their operation to the relevant authority or service provider, and a field team (that includes engineers) will supervise the beginning of the operational phase. C. Financial Management 50. The Project involves the intervention of multiple entities (under the coordination of SVH) in managing the funds before they reach their final beneficiaries. The components under the Project will have different implementation arrangements, which adds to the complexity. 51. The Financial Management (FM) Assessment has been completed including the capacity assessment of the five local executing agencies that will receive and execute Project’s funds under Component 2. The FM assessment describes the main arrangements for oversight and accountability which include the creation of a FM unit in the National Coordination Unit (UCN) at SVH, development of a Project operational manual, an annual external audit and the use of the UEPEX accounting system by Page 14 of 91 The World Bank Integrated Habitat and Housing Project (P159929) the SVH and by the subnational executing units.. The overall Project FM arrangements are acceptable, including those in place at the subnational level. See Annex 2 for more details on project FM. D. Procurement 52. Procurement will be conducted using the Bank’s ‘Procurement Regulations for IPF Borrowers’, issued in July 2016, for the supply of goods, works, non-consulting and consulting services. Overall Project implementation will be the responsibility of SVH with implementation depending on the particular component. The procurement capacity assessment of SVH and the five local executing agencies revealed that the average capacity tends to be relatively low, due to high staff rotation and weak specialization of staff in procurement; the Action Plan to manage these risks in provided in Annex 2. E. Social (including Safeguards) 53. Based on past experience in similar interventions, and considering that the housing deficit is a major challenge for low and middle income households, it is expected that the impacts of the Project will be substantially positive. Nevertheless, some potential risks were identified that are linked to Project implementation. The social assessment for the project, which informed the Project’s Environmental and Social Management Framework (ESMF), reviewed the specific barriers that persons with disabilities, adolescent mothers, indigenous peoples, afro-descendants, and members of the LGBTI community, might encounter to get access to adequate housing. It also assessed the potential effect that works under Component 2 might have if any would require an involuntary resettlement process. 54. Indigenous Peoples (OP 4.10). This policy is triggered due to the likely presence of indigenous peoples in at least a portion of the subproject areas. 20 An Indigenous Peoples Planning Framework (IPPF) was prepared, consulted and the final version was published by the Bank and the Client on their respective websites on January 12, 2017. The consultation process was validated with representatives from the National Institute of Indigenous Affairs (INAI) who also reviewed the document and provided comments. The IPPF applies to both Components 1 and 2, and sets forth adequate mechanisms to: ensure that information is available and accessible; and guarantee free, prior and informed consultation and participation in a culturally appropriate manner for indigenous communities and organizations leading to broad community support. For subprojects where the presence of indigenous peoples is confirmed, specific Indigenous Peoples Plans (IPPs) will guide the design and implementation phases, in order to protect indigenous peoples rights while minimizing potential negative impacts, and maximizing positive impacts. The IPPF has also been incorporated in the Project’s ESMF and Operational Manual (OM) as an Annex. 55. Involuntary Resettlement (OP 4.12). This policy is triggered as subprojects under Component 2 may require involuntary resettlement. A Resettlement Policy Framework (RPF) has been prepared by the Borrower and approved by the Bank to guide the preparation of specific Resettlement Action Plans in 20 Only Component 2 triggers OP 4.10. Indigenous Peoples usually experience lower (and informal) income levels, and consequently are unlikely to be targeted by the SCPP under Component 1. However, the IPPF stablishes recommendations for the implementation of this Component, in order to facilitate the inclusion of these groups, if eligible to receive the credit, as to avoid any kind of discrimination from financial entities. Page 15 of 91 The World Bank Integrated Habitat and Housing Project (P159929) case involuntary resettlement is needed. As part of the Resettlement under subprojects, the Project may finance the provision of land and compensation and construction of houses. Technical assistance activities under Component 3 will be consistent with the principles of OP 4.12 to avoid potential downstream impacts The RPF has been consulted and its final version was published by the Bank and the Client on their respective websites on January 12, 2017. The RPF was included as an Annex in the Project’s ESMF and OM. 56. Social Cohesion and Inclusion in sub-projects. The Project includes the strengthening of community based organizations covering appropriate topics depending on the neighborhood, including culture, sports, education, health, security and employment, as well as targeted programs such as on gender. In addition, the selected municipalities have robust grievance mechanisms in place that could be used under the Project. 57. Gender screening. The proposed Project will incorporate gender as a key theme and intervention. Component 2 includes gender based indicators, mechanisms to incorporate gender in decision making processes and participation, and the development of operational tools to incorporate gender in subproject design and community development interventions, including situational prevention, gender specific social programs and violence prevention, and programs related to property rights and economic opportunities. F. Environment (including Safeguards) 58. Environmental impacts are limited to Component 2. Component 1 will have no environmental safeguards implications as the subsidies will only be provided to facilitate access to existing formal housing built in compliance with the existing Building Code. Component 3 on institutional strengthening will also not have environmental impacts. 59. The Project has been categorized as ‘B’ in accordance with Bank OP 4.01 on Environmental Assessment (EA). Overall, Component 2 will have positive environmental impacts, including an improved urban environment, health and safety conditions, and basic services in the beneficiary neighborhoods. Environmental impacts of Component 2 are expected to be site-specific, reversible, and easy to mitigate with standard measures. Particular focus will be placed on the application of adequate precautions and measures to secure worker and community health and safety. While no works will take place in environmentally valuable and thus sensitive areas, vulnerability to flooding and land instability can pose particular challenges. 60. The ESMF will guide environmental risk management. The ESMF was prepared by the SVH and approved by the Bank. It includes mechanisms to screen subprojects for eligibility (see the applicable negative list in Annex 1, paragraph 25) and potential impacts, establish the scope of the required EA, and develop an Environmental and Social Management Plan (ESMP). The ESMF guides the process of consultations; the identification of environmental mitigation works (e.g., drainage works and slope stabilization); and the construction or rehabilitation of parks, green areas and other public spaces. The ESMPs will also provide support to environmental or social organizations identified as relevant actors for a subproject. The advanced draft of the ESMF was subject to consultations with a total of 134 stakeholders in Mar del Plata, Mendoza, Córdoba, and Tucumán as presented in detail in the final ESMF. The final ESMF was disclosed on January 12, 2017. The SVH at the central level and the local executing Page 16 of 91 The World Bank Integrated Habitat and Housing Project (P159929) agencies will include qualified environmental and social staff to lead the ESMF implementation prior to Project effectiveness. 61. The Project triggers OP 4.09 on Pest Management as construction works in informal settlements may require the development of pest management plans as part of their ESMP, particularly for the cleaning up of rat nests. Any use of pesticides under the Project will follow applicable good practices as instructed in the ESMF. The Project will not finance or allow use of pesticides of categories not permissible under either OP 4.09 or under national legislation. 62. The Project triggers OP/Bank Policy (BP) 4.11 on Physical Cultural Resources as a precautionary measure. The Project may require soil movements. As part of the EA process, and as instructed in the ESMF, specific procedures to avoid affecting physical cultural resources (if any) will be embedded in the civil works’ ESMPs. 63. Climate Change Co-Benefits. The Project provides no mitigation co-benefits21. The Project will, however, result in climate change adaptation co-benefits. The flooding impacts are of particular concern as many precarious urban settlements are located in flood prone areas further increasing their vulnerability to this climate change impact. In settlements with this increased vulnerability, the subprojects will undertake additional investments22 in slope stabilization and other flood protection works targeted at reducing their risk to increased flooding impacts from climate change.23 In addition the Project will finance drainage and sewerage networks which are expected to further reduce the vulnerability to flooding. The costs of these investments amount to an estimated 18 percent of the loan (US$ 36 million). G. Other Safeguard Policies (if applicable) 64. The Project triggers OP/BP 7.50 on International Waterways as some of the investments in water supply and sewerage networks are expected to be located in international waterways. The Project however falls under the exemption of the notification requirement to riparian countries as Project activities involve minor alternations to ongoing water schemes that: (i) will not adversely change the quality or quantity of water flows to the other riparians; and (ii) will not be adversely affected by the other riparians' possible water use. H. World Bank Grievance Redress 65. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result 21 As defined on Annex Table 3 of the Joint Report on Multilateral Development Banks’ Climate Finance. 22 These investments are included as part of the “environmental mitigation works to reduce environmental risks� in the project description and associated eligible expenditures. 23 Flood protection investments have been identified in some of the indicative pipeline of projects as part of their environmental mitigation works to reduce environmental risks. Page 17 of 91 The World Bank Integrated Habitat and Housing Project (P159929) of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products- and-services/grievance-redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. . Page 18 of 91 The World Bank Integrated Habitat and Housing Project (P159929) VII. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY : Argentina Integrated Habitat and Housing Project Project Development Objectives The proposed Project's development objectives are to: (i) increase access to formal housing for eligible households; and (ii) improve living conditions for households in selected precarious urban settlements. Project Development Objective Indicators Unit of Responsibility for Indicator Name Core Baseline End Target Frequency Data Source/Methodology Measure Data Collection Name: Number of eligible Number 0.00 3000.00 Every six months Participating banks and SVH households with access to NFSA formal housing. Number of housing Number 0.00 600.00 Every six months Participating banks and SVH subsidies allocated to NFSA female headed households Description: Number of subsidies disbursed for housing units as reported by the financial institutions. Name: Number of Number 0.00 18000.00 Every six-months Ex-post evaluation by SVH households with improved SSHDH living conditions in precarious urban Page 19 of 91 The World Bank Integrated Habitat and Housing Project (P159929) Unit of Responsibility for Indicator Name Core Baseline End Target Frequency Data Source/Methodology Measure Data Collection settlements. Number of female headed Number 0.00 6120.00 Every six-months Ex-post evaluation by SVH SVH households with improved living conditions in precarious urban settlements. Description: The indicator measures the cumulative number of households living in urban areas that have been provided with at least one of the following: access to basic services (potable water, storm drainage, solid waste collection, gas distribution or electricity); improved land tenure (physical and legal regularization); improved public spaces and community infrastructure (street lighting, road and pedestrian paths, public spaces and green areas, environmental mitigation works, community recreational and social service facilities); and/or human development (community social, economic and cultural programs; community centers; strengthened community organizations), through the direct interventions supported by the Project. Name: Direct project ✔ Number 0.00 69300.00 Every six months SVH SVH beneficiaries Female beneficiaries ✔ Percentage 0.00 51.00 Every six months SVH SVH Description: Direct beneficiaries are people or groups who directly derive benefits from an intervention (i.e., children who benefit from an immunization program; families that have a new piped water connection). Please note that this indicator requires supplemental information. Supplemental Value: Female beneficiaries (percentage). Based on the assessment and definition of direct project beneficiaries, specify what proportion of the direct project beneficiaries are female. This indicator is calculated as a percentage. Page 20 of 91 The World Bank Integrated Habitat and Housing Project (P159929) Intermediate Results Indicators Unit of Responsibility for Indicator Name Core Baseline End Target Frequency Data Source/Methodology Measure Data Collection Name: Number of people in ✔ Number 0.00 38610.00 Every six-months The number of people will SSHDH urban areas provided with be determined based on the access to Improved Water executing project of each Sources under the project intervention, which includes number of beneficiaries. The data will be converted from "number of households" by using the national average of 3.3 people per household (INDEC, 2010) Description: This indicator measures the actual number of people in urban areas who benefited from improved water supply services that have been constructed under the project. Guidance on "improved water sources": Improved water sources include piped household connections (house or yard connections), public standpipe, boreholes, protected dug well, protected spring and rainwater collection. Hence, "Improved Water Sources" do not include, inter alia, water provided through tanker truck, or vendor, unprotected well, unprotected spring, surface water (river, pond, dam, lake, stream, irrigation channel), or bottled water. The definition of what is considered an ‘improved water source' follows the UNICEF -WHO Joint Monitoring Program definition. Note that "Improved Water Sources" does not refer to the question of new versus rehabilitated water sources, but is the standard definition used to track progress on the Millennium Development Goals. Guidance on people with access: The data on the number of people provided with access can be estimated by TTLs by multiplying i) the actual number of piped connections with an estimate of the number of people per household connection; and/or ii) the actual number of community water points with an estimate of the number of people per community water point. The assumptions made regarding number of people per connection made should be carefully documented in the ‘comments' section of the indicator when data is entered in the ISR. Guidance on urban classification: The classification should follow the official definition used in the country. Name: Percentage of Percentage 0.00 50.00 Every six-months ANSES, NFSA SSDUV subsidies allocated for beneficiaries between 2 and Page 21 of 91 The World Bank Integrated Habitat and Housing Project (P159929) Unit of Responsibility for Indicator Name Core Baseline End Target Frequency Data Source/Methodology Measure Data Collection 3 minimum wages Description: Percentage of subsidies allocated to beneficiaries between 2 and 3 minimum wages under Component 1 Name: Percentage of Percentage 0.00 1.00 Every six-months ANSES, NFSA SSDUV subsidies allocated for household with members with disabilities Description: Percentage of subsidies allocated to households with members with disabilities (registered with ANSES) Name: Number of Number 0.00 40.00 Every six months. Reports from field teams. SSHDH completed Human Development activities Description: The community development program will be improved through the use of modules for different human development themes (gender, culture, sport, health, work, social development, environment, science and technology) that consist of technical or social packages of assistance based on the specific needs of each neighborhood. Name: Land Parcels Number 0.00 1800.00 Every six months. Reports from field teams. SSHDH benefitted under the project with increased tenure security Description: The project will increase tenure security through the support the regularization process through technical assistance and legal studies. As the program intends to improve this process, the indicators are set to be higher than that of the PROMEBA projects which increased legal possession and titling for 10% of the beneficiary population. Page 22 of 91 The World Bank Integrated Habitat and Housing Project (P159929) Unit of Responsibility for Indicator Name Core Baseline End Target Frequency Data Source/Methodology Measure Data Collection Name: Number of technical Number 0.00 10.00 Every six months. Technical reports. SVH. studies aimed at improving the design of housing and habitat policies in the country Description: Technical studies to evaluate the impact of existing housing policies, analyze the value chain for the financing sector and impacts on the mortgage markets, design impact evaluation methodologies for new programs, among others. Name: Number of capacity Number 0.00 40.00 Every six-months SSDUV, SSHDH SVH building trainings implemented Description: Number of capacity building events performed for actors participating in the Program (IPVs, developers, municipalities, banks) Name: Design and Yes/No N Y Every six-months SVH SVH implementation of the Management System for the SSDUV's housing programs Description: Design for the Management System for the SCPP in the SSDUV completed Name: Percentage of Land Percentage 0.00 65.00 Every six months SSHDH SSHDH Parcels with increased tenure security where rights of women have been Page 23 of 91 The World Bank Integrated Habitat and Housing Project (P159929) Unit of Responsibility for Indicator Name Core Baseline End Target Frequency Data Source/Methodology Measure Data Collection recognized when applicable Description: The project will increase tenure security through the support the regularization process through technical assistance and legal studies. Name: Creation of a list of Yes/No N Y Yearly SSHDH, sub-project SVH identified and prioritized database sub-projects in the urban agglomerations. Description: The support to capacity building includes the technical assistance and training to both national and local executing agencies as well as relevant community actors Name: People provided with ✔ Number 0.00 38610.00 Every six months SSHDH and executing SSHDH access to ‘improved entities. The number will be sanitation facilities� under calculated by converting the proj. from number of households through the national average number of people per household of 3.3 (INDEC,2010). People provided with ✔ Number 0.00 38610.00 Every six months SSHDH SSHDH access to “improved sanitation facilities� - urban Description: This indicator measures the cumulative number of people who benefited from improved sanitation facilities that have been constructed under the project. This includes people newly provided with access to “improved sanitation facilities� and does not include people benefi ting from rehabilitation works. Page 24 of 91 The World Bank Integrated Habitat and Housing Project (P159929) Unit of Responsibility for Indicator Name Core Baseline End Target Frequency Data Source/Methodology Measure Data Collection The baseline value is expected to be zero. Name: Kilometers of roads Number 0.00 20.00 Every six months. SSHDH SSHDH constructed or rehabilitated Description: Page 25 of 91 The World Bank Integrated Habitat and Housing Project (P159929) Target Values Project Development Objective Indicators FY Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End Target Number of eligible households with 0.00 1500.00 3000.00 3000.00 3000.00 3000.00 3000.00 access to formal housing. Number of households with improved living conditions in precarious urban 0.00 0.00 0.00 3600.00 11700.00 18000.00 18000.00 settlements. Direct project beneficiaries 0.00 4950.00 9900.00 21780.00 48510.00 69300.00 69300.00 Number of housing subsidies allocated to 0.00 300.00 600.00 600.00 600.00 600.00 600.00 female headed households Number of female headed households with improved living conditions in 0.00 0.00 0.00 1224.00 3978.00 6120.00 6120.00 precarious urban settlements. Female beneficiaries 0.00 51.00 51.00 51.00 51.00 51.00 51.00 Intermediate Results Indicators FY Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End Target Number of people in urban areas provided with access to Improved Water 0.00 0.00 0.00 7722.00 25096.00 38610.00 38610.00 Sources under the project Page 26 of 91 The World Bank Integrated Habitat and Housing Project (P159929) Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End Target Percentage of subsidies allocated for beneficiaries between 2 and 3 minimum 0.00 50.00 50.00 50.00 50.00 50.00 50.00 wages Percentage of subsidies allocated for 0.00 1.00 1.00 1.00 1.00 1.00 1.00 household with members with disabilities Number of completed Human 0.00 5.00 15.00 30.00 35.00 40.00 40.00 Development activities Land Parcels benefitted under the project 0.00 0.00 200.00 800.00 1600.00 1800.00 1800.00 with increased tenure security Number of technical studies aimed at improving the design of housing and 0.00 2.00 4.00 6.00 8.00 10.00 10.00 habitat policies in the country Number of capacity building trainings 0.00 10.00 20.00 30.00 40.00 40.00 40.00 implemented Design and implementation of the Management System for the SSDUV's N Y Y Y Y Y Y housing programs Percentage of Land Parcels with increased tenure security where rights of women 0.00 65.00 65.00 65.00 65.00 65.00 65.00 have been recognized when applicable Creation of a list of identified and prioritized sub-projects in the urban N N N Y Y Y Y agglomerations. Page 27 of 91 The World Bank Integrated Habitat and Housing Project (P159929) Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End Target People provided with access to ‘improved 0.00 0.00 0.00 7722.00 25096.00 38610.00 38610.00 sanitation facilities� under the proj. Kilometers of roads constructed or 0.00 0.00 4.60 10.80 17.00 20.00 20.00 rehabilitated People provided with access to “improved 0.00 0.00 0.00 7722.00 25096.00 38610.00 38610.00 sanitation facilities� - urban Page 28 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) ANNEX 1: DETAILED PROJECT DESCRIPTION COUNTRY : Argentina Integrated Habitat and Housing Project 1. The Project will support the Government’s National Plan for Housing and Habitat (Plan Nacional de Vivienda y Hábitat) through improving the living conditions in existing precarious urban settlements, and advancing policies to prevent new and expanding slums by increasing access to affordable formal housing. In particular, the Project will support the Secretary of Housing and Habitat of the Ministry of Interior, Public Works and Housing to implement integrated urban improvement interventions in selected precarious urban settlements in urban agglomerations in Argentina and to implement the roll- out of the first-demand driven up-front subsidy Program in the country. 2. Objective: The objectives of the Project are to: (i) increase access to formal housing for eligible households; and (ii) improve living conditions for households in selected precarious urban settlements. 3. The Project will support the SVH in the implementation of the National Plan for Housing and Habitat, and in the reduction of the qualitative and quantitative housing deficits in the country. Component 1 will tackle the quantitative deficit, and support the recently launched demand-driven housing subsidy program. Component 2 will contribute to the reduction of the qualitative deficit, through neighborhood improvement activities as part of the habitat programs. Component 3 will provide institutional strengthening to institutions from different levels of government, develop a bank of subprojects and support the design of a National Habitat Plan; and Component 4 will be utilized for the Project administration. This annex provides a detailed description of the activities proposed under each component. 4. Component 1: Increased access to formal housing (US$ 45 million, 100 percent IBRD financing). This component will finance the provision of up-front subsidies to selected beneficiaries. The objective of this component is to improve access to finished housing for eligible households. This component will finance an up-front demand based subsidy, for eligible households earning between 2 and 4 MW, to improve affordability for the purchase of a new or existing house. 5. This component will support the first nation-wide demand-driven housing subsidy program in Argentina, the SCPP. The targeted income bracket (households with income between 2 to 4 MW) concentrates approximately 35 percent of the housing deficit (1.3 million households). The new program will replace the old PROCREAR, which is being phased out. Since its inception in 2012, the PROCREAR has awarded 100,000 loans, in contrast with the 400,000 initially projected. The financial crisis and macro- economic conditions in the country have hindered the development of a strong mortgage market, leading to the current market failure in providing housing solutions to the low and middle income sectors.24 The SCPP, combined with the recently introduced inflation indexed loans in pesos, is expected 24 The mortgage market in Argentina represents the 0.6 of GDP, significantly smaller than that of other countries in the region (for example, 20.2 percent in Chile, 9.8 percent in Mexico, and 7.7 percent in Brazil). Around 210,000 households are formed every year in Argentina, yet the formal market is only able to produce 160,000 units annually. Page 29 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) to provide the necessary incentives to revitalize the mortgage market in the country. The following sections present an overview of the SCPP, the details on the eligibility and scoring criteria, the subsidy amounts and maximum house prices. Box A1-1: The “old� PROCREAR The PROCREAR (Programa Crédito Argentino del Bicentenario), one of the GOA’s legacy programs, aimed at initiating the transition from supply side to demand side housing programs. Launched in 2012, PROCREAR had the objective to provide access to subsidized mortgages for households to build a new unit. Originally, PROCREAR intended to provide households with subsidies allocated through ANSES and a mortgage provided through Banco Hipotecario (BH) with funding of ANSES’s pension fund (FGS), in order to finance new housing. Formal workers affiliated with ANSES, with a certain amount of saving and with access to buildable land were eligible for the program. The mortgage issued had terms of 20 to 30 years and subsidized fixed interest rates varying based on income (and only fixed for the first 5 years for higher income recipients). In all cases, the interest rates (between 2 and 14 percent) were substantially below what would have been market rates (a limited market existed, but estimated to be above 25 percent). The program’s goal when announced in 2012 was to finance 100,000 housing units a year for 4 years for a total of 400,000 units between 2012 and 2016. The subsidies were to be allocated by lottery since demand was substantially above the yearly funding available (the number of participants tended to be 2 to 3 times the number of subsidies offered). Quickly, constraints on the supply side appeared: land prices increased in periphery of urban agglomeration and households faced difficulties in securing access to buildable land. This forced a more active role of ANSES and BH in managing the pipeline in order to ensure that households were able to use the subsidy. BH, in an effort to limit construction costs, developed a number of standard plans for units varying between 52 and 75 square meters with the option to be expanded, and adapted to regional characteristics. Most importantly, ANSES and BH worked with the Administration Agency for Public Goods (AABE) that manages public land, and local governments to obtain serviced land that could be used for construction. The program also evolved in 2013 to include funding for the purchase of land and self- construction and for improvement and expansion. The evolution of the ProCreAr program reflects the difficulty to design a demand side subsidy when major frictions exist on the supply side. The volume of subsidies allocated resulted in a spike in overall housing demand that resulted in a rapid increase in land costs that prevented households from using the subsidies effectively. In order to deliver the number of units promised and to respond to the increase in land and construction costs, the program had to be adjusted in ways that included intervening on the supply side and substantially increasing the per unit cost of the program. It also showed the need to move beyond the subsidy to the production of new houses, to supporting self-construction and improvement, as well as the difficulty to do so. 6. The SCPP will award mortgage-linked subsidies for first house acquisition to selected beneficiaries. The SCPP program largely adopts the ABC (Ahorro, Bono, Crédito or Saving, Subsidy and Mortgage, see Figure A1-1 below) principles inspired by Chile’s experience and that of a number of other countries that followed this approach. Beneficiary households will receive an upfront subsidy to supplement their savings and be eligible for an indexed mortgage with a market rate fixed interest rate to cover the remainder of the housing cost. This approach leverages the government subsidy and the household savings to unlock access to credit by making mortgage payments affordable for households and reducing credit risk for the lenders. Given the novelty of a demand-driven subsidy program in the country, the program criteria were designed to be simple and transparent. A summary of the criteria is explained in the next paragraphs, and summarized in the Table A1-1. Page 30 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) Figure A1-1: Example of standard house purchase under the SCPP 7. Inflation indexation was recently introduced by the GOA to finance housing and for saving. The Adquisition Value Unit (Unidad de Valor Adquisitivo, UVA) was recently issued by the BCRA. Its initial value is AR$14.05325, and its value adjusts daily based on the Consumer Price Index (CPI) calculated by the National Statistics and Census Institute (INDEC). 8. In part to allow for banks to fund and manage risks associated with the SCPP and in part to enable sound long term housing finance development, the Bank provides complementary advisory services on capital market development. The financial sector is small, focused on short term transactions, and the currently outstanding mortgage portfolio is very small. The SCPP implementation creates urgency in addressing the challenges for the banking sector in developing sustainable funding and risk management models. The Bank is therefore working with the BCRA, the Ministry of Finance, the capital markets regulator, the pension fund FGS and other financial sector participants to fund mortgage lending and to manage liquidity, interest rate, inflation, and credit risks. The banking sector funding challenge and potential solutions are discussed in more detail in Box A1-2. Table A1-1: Overview of SCPP characteristics Subsidy Subsidy awarded by National Government Subsidy Amount $100,000 to $300,000 (US$ 6,557 to US$19,672) Required Saving 10-15% of property value, plus the administrative and titling charges, which typically represent 5% of the property value. Maximum Property Value $1,500,000 (US$ 98,360) Purpose Purchase of first used or new housing unit Loan Loan awarded by Banks participating in the Program (14 to date) Maximum Loan to Value 78 percent Debt to Income relation 25 percent Loan term 10, 15 or 20 years 25 The initial value was an estimate of one thousandth of the average construction cost of a square meter, but the index’ evolution is exclusively based on CPI inflation. Page 31 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) Minimum loan amount $150,000 (US$9,836), indexed in UVAs. 9. The PROCREAR team has developed a short list of easily verifiable eligibility criteria for SCPP’s applicants. The eligibility criteria were chosen in consultation with the participating banks, to serve as a pre-screening process, in line with the mortgage loan requirements. To reduce opportunities for frauds, all criteria had to be suitable for cross-checking and verification with data from ANSES, the BCRA and the AFIP. The SCPP’s eligibility requirements are: - Nationality. The applicant must be Argentine, or foreigner with a permanent residency status; - Age. Must be between 18 and 55 years old. - Income. Applicants must be formally employed (self-employed are included), with net incomes between 2 and 4 MW (approximately US$991 and US$1,983). - Debt to Income. The proportion between the initial loan installment and the household monthly income must be equal to, or below 25 percent. - Seniority. The applicant must have at least one year of work seniority (as self-employed, or in a dependence relation). - First house. The applicant must not own or co-own any property. - Good credit scoring. The applicant must not have negative financial precedents in the two years previous to the application. - Saving. Must possess the required saving; 10 percent for units up to AR$1 million; and 15 percent for units up to AR$1.5 million. The beneficiary must also cover administrative and titling expenses, which typically represent 5 percent of the value of the solution. 10. Given the large number of applications received, participants are prioritized by the program. Once eligible applicants are screened, the PROCREAR team proceeds to score them based on: age; demographic characteristics of the household; disabilities of household members; social benefits received; and previous applications submitted (to the PROCREAR or the SCPP). The Executive Committee establishes a cut off line for each inscription batch period; and applicants above the cut off line are selected as potential subsidy beneficiaries. The highest scores are awarded to families with more critical demographic conditions (such as pregnancy, higher number of children, single parent households, and for household members with disabilities). All the ratings and criteria are shown in Table A1-2 below. During this initial stage of the Program the choice was to have simple and verifiable criteria to reduce opportunities for fraud and highlight the Government’s focus on poverty and vulnerability.26 11. The Program already started implementation in application batches, with an initial allocation of AR$6.5 billion from the GOA treasury funds. The first batch application period closed on September 30th, 2016, resulting in the selection of 25,000 families based on 113,838 households that applied over a two- month period. As a promising start, approximately 9,000 beneficiaries have signed pre-loan agreements and are currently in the process of finding their houses. The SCPP continues to move rapidly, with the second application batch closed in November, 2016. The Bank’s funds for this component are limited, (in relation to the expected Program’s demand) and it is anticipated that the funds will be disbursed rapidly 26 One of the main policy lines of the Macri administration is to achieve zero poverty. Page 32 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) during the first one/two years of implementation. However, given the novelty of the SCPP, and the particular macro-economic circumstances, the Project will initially provide funds to roll-out the Program, while contributing with substantial technical assistance support for the GOA. It is envisioned that additional financing might be needed in the medium-term, depending on the SCPP’s implementation development and uptake. Table A1-2: Scoring Criteria and Ratings for SCPP Criteria Sub-criteria Highest Rating 18 to 44 years 19 Age Formula: (Age/2)-3 (20 max rating) 45 to 55 years 20 Pregnancy in applicant or spouse/partner 10 Children until 2 years of age 10 each (max 3) Children older than 2 up to 13 years of age, living with 10 each (max 3) Demographic the household characteristics of the Children older than 13 up to 18 years of age, living 9 household with the household Formula: -3/5Age+ (30 max rating) 16.8 Children older than 18 living with the household 5 each (max 3) Single-parent family 5 Senior adults in the household 3 each (max 2) Child disability 15 each (max 3) Disabilities Applicant and/or spouse or partner disability 10 each (max 2) (25 max rating) Senior adult disability 5 each (max 2) Universal Child Allocation 5 Universal Pregnancy Allocation 5 Social Benefits Progresar 5 Received1\ Social Plan 5 (10 max rating) Unique Household Allocation System 5 Plan Hogar 5 Inscribed in PROCREAR without selection 2 Application seniority Selelected in PROCREAR with expired term 5 (15 max rating) For each application to the SCPP 2 1\ All of these social assistance programs are run by the ANSES, and award assistance to: vulnerable families for each child below 18 years old and enrolled in school (Asignación Universal por Hijo); unemployed or vulnerable pregnant women (Asignación Universal por Embarazo); unemployed students between 18 and 24 (Progresar); low income families privately employed (Sistema Único de Asignación Familiar); and low income families with no access to gas services (Plan Hogar). 12. To reflect the diversity of housing needs across the country, the applications received are also regionally allocated. To address the variations in housing needs across the country, the Program introduced a regional weighing in the distribution of the subsidies. The PROCREAR team analyzed, in Page 33 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) each Province: (i) the quantitative deficit27; (ii) the number of private units inhabited; and (iii) the number of people eligible for the Program.28 As a result, the maximum allocation was assigned to the Buenos Aires Province (which concentrates the 50 percent of the country’s housing deficit in absolute terms), and to the Central region. The weighing per region is presented in the Table A1-4 below. Table A1-3: Subsidy allocation per region Region Quota (%) Buenos Aires Province 40 Center 28 Cuyo 7 North-west 7 CABA 6 North-east 6 Patagonia 6 13. The subsidy amount is established on the basis of the demographic conditions of the household, and on the unit price. The segmentation is designed to allocate a higher subsidy amount to families with children; and progressively based on the price of the chosen unit (the more expensive the house, the smaller the subsidy). The maximum subsidy amount is AR$300,000 (US$19,672), and the maximum house price is AR$1.5 million (approximately US$98,360). The segmentation is presented in Table A1-4 below. Additionally, the selected unit must be located less than 100 km from the beneficiary’s workplace or residence, as registered with ANSES, and it cannot be sold during the first 3 years since purchase. These measure were introduced preventively to limit the possibilities of fraud. Table A1-4: Subsidy amount (AR$) House price Above AR$1 million and equal Equal or below AR$1 million or below AR$1.5 million Demographic situation Without dependent children 200,000 100,000 With dependent children 300,000 200,000 Box A1-2: Financial Sector Overview Providing sustainable housing finance while managing associated risks will soon be a challenge for Argentina’s banking sector. If the first batch of 25,000 recipients exploited to the maximum subsidy amount of 300,000 and fully leveraged with bank lending at 3.5 times, the associated bank lending would be ARS26 billion (USD1.75 billion), and the full program of 175,000 recipients would demand ARS184 billion (USD12 billion) in loans. Realistically, the numbers are expected to be slightly above half of that, and for illustration it is assumed that demand under the program will be ARS100 billion (USD7 billion) by 2019. The Argentinean banking system is small and transaction oriented, and the envisaged growth of mortgage 27 Considering the number of households per unit as well as the number of unrecoverable houses. 28 (i) and (ii) were drawn from the elaboration by the National Institute for Statistics and Census (INDEC) of data from the last census (2010). (iii) was derived from data from the Permanent Survey of Households (2015). Page 34 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) lending will be an important change. Bank assets account to just a third of annual GDP. Years of inflation, capital controls, and loss of trust following losses imposed in earlier crises has led to a small financial system focused on transaction deposits and short term lending. Total credit in June 2016 amounted to ARS923 billion (USD62 billion) of which mortgage lending was ARS1.9 billion (128 million USD). Thus, even the SCPP mortgage lending by 2019 will be an important shift in balance sheets before considering non-SCPP mortgage lending. The banking system appears relatively healthy. Solvency appears healthy with a 16.2 percent capital adequacy ratio, mostly made up of tier 1 capital as of June 2016. Non-performing loans are 1.7 percent of gross loans. Liquidity is good with liquid assets-to-total deposits at 31 percent, and funding is dominated by stable deposits from the public and private sectors. The growth of mortgage loans presents funding and risk management challenges for banks. Lenders need to manage the corresponding interest rate risks, the risk associated with inflation indexation, and liquidity risk associated with the long term lending. With the dominance of short term liabilities on bank balance sheets, banks can tolerate these risk as long as they are a small fraction of their balance sheets, but with the expected growth in mortgage lending, alternative solutions will soon be needed. A range of capital market solutions exist, and different options may be used by different banks. A simple solution is to attract long term inflation indexed deposits, but such deposits are unlikely to be more than 1-2 years maturity. Unsecured bond issuance by individual banks may be an option for managing liquidity, interest rate, and index risks by larger banks, but UVA indexed bonds are currently not allowed. Securitization can effectively shift risks of banks’ balance sheets. Both securitization and bond issuance could be done through centralized facilities enabling economies of scale and access to capital market solutions for smaller lenders. The current mortgage loan pricing at UVA +5-6 percent is incompatible with capital market solutions. For 29 similar maturities, sovereign bonds trade at CER +3.5-4 percent leaving a very narrow spread. Banks would want to be compensated for credit risk, origination, and servicing costs for banks, and in order to create securities credit enhancement, structuring costs including fees and taxes, and liquidity premiums will be added. In Mexico and Colombia mortgage rates were at 8-11 percent over inflation when being securitized, and is a realistic range to make securitization feasible in Argentina. 14. Component 2: Integrated Habitat Improvement (USD 145 million, 100 percent IBRD financing). The objective of this component is to improved living conditions for households in selected precarious urban settlements. The approach builds extensively upon the successful experience of existing urban improvement programs currently implemented by the SSHDH. 15. Integrated approach to neighborhood improvement: The intervention programs are designed as integrated program to address the challenges of informality and to overall improve the services, livability and opportunities in the targeted settlements. Each subproject is designed to provide both legal, physical and social transformation of the community. It provides an integrated set of works to provide improved security of tenure, access to basic services, improved public spaces, works to reduce environmental risks including those related to climate change and community infrastructure. In parallel it is accompanied by support to community and social programs with the design and implementation done in a participatory manner with the government, civil society and private sector service providers, leveraging ongoing programs and services. 16. Suite of Physical Interventions: The physical interventions fall into three main strategic lines (see Figure A1-2), the formalization of the urban area (“urbanization�) including providing of services, 29 UVA and CER are substantively equivalent. Page 35 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) land regularization, and connectivity; improvement of community, public services and reduction of environmental risks (“habitat improvement�) and improvement of community facilities and public spaces (“public space�). Typical interventions are listed below in Figure A1-2. Figure A1-2: Summary of Types of interventions 17. Social and Participatory Accompaniment and Support: To ensure appropriate and impactful design and implementation and to provide the complementary social and community support programs for inclusion, targeted social programs and to build a sense of community, the Project incorporates several initiatives. 18. Civil Society Participation: The design and implementation includes mechanisms for the involvement of civil society at the diagnostic phase, in the development of the proposal and as part of implementation with a formal and informal communication and direct involvement. 19. Human Development Program: The human development program is designed to support key themes as applicable to the given context through coordination with local government and civil society, support to existing initiatives and implementing new initiatives. These will be supported by a set of thematic modules (sports, employment, culture, gender, environment, basic education, indigenous peoples and citizen security) that provide options and operational tools to develop and implement these interventions. 20. NIDO (Centers for Inclusion and Development of Opportunities or “Núcleos de Inclusión y Desarrollo de Oportunidades�) will be supported and developed in each intervened area. NIDOs are centers located in the settlement to provide tools, training and networking that enable people to access more and better employment and production opportunities. These are modern and comfortable spaces Page 36 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) provided with communication and computer equipment where the human development program support is offered (based on the modules described earlier) along with networking. The community, local government and private sector is encouraged to make use of the space and help address jobs and employment in the settlement. Community Strengthening: The Project will provide support to community based organizations and initiatives to build their capacity and organization. This includes assistance and advice in the application to social programs and subsidies as well as legal, technical and administrative advice for the formation / formalization of cooperatives and social organizations and the evaluation and monitoring of social initiatives. Figure A1-3. Social and Participatory Accompaniment and Support 21. Subproject Interventions: The subprojects are identified by provincial or municipal authorities and then follow a structured process by SSHDH to ensure adequate targeting, technical and economic viability (See Annex II for a detailed discussion of the subproject cycle). 22. Eligible communities: The project interventions will be focused in selected precarious urban settlements located in urban agglomerations that meet eligibility criteria. See Table A2-5 for the complete list of criteria. 23. Prioritization: The existing criteria and a scoring system will be improved and used by SSHDH to prioritize subprojects when the Bank of Projects is in place and multiple subprojects are available. 24. Activities to be financed: The subproject design will include the urban design features and infrastructure and to support community development and studies and support for regularization of land tenure. In particular the component will finance: (i) Provision of infrastructure for basic services: The Project will finance the provision of infrastructure and technical assistance for basic services in Selected Precarious Urban Page 37 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) Settlements, through: (i) the carrying out of the design, implementation and supervision of an integrated package of works, including potable water, sewwrage, storm drainage, gas distribution networks and electricity connections; (ii) provision of connection of houses to the existing main water, sewerage, drainage, gas and/or electricity networks; (ii) Provision of infrastructure for improved public spaces and community development: The Project will finance the provision of infrastructure for improved public spaces and community infrastructure, including, inter alia: (i) street lighting; (ii) road and pedestrian paths; (iii) improvement of public spaces and green areas; (iv) environmental mitigation works; and (v) community, recreational and social service facilities; (iii) Human Development Activities: Carrying out of community development activities, including: The Project will finance out the carrying out of community development activities, including: (i) activities to promote community and civil society participation in the Project design and implementation; (ii) the design and implementation of community social, economic and cultural programs(iii) the establishment and startup of community centers; (iv) the provision of legal and logistic support to strengthen community based organizations and community activities; and (v) the provision of support to interdisciplinary field teams. (iv) Support for Land Regularization: The component will finance the provision of technical assistance to support improved security of land tenure, including the provision of legal assistance for parcel formalization, including the financing of legal studies, measurement plans, administrative support, physical demarcation, cadastral incorporation of new plots and activities to facilitate the physical and legal regularization of land parcels. (v) Under exceptional circumstances, the component will finance the provision of land and compensation; and the construction of houses all in connection with Resettlement under Subprojects. 25. Negative List: The following will not be financed under the Project (i) Any investment that is classified as a “Category A Subproject� in accordance with the provisions of the Operational Manual; (ii) Design or execution of rehabilitation, construction, or other changes to water supply, sewerage and storm water drainage networks and/or community water treatment works that involve the use or potential pollution of an international waterway that in the opinion of the World Bank: (i) will adversely change the quality or quantity of water flows to the other riparian countries; or (ii) will adversely affect the other riparian countries' possible water use; (iii) Execution of rehabilitation, construction, or other changes to water supply, sewerage and storm water drainage networks and/or community water treatment works that would directly serve a population outside of the eligible precarious urban settlement where the subproject will take place; Page 38 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) (iv) Any investment that involves: (i) the construction of a new dam or will rely on the performance of an existing dam or a dam under construction; or (ii) degradation /or conversion of natural habitats; (iii) that have significant negative impacts on indigenous peoples; (iv) that have significant negative impacts sites or structures of important historical, cultural or religious value. (v) Any investment that involves a contract with a contractor included in the Bank’s list of debarred or suspended firms. (vi) Construction of houses under Component 2 not related to resettlement under subprojects, or located outside of the eligible precarious urban settlement where the subproject will take place. 26. Subprojects: 27. Urban agglomerations. The Project will begin with subprojects in five urban agglomerations (Greater San Miguel de Tucumán, Greater Córdoba, Greater Mendoza, San Salvador de Jujuy - Palpalá and Mar del Plata-Batán). These were chosen on the basis of: (i) ensuring the inclusion of lower income provinces and municipalities in the North consistent with the CPS’s strategic goal of increasing financial flows to these areas; (ii) allowing a diverse geographic distribution so as to provide a representative sample of agglomerations in the country and ensure that benefits reach a diversity of regions; and (iii) helping facilitate execution by using implementing agencies with experience under PROMEBA or with other Multi-lateral lending Projects. 28. The geographical scope of Component 2 may be expanded to include subprojects in more of the 31 main urban agglomerations in the country and for this purpose it is expected that between 5 and 10 additional provincial or municipal executing agencies may be included in the program. These could be added provided there is demand for eligible subprojects in eligible precarious urban settlements that are prioritized by SSHDH and upon confirming adequate capacity exists in the provincial or municipal executing agency (see Annex 2 for details on the criteria and process). 29. Anticipated Subprojects: It is estimated that between USD 25 and 30 million in subprojects will begin execution in the first 18 months and USD 60 million in subprojects will be identified, prioritized and prepared in each of the second and third years. SSHDH has identified a sample of five possible subprojects (Table A-5) that could begin in the first in the first 18 months of implementation in four of the five pre-identified urban agglomerations (Greater San Miguel de Tucumán, Greater Córdoba, Greater Mendoza and Mar del Plata-Batán). These investments do not constitute pre-identified investments to be financed under the Project, but rather a sample of potential subprojects that will be further analyzed with respect to the technical, environmental and social criteria and process outlined in the Project Appraisal Document, Operations Manual, the Environmental and Social Management Framework and other safeguards documents as applicable. All subprojects have been prioritized by SSHDH and are integrated subprojects that include infrastructure for basic service provision, infrastructure for public spaces, community development support, and support to land regularization. Based on an analysis of the time needed to fully identify and design the subprojects and prepare the corresponding safeguards documents it is anticipated that these subprojects if included in the financing Page 39 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) would be ready for implementation within 6-9 months after the anticipated date of signing the loan agreement. Table A1-5: Sample of Potential Subprojects No. Agglomeration Location Institutional Estimated Estimated costs. Location of Local Beneficiaries Executing Agency (households) 1. Greater Rumy - Loma de Agency of 840 USD9.4 million Córdoba la Cruz, La Calera, Investment and Colón Financing, Provincial Government of Córdoba 2. Greater Puente de Hierro Secretary of Habitat, 699 USD7.8 million Mendoza Oeste 2, Provincial Guaymallén. Government of Mendoza 3. Greater San Virgen del Valle y Institute of Housing, 549 USD5.7 million Miguel de Virgen del Huerto, Provincial Tucumán Las Talitas, Tafí Government of Viejo Tucumán 4. Greater San Roque Secretary of Habitat, 847 USD10.3 million Mendoza Provincial Government of Mendoza 5. Greater Villa Inés - El Agency of 544 USD5.1 million Córdoba Trebol - Campo Investment and de la la Ribera Financing, Provincial Government of Córdoba 30. Component 3: Institutional Strengthening. (US$11 million, of which US$9 million IBRD financing and US$2 million Borrower contribution). The objective of this component is to strengthen the institutional capacity of the Federal, Provincial and Municipal governments in the housing, habitat and urban sectors through, inter alia, the provision of support to strengthen SVH’s capacity to implement the project, including: (a) carrying out of assessments of the existing national-level housing initiatives; (b) design and implementation of an evaluation study for SCPP; (c) provision of support for the design and implementation of the management, operational and reporting systems for federal housing programs; (d) strengthening land regularization processes, improving urban design and sustainability of basic services and improving economic, cultural and social aspects of the subprojects under Component 2; and (e) carrying out of capacity building and training activities for the national and Page 40 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) local governments’s staff and the participating entity’s staff for Sub-project preparation, in line with the National Habitat Plan. Table A1-6: Component 3 Institutional Strengthening Activities Activity Description Housing 1. Results evaluation of the SCPP Design and implementation of a results analysis of the new SCPP. 2. Analysis and optimization of the housing Revision of the portfolio of housing programs programs implemented by the SSDUV implemented by the SSDUV. Identification of overlapping of activities and/or target populations, analysis of cost-effectiveness of interventions, and determination of opportunities for improvement, building on international experience. 3. Design and implementation of the unified Design and implementation of the management technological infrastructure necessary to system for all housing programs under the implement the housing programs under the SSDUV. SSDUV (“Management System�) Habitat 4. Support for the implementation of the Institutional strengthening to SSHDH in the Urban and Habitat National Plan implementation of the National Urban and Habitat Plan through capacity building for the identification and preparation of sub-projects. Specifically, the component will carry out capacity building and training activities for national and local governments to strengthen their capacity for sub-project preparation with the goal of increasing the amount of prepared sub-projects to create a ready “bank of projects� that can be chosen for execution depending on their priority. In support of this goal the Project will also finance the development of a national observatory of settlements. 5. The provision of support to build capacity of Capacity building support for the systematic SVH in implementing investments in incorporation of social, economic and cultural precarious urban settlements programs, indigenous peoples and gender considerations and citizen security into the investment programs and improvement of land regularization processes, urban design, and sustainability of services. Page 41 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) 31. Component 4: Project Management (US$4.5 million, of which US$0.5 IBRD financing and US$4.0 Borrower´s contribution): This component will finance project management, monitoring and evaluation of Project results including: (a) carrying out the Project audits; (b) conducting outreach campaigns to dissemination of the Project; (c) carrying out mid-term and impact evaluation surveys in order to evaluate the Project’s impacts; (d) technical support on procurement, safeguards and financial management requirements, including the hiring of the UCN staff; and (e) Operating Costs. 32. The Project design incorporates several lessons learned from Bank housing and neighborhood upgrading projects. A summary is introduced in Box A1-3 below. Box A1 – 3: Lessons Learned Incorporated into Project Design 1. Importance of an integrated approach that addresses both the housing flow and stock. An integrated and segmented approach that addresses both the qualitative and quantitative deficits prevents the accumulation of the new housing demand, while addressing living quality and conditions of the households living in sub-standard units in informal settlements. This is particularly relevant in the Argentine context, where an elevated number of people live in informal settlements and where, unlike other comparable countries in the 30 Region and despite the significant resources allocated to the sector, the quantitative deficit is growing. 2. Importance of well-functioning housing finance markets. SCPP is expected to foster demand for housing finance, but its success will rely on banks’ appetite and ability to offer long-term loans. Argentina’s macroeconomic conditions including high nominal interest rates and the lack of capital market instruments have been, until recently, barriers to the expansion of housing finance at market conditions. The recently-introduced legislation that allows indexed lending will help to address the problem of high nominal interest rates and in the short term the Sustainable Guarantee Fund (Fondo de Garantía de Sustentabilidad, FGS), Argentina’s main pension fund, is expected to play an active role if additional liquidity is needed. In the medium term, additional capital market solutions will be needed to enable the sound and sustainable growth of housing finance. 3. Importance of complementary measures to foster housing supply and increasing access to urban land. Experience from the Region suggests that policies and programs that focus solely on expanding the number of housing units should be complemented with policies to enable the supply of serviced urban land, in order to avoid: (a) sprawl and segregated development, (b) high costs of service provision, (c) poor connectivity between residential areas and economic activities, and (d) lack of social and economic integration of low- income populations. The SSDUV is developing a screening system to better inform the new-subsidy program decision-making. The screening system is expected to alert the program when the housing units fall below a certain “urban� standards. The scoring system, as well as other measures to complement the housing programs with sound urban policies will be strengthened through technical assistance activities under Component 3. These include, inter alia: capacity building targeted to provincial and local governments on urban planning; supporting the SSDUV in the development of PPP schemes for affordable housing projects; support for the implementation of the National Habitat Plan; design of an Urban and Habitat Observatory. 4. Importance of Including complementary social and community interventions in addition to works: Worldwide and Argentine experience has shown that reduction in poverty in informal settlements cannot depend solely on infrastructure, and that complementary programs are needed to increase economic opportunities, maintain a sense of community, provide basic social services, ensure inclusiveness and address issues such as crime and violence. PROMEBA’s approach of providing support to existing initiatives through community based organizations and coordination with local government programs will be expanded and formalized through the human development subcomponent. The approach will be changed to be more 30 Estimated at 0.77 percent of GDP, higher than, for example, the 0.28 percent of GDP spent by Colombia. Page 42 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) proactive and systematized through the development of thematic modules to provide guidance and tools to field teams and community groups for implementing specific activities types (gender, sports, culture, greening, general education, employability, innovation, technology, indigenous peoples). The establishment of NIDOs (“Centers for Inclusion and Development of Opportunities� in Spanish) will support the implementation of the thematic modules and offer networking and training. 5. Urban design and connectivity: One of the most important challenges of formalization of informal communities is the establishment of an urban layout conducive to community identity and livability, and to ensure integration into the broader urban area. The Project supports the development of community infrastructure and public spaces and the development of a strategic approach to urban design that is participatory and incorporates the application of urban design to thematic issues such as citizen security and gender. In addition, it will finance the improvement in the connectivity of the intervened areas with the rest of the city by providing technical support and training to the municipalities and provinces, making the inclusion of the area in urban planning instruments and public transportation routes a requirement for financing. 6. Service access and sustainability: Slum upgrading programs face the challenge of ensuring the effective access of beneficiary’s service networks in their households and the adequate operation of services such as water supply, energy provision that in many cases were not formalized or were underperforming. Under the Project, several approaches will be used to improve effective access to quality basic services, including different financing mechanisms to fund house connections agreements with service provider for the operation in these communities and post construction technical assistance to service providers to support financial, communication and service planning. In addition, technical support will be provided to the government units that will be ultimately responsible for the operations and maintenance of the infrastructure once the investments are concluded. 7. Land regularization: Previous similar interventions have provided technical and administrative support to municipalities to improve land regularization. Through the program, property layouts for nearly all of the beneficiaries have been provided, but within the typical time period of a Project (i.e. 5 years), legal and administrative support to improve tenure conditions only benefits for a small portion of residents of informal neighborhoods. Often, under previous interventions, by the completion of a neighborhood improvement subproject, less than 10% of the households have received property titles. The proposed Project will build on the work conducted previously, but begin addressing the existing processing bottlenecks to property formalization in several provinces; in order to develop a simplified process that could be integrated in the habitat program. Page 43 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) ANNEX 2: IMPLEMENTATION ARRANGEMENTS COUNTRY : Argentina Integrated Habitat and Housing Project Project Institutional and Implementation Arrangements 1. The SVH will have overall responsibility for the implementation of the Project through the National Coordinating Unit (Unidad de Coordinación Nacional, UCN). The UCN will be in charge of implementing the fiduciary processes and will be led by an Executive Coordinator. The UCN will count on a support team covering legal, procurement financial and administrative areas. The SVH has two under secretariats that will be responsible for the technical and environmental implementation of Component 1 (SSDUV); and Component 2 (SSHDH); Component 3 will require technical implementation of both Under-Secretaries. The UCN will interact with the Under-secretaries through two Sub-coordinators that will be in charge of coordinating activities between different areas of each Under-Secretary and of assuring the completion of activities timely and effectively. In addition to the role of the SVH, Components 1 and 2 will involve coordination with a number of entities that will be further explained in the next paragraphs. Figure A2-1: Organizational Chart Page 44 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) Component 1: Increased access to formal housing 2. Component 1 will be implemented by the SVH with technical assistance by the SSDUV, through its National Unit for Access to Credit. The technical Program design, including targeting and allocation criteria was developed by the PROCREAR’s Executive Committee (“the Executive Committee�). The Executive Committee is constituted by the ANSES; the Ministry of Interior, Public Works and Housing through the SSDUV; the Ministry of Finance; and the Administration Agency for Public Goods (AABE). 3. The SCPP will be operated through the special trust fund Nación Fideicomisos (NFSA), with the inputs provided by the Executive Committee (the list of beneficiaries, including all the information required to perform the verifications). NFSA as financial agent of the SCPP is responsible for the signing of cooperation agreements with all the banks participating in the Program31, providing them with management systems and capacity building, and preserving and reporting all information on deeds, mortgage agreements, and disbursement issued, to the Executive Committee. Participating banks, as per agreement signed, are responsible for: (i) providing all the explanatory information to the beneficiaries, and advising on the characteristics and conditions of the mortgage loan; (ii) participating in the Program dissemination; (iii) verifying and monitoring compliance with the eligibility criteria by the beneficiaries; and (iv) informing the NFSA and the Executive Committee when the debtor has manifested the intention of selling the property within the 3 years from purchase. Participating banks are also required to reimburse the subsidy funds to NFSA in cases where the mortgage and deed are not finalized. A map of actors and responsibilities is detailed in the Table A2-1 below. The subsidy application and award process is also summarized in the Figure 1 below. Figure A2-2: SCPP cycle 1. Application - Applicants sign up for the program on the SCPP webpage. The application period is opened in batches, through inscription periods established by the Executive Committee.32 2. Selection of beneficiaries - First, the Program screens the applicants to determine whether they meet the eligibility criteria. The information provided by the applicants is cross-verified by ANSES, the Central Bank (BCRA), the Internal Revenues Administration (Administración Federal de Ingresos Públicos, AFIP) to identify frauds, and determine the eligible participants. Second, eligible applicants are scored on the basis of the Program criteria. Applicants that lay above the cut off line established by the Executive Committee are finally selected.33 3. Mortgage Management - Once selected, a beneficiary has 60 days to sign a pre-agreement for a loan with one of the participating banks. The bank verifies the applicant information, through the request 31 To date there are 14 participating banks: Banco de Córdoba, BBVA Francés, Banco Ciudad, ,CrediCoop, Galicia, Banco Hipotecario, HSBC, Itaú, Macro, Banco Tucumán, Banco Patagonia, Banco Provincia, Santander Río, Supervielle. 32 The first inscription period has recently closed, resulting in the selection of 25,000 beneficiaries out of the over 110,000 applications received. 33 The Executive Committee establishes a cut off line for each inscription period. Page 45 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) of additional documentation when needed. 4. Finding the house - From selection, the beneficiary has 240 days (six months) to find a suitable house, on the basis of the saving amount, the pre-agreement with the bank, and the subsidy. 5. Appraisal, deed and disbursement of the subsidy - The selected house is appraised by the bank, and if the price of the appraisal is in line with what established in the pre-agreement, the house is purchased, and the title notarized. The deed must be issued within 365 days from the selection. Table A2-1: Actors and Responsibilities for the Implementation of Component 1 Entity Role SVH (through Responsible for overall program design, beneficiary scoring system, and SSDUV) in allocation criteria and monitoring and evaluation as per the Program’s coordination with operational manual. Hosts the platform for registration and follow-up of the other potential beneficiaries. members of the In particular, ANSES as a member of the EC will cross-check eligibility of PROCREAR beneficiaries and synergies with other government programs (eg. social security Executive benefit programs). Committee (EC) Fideicomiso Trust Fund responsible for managing the funds from the National Treasury for PROCREAR the operation of the SCPP program. These funds will be transferred to the Nación Fideicomisos in its capacity of program’s financial agent upon specific requests. Nación Child Trust Fund from Fideicomiso Procrear created specifically for SCPP. It will Fideicomisos receive funds from the Fideicomiso PROCREAR and will be responsible for: (NFSA) NFSA, as financial agent of the SCPP has the following responsibilities:  Subscribe an agreement with all banks participating in the SCPP, in line with the Program’s operation’s manual;  Request and preserve the certified copy of each deed and mortgage agreement. This information should be available upon request by the Executive Committee, the Fiduciary and/or competent authority;  Provide quarterly accounts of the disbursements issued to the Executive Committee and the Fiduciary;  Provide all technical and human resources needed for the efficient compliance with its responsibilities;  Provide the Management System to all participating banks, as well as the necessary capacity building;  Verify the information provided by the participating banks, and perform the disbursements; Participating Regulated financial institutions that sign the CA with NFSA for the operation of banks the Program (today there are 14, including public and private ones). As established in the CA, each bank is responsible for:  Open a special account for the SCPP transfers by the NFSA  Facilitate the activation of the Management System to streamline the Page 46 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) information exchange between all the actors;  Provide all explanatory information to the selected beneficiaries, and advise on the characteristics and conditions of the mortgage loan. Participate in the Program dissemination through its web-page and local branches.  Verify and monitor the compliance with the eligibility criteria by the beneficiaries, through the request of additional information when needed.  Perform the credit risk analysis for the beneficiary, and undertake full responsibility on its consequences.  Inform promptly (no more than 10 days) the NFSA and the Executive Committee when the debtor has manifested the intention of selling the property before the first 3 years since purchase.  Provide that the house deed segregates the funds between previous savings by the beneficiary, subsidy amount, and mortgage loan.  Inform the beneficiary that selling the property in the first 3 years will result in losing the subsidy. This however will have no implications for the bank. 4. Component 2: Integrated Habitat Improvement: The SVH through the UCN and with support from SSHDH will have institutional responsibility for implementing component 2 and will make agreements with local executing agencies at the provincial (Unidades Ejecutores Provinciales, UEPs) and/or the municipal level (Unidades Ejecutores Municipales, UEMs) to execute subprojects. Field teams and Management Working Groups will be established for each subproject to facilitate execution. A detailed description of roles is presented below: Table A2-2: Implementation Roles for Component 2 Entity Role National For the implementation, a National Coordination Unit (UCN) will be formed. Coordination Through the UCN, SVH will carry out the administration of the component Unit (UCN) activities including preparing and updating the annual work plan and procurement plan, financial management including managing the special account and arranging for audits, and monitoring and report on progress and outcomes, on compliance with the operations manual and World Bank policies. The UCN will also administer the fund transfer and have responsibility for compliance and approval of the local executing agencies subproject development and execution activities. More specifically, the UCN will assess the eligibility of new local executing agencies, confirm the eligibility and viability of subprojects, undertake annual programming of subprojects, sign agreements with local executing agencies, approve Integrated Subproject Designs, approve different stages of the bidding processes, and supervise the local executing agencies management of contracts, progress of subprojects. Page 47 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) SSHDH The project will rely on the relevant sector departments within SSHDH (Territory, Human Development, Urbanization and Planning and Sustainable Development) at the national level and multi-disciplinary teams in the SSHDH (social, environment, urban and civil works specialists). Through these teams SSHDH will be responsible for the technical supervision and quality review of the entire subproject cycle. Specifically, they will advise the local executing agencies in the identification and elaboration of subproject proposals based on eligibility criteria; provide technical supervision and advice to the local executing agencies in the development of Integrated Project Designs; and undertake technical review of subproject documents related to viability, Integrated Project Design, bidding and contracting. They will also be responsible for the technical and social and environmental supervision of the activities of the activities of the local executing agencies during execution and post-work phases and implement the monitoring and evaluation systems for the component. The SSHDH will also ensure the coordination of the subprojects with component 3 activities and the Project in general with other housing, water and sanitation and institutional strengthening programs in the Secretariat and in the Ministry of the Interior and with federal programs in the social sector. Local executing The local executing agencies will execute the eligible and prioritized subprojects. agencies They include entities in municipal and provincial governments with adequate capacity to assume this responsibility. The specific responsibilities of the local executing agencies are to: (i) identify and develop subproject proposals; (ii) supervise and coordinate viability process (including completing studies, obtaining certifications); (iii) establish the management work team; (iv) development of the Integrated Project Design; (v) contract the field team and procuring the works, goods and consultants for execution of subprojects; (vi) supervise social, environmental and technical quality; (vii) management and payment of contracts for execution; (viii) ensure coordination and transfer to service providers; (ix) supervise the maintenance of works and equipment, and the sustainability of the services during the post-works stage; (x) report on financial, procurement, technical, social and environmental aspects of the subprojects; and (xi) take part in institutional strengthening activities and the development of information systems of the Project. Field teams These multidisciplinary teams are comprised of individuals contracted by the local executing agencies and are responsible for the implementation of outreach activities in the settlement, keeping the population informed and fostering participation and to support implementation through on the ground supervision. Their work includes the diagnosis of the settlement, development of a stakeholder map, socialization of Subprojects and monitoring of the implementation including technical, social and environmental elements. The field team is mobilized two months before the beginning of works execution and continue their work until six months to one year after completion of the works. Page 48 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) Management The Management Working Group is established after the viability of a subproject Working Group is confirmed by the UCN. The Group is a coordination mechanism that consists of (Mesa de representatives of the executing agencies and other institutional actors linked to Gestión) the subproject such as the municipality that has jurisdiction over the community, government institutions responsible for land regularization, service providers, professional associations, community representatives, representatives of indigenous communities, NGOs, federal housing programs and other relevant programs. The Management Working Group acts as a participatory, consensus building and coordination body works and has review, formulation and approval authority in the formulation, execution, operation and maintenance of the project. 5. Participating Local Executing Agencies: Individual subproject execution will take place in a decentralized manner through the provinces and/or municipalities, as sub-executing agencies of the program. The local executing agencies are commonly located in the provincial government, but may also include government units in the municipality with adequate capacity. Initially, five local executing agencies have undergone a capacity assessment and are eligible to execute subprojects (see Table A2-3) and additional local executing agencies may be added provided they meet capacity criteria (see Table A2-4 for criteria). The Secretary of Housing and Habitat will transfer resources in the form of grants based on signed implementation agreements and the management of these resources to execute the individual subprojects will be the responsibility of the executing units in the provinces or municipalities. Table A2-3: Participating executing Agencies eligible for subproject execution under Component 2 Urban Agglomeration Institutional Location of Executing Agency Greater Córdoba Agency of Investment and Financing, Provincial Government of Córdoba Greater Mendoza Institute of Housing, Secretary of Habitat, Provincial Government of Mendoza San Salvador de Jujuy-Palpalá Ministry of Infrastructure, Provincial Government of Jujuy Mar del Plata – Batán Ministry of Social Development, Provincial Government of Buenos Aires Greater San Miguel de Tucumán Institute of Housing and Urban Development, Provincial Government of Tucumán Page 49 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) Table A2-4: Capacity Assessment Criteria for Incorporation of a Local Executing Agency into Component 2. Capacity Assessment Criteria Have an active working group that is or has implemented infrastructure projects. Have an adequate financial management system satisfactory to the Bank for accounting for funds used under the project and monitoring the activities executed. Have an adequate procurement management system satisfactory for reporting procurement processes within the Project to ensure compliance with the World Bank Rules for Borrowers of IPF and the Operations Manual Have the capacity to manage the safeguards policies of the World Bank for the compliance with the Resettlement Plan, Environmental and Social Management Framework and Indigenous Peoples Framework. 6. Subproject development and execution: The subprojects are identified by provincial or municipal executing agencies and then after prioritization is confirmed follow a structured process to the design and implement implementation of the subproject. 7. Subproject Identification, Prioritization and Programming: The Subproject Cycle starts with proposals from the provincial or municipal executing agencies to SSHDH for an intervention in an eligible precarious urban settlement (see criteria in Table A2-2). SSHDH undertakes field visits to evaluate and advise on the proposal, develops a Subproject Description with the local executing agency and confirms that the settlement meets the eligibility criteria and that the proposed activities are eligible (see Annex 1 for eligible activities, and Table A2-5 for eligibility criteria). When there are multiple proposals, SSHDH will prioritize the proposals based on readiness and urban impact. The UCN formally approves the eligibility and prioritization and includes the subproject the annual investment program and updates the Project procurement plan. A capacity assessment of the Local Executing Agency (if new) is also undertaken at this stage. Once confirmed, a Framework Agreement is signed between the UCN and the provincial or municipal executing unit. Table A2-5: Precarious Urban Settlement Eligibility and Subproject Prioritization Criteria for Component 2 Precarious Urban Settlement Eligibility Criteria Located in an urban agglomeration. Urban Agglomerations are those areas included in the Permanent Survey of Households (Encuesta Permanente de Hogares, undertaken by the INDEC in December 2016) Quality of living conditions in the Based on Government statistics (Calidad de la Situación settlement are lower than the average Habitacional - INDEC) value for the agglomeration. Minimum size of the settlement is 200 Based on the Subproject Description (Ficha de households. Subproyecto). The beneficiary population at the time of Based on the Subproject Description. identification is stable with an average Page 50 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) time of residency of 4 years. Land where the settlement is located is Based on the available documentation or records from Public or it can be legally subdivided and the Executing Agency. transferred to households. The settlement area is included in a Formal note of the municipality included in the territorial plan, land use regulations or is Subproject Description not in contradiction with development plans as confirmed by the municipality. The settlement is located is in areas Based on the available official hazard maps provided by where hazards do not exist or can be the competent national or local agency. mitigated at a reasonable cost. 8. Confirmation of Viability: The SSHDH reviews and UCN issues of statement of viability on the basis of official documentation from the relevant provincial and municipal government authorities confirming the viability of the environmental, social, urban and land-regularization under the subproject and provides certificates confirming the feasibility of the subproject from the service providers, including confirmation that (i) the land where the intervention is planned is state-owned and can be transferred to the households without an expropriation process; (ii) It is possible to provide basic services to the households (water, sewerage, electricity, gas) without incurring in unnecessary costs or investments and leveraging private resources (partial versus full subsidies); (iii) If the land where the intervention is planned is exposed to hazard risks, these can be mitigated at a reasonable cost. In addition, it is also confirmed through official documentation that the investments are eligible under the program. 9. At this time a Management Working Group (Mesa de Gestión) composed of representatives of the local executing agency, SSHDH and civil society, community and institutional actors linked to the subproject is formed and confirms the necessary interventions in the selected precarious urban settlement through an agreement establishing the interventions to be financed and the commitments of different actors. The executing agency also signs agreements with the service providers confirming arrangements for execution of the subproject. 10. Integrated Subproject Design: After viability is confirmed, the Integrated Subproject Design (PEI) is prepared by the local executing agency in coordination with the Management Working Group. The PEI will include interventions for the provision of basic services; provision of infrastructure for improved public spaces and community infrastructure; support to community development and support to a land regularization plan (see Annex 1: Detailed Project Description for more details) and must be presented to the community in a public hearing. Once interventions are confirmed and the estimated the Procurement Plan is updated. SSHDH provides advice and reviews to confirm compliance and readiness with regard to the Requirements of design including technical quality, economic efficiency, adequate community support and all legal arrangements. The SSHDH also confirms that the investments included are eligible under the program and confirms the following: Page 51 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) 11. Engagement of local government. The intervention is a priority for the local government. This reflected in (i) the inclusion of the intervention area in the urban plan and in the transport routes; (ii) the commitment to transfer the property to the homeowners once the works have been concluded; (iii) the commitment to maintain the new infrastructure and provide services to the neighborhood once the works have been completed; (iv) the commitment to coordinate on behalf of the beneficiaries with third party service providers to make sure they get access to all services as planned. 12. Compliance with local regulations and World Bank policies. All subprojects once identified and prioritize will need to be designed so as to comply with (i) all relevant local regulations (national, provincial, municipal); (ii) environmental management plan and/or resettlement plan and/or indigenous peoples plan in compliance with World Bank safeguards policies; and (iii) procurement plan in compliance with World Bank policies. 13. After confirmation of the above by SSHDH the UCN approves the PEI for execution. Table A2-6: Key Agreements for component 2 subproject execution Framework Agreement (“Convenio Marco de Agreement between SVH and the local executing Adhesion�) agency formalizing involvement in the subproject and outlining all the obligations of SVH and the local executing agency related to the implementation of the subprojects. Upon formalization of the selection of a subproject for financing this will be supplemented by a specific Subproject agreements (“Acta Acuerdo�) that outlines the interventions to be financed. Transfer Agreement (“Convenio para la Agreement between the local executing agency transferencia de obras�) and Service providers concerning the transfer and operation and maintenance of the works. Land Regularization Agreement (“Convenio de Agreement between the local executing agency legalización de la tenencia de la tierra�) and the authority in charge of regularization of land committing to the process of regularization in the subproject site. 14. Pre-execution field work: An interdisciplinary field team including urban, social, environmental and legal specialists is contracted by the local executing agency and formed within the community two months before the start of the works. The team undertakes the communication, planning and preparation necessary to prepare for bidding and execution of the subproject, initiates the human development program and establishment of the NIDO network and continues the efforts at civil society participation and community strengthening. 15. Bidding: In order to implement the works and actions established in the PEI one or more tenders can be undertaken, bidding and contracting is done by the local executing agency, SSHDH and the UCN Page 52 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) provides approvals to the various stages of the bidding processes as required (see procurement arrangements for details). 16. Execution: During execution of works the local executing agency manages the contracts including undertaking the technical and environmental supervision and the SSHDH performs monitoring and field visits. The UCN undertakes financial management responsibilities related to payments, the special account and auditing (see financial management arrangements) and after review of SSHDH, approves any contractual changes, and changes in the project design and costs as required by the operations manual. The human development program, civil society participation, NIDO network, support to land tenure regularization and community development support are executed by the local executing agencies in a parallel and coordinated manner and with continued involvement of the interdisciplinary field teams and management working group. 17. Post implementation support: The local executing agency supervises and provides assistance to the operation and maintenance of works and produces annual maintenance reports. The field team stays a maximum of one year after the works are finished supporting the continued execution and sustainability of the human development program, civil society participation, NIDO network, support to land tenure regularization and community development support. Page 53 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) Figure A2-3: Subproject Cycle for Component 2 Identification, prioritization Viability Integrated Project Design and programming (PEI) •The PEI is prepared by the local •The Provincial or Municipal executing •The local executing agency provides executing agency in coordination with agency proposes a project intervention sectoral reports of environmental, social, the Management Working Group, in an eligible precarious urban urban and land tenure viability and the technically supervised by the SSHDH and settlement. certificate of hydraulic aptitude and approved by the UCN through the • The SSHDH undertakes field visits to prefeasibility of water, sewage and issuance of a certificate of eligibility. advise on the proposal. electrical energy services emitted by the •It is possible to contract technical •The SSHDH confirms that the precariou companies that provide the services. assistance for the development of the urban settlement is eligible, the •The UCN issues a statement of Viability. PEI proposed activities are eligible and that •A Management Working Group is formed •The PEI includes the urban design, a land is a priortized intervention. including representatives of the local regularization plan, infrastructure works, •The UCN includes the project in the executing unit and other institutional community equipment, human Annual Investment Plan and updates the actors linked to the project. development actions and a Field Team Project procurment plan. •The local executing unit signs the proposal. •A capacity assessment is undertaken by respective agreements for legalization of •Before the end of the PEI, it is presented the UCN for new local executing land tenure, transfer of works and to the community in a public hearing, agencies. additional contributions (if any) with the where comments are collected and •A Framework Agreement is signed. service providers. validation is sought. Page 54 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) Page 55 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) Component 3: Institutional Strengthening & Component 4: Project Management 18. This component will be implemented by the UCN, in close coordination with the SSDUV and SSHDH. Activities under this component are described in the Project Description. Financial Management 19. The Financial management risk is assessed as substantial and the combined fiduciary risk is also substantial. As noted in the FM Summary section, SVH through the UCN will be the overall project coordinator including FM functions. The Project entails implementation complexities given the intervention of multiple entities (under the coordination of SVH) in managing the Project’s funds before they reach their final beneficiaries. Hence, for component 1, the program’s funds will flow from the National Treasury to the Fideicomiso PROCREAR, and then will be transferred to Nación Fideicomisos and private commercial bank institutions who will pay the program’s subsidies to the beneficiaries based on the information provided by ANSES. For component 2, the funds will be transferred from the UCN to the local executing agencies who will make payments related to infrastructure, technical assistance and training. For components 3 and 4 payments will be directly made by the UCN. As a result of these arrangements, the generation of reliable financial information which promotes project accountability will be complex, and should be supported by a sound control environment. 20. The above described risks will be mitigated through the following measures: (a) creation a project the National Coordination Unit in SVH that will include a FM division; (b) the preparation of a project Operational Manual (OM) which will document main operational procedures and inter- institutional arrangements; (c) an annual external audit that will be conducted under terms of reference acceptable to the Bank covering the complete project execution; (d) use of the UEPEX accounting system by the UCN in SVH and also by the FM units in the local executing agencies under Component 2. This system is acceptable to the Bank; (e) periodic provision of ad hoc fiduciary trainings to project staff; and technical assistance aimed at improving the FM processes. During Project preparation it was identified that payment processes tend to be lengthy and subject to multiple layer of reviews. During implementation the fiduciary reviews will focus on determining possible areas of efficiency in this process while maintaining an acceptable level of control. The main FM arrangements for this Project are described below. 21. Project implementing entities. As noted earlier, the overall Project implementation responsibility will be under the SVH and a National Coordination Unit (UCN) will be created in SVH that will absorb the fiduciary responsibilities under the Project. Among other aspects this unit will be responsible for requesting funds to the Bank, authorizing payments, accounting of transactions, and processing disbursement requests for all Project’s components. The SVH will present a proposal before negotiations regarding the number of FM staff that will be hired for this unit. This organizational structure along with the division of functions will be reflected in the Operations Manual accordingly. Page 56 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) 22. As noted earlier, in addition to the role of SVH, components 1 and 2 will involve the intervention of a number of entities external to the SVH. The arrangements between these entities and SVH will be governed under inter-institutional agreements and will be also explained in the OM. The specific roles of these entities are explained in the following table: Table A2-7: Responsibilities in Financial Management Component Entity Role 1 ANSES This institution will be in charge of the registration and identification of eligible households under the program. On this capacity, ANSES will prepare databases that will be provided to SVH and Nación Fideicomisos, which will be the basis of operation of the program. Fideicomiso This Trust Fund, which fiduciary agent is Banco Hipotecario, will receive funds PROCREAR from the National Treasury for the operation of the “Casa Propia� program. These funds will be transferred to the Nacional Fideicomiso in its capacity of program’s financial agent upon specific requests. Nación This Trust Fund, which fiduciary agent is Banco de la Nacion Argentina, will act Fideicomisos as financial agent for the program. It will receive funds from the Fideicomiso PROCREAR and will be responsible for transferring subsidies to the private banks after they have signed mortgage loans with beneficiaries under the program. Private Private commercial banks will be responsible of transferring the subsidies to commercial the beneficiaries under the program for the payment of the respective houses. banks SVH In its capacity of overall technical and fiduciary coordinator SVH will review the databases of beneficiaries provided by ANSES and will select the households that will be subject of eligibility for the Bank’s loan purposes. Based on this information, SVH will present disbursement and financial reports to the Bank. 2 SVH Will receive and manage advances of funds from the World Bank, which will be transferred to the subnational implementing units. Subnational These provincial units will be in charge of managing the funds that they will implementing receive from the SVH and then will incur in payments for infrastructure, units located technical assistance and training. To this end, the Project will use the same at Tucumán, organizational infrastructure created for the PROMEBA Project. The FM team Córdoba, assessed during Project preparation the FM capacity of the subnational units Mendoza, of the five provincial units and it was considered acceptable. All of them will Jujuy and use the UEPEX accounting system and the payments are subject to the Mar del approval of the UCN at the SVH and also are subject to the regular controls of Plata. each subnational government which include ex-posts reviews by the respective provincial Supreme Audit Institution. 3 and 4 SVH SVH will make payments of consultancies, goods training, operational expenses under these components. 23. Information Systems/Accounting and Financial Reporting. For managing its institutional accounting records, SVH will use the UEPEX system. This system will be also used by the subnational FM units which will receive and execute project’s funds under component 2. The UEPEX system is used by all other line ministries who manage multilateral-financed projects at the national level in order to achieve Page 57 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) consistency in financial reporting matters. This UEPEX’s features allow, among others: (a) online recording and monitoring of transactions and (b) reconciliation of advances under the Project. 24. The FM monitoring and evaluation will be done through the preparation of the semi-annual Project unaudited Interim Financial Reports (IFRs) and the annual audited Project financial statements. These will be prepared on a cash basis using the standard formats which have been agreed with the SVH. After loan effectiveness, the following financial reports will be presented by SVH to the Bank: Table A2-8: Financial Reporting Report Due date Semi-annual unaudited Project IFRs reflecting the sources and Within 45 days after the uses of funds for each semester and cumulative uses by category, end of each calendar including beginning and ending cash balances. semester Annual audit report on Project financial statements and eligibility Within six months after of expenditures the end of each calendar Special opinions on SOEs and Designated Account year 25. Budgeting. Budget execution in Argentina is recorded in the national Government’s integrated budget and accounting system (Sistema Integrado de Información Financiera) and subject to control over the budgetary execution process. A separate budgetary line in the SVH annual budget will be created to allow appropriate monitoring and control of budget resources from different sources and Project expenditures. 26. Internal Controls and Internal Audit. SVH is under the scope of the General Syndicate of the Nation, which is the Federal Government’s internal audit agency under the jurisdiction of the executive branch. The General Syndicate of the Nation supervises and coordinates the actions of the Internal Audit Units in all government agencies, approves their audit plans, and conducts independent audits. 27. External Audit Arrangements. Annual Project financial statements will be audited based on terms of reference acceptable to the Bank. The annual external audit will be conducted under International Standards on Auditing by an auditor acceptable to the Bank. The audit report shall be submitted to the Bank within six months after the end of each fiscal year. Annual audits will cover all funding and expenditures reported in the Project financial statements. Due to the complexity of the Project’s arrangements, it will be assessed the possibility of hiring an external audit firm acceptable to the Bank to carry out the audit of this Project. This arrangement may be revisited from time to time. Disbursements 28. Disbursement Process: SVH will open a U.S. dollar segregated designated account (DA) for the project the Banco de la Nación Argentina (BNA). Proceeds from the account in U.S. dollars will be transferred to an operative account in local currency also held in the BNA. The disbursement categories are included in Table A2-6 below. This account will be used for payments under disbursements categories 2 and 3 of the project. The primary disbursement method will depend on the component and will operate as follows: Page 58 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929)  Disbursement Category 1 will operate through the reimbursement of funds originally pre-financed by the Government under the SCPP program. These funds will be transferred from the National Treasury to the Fideicomiso PROCREAR account in Banco Hipotecario, and then to the Nación Fideicomisos account in BNA. This last Trust Fund will transfer the subsidies to the commercial banks participating in the program who will make payments of subsidies to eligible beneficiaries for the acquisition of a house. At the end of the cycle, SVH will select the eligible beneficiaries and will request the reimbursement of funds to the World Bank. These funds will be deposited into a project operational account opened in pesos at the BNA.  For Disbursement Categories 2 and 3, the World Bank will provide advances of funds into the DA operated by the UCN at the BNA. In the specific case of Disbursement Category 2(a) the funds will be transferred from the UCN to the Local Executing Agencies, which will open specific bank accounts for the operation of the Project in order to make payments for infrastructure, technical assistance and training. In the other cases SVH will pay directly to providers of goods and services. Table A2-9: Disbursement Table Category Amount of the Loan Percentage of Allocated Expenditures to be (expressed in USD) financed (inclusive of Taxes]) (1) Upfront Subsidies under Component 1 of the $45,000,000 100% Project (2) (a) Goods, works, non-consulting services, $145,000,000 100% consulting services, Training, Operating Costs under Subprojects; and (b) land acquisition and compensation related to the implementation of the Resettlement Policy Framework for Component 2 of the Project (3) Goods, non-consulting services, consulting $9,500,000 100% services, Training and Operating Costs for Components 3 and 4 of the Project (4) Front-end Fee $500,000 100% TOTAL AMOUNT $200,000,000 100% 34 29. The following diagrams describe the Project’s flow of Funds . Due to the complexity of the flow of funds process, a specific diagram was prepared for Component 1 and another for the rest of the Project’s components: 34 The explanation of roles and responsibilities of the entities included in the flow of funds diagram is included in the “Project Implementing Entities� subsection presented above in paragraphs 30 and 31 Page 59 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) Figure A2-4: Flow of Funds COMPONENTS 2, 3 & 4 COMPONENT 1 World Bank World Bank 8 (1) 7 Loan designated account in USD in BNA managed by UCN (6) 9 UCN (as manager of loan designated account in USD and Loan designated account in ARS in ARS held in BNA ) in BNA managed by UCN (5) 10 National Fideicomiso UCN (2) (3) 1 Treasury PROCREAR 2 ANSES Payments to providers Nacion Provinces participating under of goods, works and (databases of 3 6 Fideicomiso the program (Mendoza, services under beneficiaries) Tucuman, Province of Buenos components 2, 3 & 4 4 Aires, Cordoba and Jujuy) Beneficiary bank accounts (4) 5 Payment of goods, works and House seller services under Component 2 30. The disbursement procedures will be described in the Disbursement Letter. General arrangements are as follows. The DA will have a fixed ceiling of USD$31,000,000. Nonetheless, the disbursement advances for Categories 2 and 3 will be determined based on a cash forecast to cover Project implementation within a period of six months. Withdrawal applications will be submitted by the UCN within SVH with two signatures indicated in their list of authorized signatures. Minimum value of disbursement applications is USD$3,000,000. Applications for replenishment of the DA will be submitted to the Bank on a quarterly basis, and will include a reconciled bank statement as well as other appropriate supporting documents. Page 60 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) 31. Reporting on the use of loan proceeds. Supporting documentation should be provided with each application for withdrawal as follows: (i) Records in the form of a Customized Statement of Expenditures (SOE) for subsidies granted to eligible beneficiaries under Disbursement Category 1 of the Project, (ii) Records in the form of standard SOEs for Disbursement Categories 2 &3. 32. Retroactive Financing. Based on the Project’s needs, the Bank could finance up to an aggregate amount not to exceed US$ 40 million for eligible expenditures incurred by the borrower on or after January 23, 2017 and up to the date of signature of the loan agreement (but in no case more than one year prior to such signature date). Procurement 33. Procurement will be conducted according to the Bank’s ‘Procurement Regulations for IPF Borrowers’, issued in July 2016, for the supply of goods, works, non-consulting services and consulting services. The World Bank's Standard Procurement Documents will govern the procurement of World Bank-financed Open International Competitive Procurement. For procurement involving National Open Competitive Procurement, the Borrower will use standard procurement documents acceptable to the Bank that will be included in the Operation Manual. 34. A procurement capacity assessment of the SVH and the provincial executing agencies in Buenos Aires, Jujuy, Mendoza, Tucumán and Córdoba was carried out by the Bank’s procurement team during November 2016. If any other sub-executing agency is selected to participate in the implementation of the Project, the procurement capacity assessment will be carried out accordingly by the Borrower, following a methodology previously agreed with the Bank, being the definition of the final and particular Action Plan subject to Bank’s approval. Additionally, Municipalities may also act as executing agencies, preferably if they have prior experience implementing PROMEBA projects. 35. The assessment reviewed mainly the organizational structure for implementing the Project and the experience of the existing procurement personnel. A procurement team does not formally exist within the SVH as the procurement review has been carried out by the same technical teams that are in charge of controlling the technical, urban, environmental and legal aspects. Based on the specific needs identified to take the responsibility for overseeing the procurement function of each sub-executing agency under this Project, the UCN should include a procurement specialist with knowledge of Bank procedures who will specifically be assigned to this Project. 36. As for the local executing agencies, the composition and the knowledge level of the procurement teams are similar in four of the sub-executing agencies (Buenos Aires, Jujuy, Tucumán and Mendoza): integrated by two staff members with some experience in the bidding processes of the "Neighborhood Improvement Program" financed by the IADB, PROSOFA (FONPLATA) and other provincial programs. While familiar handling bidding processes for small works, certain weaknesses were identified in the knowledge of Bank’s policies. An exception to this is the Province of Córdoba, where the implementing agency (Córdoba Agency for Investment and Financing Society of Mixed Economy) has extensive experience in the execution of projects financed by the World Bank (7597-AR and 7833-AR "Provincial Road Infrastructure Program"), CAF and IABD, as well as in the execution of works financed with national and provincial resources and demonstrated strengthened staffing and Page 61 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) robust internal systems. The procurement functions is made up of six professional with satisfactory experience. 37. As a conclusion of the capacity assessment, the analysis lead into an Action Plan to strengthen the capacity of the UCN and the local executing agencies in terms of optimizing the internal procedures and reducing implementation length of the procurement activities. To this end, the following actions are recommended to reduce risk and facilitate project implementation: i) the UCN will include a procurement specialist experienced in Bank's procedures before Project effectiveness, ii) the functions and responsibilities of the UCN and the local executing agencies will be reviewed and adapted reflecting the changes in the Operational Manual, iii) the UCN commitment to use the Procurement Plan to efficiently manage the procurement function (avoiding the fragmentation of contracts) and monitoring the implementation of the Project, and iv) standard procurement documents for national open competitive processes, as well as other tools, will be agreed between the Borrower and the Bank. Likewise, in order to strengthen knowledge on the Bank’s Procurement Framework, staff from the UCN and local executing agencies should attend procurement workshops that will be delivered by the Bank before the implementation of the project begins. 38. Based on the above, the overall procurement risk is defined as Substantial. 39. The Borrower through the SVH has prepared a Project Procurement Strategy for Development (PPSD). Based on the nature of the operation, the PPSD was developed with a framework approach identifying the type of activities that are envisaged for the project under Component 2. The details of each activity will be added once the subprojects have been approved. If during project implementation the conditions of the activities change from the ones analyzed in the PPSD, the strategy will be updated accordingly to reflect the best fit for purpose procurement arrangements to achieve the desired Value for Money. Based on the assessment, the following procurement arrangements are envisaged for this project: • Civil works: the project will finance subprojects in each province that will include civil works for roads and pedestrian infrastructure, water and sewage, electrical works, waterworks, specific civil works for community equipment, and specific small works for treatment plants, drilling / water pumps. Based on the nature of these activities, once approved as part of a subproject, they are expected to be carried out through a request for bids with an open and national market approach. To this end, a standard bidding document acceptable to the Bank will be applied to carry out these activities, • Goods: The project is expected to finance the procurement of minor goods that will be procured using request for quotations with national competitive approach, • Consultant Services: The project will finance some minor consultancy activities mainly for the audit services. Quality- and Cost-Based Selection, Least Cost Based Selection and Consultant’s Qualification based Selection would be the selection methods regarding the nature of the services envisaged, Page 62 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) • Individual consultants. Individual consultants will be selected to strengthen the UCN and for some supervision of works in accordance with provision of paragraphs 7.34 to 7.39 of the Procurement Regulations for IPF Borrowers. 40. The Borrower is planning to request retroactive financing to cover the expenses of selecting individual consultants for the UCN and technical support in urban planning, and design and implementation of an information system for PROCREAR and its equipment. 41. Likewise, the Borrower has developed a Procurement Plan for the first 18 months with the activities that are already defined. The rest of the activities will be added once each subproject is approved. There will be no procurement activities under Component 1. 42. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the implementing agencies has recommended (i) close procurement support and guidance in the first bidding processes, and (ii) annual supervision missions in the field to carry out the post review of procurement actions. The Bank’s ex-post review shall cover not less than 1 in 10 signed contracts. Environmental and Social (including safeguards) 43. In the targeted precarious neighborhoods, there are important challenges and problems affecting the residents: There are general and partly serious shortcomings in the environmental and health and safety conditions due to poor solid waste and waste water management and treatment, as well as proneness to flooding and land instability that combine negatively with inadequate construction materials and practices. Poor hygienic conditions imply odors and widespread presence of rodents and pests that cause transmission of diseases. Stray dogs and presence of minor livestock also challenge overall hygiene and environmental safety. Widespread illegal connections to electricity grid in and outside of houses generate risks of electrocution and fire. In addition, these settlements are disproportionally affected by crime and violence. Overall, component 2 confronts challenging environmental baseline situations and expects to respond positively in terms of improving the same through integral urban interventions. 44. The Project has been categorized as ‘B’ in accordance with the Bank Operational Policy (OP) 4.01 on Environmental Assessment. The planned interventions in integrated urban improvement in 5 urban agglomerations include small to medium scale infrastructure works on provision of basic service infrastructure (potable water, sewerage, storm drainage, gas distribution networks, and electricity connections) and improved public spaces and community infrastructure. Their environmental impacts are expected to be site-specific, reversible, and possible to mitigate with rather standard measures. No works will take place in environmentally sensitive areas. However, it is to be noted that informal settlements by nature are often characterized by environmental and health and safety risks related with lack of basic sanitation infrastructure and social services, as well as precarious housing conditions that may include vulnerability to flooding or land instability. Further, the complex social contexts that implies a diverse set of security risks can pose particular challenges to project management. Component 2 will address said risks through integral planning of the subprojects with particular attention to promotion of public participation and community ownership. The subprojects will include drainage works and slope stabilization as needed, as well as construction/rehabilitation of parks/green areas and other public Page 63 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) spaces. Further, community organizations will be supported, including those related to environmental issues and social services. Overall, Component 2 has potential and it strives for positive environmental impacts in terms of improved environmental health and safety, waste water management and efficiency of water, gas, and electricity usage. 45. Component 1 on improved access to housing for low and middle income households through financial subsidies is considered with no environmental safeguards implications as the subsidy facilitates access to existing housing; it is not geared to building of new houses. In terms of securing the basic health and safety standards of the housing accessed by the Project beneficiaries relies on the prevailing system applied by the credit agencies to guarantee the soundness and viability of the accredited investments. The SSDUV in charge of Component 1 perceives no concern related with the prevailing system, and establishing additional controls would go beyond the scope and capacity of action of the SSDUV. Component 3 on institutional strengthening will not imply environmental impacts as it is geared to provide the enabling environment for the formulation and implementation of the activities under Components 1 and 2; it finances training and strengthening of the teams in charge of implementing the National Plan for Housing and Habitat and National Habitat Plan at the central and local level. 46. Component 2 will be executed by the SVH with the technical support from the SSHDH. It has a strong track-record of implementing urban upgrade projects financed e.g. by multilateral organizations, including PROSOFA I and II, PROMEBA I, II and III, and ROSARIO HABITAT. Said experience and lessons learnt are being leveraged to optimize management of Component 2: The SVH with the technical support from the SSHDH has prepared, and the Bank approved, an ESMF, an RPF and an IPPF that bases on the long-term successful experience gained by the PROMEBA Program. The three instruments establish the applicable criteria to manage adverse impacts and promote positive impacts of the Component 2 investments. A framework is pertinent as the specific subprojects in terms of physical interventions in selected neighborhoods will be identified and the work designs prepared only during Project implementation. The included procedures comply with the applicable national, provincial and municipal level regulations and go beyond them to provide value added of the Bank’s safeguard policies. 47. The ESMF provides the mechanisms to screen subprojects and subprojects and establish the scope of the required environmental studies/assessments. It also guides the conduction of consultations and implementation of community participation activities during Project implementation. All subprojects will count with an ESMP, consistent with the type and scale of their potential impacts. The UCN within SVH at the central level and the sub-executing agencies at the local level will include qualified environmental staff to lead the ESMF implementation. 48. Advanced draft of the ESMF, IPPF and RPF were disclosed in-country on November 25, 2016, and the respective drafts cleared by the Bank again in-country and at the Bank external website on December 5, 2016. The three instruments were consulted with key stakeholders between December 5 and 16 in Mar del Plata, Córdoba, Mendoza and Tucumán. The invitations were addressed to governmental actors, NGOs, representatives of Civil Society Organizations (CSOs), associations related to the theme of integral improvement of habitat, social work, indigenous communities, environment, gender, and representatives of universities. A total of 134 people participated in the consultations that didn’t imply requests to modify the three frameworks’ content. The final ESMF, IPPF and RPF were disclosed in-country and at the Bank external website on January 12, 2017. Page 64 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) 49. The Project triggers OP 4.09 on Pest Management as diverse construction works in informal settlements may require development of pest management plans as part of their EMP, particularly focused on cleaning up rat nests as part of urban upgrade works. Any use of pesticides under the Project would follow applicable good practices, including integrated pest management as relevant. The Project will not finance or allow use of pesticides of categories not permissible under OP 4.09 or the national legislation. 50. The Project triggers OP/Bank Policy (BP) 4.11 on Physical Cultural Resources for precautionary purposes. There is potential for chance finds as the Project is expected to involve soil movements due to demolition, construction and excavations. As part of the EA process, specific procedures to avoid affecting physical cultural resources in case of chance finds will be embedded in the civil works’ EMPs. 51. The Project triggers OP/BP 4.10 on Indigenous Peoples. This policy has been triggered due to the likely presence of indigenous peoples in at least a portion of the subproject areas. An Indigenous Peoples Planning Framework (IPPF) was prepared, consulted and the final version was published by the Bank and the client on their respective websites on January 12, 2017. The IPPF sets forth adequate mechanisms to make sure that information is available and accessible; to guarantee free, prior and informed consultation and participation in a culturally appropriate manner for indigenous communities and organizations. For subprojects with Indigenous Peoples, Specific Indigenous Peoples Plans (IPPs) will guide both the design and implementation phases, in order to protect indigenous peoples rights while minimizing potential negative impacts, and maximizing positive ones. The IPPF has also been incorporated in the Project’s ESMF and Operational Manual (OM) as an Annex. 52. The Project also triggers OP/BP 4.12 on Involuntary Resettlement. This policy is triggered as subprojects under Component 2 may necessitate involuntary resettlement. A Resettlement Policy Framework (RPF) has been prepared and approved by the Bank to guide the preparation of specific Resettlement Action Plans for works that may require involuntary resettlement. As part of the Resettlement under Sub Projects, the project may finance (i) the provision of land and compensation; and (ii) construction of houses all in connection with Resettlement under Sub Projects. The RPF has been also consulted and its final version was also published by the Bank and the client on their respective websites on January 12, 2017. It has also been incorporated in the Project’s ESMF and OM as an Annex. Monitoring and Evaluation 53. The Results Framework (RF) in Section VII describes the PDO-level outcome indicators and the component-specific intermediate indicators, and respective baselines and targets. Monitoring and evaluation of the Project, that will be responsibility of the UCN in the SVH, will provide progress reports to the Bank on a bi-annual basis. Monitoring and Evaluation (M&E) arrangements and responsibilities are described in detail in the Project Implementation Arrangements. A full list of the Project indicators and targets is included in Section VII, in the Results Framework. 54. The SCPP Program includes a management system (Sistema de Gestión, SG) that was developed by NFSA and is used by all intervening parts (participating banks, the Executive Committee and NFSA) to upload and share information on the Program, in particular the supporting documentation on the receipt and application of the subsidy by the beneficiary. Page 65 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) 55. For Component 2 investments the execution of monitoring and evaluation will rely on the system used by the SSHDH to monitor all its programs. The review monitors a comprehensive set of indicators with 5 cross cutting themes including gender, integration into the city, human development, security and land regularization. The SSHDH Department of Studies and Investment Projects will coordinate the monitoring system and database; and the SSHDH Department of Coordination of Evaluation will supervise the evaluations prepared by each subproject. All results will be regularly updated and reported to the UCN for consolidation and reporting to the World Bank. Role of Partners (if applicable) 56. Universities, NGOs, professional associations and other institutions with the required experience and background will provide work as technical, legal, environmental, socio-economic services, including studies, project formulation and monitoring through field equipment. Neighborhood organizations, community-based, grassroots or other representative entities will convene beneficiaries involved in the various stages of the subproject cycle. Page 66 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) ANNEX 3: IMPLEMENTATION SUPPORT PLAN COUNTRY : Argentina Integrated Habitat and Housing Project Strategy and Approach for Implementation Support 1. The strategy for Implementation support builds on the experience gains from the previous Bank- funded operations in other countries and through the IADB financed operations on neighborhood improvement, and takes into account the nature of the Project and its risk profile. 2. Technical support to Component 1. The Bank task team will work closely with the SVH and the SSDUV to strengthen capacity for the implementation and supervision of the new SCPP program. Specifically the Bank support will focus on: (i) supporting the program design and helping the SSDUV team in optimizing its operation, affordability and technical soundness; (ii) assist the GOA in the design and implementation of strong monitoring systems for the program. In particular, building datasets to measure the program’s impact on land and house prices, affordability and the characteristics of the beneficiaries; (iii) housing finance support. The team will work in close coordination with the Finance and Markets Bank team to provide support to the GOA in assisting efforts by banks, the pension fund FGS, and other authorities to facilitate capital market solutions that enable sound and sustainable supply of housing finance. 3. Technical-Program Support to Component 2. The Bank task team will work closely with the Secretary of Housing and Habitat to provide support where there is high value added to improving the overall program and individual investments under component 2. During the inception phase of the Project Bank staff will support the targeting of the investment areas under component 2 including the use of satellite imagery for prioritization along with the technical criteria outlined for investments. In addition, support to the design and execution of the comprehensive project investments will focus on (i) the adequacy of technical designs and operational arrangements, taking into account the applicable technical standards and support and institutional arrangements for sustainability of the programs with special attention on water supply and solid waste; (ii) special support to the introduction of investments and activities that were covered to a limited extent under the IADB program including gender and citizen security; (iii) support to enhance the urban design elements of the program, and (iv) the social accompaniment required to ensure the local appropriation of the investments and their social and environmental sustainability. 4. Fiduciary. Training will be provided to the implementation unit’s staff to strengthen their FM and Procurement capacity during the Project’s inception phase. Country office-based procurement and FM specialists will provide timely and continuous support to the implementing agencies. In addition FM and procurement aspects will be reviewed bi-annually during the supervision missions. 5. Safeguards. The Bank team will closely supervise implementation of the social and environmental management instruments. Country office-based environmental and social specialists will Page 67 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) conduct supervision and will participate in project implementation support missions and site visits, respond to enquiries from the implementing Implementation Support Plan and Resource Requirements Resource Time Focus Skills Needed Estimate General - Safeguards implementation support - Procurement training and implementation support - Remote sensing of - FM training and implementation support settlements. - Safeguards implementation support. - Data analysis. Component 1: - Urban Development. - Technical support to the Program - Housing policy - Monitoring and supervision support -Housing finance - Housing finance support -Infrastructure and 9 staff First services. members and twelve Component 2: - Citizen Security 1 consultant, 6 months - Support for prioritization process for - Gender trips per year settlements. - Procurement - Support to arrangements for service -Financial management sustainability and impact in water supply and - Social development solid waste. -Environmental - Support to enhance gender and citizen management security elements of program. - M&E - Support to urban design elements of program. - Support to implementation of urban instruments under the National Plan for Habitat. - Urban development and services - Resettlement - Infrastructure Project implementation - Urban Development 7 staff 12-60 Technical support - Housing policy members and months Safeguards implementation - Procurement 3 consultants, M&E - Financial 2 trips per year management - Social development - Environmental management Page 68 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) Skills Mix Required Skills Needed Number of Staff Weeks Number of Trips Comments Task Team Leader(s) 15 weeks Four per year Staff member based in HQ Urban Development 10 weeks N/A Staff member based on CO Specialist Urban Development 10 weeks Two per year Staff member based in HQ Specialist Social Development 4 weeks N/A Staff member based in CO Specialist Resettlement Specialist 4 weeks N/A Staff member based in CO Environment Specialist 4 weeks N/A Staff member based in CO Financial Management 4 weeks N/A Staff member based in CO Specialist Procurement Specialist 4 weeks N/A Staff member based in CO Urban Infrastructure and 4 weeks N/A Local consultant Services Remote Sensing Specialist 2 weeks N/A Staff member based in HQ Partners Name Institution/Country Role Page 69 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) ANNEX 4: EXPERIENCE OF THE NEIGHBORHOOD IMPROVEMENT PROGRAMS IN ARGENTINA 1. The design of Component 2 builds on previous experience for investments in precarious urban settlements in Argentina including the National Neighborhood Improvement Program (PROMEBA I, II and III); the Social Development Program in Border areas of the Northeast and Northwest (PROSOFA I and II), the Program for Housing and Basic Infrastructure Improvement (PROMHIB), and the Potable Water, Social Help and Basic Sanitation (PROPASA) and ROSARIO HABITAT. Table A4-1: Outcomes of previous experiences of investments in precarious urban settlements: The Case of PROMEBA35 Indicator Before After Families with an unsatisfied basic 87% 51% need. Index of residential dis-satisfaction 0.29 0.64 (lower number is higher dis- satisfaction) Amount of families that would like 67% 87% to remain in the community Percent of house plots with 34% 99% networks and basic services (water, sewerage, electric and gas) Percent of house plots with public 17% 95% infrastructure (walkways, roads, public lighting, signage, solid waste containers) % of house plots with approved 57% 100% urban layouts Index of environmental risk (lower 0.33 0.96 indicates higher risks) Number of organized community 4 5 groups 2. A review was undertaken by the World Bank team based on the international experience, IADB final evaluation reports of the PROMEBA project, field visits and discussions with SSHDH, the operations manual of the PROMEBA project, field visits to completed and potential future project sites and the plans of SVH as part of their ongoing efforts to build on the successes. Based on the results the following lessons have been incorporated in the design of Project. A4-2: Lessons learned incorporated in the design of the Project Key Lessons How incorporated into the Project The importance of taking a multiple A tested technical process for subproject stakeholder approach with articulated development is defined along with the institutional institutional and technical mechanisms. responsibilities in each stage. Management Working Groups including civil society, local and national 35 From a sample of 38 interventions. IADB (2011). Page 70 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) A4-2: Lessons learned incorporated in the design of the Project Key Lessons How incorporated into the Project governments, citizens will be established and involved in guiding the design and implementation of each project. The need to consider the intervention area The program allows flexibility in both defining the comprehensively and at different geographic intervention area and the design process is done at scales (area, district, blocks and houses) and these scales to allow for the interventions to be to ensure adequate flexibility to address the impactful. complexity and diversity of issues faced between and within intervention areas. The importance of having field teams in the The project finances the presence of field teams with territory. offices in the neighborhood beginning two months before the works were established and continues until six months - one year after work completion. The role of communication in sustaining The program will build on the communication participatory project management to program done under previous similar programs to reaffirm neighborhood identity and to encourage civil society participation and support leverage other resources. community groups. It will include the implementation of a multi-sector human development program and the development of Centers for Inclusion and Development of Opportunities (NIDOs -“Nucleos de Inclusion y Desarrollo de Oportunidades�) for training, coordination integrating the community, the private sector and government to leverage other programs and initiatives. The need to take a medium term The long term will be enhanced and formalized in the perspective, envisioning the interventions as subprojects funded by Component 2. part of a process that will go beyond the project timeframe. The role of complementary, local NGO and The experience of previous interventions in community driven projects to address supporting community groups and community particular social needs (e.g., gender) of a initiatives will be expanded and systematized to, in territory. addition this support, include a Human Development Program that is implemented through systematized enabling tools (modules) addressing themes found common in these neighborhoods and Centers for Inclusion and Development of Opportunities (NIDOS) that will help deliver the programs and provide training and coordination support for the related community initiatives. The work in supporting, regularization is Previous interventions have been successful in critical to maximize the impact of the improving tenure security but for a variety of reasons, interventions. titling has had low outcomes (surveys have shown varying results, indicating as low as 6% and as Page 71 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) A4-2: Lessons learned incorporated in the design of the Project Key Lessons How incorporated into the Project maximum of 55% of the households received titles). The obstacles found in Argentina36 relate to poor legal design and misalignment of incentives of the various stakeholders. The project will support the piloting of a simplified regularization processes in the five agglomerates through technical assistance to the local authorities in charge of land titling. The need to encourage sustainability International experience shows that there is a through post construction support and dependence of service sustainability on both the agreement with service providers and involvement and the performance of the service municipalities. providers. The project will provide technical assistance to the service providers and local governments to further enhance sustainability. The risk of not financing house connections Previous interventions usually did not finance limited the project outcomes. household connections which created uncertainty related to the number of effective connections provided for water supply and increased non-revenue water for the utilities. The project will finance household connections directly, providing meters and through the above mentioned technical assistance to establish social tariffs (partially subsidized tariffs) and support communications programs. The importance of interconnection to the The project will finance the improvement in the greater community. connectivity of the intervened areas with the rest of the city by providing technical support and training to the executing agencies in urban design, making the inclusion of the area in urban planning instruments and in the public transportation routes a requirement for approval of the project. Procurement processes and management Procurement processes took between 4 months and a can be slow and complicated due to the year in former similar interventions, representing a complex institutional arrangements and the significant part of the project cycle. The Project will nature of subnational financing. introduce several processes that will improve the efficiency of the processes. In particular, the number of contracts that need review by SSHDH will be reduced significantly and simplified and standardized 36 The issues related to the timing of land regularization resemble those elsewhere and include: (i) the process of transferring the plot of land of the neighborhood to the local government; (ii) the process of subdividing the plot of land; (iii) the process of transferring individual rights over the land; and (iv) the process of regularizing the informal constructions, when possible. Typically, these obstacles are generated by (i) bad legal design; (ii) lack of technical and financial resources; and (iii) misalignment of incentives of the relevant stakeholders. Page 72 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) A4-2: Lessons learned incorporated in the design of the Project Key Lessons How incorporated into the Project bidding documents will be used. Lack of updated and accurate data on The project will support the development of a settlements in the country limited the national observatory of settlements that will used effectiveness of project identification. satellite imagery to update the inventory of informal settlements and make the information available for use by the local executing units in identifying projects. The scale and pace of investments is limited When considering the scaling of the investment by the number of ready projects. program, the largest bottleneck is the relatively low supply of projects that are ready for implementation. The project will support this by providing capacity building for SSHDH to hasten the identification of projects to help develop a bank of projects that can be financed through a variety of sources and in a larger volume. Page 73 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) ANNEX 5: ECONOMIC ANALYSIS Component 1: Increased access to formal housing 1. A review of the literature37 shows that the Component is expected to have a positive impact. For households, the proposed intervention is expected to: (i) lead to asset/wealth creation through home ownership and incentives for investments in home improvements; (ii) stimulate feelings of self- worthiness and self-confidence; (iii) improve access to basic services and health outcomes; and (iv) improve overall standards of living conditions. For local and national governments, the component will (i) leverage private savings and funding from the financial sector to reduce the national housing quantitative and qualitative deficit; (ii) lead to higher revenue collection due to wider access to formal housing; and (iii) reduce emergency disbursements in case of a natural disaster. 2. An analysis of the Census and the Permanent Survey of Households (EPH) data shows that the SCPP could have up to 626,900 potential beneficiaries (15.8% of all the country non-owners). Some characteristics of the potential beneficiaries are shown in the Table below. Potential beneficiaries of the SCPP in Argentina Households that do not own a Country Potential (1) property Total % Country % Potential Households 1.729.313 626.899 36,3% 100,0% With children 953.695 341.246 35,8% 54,4% Formal incomes 1.118.926 469.092 41,9% 74,8% With children 572.493 239.652 41,9% 38,2% Informal incomes 610.387 157.807 25,9% 25,2% With children 381.202 101.594 26,7% 16,2% 37 For social benefits: Among others, see Rohe, W.M. and M. Lindblad (2013) “Reexamining the Social Benefits of Homeownership after the Housing Crisis�, Joint Center for Housing Studies, Harvard University, August 2013; Herbert, C. E. an d Belsky, E. S. (2006) “The Homeownership Experience of Low-Income and Minority Families. A Review and Synthesis of the Literature�, U.S. Department of Housing and Urban Development, Office of Policy Development and Research, February 2006 and; Rossi, P. and E. Weber (1996) “The Social Benefits of homeownership: Empirical Evidence from National Surveys�, Housing Policy Debate, Vol. 7 (1). Fannie Mae Foundation. For homeownership externalities: See, for instance, Rohe W. and Han H. Y. (2012) “Housing and Health. Time for renewed collaboration�, North Carolina Medicine Journal, 2012, 73(5):374-380, North Carolina Institute of Medicine and The Duke Endowment; Office of the Deputy Prime Minister (2004), “The Impact of Overcrowding on Health and Education: A review of the Evidence and Literature�, May 2004; American Journal of Public Health, May 2002, Vol 92 (5); Rossi-Hansberg, E., P.D. Sarte and R. Owens III (2010) “Housing Externalities�, Journal of Political Economy, 2010, vol. 118 (3), The University of Chicago; Rossi-Hansberg, E.and P.D. Sarte (2012), “Economics of Housing Externalities�, International Encyclopedia of Housing and Home, 2012, Vol. 2, 47-50. For the relationship between housing and education attainment see: Sandra J. Newman and C. Scott Holupka, “Housing Affordability and Investment in Children,’ Journal of Housing Economics, vol. 24, June 2014; Raj Chetty and Nathaniel Hendren, “The Impacts of Neighborhoods on Intergenerational Mobility: Childhood Exposure Effects and County-Level Estimates� Harvard University and NBER, May 2015. For housing and job creation see National Association of Home Builders, “The Local Impact of Home Building in Typical Metro Area: Income Jobs and Tax Generated,� June 2009; Keith Wardrip, Laura Williams, and Suzanne Hague, “The Role of Afford able Housing in Creating Jobs and Stimulating Local Economic Development: A Review of the Literature,� Center for Housing Policy, January 2011. Page 74 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) With construction/overcrowding problems (2) 582.693 149.972 25,7% 23,9% (1) Families with Total Household income between 2 and 4 SMVM and head between 18 and 55 years old. (2) Families living in houses with serious to moderate construction problems, lack of public services or overcrowded. Source: CIPUV based on Permanent Household Survey-INDEC 3. With a more detailed analysis, it is possible to identify that an estimated 524,000 (out of the 626,000 potential beneficiaries) would be in condition to buy an AR$1 million home. This analysis shows that the implementation of SCPP will have, at least, the following two effects: first, an increase in the number of households that could become homeowners and, second, a significant improvement in the living conditions of households that currently live in a deteriorated or overcrowded housing unit. While without the demand-driven upfront subsidy only 212,000 could potentially buy a AR$1 million home, with the subsidy 524,985 could gain the financial capacity to buy a new house, a net increase of 312,000. Finally, it is estimated that the SCPP could give access to a housing unit of a higher quality to some 100,000 households that currently live in an inadequate housing unit (poor conditions or overcrowded). Households with financial capacity (1) Number of households and as % of potential beneficiaries Without With subsidy Net change % Potential Total fiscal cost MM (2) subsidy (3) beneficiaries MM AR$ MM US$ Without With subsidy subsidy House of AR$1,000,000 212.320 524.985 312.665 137.685 9.179 33,9% 83,7% Household head with formal 169.517 397.364 227.847 102.720 6.848 36,1% 84,7% income With children 114.718 326.878 212.160 98.063 6.538 33,6% 95,8% Live in inadequate unit 30.313 100.126 69.813 26.259 1.751 20,2% 66,8% House of AR$1,500,000 - 29.699 29.699 5.940 396 0,0% 4,7% Household head with formal - 23.096 23.096 4.619 308 4,9% income With children - 29.699 29.699 5.940 396 6,3% Live in inadequate unit - 21.019 21.019 4,5% (1) Considering Total Family Income and assuming 20-year term and 5% interest rate mortgage loan and required minimum savings. (2) Total cost of upfront subsidies. Assume a 15 AR$/US$ exchange rate. (3) Assuming the same saving ratio as required in the Program. 4. In terms of the efficiency in the use of public funds, a cost-effectiveness comparison between the proposed demand-driven upfront subsidy (SCPP), a demand-driven interest rate subsidy equivalent (Programa Primera Casa from the City of Buenos Aires) and the current supply-driven subsidy programs shows that the intervention proposed is the best alternative use of public funds . When comparing the fiscal costs, the FONAVI - Programas Federales type of programs are the most expensive ones. The main reasons behind this are that (i) in these programs the full price is paid by the State with no leverage of private funds, (ii) the costs of production are higher and the (iii) the funds are recovered from the beneficiaries only with a zero-real interest rate loan. In addition, as under these programs houses are built using the traditional system of public works, the projects generally experience Page 75 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) cost overruns, delays and stoppages. The number of beneficiaries that these programs could have with the budget currently allocated to the new Procrear (AR$5,000MM) would be some 8,000. The second most expensive alternative is the interest rate subsidy option. The fiscal cost is higher in present value (at a 5% discount rate) than the upfront subsidy for two reasons: (i) the loan must be larger as the down payment is smaller; and (ii) the administrative costs are higher given that the relationship with the Bank and the beneficiary is longer. In this case, the estimated number of potential beneficiaries can reach to 15,600 with the budget allocated to the new Procrear. In contrast, the number of beneficiaries that could be reached with this same budget using the demand-driven upfront subsidy is 25,000. Estimates of fiscal costs Upfront Interest rate FONAVI- PF subsidy subsidy PV of Subsidies (Fiscal cost per beneficiary). In AR$ 200,000 320,324 622,321 Beneficiaries (#) 25,000 15,609 8,034 Interest rate of loans (annual %) 5,0% 3,0% 0% 5. These results are consistent with the ones obtained following the methodology developed by Le Blanc (2005)38. Le Blanc uses the following set of 9 variables to classify housing subsidies from 1 (very poor performance) to 5 (very good performance).  Administrative simplicity. The design of the subsidies should minimize social costs (administration, monitoring and enforcement costs) and from the applicants’ perspective should be an easy and low cost procedure (time to apply, to understand, to fill out the forms, etc.).  Transparency. It refers to the clarity of the program’s eligibility and participation criteria.  Incentives/political responsibility/popularity. This is a global concept referring to a broad set of questions such as the incentives to use or abuse the program, whether authorities choosing beneficiaries are accountable or not, whether they have incentives to keep the program under control, etc.  Vertical equity. It refers to how the subsidies are targeting the population from the lower income segments.  Coverage. Proportion of the target population effectively reached by the subsidy. It also refers to horizontal equity, given that certain subgroups could be benefited more than the rest.  Efficiency. It is related to the allocation of resources in the economy.  Visibility. It refers to the degree of visibility of the overall costs for taxpayers and the rest of society.  Sustainability. Given the present economic situation, will the policy still be feasible in ten years, or will it require major changes in design, or even be dropped?  Flexibility. Some programs can be modified easier than others. Having flexibility to change parameters or procedures is generally an advantage. 38 Le Blanc, David. “Economic Evaluation of Housing Subsidy Systems. A Methodology with Application to Morocco�. World Bank Policy Research Working Paper 3529, February 2005. Page 76 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) 6. As it can be seen from the table below, the programs that rank better according to an analysis following the methodology of Le Blanc are the SCPP (upfront subsidy) and the Programa Primera Casa of the City of Buenos Aires (interest rate subsidy). The common feature of both programs is that they are demand-driven subsidies and, among other advantages, households can purchase the housing unit according to their needs, by quality, size and location. Also, the size of the subsidy is reasonable and private resources are leveraged as families have to complement the subsidy with savings and loans. Between them, the main difference is the lower visibility of the interest rate subsidy. Page 77 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) Comparative analysis of programs Criterion ProCreAr 1 FONAVI/ Programas Federales Programa Primera Casa CABA SCPP 3 2 4 5 Administrative Low to moderate. Low. Users register depending on the Moderate to high. Users can High. Users can register online. Simplicity Relatively easy for users to locality. Contracts of public works are register easily online. Administrative Administrative cost should be low register online. Building used for building houses. Problems of costs are low but higher than an given that it involves banks granting requires hiring a bank, delays, stoppage, cost overruns, etc. upfront subsidy. loans and, at the moment of architect, inspectors, etc., purchasing, the Program transfers the which makes it complicated. upfront subsidy to the vendor. 4 2 5 4 Transparency High. Eligibility criteria are Low. Eligibility criteria vary according Very high. Eligibility criteria are High. Eligibility criteria are relatively relatively well defined. the local authorities. Subsidy relatively well defined. Scoring well defined. Scoring system is known Lottery is drawn before a attribution accountability is weak. system is known and transparent for and transparent. Public Notary. everybody. Subsidy attribution is managed by an independent institute (IVC). 4 1 4 4 Incentives/ Political Moderate to high. Very Low. Accountability of local Moderate to high. Procedures are Moderate to high. Procedures are Accountability- Procedures are relatively authorities, its procedures, costs, etc. relatively easy to verify. relatively easy to verify and rely on the responsability/ easy to verify and in hands is very low. There are weak incentives private sector. Popularity of a private bank to minimize administrative costs (Hipotecario). (funds are not reimbursable). Beneficiaries could be elected according to electoral preferences. 2 5 3 4 Targeting/ Vertical Low. System biased High. PF were directed to the lowest Low to moderate. Targeted income Moderate to high. Middle- and equity towards the 3rd and 4rd bracket through self-selection (e.g. brackets are wide (up to 6 SMVM). middle-low income families can apply. (redistribution) quintiles due to: the wide low standard houses, self-build Formal incomes are required and Formal income rises but low targeted income bracket system). income/installment ratio biased installment/income ratio lowers the and formal income towards middle-income families. required incomes. requirement. Page 78 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) Comparative analysis of programs (Cont’d) Criterion ProCreAr 1 FONAVI/ Programas Federales Programa Primera Casa CABA SCPP 2 3 3 4 Coverage/ Low. Low coverage due to the Low to moderate. Low coverage Low to moderate. Some biases tilt the Moderate to high. Some biases tilt the horizontal above-mentioned biases. due to the multiple systems of election towards higher income families. election towards higher income equity selection of beneficiaries but it Savings requirement and high nominal families but the low interest rate allows improves due to the self-selection interest rate push the beneficiaries up to lower income ones to apply the incentives. higher brackets. Program. 3 1 4 4 Efficiency Low to moderate. No sharing Very Low. Due to high costs of Moderate to high. The sharing scheme Moderate to high. The sharing scheme distorts the costs and public works and the deviation of (savings+credit+subsidy) improves the scheme (savings+credit+subsidy) allocation. Program finances the final product from the families efficiency (costs and allocation). improves the efficiency (costs and the 100% construction costs. ‘demands. allocation). 2 1 2 4 Visibility Low. Implicit in the interest Very low. Implicit in lands' price, Low. Implicit in the interest rates. Moderate to high. Up-front subsidy rates and in the 100% LTV. cost overruns not charged and makes it explicit but the low interest implicit negative real interest rate. rate hides some subsidized transfer. Also, past-due debts are not penalized. 2 4 4 3 Sustainability Low. It depends on the stock Moderate to high. They depend High. Low fiscal annual costs and good Low to moderate. It depends on the and on the flow of the FGS. on earmarking funds (FONAVI) and leverage from private sector funds flow of the FGS but also on the private Low leverage from the private on the Federal Budget (PF). including loans and savings. sector participation (basically savings). sector. 3 2 4 3 Flexibility Moderate. It can be changed Low to moderate. FONAVI might High. The program depends on the local Moderate to high. The program can easily, depending on the require some change of laws and housing institute (IVC). change easily, depending on the Program's authorities, but the the full involvement of Provincial Program's authorities, but the fund fund needs to be changed by Housing Institutes. PF are more needs to be changed by law or decree. law or decree and works' flexible (it depends on the Federal stoppage could take some Goverment) but its execution can time. take some time. Average 2.8 2.3 3.7 3.9 Source: Author's assessment based on Le Blanc (2005) criteria. Page 79 of 91 The World Bank AR: Integrated Habitat and Housing Project (P159929) Note: 1= worst performance; 5= best performance. Page 80 of 91 The World Bank Integrated Habitat and Housing Project (P159929) Component 2: Integrated Habitat Improvement. 7. A cost benefit analysis was used to assess the Project’s impacts to households. The costs (including investment, maintenance, operation and administration) within a period of 20 years were identified and estimated using as reference the structure and costs of similar projects carried out under the PROMEBA program in the 4 of the 5 urban agglomerations where the project will be executed (Córdoba, Jujuy, Mendoza y Tucumán). The benefits were measured using the hedonic pricing method. Based on estimated costs and benefits, the internal rate of return of the project was estimated. Finally, a sensitivity analysis to changes in the main assumptions of the estimation was carried out. 8. Estimated cost per household and intervention. The average investment per household of the sample of PROMEBA projects that were completed and independently evaluated is US$7,711. With an average size of 800 families per neighborhood, closer to the average size of recently initiated PROMEBA interventions, the estimated total cost per intervention is US$ 6.2 million. In practice, this means that some 20 projects would be financed within Component 2 benefitting 18,000 households. Selected Informal Settlements intervened by PROMEBA Number of Total Investment per Name Housing Units Investment Household Argentino (Córdoba) 280 2.049.554 7.320 San Cayetano (Tucumán) 183 1.845.073 10.082 El Bloque (Mendoza) 533 4.559.531 8.554 30 Hectáreas (Jujuy) 429 2.533.707 5.906 TOTAL 1.425 10.987.865 7.711 9. For estimating the benefits of the interventions, the hedonic prices methodology was used . The main underlying assumption of this methodology is that the housing prices reflect all the attributes of a property including its legal tenure, access to basic services, location, proximity and quality of urban infrastructure. Using econometric methods, it is possible to build hedonic equations that can identify the individual contribution of each improved attribute. The equation used for this ex ante evaluation is one built for a sample of 14 informal settlements in Great Buenos Aires. P = 14.875 + 5.187 * Formal Property Rights – 3.984 * Quality of Materials – 4.082 * Urbanization + 2.208 * Distances to services + 290 * Urban infrastructure and basic services per block + 2.467 * Flood Risk Page 81 of 91 The World Bank Integrated Habitat and Housing Project (P159929) 10. The parameters were adjusted to the initial values of the properties in the 4 selected informal settlements, based on the PROMEBA project records. The average value per property before the intervention was US$ 15,805. After the intervention, records show that the average value per property was US$ 30,734. Applying the hedonic equation, it is possible to estimate that the impacts of the urbanization, property regularization and flood risk reduction on the value of each property were US$4,383, US$5,303 and US$1,912 respectively. Overall, the average benefit per household is USD 14,929. It is also expected that the investments in any given neighborhood will, on average, increase the value of surrounding properties by US$ 3,404. Using these values as references, it is possible to estimate the impact that Component 2 could have over the value of the properties in the intervention areas. Estimated Benefits Average Total Number of Improvement benefit benefit households US$ US$ Urbanization 18.125 4.283 77.633.405 Regularization 17.425 5.303 92.409.381 Access to basic services 18.125 2.939 53.261.260 Flood risk reduction 7.250 1.912 13.864.658 11. Impact on Economic Development. Results show that the planned intervention is a worthwhile investment as it will improve the quality of life of the beneficiaries. The overall project yields a 21.2% return and the net present value (NPV) of US$ 15.8 million. If investment costs were 10% higher, the operation and maintenance were 10% higher or the expected increases in prices as a result of the investments were 10% lower, the Project would still show positive returns. The expected IRR under these three different scenarios are 14.7%, 19.3%, 8.3%. 12. Sustainability analysis. The financial sustainability of the project was evaluated during a 20-year period considering the investments during the execution of the project, the financial costs, the maintenance costs and the expected increase in property tax collection due to the increase in values. Results show that the monthly payment that each household would have to make to balance the cash- flow is US$ 109. Given that estimates using the Permanent Household Survey indicate that the payment capacity of households is US$ 17, subsidies or transfers will be needed to keep the investments adequately maintained. Page 82 of 91