Document of The World Bank FOR OFFICIAL USE ONLY Report No: T7619-BR TECHNICAL ANNEX TO THE MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON PROPOSED ADDITIONAL FINANCING OF US$36.0 MILLION TO THE STATE OF ESPfRITO SANTO WITH A GUARANTEE FROM THE FEDERATIVE REPUBLIC OF BRAZIL FOR THE ESPfRITO SANTO WATER AND COASTAL POLLUTION MANAGEMENT PROJECT "PROJETO AGUAS LIMPAS" May 24,2004 Finance, Private Sector and Infrastructure Management Unit Country Management Unit 5, Brazil Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. 2 CURRENCY EQUIVALENTS (Exchange Rate Effective asof April 19,2004) Currency Unit = Real US$l.OO = 2.89 Real GOVERNMENT FISCAL YEAR January 1- December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS CAS: Country Assistance Strategy CEC: Special Counterpart Account to be established for the project CESAN: Espirito Santo StateWater Company COFIEX: Brazilian Government Committee on External Financing CY e. Calendar Year EIB . European Investment Bank FY . Fiscal Year IDi3 . Inter-American Development Bank IERk . Internal Economic Rate of Return IFRR'.. Internal Financial Rate of Return IEMA Espirito Santo State Institute for the Environment and Water Resources IPC: ' Consumer Price Index NRW: Non-Revenue Water O&M: Operation and Maintenance SEAIN: International Affairs Secretariat of the Brazilian Ministry of Planning SEAMA: Espirito Santo State Secretariatfor the Environment and Water Resources SEDIT: Espirito Santo State Secretariatfor Infrastructure Development and Transport SEFAZ: Espirito Santo State Secretariatof Finance SEPLOG: Espirito Santo State Secretariatof Planning, Budget and Management TOR: Terms of Reference UGP: Project Management Unit Vice President: David De Ferranti Country Director: Vinod Thomas Sector Director: Danny Leipziger Team Leader: Franz Drees-Gross 3 FOR OFFICIAL USE ONLY BRAZIL ESPiRITO SANTO WATER AND COASTAL POLLUTION MANAGEMENT PROJECT - "PRO JET0 AGUAS LIMPAS" ADDITIONAL FINANCING Loan and Project Summary Borrower: State of Espirito Santo Implementing Agency: The State Water Company of Espirito Santo (CESAN) and the State Secretariatof the Environment andWater Resources(SEAMA) / State Institute of the Environment and Water Resources@MA) under the supervision of a Project Management Unit under a Multi-Sectoral Project Steering Committee Description: The Additional Loan would allow the State Government to (i) connect additional users to under-utilized trunk sewerage infra-structure and treatment plants constructed during the last 3 `/2years; (ii) construct additional sewerage systems in priority areas; (iii) improve water quality, service continuity and service pressure of water supply systems, particularly in the poorer neighborhoods of the Vitoria Metropolitan Region; and (iv) reach the institutional development objectives defined at appraisal for the stateenvironmental agency SEAMA and the state water company CESAN while strengthening the regulatory environment in which CESAN and other water and sanitation service providers in Espirito Santo operate. Amount: US$36 million Terms: A Fixed-Spread Loan to be repaid in 17 years including 5 years of grace Front End Fee: 1% to be re-financed under the Loan Financing Plan: Loan of US$36.0 million; Co-financing of US$26.3 million through the State Water Company CESAN. Staff Appraisal Report: 12709-BR Espirito Santo Water And Coastal Pollution Management Project, June 6, 1994 Project ID Number: PO06522(3767-BR) PO87711 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. 4 BRAZIL ESPfRITO SANTO WATER AND COASTAL POLLUTION MANAGEMENT PROJECT - "PRO JET0 AGUAS LIMPAS" ADDITIONAL FINANCING TABLE OF CONTENTS I Project Background 5 II Justification for Additional IBRD'Financing 8 III Project Objectives 9 Iv Project Description 9 V Project Implementation 11 VI Project Sustainability 13 VII Poverty Impact 15 VIII Environmental Aspects 15 Ix Participatory Approach 16 X Project Benefits 16 XI Risks 16 SCHEDULE A Summary of Investment Costs by Activity 18 SCHEDULE B Withdrawal of the Proceedsof the Proposed FSL 20 SCHEDULE C Estimated Annual Disbursements for the FSL 21 SCHEDULE D Summary of Proposed Procurement Arrangements 22 SCHEDULE E Timing of Key Processing Events 23 SCHEDULE F Statusof Bank Group Operations 24 SCHEDULE G IFC Operations Portfolio 26 SCHEDULE H Brazil At A Glance 28 SCHEDULE I Map IBRD 33227 31 5 1 Additional financing in the amount of US$36.0 million is sought for the State Government of Espirito Santa in support of the Espl'rito Santa Wuter and Coastal Pollution Management Project supported by Loan 3767-BR which closed on June 30, 2003. This additional financing to carry out activities appraised under the parent loan would be under Fixed SpreadLoan terms with a maturity of 17 years. The proposed loan would enable 1.6 million people to benefit from follow-on investments in improved water supply services (improved service continuity, pressure and water quality) and about 350,000 people to benefit from additional sewerage connections. If approved, the additional financing would have a closing date of September 30, 2008. The Loan supports Brazil's efforts to achieve enhanced and more equitable access to water and sanitation services, as indicated in the Country Assistance Strategy, discussed by the Board on December 9,2003. I. Project Background 2 A US$154 million loan for the Espl'rito Sunto Water And Coastal Pollution Ahiagement Project was approved by the Board on June 28, 1994. The estimated total project cost at appraisal was US$308 million, including US$92.5 million in counterpart funds from the State of Espirito Santo and US$61.5 from the State Water Company, CESAN. The project became effective on December 19, 1994 and was hampered by poor implementation performance (both by CESAN and the State Secretariat for the Environment and Water Resources (SEAMA)) and a lack of counterpart funds (mainly those owed by the State Government) during much of its original 5-year implementation period. Significantly, the State Government failed to secure a parallel loan from the European Investment Bank (EIB) which, it was thought at appraisal, would cover all or most of the State Government's counterpart funding obligations. By the original closing date (December 31, 1999), a large number of sewage collection systems in the Vitoria Metropolitan Region (which includes the municipalities of Vitoria, Vila Velha, Cariacica, Viana, Serra, Fundgo and Guarapari) remained unfinished and unconnected to sewage transmission, treatment and disposal infrastructure. Against this backdrop, the project was radically restructured in late 1999 and early 2000, US$54 million were cancelled from the loan to bring the project's overall size in line with the State's ability to implement it and the original closing date was extended three times for a total of three and half years. After the restructuring, implementation performance improved significantly, to the point where the Bank agreed in late 2002 to reinstate a total of US$l2.5 million in previously cancelled loan proceeds to complete on-going works. These improvements are reflected in the project's development outcome (DO) and implementation progress (It?) ratings which were consistently "satisfactory" after early 2000, with the exception of one Project Status Report (PSR) sequence in September, 2002 when COFIEX held up consideration of a State Government request for a partial reinstatement of loan proceedsneededto complete the project's major civil works. By the time loan 3767-BR closed on 30 June, 2003, the original US$308 million operation had become a more limited US$l83 million operation with commensurate reductions in physical outputs and institutional achievements. 6 3 The project has the following main objectives: (i) to improve the efficiency of CESAN'S water supply and sewerage systems by supporting the company's efforts to operate on a commercial basis with financial self-sufficiency; (ii) to increasethe coverage level of CESAN's water supply and basic sanitation services (i.e., sewage collection, treatment, and disposal) in the urban areasof the Vitoria Metropolitan Region and other towns located in the Santa Maria and Jucu river basins; and (iii) to provide appropriate water and sanitation infrastructure in low-income urban areasof the Vitoria Metropolitan Region. By achieving these specific objectives, the project will permit: (i) an improvement in the quality of life of about 1.6 million urban inhabitants of the State of Espirito Santo; (ii) a reduction in the incidence of oral-fecal diseases; and (iii) an improvement in the quality of water for human consumption and recreational uses through the restoration and protection of the environmentally deteriorated rivers that feed the urban areas of the Vitoria Metropolitan Region and the estuarine and coastal areas within and adjacent to its municipalities. The project has four main components: (i) water supply; (ii) sanitation; (iii) operational development and institutional strengthening of CESAN and strengthening of the State's sanitation sector; and (iv) institutional strengthening of SEAMA and IEMA. Project Achievements to Date 4 Becauseof the funding shortfall (brought about mainly by the State Government's inability to securea parallel loan from the EIB as envisaged at appraisal), the project has only partially met the targets originally set at appraisal, as sunnnarized below: 5. Water Supply. The investments undertaken have expandedthe systems of the Vitoria Metropolitan Region eliminating existing bottlenecks and significantly improving the day to day operation of CESAN's systems. The project .expanded CESAN's distribution network, through the installation of 59,144 new connections (about 83% of appraisal estimates), helping cover normal population growth even in areasof accelerated urban development. Water coverage increased from 9 1% at appraisal to 94.4% in 1999 and held steady at about 94% through 2002. Water rationing was eliminated for 98,000 persons and reduced for many others. This is a substantial achievement given that at appraisal, almost two thirds of CESAN's customers were subject to rationing. Waiting times for new connections are currently less than five days. 6 Sewage Collection. CESAN's investment in sanitation sought to reduce water pbllution in the Vitciria Metropolitan Region as well as in the water basins of the Santa Maria, Jucu, Jabuti, Pero@o and Una rivers. Domestic wastewater, which was mostly discharged without treatment into rivers, estuaries, bays, and coastal waters is now collected, treated and appropriately disposed of in parts of Vitiiria, Vila Velha, Cariacica, and Guarapari on the coast and most of Santa Maria de Jetiba and Dorningos Martins in the interior. When all households connect to the sewerageinfrastructure already in place, seweragecoverage for the urban population in CESAN's concession area will increase from current levels of about 21% to 31%. 7 7. Sewage Treatment. In addition to expanded sewagecollection systems, the project has financed substantial sewagetreatment capacity, most of it in the form of sophisticated secondary treatment facilities operated by a private contractor in urban areas with virtually no negative impacts on surrounding communities. Total sewage treatment capacity built under the project to date (1050 l/s) is only about 60% of appraisal targets, and the number of connections built (47,380 connections benefiting a total of about 320,000 people) are only 46% of appraisal targets (103,365 connections). Currently, the project's 4 largest sewage treatment plants are running more than 50% below capacity, producing adverse environmental and social consequencesfor the state and negative financial consequencesfor CESAN. As complementary collection systems are added and sewage treatment plant capacity is fully utilized under the proposed additional loan, a total of about 600,000 people are expectedto benefit. 8. Operational and Institutional Strengthening of CESAN and Strengthening of the State's Sanitation Sector. This component improved the company's management capacity, operational efficiency, and, to a limited extent, its financial performance. To date it has included a managerial development program to improve CESAN's institutional capabilities to carry out its responsibilities under the project combined with a training program for CESAN's operational staff in the areasof planning, marketing, financial and operational techniques, a program to institutionalize operational and financial planning, a sanitary education program, a total quality program to improve CESAN's productivity and response to consumer complaints, the acquisition and development of new management systems, and the renovation of laboratory equipment. Despite these initiatives, political interference in CESAN's management between 1994 and 2002 limited the impact of measuresdesigned to improve CESAN from within. For this reason, the institutional strengthening measures for CESAN considered under the proposed additional loan, follow a slightly different approach: instead of changing CESAN mostly from within, they seek to transform it from without, by holding the company accountable for results to its customers, by improving governance structures and by enhancing the transparency of the sector overall. On an operational level, loan 3767-BR financed a significant increase in individual metering in Espirito Santo (85% in 2003 compared with 69% at appraisal) but had only limited success in achieving a sustainable reduction in non-revenuewater (36% in 2002 against 39% in 1994). 9 Institutional Strengthening of SEAMA. Under the State Governments in office between 1994 and 2002, SEAMA was kept in a state of almost continuous flux and no institutional strengthening was achieved under loan 3767-BR. Given the importance of strong environmental institutions for the sustainable management of water resources and sewerage infrastructure, institutional strengthening of SEAMA is a major unmet challenge that the current State Government (in office since January, 2003) intends to addresswith resourcesfrom the proposed additional loan. 10 ICR for loan 37671BR. An Implementation Completion Report (ICR) has been prepared for loan 3767-BR in which the overall outcome of activities to date has been rated "satisfactory", and sustainability is considered "likely" while institutional 8 development impact is rated as "negligible." The State Government of Espirito Santo's request for an additional Bank loan stems precisely from its desire to meet the project's original water and sewerage coverage targets as well as its institutional development objectives. The need for additional financing to complete the project's physical components (both water supply and sanitation) and institutional development.objectives (for CESAN and particularly for SEAMA) was first presentedby the Borrower during the Bank's supervision mission of 18-20 March, 2003. The Federal Government's Commission on External Financing (Comissao de Financiamentos Externos, COFIEX) gave initial approval to the State Government's request (carta consulta) on 22 October, 2003, leading to preparation of the proposed Additional Loan between December, 2003 and May, 2004. II. Justijkution for Additional IBRD Financing II1. The main justification for providing additional financing is to ensurethe completion of Brazil's Espikito Santo Water and Coastal Pollution Management Project, as appraised. The parent loan closed on June 30, 2003. The funding shortfall has arisen from a lack of counterpart funds, that resulted mostly from the State Government's inability to secure a parallel loan for project implementation from the EIB. This lack of counterpart funds forced the project to be re-sized to the State's real implementation capacity between 1999 and 2003 with commensurate cancellations of loan proceedsfrom loan 3767-BR. These two factors have had the effect of creating a financing gap that prevents the original coverage targets and institutional development objectives of the project from being reached. With an improved state financial situation, the Borrower has requestedthe Bank's assistanceto complete the project in line with its original objectives. The following factors have been taken into account in assessingthe need for additional financing: U Achievement of original project objectives. The project has only partially met its original objectives. For example only 46% of the original expansion target for sanitation connections has been met to date, benefiting only about 320,000 people compared with 770,000 envisioned at appraisal. b) Feasibility of reducing project scope. In the project's main metropolitan areas (Vitoria Metropolitan Region), a significant reduction in project scope is not feasible. Unless additional financing is made available, more than 50% of capacity in four large, secondary sewage treatment plants built in Vitoria, Vila Velha, Cariacica and Guarapari will remain idle, with negative environmental, social and financial consequences.On an environmental level, the limited number of sewage collection networks currently connected to the treatment plants reduce the efficiency of the biological treatment processes, producing an effluent of sub- standard quality. Higher levels of organic loading would result not only in more sewage being treated, but all sewage being treated to a higher standard. From a social perspective, low capacity utilization deprives more than 250,000 residents of the health benefits associatedwith piped sewerage, benefits that could be obtained at relatively modest additional cost using existing treatment installations. Finally, 9 low levels of customer connections to treatment plants deprives CESAN of the tariff revenue it needsto meet its debt obligations. C> Availability of other financing. No other financing is presently available to the State Government and CESAN to complete the project. d) Time available for processing a free standing loan. The Espirito Santo Government has asked that processing take place as rapidly as possible, as the ecological and hygienic conditions in the Vitoria Metropolitan Region continue to deteriorate and the number of households without service is increasing rapidly. The new State Government has repeatedly declared that its priority for the coming years is to improve the quality and coverage of water and sanitation infrastructure and improve the quality of services offered by SEAMA and CESAN. The use of a new project to meet the objectives envisaged for the original operation would be an unnecessarily slow and inefficient route, involving substantial documentation requirements and additional budgetary resources.Given that the proposed activities were already contemplated under the original project, the efforts associated with a new operation do not seem to be the best way to use scarce Bank budget and staff resources. e) Borrower commitment and capacity. The present Government of Espirito Santo has already provided clear evidence of strong political and administrative commitment to the project. Moreover, the implementation arrangements used for the project since the 199912000restructuring have proven to be robust and effective at meeting objectives in a timely and efficient manner. III. Project Objectives 12. The purpose of additional financing will be to meet the original project objectives of improving the efficiency of CESAN's water supply and seweragesystems; of increasing the coverage level of CESAN's water supply and basic sanitation services and of providing appropriate water and sanitation infrastructure in low-income urban areas. In addition, additional financing will allow the project to meet its original objective of strengthening SEAMA's and IEMA's environmental management capacity. IV. Project Description 13. The proposedadditional financing would provide resourcesto finance four components: Component 1: Institutional Strengthening of SEAMA and IEMA A program to strengthen the institutional capacity of SEAMA, the State Secretariat charged with setting environmental policy, and IEMA, the State Institute charged with carrying it out. The program comprises the following activities (a) an institutional and strategic planning exercise; (b) design and installation of an integrated environmental 10 information system; (c) development of a monitoring network for the environment in general and water resource management in particular; (d) development of IEMA's environmental licensing capacity; (e) development of a state-wide water resource management system; and (f) training and environmental education activities. Component 2: Strengthening of CESAN and of the State's Sanitation Sector Strengthening of CESAN's institutional, operational and financial capacity by changing the environment in which CESAN operates.Activities will include: (a) development of a performance benchmarking system to track both CESAN's service quality as perceived by users, and its operational and financial performance; (b) design and implementation of actions to improve CESAN's corporate governance; (c) training of CESAN's staff; (d) non-revenue water reduction; (e) environmental management and education; (f) support for new household sewage connections and operational improvements; and (g) strengthening of the Borrower's sector organization and the legal and regulatory instruments for water and sanitation service provision. The institutional, operational and financial strengthening of CESAN will include activities aimed at improving institutional accountability and corporate governance, as well as regulating the company's operational and financial performance. In particular, CESAN will select, define and develop level of service indicators and operational and financial performance indicators. A set of semi-annual targets for the next five years (2004-2008) will be produced as a reference. Twice a year, results will be published state-wide to enhance accountability vis-&vis the public. With regard to governance, some of the actions that will be implemented include setting specific management targets for cost reduction or revenue increases, adopting transparent and performance-based criteria for the selection of personnel, strengthening the Board of Directors of CESAN and of the management team (including setting rules for the composition, selection, nomination and dismissal of members), strengthening the division responsible for strategic and financial planning, remuneration of technical excellence and shared best practices, while limiting the responsibility of CESAN to operational functions and shielding it from political influence and regulatory duties. With regards to overall sector organization and appropriate legal and regulatory frameworks, a detailed study will be performed, leading to recommendations on sectorial planning (including required investments and coverage expansion policies), a well-defined subsidy policy (including the establishment of social funds), a revision of the organization of the sector within the State of Espirito Santo, and in particular, the organization of services in rural and semi- rural areasthat CESAN operatesat a loss. Tools and procedures will also be developed to control and support CESAN as a concessionaire of public services, and assist in the renegotiation of concession contracts with municipalities. Component 3: Water Supply Investments An investment. program including: (a) expansion and upgrading of the Carapina and CaGarocawater treatment plants; (b) upgrading of the Ibes-Boa Vista transmission main; 11 (c) expansion and upgrading of the SantaClara, Pedreras/SantoAntonio, Garoto, AraG&, and Morro do Pica storage tanks; and (d) upgrading of the Guarapari raw water transmission and treatment systems. Component 4: Sewerage An investment program including: (a) a sanitation master plan for the Vitoria Metropolitan Region (particularly for Vitbria, Vila Velha, Cariacica, Serra, Viana and Guarapari) as well as development of a water quality model; (b) expansion of sewage collection systems in the cities of Vitoria, Vila Velha, Guarapari and Cariacica; and (c) construction of new sewage collection and treatment systems in the districts of Nova Almeida and Praia Grande (in the city of Serra), in the district of Manguinhos (in the city of Serra), and in the city of Viana. A summary of investment and capacity-building activities to be carried out with the additional loan is presentedin Schedule A. V. Project Implementation 14. Project implementation arrangementswill be similar to those successfully adopted during the 3 % years after the project was restructured and before Loan 3767-33113closed. A project Steering Committee (Corn&? Diretivo do Projeto) chaired by the State Government's Secretariat of Planning, Budget and Management (SEPLOG) and comprising the State Secretariat of Finance (SEFAZ), the State Secretariat of Infrastructure Development and Transport (SEDIT), and the State Secretariat of the Environment and Water Resources(SEAMA) in addition to CESAN, will assume overall project oversight functions. Project management will be the responsibility of an independent Project Management Unit (Unidade de Gerenciamento de Projeto, UGP) directed by a general coordinator with support from technical, environmental and administrative-financial coordinators, all of whom will be selected by the Steering Committee. The UGP will be staffed by an external engineering consulting/project management firm that will report to the general coordinator. An Executive Secretary will provide logistical support to the Steering Committee. The Steering Committee will also create a special bid evaluation commission (Comisslio Especial de Licitagtio, CEL). The external engineering consulting/project management firm will (i) provide technical, administrative and financial management support for project implementation; (ii) review and update existing engineering designs for project works; (iii) prepare additional environmental studies as required; (iv) hire specialized individual consultants as required for project implementation; and (v) supervise contracts for works, goods and other consultants in cooperation with CESAN and IEMA, the implementing agency within Espirito Santo's environmental management system. Overall project management arrangementsare summarized in the diagram below. 12 4 Government of Espirito Santo SpecialBid Steering Committee Executive Evaluation SEPLOG(Coordination) Secretary Commission SEDIT - SEFAZ - SEAMA - CESAN UGP General Coordinator Technical Financial- Environmental Coordinator Administrative Coordinator Coordinator External Project Management Firm Figure 1: Functional Diagram of the UGP 15. A full financial management assessmenthas been carried out for the additional loan and is available in the project files. Overall financial management risk for the additional loan is rated as moderate. The UGP will use financial management procedures agreed with the Bank. It will maintain detailed project accounts, utilizing the existing schedule of accounts that permits the accumulation of costs by project cost category and component. Financial statements, prepared on a cash basis, will follow national norms which are acceptable to the Bank. In addition to monthly financial statements, the UGP will prepare quarterly Financial Monitoring Reports (FMR's) comprising project financial statementsas well as sections on physical progress and procurement processes. CESAN's accounting system will be used for the production of accounts and for the financial control of all components. Financial Management reports will be produced by the UGP. 16. A special account in US Dollars will be createdfor Bank funds. In addition, CESAN will open a separate "special counterpart financing account" (conta especial de contrapartida, CEC) in which counterpart payments equivalent to 3 months' cash flow will be deposited in advance. Given earlier counterpart financing difficulties, the State Government views the CEC as a mechanism both to ensure the timely completion of project activities and to instill confidence in contractors and consultants that invoices will be paid without undue delay. This confidence is expected to translate into lower prices for the project's goods, works and consulting services. Finally, an operational account will be opened in Reais (R$) fed both by loan proceeds transferred from the special 13 account and by counterpart funds from the CEC. Payments to contractors, suppliers and consultants will be made from this operational account. The Special Account will have an authorized allocation of US$3.0 million. External audits of the project and special account will follow the Bank's new audit policy and audit guidelines issued by the Financial Management Sector Board on June 30, 2003. CESAN's financial statements will also be audited by external auditors. 17. Disbursement Schedule. The proceedsof the proposed additional financing would be disbursed over a four-year period as shown in Schedule C. 18. Procurement. Goods, works and consulting services will be procured in accordance with currently applicable Bank guidelines and the provisions of the Loan Agreement for the additional loan. A detailed procurement plan has been developed for the activities to be financed from the additional loan and agreedwith the State Government. A summary of procurement arrangementsis presentedin Schedule D. VI, Project Sustainability 19 The physical investments and capacity building measures to be carried out under the proposed additional loan have been designed to consolidate the financial and environmental benefits of the activities implemented under the project to date. On the infrastructure side, a number of key high-return water supply investments have been selected by CESAN that will improve water quality as well as service pressure and continuity while providing the backbone infrastructure that will allow for continued service expansion. These have been complemented by investments in sewage collection and treatment systems that maximize capacity utilization in four large existing sewage treatment plants and expand coverage to other areasin the Vitoria Metropolitan Region that have a high direct impact on coastal water quality. On the institutional side, capacity building measures for IEMA will develop the environmental information systems, monitoring networks and licensing capacities required to allow it, inter alia, to track the effluent quality produced by sewage treatment plants constructed under the project to ensure compliance with appropriate environmental standards. Institutional strengthening of CESAN, finally, will enhance its accountability vis-a-vis the State Government and general public and build more robust governance structures less susceptible to political interference. 20. Financial Sustainability. CESAN's financial performance deteriorated significantly under the previous State Government (in office between 1999 and 2002) and the company showed averagenet losses of about US$5 million/year between 2000 and 2002. Under new management, the utility took sweeping measures to reduce operating costs and increase revenues during 2003, achieving a net operating profit of about US$2 million on the strength of improved administrative practices, re-assignments of resources to productive purposes,a tariff increase, an increase in metering, improved bill collection performance and significant reductions in both personnel and outsourced service costs. A full financial assessment (available in the project files) has been carried out for CESAN for the 2004-2012 period as part of preparations for the additional loan and shows that 14 CESAN can remain profitable even if it finances 100% of the counterpart payments for the investments under the additional loan. This is true, primarily because the State Government (which owns almost all of CESAN's shares) has assumed principal and interest payments for Loan 3767-BR and has agreed to do the same for the proposed additional loan. Given that most of the proceeds of both Loan 3767-BR and the proposed additional loan have gone to (or will go to) sewerageinvestments with high externalities (including environmental and health benefits), the State Government has argued in favor of public financing as an alternative to even steeper tariff increases than those already authorized (real increasesof 3% per year between 2000 and 2002 and 6% in 2003). 21 Institutional Sustainability of SEAMA/IEMA. The proposed physical iniestments in water and sewerage will generate maximum benefits only if SEAMADEMA on one hand and CESAN on the other are strengthened in parallel. As discussed in section I, no institutional strengthening of SEAMADEMA was achieved under Loan 3767-BR due to constant institutional change that left SEAMA, the State Secretariat charged with defining environmental policy for Espirito Santo, and IEMA, the Environmental Institute charged with carrying it out, without clear direction. This has changed under the present State Government which has made improved environmental management a cornerstone of its government program. In line with this priority, the project team has worked with SEAMA/IEMA over the past 6 months to design an institutional and strategic planning exercise that will define IEMA's core products and the means (both financial and human) required to achieve them. Technical assistanceand equipment will enable IEMA to monitor the performance of a private contractor that is operating Espirito Santo's four largest sewage treatment plants. In addition, the proposed additional loan will allow IEMA to develop, more generally, the environmental information systems, monitoring networks and licensing capacities that will enable it to accompany the rapid industrialization of Espirito Santo in a manner that balances economic, social and environmental demands on the basis of good information and first- class decision support tools. 22. Institutional Sustainability of CESAN. Unless institutional measures are taken to strengthen CESAN, there is a risk that project investments will be operated at sub- optimal levels. If CESAN fails to connect new users to additional sewage collection systems in a reasonable amount of time, or if poor bill collection performance deprives the utility of the operating revenue to ensure proper maintenance, the project's full social, environmental, financial and economic benefits may not be reached.While Loan 3767- BR financed measures that strengthened CESAN from within, the proposed additional loan will support a package of activities that complement CESAN"s own internal reform measures (reduction of non-revenue water for example) by changing the environment in which CESAN operates.This approachhas proven successful in dealing with both public and private companies in the United Kingdom, Chile, Colombia and, to some extent, in Uruguay. The additional loan would finance activities that (i) hold CESAN accountable to its customers for results, (ii) improve governance structures in a way that reduce the risk of political interference and (iii) enhance the transparency of the water sector in Espirito Santo overall. At six-month intervals, for example, CESAN would be required to report via the media on the length of time it takes to connect new users to services, repair 15 leaks that have been reported by the public, etc. Such reporting structures have been shown to be successful in mobilizing public opinion in favor of sustainable institutional improvements. Figure 2: Poor families discharging untreated sewage to inland waterways VII, Poverty Impact 23. About 658,000 (41%) of the 1.6 million people that will benefit from the project's water supply investments are expected to be poor (family incomes of less than 3 minimum salaries) while 109,000 (31%) of the 354,000 direct beneficiaries of new sewagecollection and treatment systems fall within the same category. VIII. Environmental Aspects 24, The original project was classified as Category B under the Bank's environmental guidelines, and an Environmental Impact Assessment (EIA) was carried out at the time of appraisal. For the activities to be financed under the proposed additional loan, an updated Program Environmental Assessment and an updated Environmental Management Plan were prepared and discussed in public consultations in Espirito Santo. Water supply and sanitation investments to be carried out under the additional loan are classified as category B and are not expected to have either major negative environmental impacts or to involve resettlement of population in the project area. Specific environmental assessmentsfor individual investments will be carried out as required by local law. Issues that arise in conjunction with the implementation of works will be addressedthrough the incorporation of environmental guidelines for contractors as part of bidding documents. These guidelines will include rules on the disposal of construction waste in pre-approved landfills, communication with local communities, pedestrian safety, dust and noise abatement measures, etc. These guidelines have been reviewed by Bank environmental specialists. Expansion of wastewater service is expected to lead to a significant increase 16 in sewage collection with health benefits both for local residents along polluted water ways and for usersof Espirito Santo's beachesmore generally. IX. Participatory Approach 25 Building on past experiences in water and sanitation projects, CESAN would continue to use a highly participatory approach to service extension and new works construction, with direct involvement of beneficiaries at each stage of the project cycle. All community interactions would be intermediated by community facilitators, a number of which have acquired valuable experience in community mobilization for water and sewerageprojects under a number of previous initiatives. Local municipalities would also be closely involved, and their participation will be critical in facilitating the planning and execution of public works. X. Project Benefits 26 The project would lead to significant health and welfare benefits. Overall, the project is expected to produce (i) an improvement in the quality of life of about 1.6 million urban inhabitants of the State of Espirito Santo; (ii) a reduction in the incidence of oral-fecal diseases; and (iii) an improvement in the quality of water for human consumption and `recreational uses through the restoration and protection of the environmentally deteriorated rivers that feed the urban areasof the Vitoria Metropolitan Region, and the estuarine and coastal areaswithin and adjacent to its municipalities. As part of preparation for the proposed additional loan, the project's original Cost-Benefit analysis was reviewed and updated. It is available in the project files. Overall, the additional activities proposed are expected to have a financial internal rate of return (FIRR) of 28% (5 1% for water supply investments and 16% for sanitation investments). When discounted at 10% over 30 years, cash flows from additional investments are expected to generate a net benefit of about US$93 million. Given the high positive externalities for investments of this type, the economic rate of return (ERR) of proposed water supply and sanitation activities is even higher: 44% overall (72% for water supply and 24% for sewage collection and treatment). The overall net economic surplus is almost twice the financial benefit, or about US$169 million over 30 years. XI. Risks 27. The activities proposed for financing under the additional loan face two categories of risk in particular: (i) risks associated with successful implementation; and (ii) risks associatedwith actually generating financial and economic benefits at the expected levels (seesection X). Consider each in turn: (a) Implementation Risk. Implementation arrangements for project activities under the additional loan draw on the lessons of the past 9 years of project implementation in general, and on the successful institutional set-up of the past 3.5 years in particular. First, to avoid over-taxing CESAN's limited implementation capacity (a key factor affecting implementation performance between 1994 and 1999), an independent project management unit (UGP) supported by a large, independent engineering consulting firm 17 will be used to help implement activities under the additional loan in close cooperation with IEMA and CESAN. Second,given the difficulties faced by the State Government in mobilizing sufficient counterpart funding in the past, three measureshave been adopted to smooth financial flows and ensurecompletion of priority activities: * The proposed additional loan amount (US$36 million disbursed over 4 years) is far smaller than the previous loan (US$ll2.5 million disbursed over 9 years). Counterpart funding requirements are consistent with what the State Government has actually paid to consultants and contractors over the past 3.5 years of project implementation; l Priority capacity-building activities, water supply investments and key sewerage works that use idle capacity in existing treatment plants would be funded at high disbursement percentagesfrom the proposed additional loan. Other, less critical investments will be funded entirely by CESAN as counterpart investments under the project; * The State Government and CESAN have agreed to set up a special counterpart financing account (described in detail in section V) in which counterpart payments equivalent to 3 months' cash flow will be deposited in advance. This mechanism is expected to instill confidence in contractors and consultants by demonstrating that funds to pay invoices are available for payment without delay. (b) Risks to benefits. To assessthe risk that financial and economic benefits might not materialize as expected,the project team has carried out a Monte Carlo Simulation using Crystal Ball software to model the vulnerability of benefits to changesin the assumptions used for the financial and economic analyses. Changes in connection rates to new infrastructure, investment cost overruns, overruns in operation and maintenance costs, reductions in collection efficiency for tariffs, failure to reach non-revenue water targets and decreasesto the population's willingness to pay for services were all modeled for a range of scenarios that differed from the basecase. These simulations show the expected financial and economic benefits to be extremely robust: overall, the probability of achieving a positive net present value (NPV) for project investments in financial terms is estimated at about 76%. The probability of achieving a positive NPV in economic terms is close to 100%. 18 REPUBLIC OF BRAZIL ADDITIONAL FINANCING FOR THE ESPIRITO SANTO WATER AND COASTAL POLLUTION MANAGEMENT PROJECT "PRO JET0 AGUAS LIMPAS" SCHEDULE A: SUMMARY OF INVESTMENT COSTS BY ACTIVITY PROJECT COMPONENTS TOTAL (US$ millions) 1) WATER SUPPLY: 8.564 Upgrades to water treatment plants, transmission mains and numnine stations 2.614 I1ISanta Maria system - Carapina (Serra) water treatment plant I 0.600 1 I I Upgrades to the Cac;arocaI B. Jucu (Vila Velha) water treatment 2 plant 0.800 3 Ibes-Boa Vista water transmission system 0.550 ] 4 IGuaraparisystem (treatment plant and raw water pumping station) 1 0.664 1 IReservoirs I 5.950 I I 1 ISantaClara - 1,390m3- Vitbria I 0.350 1 I 2 IPedreraslStoAntonio - 5,000m3- Vitciria I 1.000 I rqcGzK- 10,000m3- Vila Velha I 1.500 I 4 Ara& - 6,5OOm3- Vila Velha 1.400 t 5 Morro do Pica - 8,000m3- CariacicaNiana 1.700 ~ 2) SEWERAGE 39.285 Completion and operationalization of the collection system 15.480 1 Praia do Canto and surrounding areas 2.415 12 IPraiada Costa and surrounding areas I 6.457 I JjlCariacica - Bandeirantes I 4.269 1 14 IPraiado Morro- Guarapari I 2.339 1 New sewerage networks 22.805 1 I 1 IJucutuquaraand surrounding areas I 10.800 I (lmeida / Praia Grande I 4.100 I I 3 IManguinhos I 2.105 1 141Viana - Sede I 0.600 I I 5 IGuaraparicity center I 5.200 1 Studies and designs 1.000 1 Seweragemaster plan - Vitbria Metropolitan Region 0.600 2 Hydrodynamic modeling program 0.400 3) INSTITUTIONAL STRENGTHENING - CESAN 2.850 1 Leakagereduction program 0.995 19 PROJECT COMPONENTS TOTAL (US$ millions) 2 Sector organization and legal framework 0.500 3 Performance indicator system 0.150 Environmental management (watershedmanagement, sludge 4 management, and quality managementsystem) 0.150 5 Environmental education program 0.120 6 New user connection program 0.140 Program to eliminate cross-connectionsbetween drainage and _ 7 seweragesystems 0.500 8 Development of CESAN's Operational Control System (SINCOP) 0.065 Data transmission system between sewagetreatment plants and the 9 operations control center 0.110 10 IInstallation of macro-meters I 0.120 4) INSTITUTIONAL STRENGTHENING - SEAMAAEMA 2.000 Development of a strategic institutional development plan for the 1 SEAMAIIEMA system 0.170 2 Integrated environmental information system 0.700 3 Water resourcesmonitoring network 0.475 4 Streamlining environmental licensing procedures 0.205 5 State water resourcesmanagement system 0.380 6 Capacity building for water resourcemanagement 0.070 Sub Total 52.699 5) Coordination and supervision activities 3.952 Base cost 55.651 6) Technical and price contingencies 5.665 TOTAL 62.316 . 20 REPUBLIC OF BRAZIL ADDITIONAL FINANCING FOR THE ESPiRITO SANTO WATER AND COASTAL POLLUTION MANAGEMENT PROJECT "PRO JET0 AGUAS LIMPAS" SCHEDULE B: WITHDRAWAL OF THE PROCEEDS OF THE PROPOSED FSL LOAN 1. The table below setsforth the Categories of items to be financed out of the proceeds of the proposed FSL Loan, the allocation of the amounts of the FSL Loan to each Category and the percentage of expenditures for items so to be financed in each Category, as provided in the Loan Agreement: Category Amount of the FSL % of Expenditures to be Loan Allocated Financed (1) Works 25700,000 75% (2) Goods 1,ooo,ooo 75% (3) Consultant services (a) under Parts A, B, C and D 3,500,000 80% of the Project (b) under Part E of the Project 3,400,000 84% (4) Training 500,000 100% - (5) Front end fee 360,000 Amount due under Section 2.04 of the Loan Agreement (6) Unallocated 1,540,000 TOTAL 36,000,OOO 21 REPUBLIC OF BRAZIL ADDITIONAL FINANCING FOR THE ESPIRITO SANTO WATER AND COASTAL POLLUTION MANAGEMENT PROJECT "PRO JET0 AGUAS LIMPAS" SCHEDULE C: ESTIMATED ANNUAL DISBURSEMENTS FOR THE FSL LOAN I (Bank FY / US$ million) 1 2005 1 2006 1 2007 1 2008 1 1Annual 1 2.6 I 21.8 I 10.5 I I*1 I ] Cumulative 1 2.6 1 24.4 1 34.9 1 36.0 1 22 REPUBLIC OF BRAZIL ADDITIONAL FINANCING FOR THE ESPJ[RITO SANTO WATER AND COASTAL POLLUTION lMANAGEMENT PROJECT "PROJETO AGUAS LIMPAS" SCHEDULE D: SUMMARY OF PROPOSED PROCUREMENT ARRANGEMENTS (US$ million) ICB NCB Other QCBS QBS LCS Individual TOTAL (1) Consultants Works 42.64 8.0 1.0 51.64 (26.2) (0.4) (0.75) (27.35) Goods 09 01 10 (0.68) (0.675) (0%) Consultants 80 02 05 01 88 Services (6:4) (0.;6)- (0:4) (O.bs) (7.b4) Training 05 05 (0'5) 6% FEF 0.36 0.36 (0.36) (0.36) TOTAL 42.6 8.9 2.0 8.0 0.2 0.5 01 62.3 (26.2) (1.1) (1.7) (6.4) (0.16) (0.4) (O.bs) (36.0) Notes: (1) "Other" refers to `Shopping" for goods and a comparison of price quotations for works (2) Amounts in brackets show loan amounts, amounts without brackets reflect total contract values. 23 REPUBLIC OF BRAZIL ADDITIONAL FINANCING FOR THE ESPiRITO SANTO WATER AND COASTAL POLLUTION MANAGEMENT PROJECT "PRO JET0 AGUAS LIMPAS" SCHEDULE E Timetable of key Processing Events a) Time taken to prepare 6 months b) Preparedby Espirito Santo State Government with IBRD assistance c) Negotiations 13 and 14 May, 2004 I d) Planned date of effectiveness I 30 September,2004 I e) Closing Date 30 September,2008 (four year disbursement) Project Team Franz Drees-Gross Task Manager/% Sanitary Engineer Nice Saporiti co-Task Manager/Financial Analyst Carlos Velez Principal Economist . Claudio Mittelstaedt Financial Management Specialist Luz Maria Gonzalez Financial Analyst Alexandre Fortes Environmental Specialist Francisco Lobato Environmental Institution Specialist Patricia Acevedo Program Assistant 24 REPUBLIC OF BRAZIL ADDITIONAL FINANCING FOR ESPiRITO SANTO WATER AND COASTAL POLLUTION MANAGEMENT PROJECT "PRO JET0 AGUAS LIMPAS" SCHEDULE F : STATUS OF BANK GROUP OPERATIONS (IBRD/IDA and Grants) As of 04/20/2004 Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Olig. Frm. Rev'd PO60573 2004 BR Tocantins Sustainable Regional Dev 60.00 0.00 0.00 0.00 0.00 60.00 0.00 0.00 PO80827 2004 BR Loan for Sust. and Equitable Growth 505.05 0.00 0.00 0.00 0.00 549.64 0.00 0.00 PO49265 2003 BR-RECIFE URBAN UPGRADING 46.00 0.00 0.00 0.00 0.00 45.14 2.14 0.00 PROJECT " PO70827 2003 BR-2nd APL BAHIA DEV. 60.00 0.00 0.00 0.00 0.00 51.59 15.89 0.00 EDUCATION PROJECT PO541 19 2003 BAHIA DEVT (HEALTH ) 30.00 0.00 0.00 0.00 0.00 28.67 0.17 0.00 PO58503 2003 GEF BR Amazon Region Prot Areas 0.00 0.00 0.00 30.00 0.00 27.50 0.00 0.00 (ARPA) PO80400 2003 BR-AIDS & STD Control 3 100.00 0.00 0.00 0.00 0.00 95.00 0.15 0.00 PO78310 2003 BR-CAIXA Water 75.00 0.00 0.00 0.00 0.00 75.00 6.50 0.00 PO76977 2003 BR-Energy Sector TA Project 12.12 0.00 0.00 0.00 0.00 12.12 1.89 0.00 PO74777 2003 BR-Municipal Pension Reform TAL 5.00 0.00 0.00 0.00 0.00 4.70 2.40 0.00 PO57653 2002 BR- FUNDESCOLA IIIA 160.00 0.00 0.00 0.00 0.00 205.51 -22.78 0.00 PO51696 2002 SAO PAUL0 METRO LINE 4 PROJECT 209 .OO 0.00 0.00 0.00 0.00 174.78 111.88 0.00 PO55954 2002 GOIAS STATE HIGHWAY 65.00 0.00 0.00 0.00 0.00 41.68 35.08 0.00 MANAGEMENT PO57665 2002 BR-FAMILY HEALTH EXTENSION 68.00 0.00 0.00 0.00 0.00 53.54 31.59 0.00 PROJECT PO74085 2002 BR Sergipe Rural Poverty Reduction 20.80 0.00 0.00 0.00 0.00 12.01 3.28 0.00 PO73 192 2002 BR TA Financial Sector 14.50 0.00 0.00 0.00 0.00 9.30 0.98 0.00 PO70552 2002 GEF BR PARANA BIODIVERSITY 0.00 0.00 0.00 8.00 0.00 8.46 4.26 0.00 PROJECT PO66170 2002 BR-RGN 2ND Rural Poverty Reduction 22.50 0.00 0.00 0.00 0.00 16.34 4.04 0.00 PO60221 2002 FORTALEZA METROPOLITAN 85.00 0.00 0.00 0.00 0.00 111.47 41.02 0.00 TRANSPORT PROJECT PO43869 2002 BR SANTA CATARINA NATURAL 62.80 0.00 0.00 0.00 0.00 60.23 12.44 0.00 RESOURC & POV. PO50880 2001 BR Pernambuco Rural Poverty Reduction 30.10 0.00 0.00 0.00 0.00 21.92 13.57 0.00 PO50881 2001 BR PIAUI RURAL POVERTY 22.50 0.00 0.00 0.00 0.00 12.86 8.61 0.00 REDUCTION PROJECT PO57649 2001 BR Bahia Rural Poverty Reduction 54.35 0.00 0.00 0.00 0.00 24.44 9.14 0.00 Project PO73294 2001 BR Fiscal & Fin. Mgmt. TAL 8.88 0.00 0.00 0.00 0.00 6.74 5.78 0.00 _ PO59566 2001 BR- CEARA BASIC EDUCATION 90.00 0.00 0.00 0.00 0.00 79.01 -10.99 0.00 PO50772 2001 BR LAND-BASED POVRTY 202.10 0.00 0.00 0.00 0.00 224.3 1 161.54 0.00 ALLEVIATION I (SIM) PO50875 2001 BR Ceara Rural Poverty Reduction 37.50 0.00 0.00 0.00 0.00 21.82 10.57 0.00 Project 25 PO35741 BR NATL ENV 2 15.00 0.00 0.00 0.00 2.32 6.06 8.38 8.20 PO626 19 INSS REF LIL 5.05 0.00 0.00 0.00 0.00 0.36 -0.14 0.67 PO39199 PROSANEAR 2 30.30 0.00 0.00 0.00 0.00 28.96 28.96 0.00 PO47309 BR ENERGY EFFICIENCY (GEF) 0.00 0.00 0.00 15.00 3.29 11.43 13.25 -0.50 PO50776 BR NE Microfinance Development 50.00 0.00 0.00 0.00 0.00 31.69 -18.31 0.00 PO06449 BR CEARA WTR MGT PROGERIRH 136.00 0.00 0.00 0.00 0.00 81.33 43.98 0.00 SIM PO43874 1999 BR- DISEASE SURVEILLANCE - 100.00 0.00 0.00 0.00 33.00 8.83 41.83 0.00 VIGISUS PO58129 1999 BR EMER. FIRE PREVENTION (ERL) 15.00 0.00 0.00 0.00 0.00 5.66 5.66 3.80 PO50763 1999 BR- Fundescola 2 202.00 0.00 0.00 0.00 0.00 17.58 15.08 0.00 PO48869 1999 BR SALVADOR URBAN TRANS 150.00 0.00 0.00 0.00 0.00 94.23 94.23 0.00 PO38947 1998 BR- SC. & TECH 3 155.00 0.00 0.00 0.00 88.80 3.44 92.24 0.00 PO35728 1998 BR BAHIA WTR RESOURCES 51.00 0.00 0.00 0.00 0.00 10.10 10.10 -1.90 PO06559 1998 (BF-R)SP.TSP 45.00 0.00 0.00 0.00 0.00 3.88 3.88 0.00 PO06474 1998 BR LAND MGT 3 (SAO PAULO) 55.00 0.00 0.00 0.00 0.00 49.35 47.65 10.26 PO38895 1998 BR FEDWTR MGT 198.00 0.00 0.00 0.00 40.00 59.15 99.15 99.15 PO43421 1998 BR RJ M.TRANSIT PRJ. 186.00 0.00 0.00 0.00 17.17 113.50 130.67 0.00 PO579 10 1998 BR PENSION REFORM LIL 5.00 0.00 0.00 0.00 0.00 2.04 2.04 0.25 PO43420 1998 BR WATER S.MOD.2 150.00 0.00 0.00 0.00 125.00 20.64 145.61 1.59 PO42565 1998 BR PARAIBA R.POVERTY 60.00 0.00 0.00 0.00 0.00 17.42 17.42 0.00 PO43873 1997 BR AG TECH DEV. 60.00 0.00 0.00 0.00 0.00 17.98 17.98 17.98 PO06562 1997 BAHIA MUN.DV 100.00 0.00 0.00 0.00 0.00 8.98 8.98 8.98 PO06532 1997 FED HWY DECENTR 300.00 0.00 0.00 0.00 30.00 84.85 114.85 95.17 PO43868 1997 BR RGS LAND MGTlPOVERTY 100.00 0.00 0.00 0.00 0.00 22.65 22.65 22.65 PO34578 1997 BR RGS Highway MGT 70.00 0.00 0.00 0.00 0.00 44.55 44.55 44.55 PO37828 1996 BR (PR)R.POVERTY 175.00 0.00 0.00 0.00 0.00 53.16 53.16 53.16 PO06210 1996 GEF BR-NAT'L BIODIVERSITY 0.00 0.00 0.00 10.00 0.00 1.91 2.73 0.19 PO06564 1995 BELO H M.TSP 99.00 0.00 0.00 0.00 0.00 7.76 7.76 0.00 PO38882 1995 BR RECIFE M.TSP 102.00 0.00 0.00 0.00 0.00 5.79 5.79 0.00 Total: 4,660.55 0.00 0.00 63.00 339.58 2,847 -06 1,509.28 364.20 26 REPUBLIC OF BRAZIL ADDITIONAL FINANCING FOR ESPfRITO SANTO WATER AND COASTAL POLLUTION MANAGEMENT PROJECT "PRO JET0 AGUAS LIMPAS" SCHEDULE G t IFC OPERATIONS PORTFOLIO As OF 04/20/2004 Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1998 Fras-le 7.33 0.00 10.00 0.00 7.33 0.00 6.70 0.00 1994 GAVEA 2.81 0.00 5.50 0.00 2.81 0.00 5.50 0.00 GP Cptl Rstrctd 0.00 9.67 0.00 0.00 0.00 9.54 0.00 0.00 2001 GPC 9.00 0.00 0.00 0.00 9.00 0.00 0.00 0.00 1997 Guilman- Amorim 22.73 0.00 0.00 38.32 22.73 0.00 0.00 38.32 1998 Icatu Equity 0.00 20.00 0.00 0.00 0.00 12.60 0.00 0.00 1999 Innova SA 15.00 5.00 0.00 40.00 15.00 5.00 0.00 40.00 1980187197 Ipiranga 13.11 0.00 10.52 39.75 13.11 0.00 10.52 39.75 1999 Itaberaba 0.00 5.34 0.00 0.00 0.00 5.34 0.00 0.00 2000/02 Itau-BB A 62.63 0.00 0.00 0.00 49.08 0.00 0.00 0.00 1999 JOSAPAR 7.57 0.00 7.00 0.00 2.57 0.00 7.00 0.00 1995 Lojas Americana 6.00 0.00 0.00 0.00 6.00 0.00 0.00 0.00 1992199 MBR 17.50 0.00 0.00 0.00 17.50 0.00 0.00 0.00 2002 Macae 52.03 0.00 10.00 43.75 52.03 0.00 10.00 43.75 Macedo Nordeste 0.00 0.00 5.00 0.00 0.00 0.00 5.00 0.00 2002 Microinvest 0.00 1.25 0.00 0.00 0.00 0.12 0.00 0.00 2002 Net Services 0.00 31.74 0.00 0.00 0.00 31.74 0.00 0.00 1994 Para Pigmentos 12.90 0.00 9.00 0.00 12.90 0.00 9.00 0.00 1996 Perdigao 6.56 0.00 0.00 0.00 6.56 0.00 0.00 0.00 1994/00/02 Portobello 0.00 1.15 0.00 0.00 0.00 1.15 0.00 0.00 2000 Puras 3.33 0.00 0.00 0.00 3.33 0.00 0.00 0.00 2003104 Queiroz Galvao 0.64 0.00 0.00 0.00 0.11 0.00 0.00 0.00 1998 Randon 4.67 0.00 3.00 0.00 4.67 0.00 3.00 0.00 1997 Rodovia 19.44 0.00 0.00 15.90 19.44 0.00 0.00 15.90 1997103 SP Alpargatas 30.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 1994197 Sadia 7.70 0.00 4.83 48.85 7.70 0.00 4.83 48.85 2002104 Salutia 0.00 0.08 0.00 0.00 0.00 0.08 0.00 0.00 1997 Samarco 8.10 0.00 0.00 1.33 8.10 0.00 0.00 1.33 1998 Saraiva 5.77 3.00 0.00 0.00 5.77 3.00 0.00 0.00 2003 Satipel 15.00 0.00 10.00 0.00 15.00 0.00 10.00 0.00 Seara Alimentos 0.00 0.09 0.00 0.00 0.00 0.09 0.00 0.00 2000 Sepetiba 27.00 0.00 5.00 0.00 12.00 0.00 5.00 0.00 1997 sucorrico 1.50 0.00 0.00 0.00 1.50 0.00 0.00 0.00 1999 Sudamerica 0.00 15.00 0.00 0.00 0.00 15.00 0.00 0.00 2001 Synteko 18.00 0.00 d 0.00 0.00 18.00 0.00 0.00 0.00 1996 TIGRE 5.77 0.00 5.00 0.00 5.77 0.00 5.00 0.00 1998 Tecon Rio Grande 5.41 0.00 5.50 9.89 5.41 0.00 5.50 9.89 27 2001103 Tecon Salvador 0.00 0.56 0.00 0.00 0.00 0.55 0.00 0.00 2002 UP Offshore 11.60 10.00 0.00 30.00 0.00 3.00 0.00 0.00 2002104 Unibanco 20.00 0.00 0.00 0.00 14.80 0.00 0.00 0.00 1999 Vulcabras 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 1999 Wiest 0.00 0.00 8.00 0.00 0.00 0.00 8.00 0.00 2001 AG Concession 0.00 15.00 15.00 0.00 0.00 14.07 0.00 0.00 1996197 Algar Telecom 0.00 8.17 0.00 0.00 0.00 8.17 0.00 0.00 2002 Arnaggi 30.00 0.00 0.00 0.00 30.00 0.00 0.00 0.00 2002 Andrade G. SA 30.00 0.00 10.00 20.00 30.00 0.00 10.00 20.00 2001 Apolo 8.00 0.00 0.00 0.00 5.50 0.00 0.00 0.00 1998 Arteb 20.00 7.00 0.00 18.33 20.00 7.00 0.00 18.33 1999 AutoBAn 25.97 0.00 0.00 21.57 25.97 0.00 0.00 21.57 1998 BSC 6.10 0.00 0.00 3.09 6.02 0.00 0.00 3.09 1993196 BUNGE CEVAL 0.00 3.22 0.00 0.00 0.00 3.22 0.00 0.00 199019 1 Bahia Sul 0.00 2.95 0.00 0.00 0.00 2.95 0.00 0.00 1996103 Banco Bradesco 7.49 0.00 0.00 44.94 7.49 0.00 0.00 44.94 1997 Bompreco 13.33 0.00 0.00 0.00 13.33 0.00 0.00 0.00 Bradesco-Petrofl 7.50 0.00 0.00 0.00 7.50 0.00 0.00 0.00 1994196 CHAPECO 1.78 0.00 0.00 5.26 1.78 0.00 0.00 5.26 2002 CN Odebrecht 48.15 0.00 20.00 86.85 48.15 0.00 20.00 86.85 1978183 CODEMIN 0.00 0.40 0.00 0.00 0.00 0.40 0.00 0.00 2003 CPF'L Energia 0.00 0.00 40.00 0.00 0.00 0.00 40.00 0.00 1992 CRP-Caderi 0.00 0.32 0.00 0.00 0.00 0.32 0.00 0.00 1997 Copesul 15.00 0.00 0.00 51.43 15.00 0.00 0.00 51.43 1997100 Coteminas 0.00 0.53 0.00 0.00 0.00 0.53 0.00 0.00 1980192 DENPASA 0.00 0.12 0.00 0.00 0.00 0.12 0.00 0.00 1995 Distel Holding 11.68 0.00 0.00 0.00 11.68 0.00 0.00 0.00 1998 Dixie Toga 0.00 15.00 0.00 0.00 0.00 15.00 0.00 0.00 1997 Duratex 7.81 0.00 0.00 18.43 7.81 0.00 0.00 18.43 1999 Eliane 23.47 0.00 13.00 0.00 23.47 0.00 13.00 0.00 1998 Empesca 5.00 0.00 10.00 0.00 5.00 0.00 10.00 0.00 2001102 Escola 0.00 0.25 0.00 0.00 0.00 0.25 0.00 0.00 2000 Fleury ' 7.07 0.00 6.00 0.00 7.07 0.00 6.00 0.00 1998 Fos fertil 6.82 0.00 0.00 30.68 6.82 0.00 0.00 30.68 Total portfolio: 704.27 155.84 212.35 568.37 625.81 139.24 194.05 538.37 28 REPUBLIC OF BRAZIL ADDITIONAL FINANCING FOR ESPiRITO SANTO WATER AND COASTAL POLLUTION MANAGEMENT PROJECT "PRO JET0 AGUAS LIMPAS" SCHEDULE H: BRAZIL AT A GLANCE 29 2UUl 2Q62 &I 21 .o 13.2 22.9 17.1 8.4 2.5 3.5 5.7 I .rs 2.3 -0.7 6.5 I .8 1.4 3.2 2.5 I.9 a.3 3.9 . : . . : . . ; : ( . : ; : : P 1: : : t : ; . \ i: .i.. , : . 1. 3x4 23,754 6.52E-1 I I .&I E-3 30 G - 5hort-tarm MAP SECTION