PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB3028 Project Name

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB3028 Project Name BR Santos Municipality Project Region LATIN AMERICA AND CARIBBEAN Sector General water, sanitation and flood protection sector (50%);Subnational government administration (50%) Project ID P Borrower(s) MUNICIPALITY OF SANTOS Implementing Agency Environment Category [X] A [ ] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared April 3, 2007 Estimated Date of Appraisal Authorization Estimated Date of Board April 16, 2008 Approval 1. Key development issues and rationale for Bank involvement The Santos Municipality, with a population of 420,000, distinguishes itself from São Paulo State s (ESP) other 645 municipalities because: (a) it hosts the Port of Santos through which flows 30% of the country s commercial exports and imports; (b) has a large political and economic influence in the ESP and especially in the Baixada Santista, which is one of the state s three metropolitan areas; (c) has geographic proximity to São Paulo which has resulted in strong economic ties to the metropolitan region; and (d) has the third best Municipal Human Development Index (MHDI) 1 in the state, the fourth best in the southeast region, and the fifth best in the country. The economic and social development in Santos is heavily dependent on two main economic drivers of great national and regional importance: the logistics sector, especially for the Port of Santos; and the industrial sector. Recently, a new economic investment cycle is occurring in the Santos Estuary, bringing additional development opportunities to the region. The indications of these growing opportunities are the high interest of investors in port related activities; the city of Santos was chosen to host Petrobrás headquarters for the extraction of gas and petroleum from the Santos bay; the recovery of the environmental conditions in the Santos Estuary; and the Programa de Aceleração de Crescimento (PAC) which will bring significant investments in logistics to the region. This new investment cycle will bring additional pressure to the demand for municipal services, especially in land use planning, urban regulation, and infrastructure services. This process will probably further increase the challenges faced by the municipality in scaling up the required broad range of municipal services at the needed pace. The municipal 1 The Human Development Index (HDI) is a comparative measure of life expectancy, literacy, education, and standard of living for countries worldwide. It is a standard means of measuring well-being, and also to measure the impact of economic policies on quality of life. The index was developed in 1990 and has been used since 1993 by the United Nations Development Program in its Human Development Report. In Brazil, the federal Instituto de Pesquisa Economica Aplicada (IPEA), associated with state similar institutions (Fundaçao SEADE in the case of São Paulo) has applied the same HDI methology for municipalities, creating the MHDI. The Census carried out each ten years provides the data for calculating the HDI and MHDI.

2 government has begun to respond to these challenges by improving its services and regulations in order to bring new investments and ensure that their benefits will also be shared by the poor living in the city. As a result, the Municipality of Santos has been executing a comprehensive plan to maximize the emerging development opportunities in its territory and mitigate the negative pressures. This plan aims to: (a) improve the investment climate; (b) increase the municipal institutional capacity; (c) improve basic services; (d) provide tailored assistance to impoverished segments of the population; and (e) improve the city attractiveness through cultural heritage revitalization. This plan is also aligned with a broader initiative involving the federal, state and municipal governments to develop appropriate institutional arrangements aimed at strengthening vertical government coordination in the Santos Estuary. The goal of this initiative is to improve efficiency in implementation of the public sector s policies and development strategies through a better definition of federal, state and municipal priorities in the Santos Estuary. More recently, the newly elected state government took over this initiative s leadership, resuming contacts with stakeholders and reaffirming the agenda previously agreed. The state also informed that it would discuss with the federal government the transfer of the port property to the state. The municipalities involved have shown their support for this proposal and have brought up the discussion of a new port management model, in which the four municipalities of the Santos Estuary would participate. Within the broader context of the Santos Estuary, the proposed Municipality of Santos Project would focus on supporting local and regional development through a number of specific interventions. They will be primarily focused on improving critical infrastructure demands and the quality of life in low-income neighborhoods lacking basic services. The interventions will also focus on improving municipal management to facilitate economic development and service provision. The framework for addressing this complexity is structured around the four thematic priorities, described in more detail below. Addressing Competitiveness in Santos requires measures to facilitate public and private investments, especially in addressing institutional constraints regarding overlapping territorial mandates and land use conflicts caused by competing municipal, state and federal interests. In addition, the scarcity of suitable land within the municipality imposes severe constraints on industrial and urban expansion. Increasing the availability of land for activities linked to the port (port based industries, inter-modal networks) is key to the growth of the regional economy and municipal tax. In addition, it is important for the municipal government to facilitate the growth of the emerging economies in logistics, energy, and tourism, and link these growth areas to the local population to create job opportunities. Addressing Creditworthiness in Santos requires efforts to further the fiscal modernization process. The municipal government has completed the first phase of the modernization program financed by the Banco Nacional de Desenvolvimento Social (BNDES). Further assistance is needed to revise the municipal working routines, expand informatization, and facilitate access

3 and integration of the planning, financial and resource allocation database. Assistance would also include improving access mechanisms to e-government systems, and improving operating and maintenance costs control mechanisms. Addressing Services Delivery in Santos requires priority for macro drainage infrastructure and services. Santos is located on an island with flat low-lying areas, a high groundwater table (less than 1 meter below the surface) and a high level of irrigation by rivers and canals. Due to the last two decades of the decreasing municipal revenue, much needed rehabilitation of the drainage infrastructure has not taken place. The current situation poses substantial risks of flooding to the low-income communities that have settled on these low-lying areas. Improvement in the macro drainage system will benefit the municipality at large, and positively affect solid waste collection, and water and sanitation service coverage and quality. Addressing services delivery for the poor in Santos also includes providing appropriate housing solution for population irregularly occupying natural drainage areas. To ensure sustainability, this needs to be coupled with income generation alternatives. Ensuring Cities as Partners is central to the continued growth of Santos, the Santos Estuary region and its contribution to the national economy. Although they are discrete entities, the economies of the municipalities within the Santos Estuary are dependent upon and integrated into the regional economic dynamics. Given these inter-dependencies and development constraints within the Estuary, the Municipality of Santos firmly embraces the proposals to work together and coordinate efforts. Participation of different stakeholders in municipal management toward achieving common visions and consensus is a critical challenge. Brazil Municipal Lending Program (BMLP): The proposed project is one of the eight municipal direct lending operations being supported by the Bank as part of a broader BMLP. Through a selective and strategic program of support to cities, the BMLP would assist in demonstrating how policies, effectively implemented at the local level, can improve the lives of the urban poor, promote sound local governance, and lead to a more competitive economy. The total project amount authorized by COFIEX 2 is US$80 million, including a US$40 million loan from the World Bank. Rationale for Bank involvement The Bank has a clear strategy for Brazilian cities. As described in the BMLP Umbrella PAD, through a selective and strategic program of support to cities, the Bank can assist in demonstrating how policies, effectively implemented at the local level, can improve the lives of the urban poor, promote sound local governance, and lead to a more competitive local economy. The federal government has requested the Bank s support in focusing strategically on a number of economically important and creditworthy municipalities to achieve concrete impacts and demonstrate the benefits of well targeted investments coupled with support for municipal and fiscal management. The Municipality of Santos is a strong candidate for this type of World Bank intervention, and has been identified as one of the APL projects in the umbrella PAD. Along with other municipalities in the Baixada Santista, Santos plays an important role in the national economy. 2 COFIEX authorization issued on December 18, 2006

4 The Bank can provide extensive global experience in support of improved municipal management practices. The Bank can tap into its extensive knowledge and experiences in Brazil and around the world to provide assistance to Santos in addressing its key development challenges including: linkage with port development; enhancing economic development strategies; improving the drainage system; strengthening coordination with the various government and non-government entities in the municipality; and improvement of the quality of life for the urban poor. The Bank is also well positioned to promote a holistic approach to municipal planning and investment. Participation in the Bank program can build confidence and capacity by improving the quality of capital investments, demonstrating how municipalities can manage debt while maintaining their fiscal profiles, and leveraging results through partnerships. The Bank is also in a position to capitalize on its role as a global knowledge broker by facilitating comparative learning and exchanges among a significant portfolio of urban and environmental projects with municipalities in Brazil. Relationship with CAS: The proposed project is included in the CAS as it would address the following themes: i) investing in growth, notably through the private sector, including enhanced emphasis on improving competitiveness and investing in infrastructure; ii) improving environmental sustainability in the "green" and "brown" environmental arenas; iii) making fiscal adjustments sustainable, enhancing the quality of public spending to deliver services more efficiently, thus also freeing up resources for investment, as well as improving public sector management; and iv) building human capital for improved equity and growth.. Municipal Strategy: The project also fits within the four pillars set forth by the Bank for our support to municipal development in Brazil: (a) improving municipal fiscal and administrative management, (b) increasing the competitiveness of the municipality through local economic development, (c) supporting partnerships across municipalities and with others and (d) strengthening municipal capacity to deliver key services. 2. Proposed objective(s) The objectives of the Brazil Municipal Lending Program are (following the umbrella PAD): To make tangible improvements in the participating municipalities, including (i) better living conditions for municipal residents generally and low-income communities particularly, (ii) improved capacity for service delivery and fiscal management, (iii) better stewardship of the local urban environment, and (iv) a better climate for local economic development. To serve as a vehicle for inter-municipal and intergovernmental knowledge sharing and learning, while helping to lay the foundation for Brazil to build a more robust national urban policy framework. The main objectives of the Santos Municipality Project are to improve the city s critical infrastructure and the living conditions of the low-income communities, and to improve the

5 municipal government s capacity for service delivery and facilitating economic development in the city. 3. Preliminary description 1. Support to Municipal Infrastructure Modernization Program (US$54.3M): The major investments under this project will go towards infrastructure drainage works that have been identified by the Municipality of Santos. Throughout project preparation potential other investments may be identified. The main works will be the rehabilitation of drainage canal works in the northeast region of the city, with larger poverty levels and poorer living conditions due to frequent flooding. Possible work would include: (i) projects and works of dredging canals; (ii) works to rehabilitate storm water systems; (iii) works to create open air flood contention ponds; (iv) rehabilitating flood-gates and storm water pumping stations; (v) equipment for the drainage system automatic control center; and (vii) works for land slide prevention and micro drainage. The component will also support infrastructure operation and maintenance to improve the system administration framework, through institutional strengthening and expanding automated control systems for the channels to increase security and system efficiency, and works in the Santos hills zones to avoid landslides, including increasing the municipal management capacity in macro drainage operation, maintenance and cost recovery. 2. Promoting Social Programs for the Poor Communities (US$20.0M): This component will likely include the provision of appropriate housing to resettle approximate 900 families living in precarious shacks in flood prone areas, the strengthening of programs to control irregular occupation, and the implementation of social development programs to provide support to families facing critical social needs in order to facilitate their access to programs income generation opportunities and other social support programs. 3. Institutional Capacity Strengthening (US$5.7M): This component intends to strengthen municipal management in terms of effective service delivery and the municipality s ability to promote economic growth in light of the expected economic driving forces such as the port, the energy sector, and tourism sector. While the focal areas of institutional strengthening will be discussed and prioritized during the project preparation process, the initial priority areas include: (a) Land use planning: Strengthening the municipality institutional capacity in land use planning and control including identification of land use conflicts, technical and institutional proposals for addressing these conflicts, and proposing alternatives to maximize the use of the scarce land available. This also includes a more comprehensive analysis for assessing alternatives use of land for increasing port city integration in terms of expanding port related economic activities; and (b) Finance control mechanisms: Includes revising the municipal working routines, expanding informatization, and facilitating access to planning, financial and resource allocation tools while improving access mechanisms to e-government system, improving operating and maintenance costs control mechanisms. In addition, in consideration of the presence of multiple institutions in the municipality, stakeholder participation will be an important element of the institutional strengthening process. Finally this component will also include activities to strengthen the municipality s capacity to efficiently implement the project and coordinate with the international stakeholders.

6 4. Safeguard policies that might apply The project activities trigger the following safeguards: (i) Environmental Assessment (OP4.01); Natural Habitats (OP 4.04); and Involuntary Resettlement (OP4.12). An Environmental Assessment and a Resettlement Framework will be prepared and submitted to the Bank review prior to appraisal. 5. Tentative financing Source: ($m.) Borrower 0 International Bank for Reconstruction and Development Total Contact point Contact: Paula Dias Pini Title: Senior Social Development Specialist Tel: (202) Fax: Ppini@worldbank.org