IN THE AMOUNT OF US$57.6 MILLION

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$57.6 MILLION TO THE FEDERAL DISTRICT Report No: BR WITH THE GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL FOR A BRASILIA ENVIRONMENTALLY SUSTAINABLE PROJECT July 6,2005 Brazil Country Management Unit Environmentally and Socially Sustainable Development Sector Management Unit 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 the World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective July 6,2005) Currency Unit R$l.OO R$2.34 Real US$0.43 US$l.OO FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS GDF DF RIDE GEF W&S ADASA PDOT ZEIS SANEAGO CAAB ZHIS CEF SEDUH BELACAP SEMARH CAESB so ADS NOVACAP SECAP IBAMNDF Governent of the Federal District Federal District Integrated economic development region Global Environmental Fund Water and sanitation Water and sanitation regulatory agency Territorial management plan State of Goifis water and sanitation company Brazilian environmental water and sanitation company Federal financing agency Urban and housing development agency GDF solid waste department GDF environmental agency GDF Water and sanitation company GDF civil works secretariat GDF social development agency GDF drainage and paving department GDF financing identification secretariat Federal Government environmental agency - department assigned to the DF Govern0 do Distrito Federal Distrito Federal Regiiio Integrada de Desenvolvimento Economico Agencia Reguladora de Agua e Saneamento do DF Plano de Ordenamento Territorial Zona de Interesse Social Empresa de saneamento de GoiAs Companhia Ambiental de Aguas Brasileiras Zona Habitacional de Interesse Social Caixa Economica Federal Secretaria de Desenvolvimento Habitacional e Urbano ServiGo de Ajardinamento e Limpeza Urbana Secretaria de Estado do Meio Ambiente e Recursos Hidricos Compania de Saneamento Ambiental do Distrito Federal Secretaria de Estado de Obras Agencia de Desenvolvimento Social Cia Urbanizadora da Nova Capital do Brasil Secretaria de Estado de CaptaGBo de Recursos Intituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renovgveis - Gerencia Executiva do DF Vice President: Country Managermirector: SMU Director: Sector Manager: Task Team Leader: Pamela Cox Vinod Thomas John Redwood Abel Mejia Paula Dias Pini

3 A. B. BRAZIL Brasilia Environmentally Sustainable Project CONTENTS FOR OFFICIAL USE ONLY Page STRATEGIC CONTEXT AND RATIONALE Country and sector issues Rationale for Bank involvement Higher level objectives to which the project contributes... 4 PROJECT DESCRIPTION Lending instrument Project development objective and key indicators Project background... 5 Project Components description Lessons learned and reflected in the project design Alternatives considered and reasons for rejection C. IMPLEMENTATION D Institutional and implementation arrangements Monitoring and evaluation of outcomes/results Sustainability Critical risks and possible controversial aspects Loankredit conditions and covenants APPRAISAL SUMMARY Economic and financial analyses Technical., Fiduciary Social Environment Safeguard policies Policy Exceptions and Readiness Annex 1: Country and Sector or Program Background Annex 2: Major Related Projects Financed by the Bank and/or other Agencies Annex 3: Results Framework and Monitoring This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

4 Annex 4: Detailed Project Description Annex 5: Project Costs Annex 6: Implementation Arrangements Annex 7: Financial Management and Disbursement Arrangements Annex 8: Procurement Arrangements Annex 9: Economic and Financial Analysis Annex 10: Fiscal Analysis Annex 11: Safeguard Policy Issues Annex 12: Project Solid Waste Disposal and Clean Development Mechanism - CDM Annex 13: Social Analysis... : Annex 14: Project Preparation and Supervision Annex 15: Documents in the Project File Annex 16: Statement of Loans and Credits Annex 17: Country at a Glance Annex 18: Maps iv

5 A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues Urban environment issues in large urban areas of Brazil are imposing increasingly large costs to society in terms of additional infrastructure to guarantee reliable water supply, and investments to address health impacts of pollution, and reduce damage associated with flooding. To address these urban environment issues, a long-term comprehensive strategy i s required. This is the case of the largest metropolitan areas of Brazil like Sgo Paulo, Belo Horizonte, Curitiba, and Recife, but it is also an emerging demand from fast growing cities such as Brasilia, and medium size cities like Betim, Uberaba, Cubatgo which are experiencing similar urban environment issues. Brasilia is already the tenth largest urban concentration in Brazil, and despite its well-known plan for urban development, it shows high levels of socioeconomic inequality, uncontrolled urban expansion, and environment degradation, which are found in most of the largest metro areas of the country. In addition, the urban sprawl in Brasilia occurs at the expense of the degradation of the most stressed ecosystem of the country, the Cerrado, which is compromising its natural capacity to provide key environmental services to support a sustainable metropolitan expansion. High population growth, rising water demand, and unabated pollution in many unplanned settlements within the DF and its Integrated Development Region (RIDE) adversely impact the quantity and quality of water resources. Left unchecked, these impacts could potentially impose a high cost on the expansion of basic services, erode the quality of life and health of the most vulnerable population, and ultimately undermine the sustainable development of the region. Brasilia s environmental importance lies in two main factors: a) its location at the head waters of three key river basins of national and regional importance (Parani, Tocantins - Araguaya, and SZo Francisco); and b) as a reservoir of biodiversity in the Cerrados ecosystem. Additionally, 43% of the DF territory is made up of environmental conservation units. Promoting socially and environmentally sustainable development in Brasilia has been part of a national development strategy to foster sustainable economic growth in the center-west region of the country. Undoubtedly, a substantial part of this strategy has been achieved over the fifty year history of Brasilia. Today, this strategy requires a renewed policy consensus on urban and regional environmental issues to more effectively contribute to the control and abatement of high rates of environmental degradation affecting capacity and cost of providing urban and regional services. The DF requests Bank lending assistance to formulate and implement a sustainable development strategy addressing priority environmental and social development issues. The DF is also seeking Bank assistance in order to have access to grant resources to deal with global environment issues associated to the Cerrados ecosystem and Climate Change. Specifically, the DF would blend the proposed lending operation with a GEF grant, which would seek sustainable productive landscape and biodiversity conservation in the Cerrados. Additionally, the DF is keen to build a partnership with the Bank to access carbon credits in exchange for improved solid waste management, which would be financed under the proposed project. The Brasilia Sustainable Project i s part of a broad GDF regional development program, which includes urban and rural sectoral investments coupled with policies and institutional 1

6 strengthening. A major component of this broad program is the sanitation project under final execution stage, financed by the IDB, which is extending water and sanitation coverage to 90% of the population and providing waste treatment facilities for one hundred percent of collected waste water. The Project constitutes a key complementary piece of this broad program of the GDF by providing an integrated framework to sectoral initiatives under execution, particularly on the policy and institutional efforts which are needed to address development inequalities, degradation of natural resources, and fostering sustainability of urban environmental services. To respond to these set of challenges, the Brasilia Sustainable Project has been designed to : (a) address the need for reducing regional inequalities, especially the issues associated with a sustainable use of the scarce regional natural resources such as water; (b) address main policy and institutional issues of waste management, particularly water pollution which is affecting the quality of the Lake ParanoB, and regional solid waste management and (c) high priority investments to address acute social issues. The main policy themes addressed by the project are: (a) Policy and institutional development to support sustainable management of water resources in the DF: Responding to the high priority of WRM in the DF, in July 2004, it created the water regulatory agency (ADASA), with responsibilities for both WRM and WSS. Taking stock on this decision, the Brasilia Sustainable Project will (i) development of regulatory, technical and legal tools to consolidate the implementation of ADASA; (ii) strengthening inter-institutional coordination between ADASA and ANA (the federal water agency); and (iii) policy formulation on urban and environmental issues aiming to improve synergies and coordination among sectors within the GDF. (b) Protection of one of the most fragile ecosystem of the country by integrating local and global benefits to befinanced with GEF grants: Since one hundred percent of the DF territory lies in the Cerrado biome, and the location of the DF - at the headwaters of three key national watersheds - underscores the critical role of the DF for the Cerrado, which strongly depends of ground water availability to survive during the extended dry season. The project will support development of sustainable urban expansion policies, including the adoption of appropriate land use patterns, in close coordination with development of biodiversity conservation policies. (c) Development of a model for integrated management of urban environmental issues in metropolitan areas of Brazil: The asymmetrical planning and management capacity of municipalities within a metropolitan area as well as the need for governance models to deal with common service and development issues require close coordination across political jurisdictions and within government organizational structures. This is the case of the DF and its surrounding municipalities, which need a close coordination mechanism to jointly address regional development issues. At the same time, the DF, being the economic engine for the entire region of northern GoiBs and Minas Gerais, has recognized the need to reduce regional inequalities by financing urban improvements in municipalities located in the neighboring state of Goifis. It has also created a WSS and environmental services company (CAAB) to provide services in the twenty-two municipalities of the metro area of Brasilia. (d) Support to land management and territorial development: The creation of Brasilia has required substantial private land expropriation by the Federal Government, which until now is incomplete and has left a legacy of a large number of land tenure issues. For instance, by year 2

7 2000, only about 55% of the DF territory had legal titling entirely expropriated and regularized. There i s also a dynamic process to illegally urbanize rural land. To address these challenges the GDF has decided to strengthen its capacity for policy analysis, update the DF territorial plan (PDOT), and modernize its land cadastre. (e) Improve natural resources management and environmental licensing: Forty-three percent of the DF territory is a protected area, belonging to the GDF or the Federal Government through the regional environmental agency of IBAMA. Moreover, in 2001, the Federal Government created the Planalto Central environmental protected area, which covers practically the entire territory of the DF and, in addition, transfers to the regional IBAMA agency the environmental licensing authority over major investment intervention. Improving the environmental management system in the DF, and also strengthening the capacity of the regional IBAMA agency, is among the first priorities of the GDF given its impact on local and regional development. The GDF would like develop more flexible instruments for environmental management instead of the command-andcontrol system that it is in place. The GDF is particularly interested in improving the efficiency and effectiveness of licensing mechanisms. Introducing economic and fiscal instruments is a major thrust, in parallel with the development of market-based instruments. The GDF strategy i s to introduce this environmental approach in urban development policies and tools, e.g. adopting tradable permits, ecological taxes (ICMS ecolo gico). (0 Reducing poverty and addressing environmental protection: Vila Estrutural is a main challenge for the DF due to its high social and environmental impacts. It is the major pollution source threatening Lake ParanoB. The area has been declared a ZEZS and it is owned by the GDF. The ZEIS regulation and the land tenure allows for upgrading the current settlement. The DF has traditionally removed unregulated low-income settlements to appropriate areas provided with basic services. However, land for urban expansion is currently almost non-existent in the DF. The proposed project would integrate upgrading activities, leading to a better urban standard to both improve the quality of life and abate the pollution load originating in the area and discharged into rivers tributaries of Lake ParanoB, as well as for protecting the National Park (which encompass a reservoir that produces 21% of the DF s water supply). 2. Rationale for Bank involvement The Bank is uniquely positioned to support the GDF priorities proposed through the Brasflia Environmentally Sustainable Project. First, the Bank, due to its recognized technical expertise and institutional worth, constitutes the ideal partner for addressing the complex institutional issues associated with the metropolitan and environmental concerns in the region. Second, the GDF and the Bank s Environmental SAL goals and priorities coincide, with the latter constituting a powerful instrument guiding key development actions in the region. Third, the Bank partnership would bring acknowledged experience in conceiving and implementing integrated approaches for addressing the brown environmental agenda in Brazil. Fourth, the project is fully compatible with the Bank s Water Resources Sector Strategy, prepared in 1993 and revised in 2003, which acknowledges the need for an integrated approach to water resources planning and management, as well as the Bank s comparative advantage in dealing with complex water management issues. Fifth, the project will contribute directly to the CAS objective of a 3

8 more sustainable Brazil, by supporting the sustainable management of natural assets, providing local environmental services, and enhancing cooperation among sub-national governments. 3. Higher level objectives to which the project contributes The project will contribute to higher level objectives in the following key areas: (a) Water Resources Policy Consolidation at the national and state levels, complement strategic water resources programs and abate critical water pollution loads; (b) Metropolitan Development, through the establishing cutting-edge institutional and technical models for metropolitan regional development, which constitutes a key urban issue challenging state and municipal governments; (c) Environmental Policy, by making effective key recommendations prioritized by the Environmental SAL for improving the environmental institutional and technical framework; and (d) Poverty Reduction, by improving the living conditions in two critical and emblematic poverty pockets (Vila Estrutural and Aguas Lindas). B. PROJECT DESCRIPTION 1. Lending instrument Specific Investment Loan (SIL) 2. Project development objective and key indicators The Project s Development Objective is to meet the growing needs of the Federal District and the Brasilia Metropolitan Region to reduce regional inequalities and ensure quality water resources, through environmental planning and management activities, integrated with poverty reduction interventions and environmental rehabilitation in the most critical river basins. Specifically, the project is expected to achieve a more sustainable use of scarce natural resources, such as water, and carry out selective investments that will abate pollution loads that threaten strategic water bodies, while simultaneously addressing a range of acute social issues. In addition, the project would have strengthened the capacity of the local government to manage regional development and land management issues, water resources and urban sanitation The results of the Project s six-year intervention will measured by the following three indicators: (i) improved water quality of the Vicente Pires and Descoberto Rivers (by achieving IQA class 2) ; (ii) improved living conditions in targeted settlements by providing integrated urban environmental services; and (iii) strengthened technical and institutional capacity contributing to the sustainable development of the Brasilia metropolitan region. Based on the Brazilian Environmental legislation (Resolution 20/86- CONAMA) these rivers water quality must be improved in order to comply with class 2 criteria (allows for possible water supply for human consumption after conventional treatment, recreational purposes with primary contact, and, irrigation of vegetables for uncooked human consumption). 4

9 3. Project background Project prioritization methodology: The project proposal results from a comprehensive regional assessment carried out during project preparation in order to select the most cost effective interventions from an urban environmental perspective. The assessment s main aspects include: (i) a regional dimension; (ii) the river basin perspective adopted; and (iii) the matrix prepared, in which the main variables considered included: issue description; impacts summary; river basin affected; population affected; sectors involved; responsible institutions; and programs and resources addressing the issues. Two strategic decisions were taken as a result of this broad assessment and the selectivity criteria adopted. First, the issues related to metropolitan development and water resources management at the regional level were prioritized. Second, the project investments would target two strategic river basins: Paranoh and Descoberto. The proposed project design reflects these two strategic priorities by including a robust component addressing development policies and institutional capacity strengthening and the investment components focusing on key environmental and social issues of the two river basins. DF water resources management and W&S sector efficiency: The DF s rivers have a low water flow. Consequently, water is relatively scarce. The water demand from the DF s two million urban inhabitants is 4.5 m3 per second. To meet this demand, the DF has six large water production systems delivering a total of 5.6 m3/second. The recent W&S Master Plan for the DF and the surrounding entorno region forecasts that by 2010 water demand will increase to 5.9 m3/second. Based on these projections, in five years, the DF s water production capacity will be dangerously close to the level of demand. To address this significant challenge, CAESB has carried out major institutional development and investment programs, such as the ones described below. First, it has undertaken important programs to improve its efficiency. CAESB is currently one of the three most efficient Brazilian water utilities, according to the WB-financed PMSS program. Water service is delivered to 99 percent of the population and water loss (UFW), is only 24 percent - one of the lowest in LAC. A subsidy program for low-income families is fully operational. Through this program, the DF government pays the bill for the portion of consumption below 10m3 for users meeting a set of criteria (such as users benefiting from the Bolsa Familia Program). Secondly, next year, CAESB will complete a large sanitation program, financed by the IDB, extending waste water collection to 87 percent of the population. - This program substantially expands wastewater treatment capacity in order to process the total wastewater collected. Most of the wastewater treatment plants (15 in total) include tertiary treatment due to the rivers limited dilution capacity. Thirdly, CAESB is already expanding the water supply production systems to meet the increasing demand. The Corumbi IV reservoir, currently under construction to generate energy and increase water production, is a major element in this expansion program. This reservoir, located in the state of Goiis, is fully financed by the private sector. The GDF and Goiis have reached an agreement on joint use of this asset. On the basis of this agreement, the DF is initiating a bidding process for a 30 year-bto contract to construct and operate a water treatment plant using the Corumbi IV reservoir. CAESB will buy water from the private company executing this BTO contract to help meet the water supply needs of the DF population. 5

10 CAESB is also taking steps to provide services beyond the DF territory. The entorno region is currently one of the major sources of contamination threatening the DF water resources. Moreover, tackling the lack of a reliable water supply and sanitation services is one of the priorities of the entorno urban area. To respond to this challenge, CAESB is preparing an investment program to improve the W&S services in three cities located in the State of Goiis, which are the major pollution sources of the DF s existent and future water supply reservoirs. One of these cities, Aguas Lindas, pollutes the Descoberto Reservoir, the major water supply reservoir in the DF. Together with two others cities - Santo Antonio and Samambaia - they are contamination sources to the future Corumbi IV Reservoir. The Public Prosecutor s Office and IBAMA have declared that the environmental license to allow Commb6 IV to operate will be issued once the pollution impact from these cities has been addressed. To meet this requirement, the Caixa Economica Federal (CEF) has approved a US$ 50 million loan to the GDF. The proposed Bank loan complements this investment. Together, these integrated operations constitute the Brasilia Environmentally Sustainable Project. In parallel, CAESB in association with the Goiis Water Utility Company (Empresa de Saneamento de Goids - SANEAGO), is creating a new company, the Brazilian Water Environmental Company (Compania Ambientul de Aguas Brasileiras - CAAB) to improve water, sanitation, drainage and solid waste service in the Entorno region. To increase the water supply to the Entorno, CAAB will buy water from Corumb6 IV - which will be its primary water source. Effective metropolitan action already being implemented: Reducing the pressure of urban expansion arising from the Entorno region is a priority for the DF government. Building Corumb6 IV and financing urban environmental services to the Entorno are strong indications of the GDF s priorities and represent a symbolic initiative for the metropolitan region. There is no other public sector project of this size and it represents a bold innovation in terms of investment and institutional arrangements. The proposed investment would be provided by CEF and the World Bank, as described above. In terms of institutional arrangements, (i) CAESB and SANEAGO established a consortium, to which the Municipality of Aguas Lindas granted a W&S concession contract, to provide institutional support for the initial investment in Aguas Lindas, and (ii) the future services extension to the Entorno would be provided by CAAB, which is in the final stage of being set up. The Entorno s Municipalities will be Image 1: The DF and the 22 municipalities that make up the RIDE stakeholders in CAAB. Furthermore, the Federal Government is preparing a project proposal to request external financing to improve basic services in the Entorno. CAAB sees this as an additional window of opportunity for expanding its area of coverage, since the burden of financing the substantial investment shortfall would be covered by Federal Government grants. By helping to improve living conditions in the Entorno, the GDF is seeking to achieve two major 6

11 goals: first, to reduce the pollution threat to its water resources; and second, to increase the Entorno s attractiveness to new urban settlements in order to reduce the pressure of urban expansion in the DF territory. GDF Policy on slums and Vila Estrutural: The GDF s policy for addressing unregulated lowincome settlements has historically been to demolish houses and resettle the population in regularized subdivisions, where basic services are gradually introduced. As a result, the DF has a lower percentage of population living in slums (3.5 percent, or 80,000 people), than any other Brazilian metropolitan region. These slums are spread over 63 areas, of which only 10 percent have more than 300 houses. Vila Estrutural, with 6,500 families, is by far the largest and most critical settlement, in both social and environmental terms. Its explosive growth dates from the early 199Os, when a group of waste pickers built the first houses alongside the solid waste landfill. Its privileged location - only 7 km from Plano Piloto - is part of Vila Estmtural s attraction for settlers. Previous DF governments have tried to demolish the settlment without success, with one such attempt triggering street clashes resulting in four residents deaths. These events led to the alternative of upgrading the Vila Estrutural as an exception under GDF policy - a solution made easier by the fact that GDF owns the land. In 2001, Vila Estrutural was declared a Residence Zone of Social Interest (Zona Habitacional de Interesse Social - ZHIS), thus providing the legal underpinning for the upgrading alternative and for bringing regular water supply, education and health services to the area. The definitive area upgrading plan is currently being assessed and will be implemented once the environmental license is issued. Vila Estrutural has the region s highest crime indicators. Some families report that they were forced to leave their houses by criminals who then sell the houses at a profit. The Government pays for transport to take children to schools in other neighborhoods; however, the children suffer a great deal of discrimination in these schools, mainly from children and parents from the nearby host neighborhoods, for they are regarded as delinquents. Vila Estmtural is also a challenge from a social and environmental perspective: It borders the Brasilia National Park - which is a major Cerrado protected area located within the urban perimeter - significantly impacting the park and altering the Cerrado s flora and fauna. Also, Lake ParanoB, a major Brasilia landmark, is also affected, as the community produces the major pollution load draining into the lake. As part of the process to regularize Vila Estrutural, the GDF is undertaking several actions. Two years ago, a full Environmental Assessment (EA), utilizing a highly participatory methodology, was initiated to propose and assess the upgrading option. The EA will be reviewed by IBAMA as part of the process of issuing the environmental license that will regularize the upgrading solution. The alternatives being considered require significant environmental mitigation action. To improve public administration in the area, GDF has created a regional administration specific to Vila Estrutural, with offices located within the settlement. More recently, an integrated institutional coordination body was established to increase the government presence in the area. In addition, an ordinance survey map is being developed to freeze the area of occupation and provide input for urban design and resettlement options. The DF plans to complete the upgrading design before the Brasilia Environmentally Sustainable Project becomes operational and carry out the civil works during the first year of implementation. The design phase will adopt the upgrading participatory methodology applied in 7

12 several Bank-financed projects (e.g. S5o Paulo-Guarapiranga, Prometropole, Prosanear). Two major aims are sought: improving the quality of life and mitigating environmental impact. Improving the quality of life by providing basic services i s not a major technical challenge, due to the flat topography and existing street network. However, a major effort will be needed to improve social capital through an integrated citizen assistance program, based on innovative approaches that create community safe spaces and deliver education, health, and promote income generation, together with youth and leisure programs. DF solid waste collection and disposal services: Solid waste collection and disposal services in the DF are provided by a private company under a five year contract. The overall quality of services is satisfactory, decreasing in areas lacking regular urban planning and infrastructure. The most obvious weakness is solid waste disposal. The Federal District collects 3,000 to 3,500 tons of solid waste per day; about 50 percent of this waste (1,600 tons) - comprised of mixed municipal solid waste, excluding construction debris - are disposed at the 200 hectare Joquei sanitary landfill, the official DF land disposal site for the past 35 years, located between the Brasflia National Park and the large slum of Vila Estrutural. The remaining 50 percent comprise construction debris disposed in specific land fill sites, recyclable material, and organics processed in the composting units. Most of 200 hectares has already been used and covered with soil and vegetation, showing no compliance with rigorous technical criteria. The open waste cells - about 50 hectares - suffer from poor construction solutions and operational procedures. The dump only receives periodic soil cover, which is undertaken after spreading and compaction of the waste. The site is not graded to minimize percolation of rain water, drainage is not well managed, leachate is not appropriately collected or treated, and gas is insufficiently managed. The poor design and management resulted in shortening the site operation lifetime, with studies estimating the site would continue to be operational for only 2 more years. The current service provision contract will expire in October The bidding process for selecting a new provider is under way. However, closing the current dump and opening a sanitary landfill site cannot be included in this bidding process because several measures required in order to obtain an environmental license are pending. An EA defining the technology for closing the dump and another EA evaluating five optional areas for the sanitary landfill site have been carried out and sent to IBAMA for review. Due to the significant positive environmental impact of these works and their link with the Vila Estrutural improvements, the DF decided to bring them under the aegis of this project. The DF also feels the project preparation is allowing for positive dialogue with IBAMA and creating a constructive environment for proposing alternatives and working towards solutions on the main environmental issues of the DF. Solid waste waste pickers and collectors in the DF: There are approximately 750 waste pickers working at the Joquei landfill, of which 85 percent participate in a cooperative denominated Environment. Those that do not participate sell their production to this cooperative or to independent buyers. The cooperative and the independent waste pickers are part of a national solid waste collectors organization denominated Solid Waste and Citizenship Forum. This Forum, comprises of other local organizations, is discussing with local authorities projects to address their needs, following strategies established at the national level. The Ministry of Cities 8

13 is the authority chairing the national dialogue, whereas the representatives from the Ministry of Cities represent the GDF in the local dialogue. The dialogue promoted by the GDF involves all the waste collector cooperatives in the DF, which are organized in 10 cooperatives. There approximately 1,800 waste collectors in the DF, of which 80 percent participate in these cooperatives. These entities have agreed upon a project with the GDF that would allow them to continue with their current job but under better conditions, both in terms of health protection and revenue generation. Three of these cooperatives, amounting to 450 participants, work in existing recycling centers. The others collect from specific neighborhoods such as public buildings. As a result of this dialogue, it was agreed that the GDF would provide nine areas for the construction of an appropriate establishment that would improve the waste pickers activities. These areas are already being assigned to the cooperatives, with the national development bank (Banco Nacional de Desenvolvimento Econdmico e Social - BNDES), financing US$2.5 million for the building and equipment. The alternative offered to the waste pickers includes construction of an establishment and provision appropriate equipment to allow them to continue their activity after the landfill closure, but under more adequate social and technical conditions. A more profound and definitive discussion will take place once two strategic steps are achieved: (i) the solid waste master plan under preparation presents alternatives for improving the sector efficiency and solutions for the population living from the solid waste; and (ii) the studies being carried out identify the appropriate location for the new sanitary landfill. The cooperatives involved in the dialogue already expressed acceptance of this alternative, in which positive aspects raised include personal independency provided by this type of activity and the possibility of reaching average revenue far superior to what the formal job market would offer. DF environmental areas and ZBAMA s licensing role: Most of the DF s Environmental Conservation Units were created in the 1960s, being among the first environmental areas designated by the Federal Government in all of Brazil. Many others were created during the 80s and 90s, covering 64 percent of the DF territory with the primary purpose of protecting water resources. In addition to these protected areas, in 2001, the Federal Government created the Planalto Central environmentally protected area, which covers almost the entire DF territory and part of GoiBs. From the institutional stand point, the implications of the creation of this new environmental unit are extremely important. In practical terms, environmental licensing powers were removed from the DF and transferred to a federal institution - TBAMA (more precisely, to the regional section of IBAMA in charge of the Brasflia region). This is the only instance in Brazil where a federal agency regulates initiatives that fall under the mandate of the state, as defined in the National Environmental System and the Constitution. In fact, its environmental licensing powers are so broad that IBAMA is the main regulatory body on urban development in the DF. The peculiarity of the environmental institutional framework in the DF has profound implications for the processing of environmental licenses for investment programs. These implications are particularly acute for operations under the Brasilia Project, such as the Vila Estrutural upgrading and the construction of the new sanitary landfill site. Any alternative 9

14 solution for Vila Estrutural requires that major environmental issues be addressed due to its proximity to the National Park. The complexity of the Brasilia Environmentally Sustainable Project: Institutional issues are the main challenge for the project proposal. They are of two orders: First, implementation of the institutional component is a challenge in itself since it must deal with the complexity of a metropolitan region. Second, the complexity of the environmental institutional framework may create difficulties for the project implementation process, since obtaining the necessary environmental licenses may require significant effort and time. This institutional complexity has already impacted on the project preparation for Vila Estmtural and for the solid waste sanitary landfill site. Only the full environmental assessments have been prepared so far. The chart below summarizes the progress achieved prior to appraisal and the next steps. The chart includes reference to the environmental licenses that have to be obtained in order to progress project implementation, which are: the LicenCa Privia (LP) covering the design phase; the Licenqa de Instalaqiio (LI) authorizing the civil works bidding process; and the Licenqa de Operaqgo (LO) authorizing the commencement of infrastructure building work. Image 2: Project Area of Influence and the Key Intervention Areas 4. Project Components description Component 1: Policy and Institutional Development (US$7.6 mil) The main objective of Component 1 is to support institutional strengthening and technical assistance for the enhancement of the technical and institutional environmental enabling the GDF to undertake informed decision-making with respect to metropolitan issues, especially for promoting a more sustainable urban and environmental development. The outcomes of this component will also be fundamental beyond Brasllia and the Entorno region, as the other Brazilian metropolitan regions face similar development challenges. The institutional strengthening and technical assistance will focus on three key metropolitan development issues: (i) Territory Development and Land Management; (ii) Environment and Water Resource 10

15 Management; and (c) Environmental Sanitation Management. The activities will be executed by SEDUH, SEMARH, IBAMA, ADASA, BELACAP and CAESB, as specified below: Subcomponent 1.1. Territory Development and Land Management (US$2.6): This subcomponent encompasses four main thematic areas related to territory, urban, housing and land use policies and institutional enhancement. By developing studies and providing institutional capacity on these themes, the project expects to make available strategic technical instruments and institutional assets to SEDUH so it can address key metropolitan and local urban development challenges. The four main thematic areas are: Provision of technical support to improve territory and urban development policies; Development updated management technical tools for territory and urban development; Assessment of institutional arrangements for territory and urban development; Enhancement institutional knowledge capacity for territorial and urban development. Subcomponent 1.2. Environmental and Water Resources Management (US$3.9 mil): This subcomponent addresses six thematic areas related environmental and water resources management. By developing studies and providing institutional capacity on these themes, the project expects to make available strategic technical instruments and institutional assets to SEMARH and IBAMADF to address key metropolitan and local urban development challenges. The seven thematic areas are: Provison of technical support to improve environmental management policies; Development of information systems for environmental management; Enhancement of institutional knowledge capacity for water resources management; Development of strategic planning for environmental licensing and enforcement including; Development of strategies to protect the federal conservation units in the DF territory; Provision of technical support to improve water resources management policies; and Development of updated information systems for water resources management. Subcomponent 1.3. Environmental Sanitation Management (US$l.O mil): This subcomponent, be executed by CAESB, addresses four thematic issues related to environmental sanitation services. By developing studies and providing institutional capacity on these themes, the project expects to make available strategic technical instruments and institutional assets to BELACAP and CAESB to address key metropolitan and local urban development challenges. The four thematic areas are: Provision of technical support to improve solid waste policies and management capacity; Enhancement of institutional knowledge capacity for solid waste management; Provision of technical support to the institutional, technical and legal framework of CAAB; and Provision of support to CAESB to conclude its environmental certification system. Component 2: Social Inclusion and Poverty Reduction (US$31.4 mil) The main objectives of Component 2 comprise reducing poverty and promoting social inclusion in localities presenting critical social conditions, coupled with actions to abate water resource pollution loads. These objectives will be achieved through (i) an Integrated Development Project for Vila Estrutural; and (ii) Social and Technical Support to the Joquei Clube Solid Waste Landfill Waste pickers. 11

16 Sub-component 2. I. Zntegrated Development Project for Vila Estrutural (~$29.9 mil). This subcomponent is comprised of two activities: Vila Estrutural Integrated Development Project: Planning, Technical Designs and Community Participation: The main objectives of this activity are to: (i) Improve the living conditions in Vila Estrutural, (ii) Insert the community into the regular city planning and services, and (iii) Mitigate the environmental degradation in surrounding areas, including abatement of pollution loads discharged on creeks and rivers, reverse damages in the National Park, and restore the connectivity of the biome Cerrado in the area. SEDUH, with the participation of CAESB, NOVACAP, BELACAP, ADS, SEMARH, and IBAMA/DF, will play an important role of coordinating this multisectoral task. The technical designs for Vila Estrutural Integrated Development Project will address the following issues: (i) Development of alternatives for improving local governance; (ii) Proposal for improvements of social services such as education, health, income generation and youth development; (iii) Development of technical alternatives for improving basic services including water, sewerage, drainage, streets network, paving, solid waste collection, effective household sewerage connection and sewer pits closure; (iv) Development of technical alternatives to improve Vila Estrutural s urban design, including land use and construction regulations, and recreational areas; (v) Development of a Resettlement Plan; (vi) Development of a technical proposal for environmental rehabilitation and protection, including improving the riparian vegetation of the Vicente Pires stream, developing land use regulation for the Val0 stream banks, creating an urban park and a buffer zone contiguous to the National Park and the FLONA boundaries, and creating the biological corridors liking the National Parks to the Vicente Pires and Val0 streams) Vila Estrutural Civil Works and Participation Activities: This activity entails the execution of the civil works and community participation activities proposed by the Planning, Technical Designs and Community Participation tasks carried out for the Vila Estrutural Integrated Development Project. Subcomponent 2.2 Support to the Joquei Clube Solid Waste Landfill Waste pickers (US$1.4) Development of a Social Inclusion Project for the Joauei Club Waste pickers: The project will finance technical assistance, social activities, and investments needed to improve the working and social conditions of the waste pickers of the Joquei Club solid waste landfill. The main activities to be developed based on the social and technical assessment carried out include: a. Technical support activities: Update a thorough assessment of the waste pickers social and economic conditions; Provide social works to support the waste pickers in their dialogue for an appropriate solution and development of a working plan; Assessment of the capacity of existing recycling units to receive waste pickers coming from the landfill; Interaction with the technical staff preparing the solid waste master plan to discuss recycling programs being proposed and possibilities of involving the waste pickers; Assessment of other opportunities offered by the 12

17 solid waste collection and disposal services (recycling centers, street cleaning, solid waste transportation). b. Social support activities: Improve self-esteem and confidence in the dialogue with the public sector and the project; Reduce the number of guns owned; Provide formal personal documents; Improve cooperative organization; Provide job skills training; Support informed decision making with respect to selling prices; Support hygiene education programs; and provide support to families through social development programs, schooling, and health assistance, and youth development programs Execution of the Social Inclusion Proiect for the Joquei Club waste pickers: This activity includes the execution of the social and technical support activities, as well as civil works and provision of equipment, as proposed by the social inclusion project. Component 3: Water Resources Protection (US$71.5) The main objective of Component 3 is to execute activities that will abate water resource pollution loads and improve the quality of life in the communities of Aguas Lindas and Vicente Pires, as well as protect the Brasflia National Park through solid waste disposal activities Improving sanitation services in Aguas Lindas (US$33.6): This activity, under the responsibility of CAESB, involves improving the sanitation services through the execution of the following civil works: 630 k ms of condominium sidewalk sewers, 830 k ms of public sewers, 11 pumping stations, 10 kms of interceptors, and one single sewer treatment plant (WTP) (secondary treatment). The treated wastewater produced by the entire Aguas Lindas population would be discharged into the Rio Verde, since both the Descoberto and the Areias Rivers are used for water supply Improve Water and Sanitation Services in Vicente Pires (US$19.4 mil): This activity, under the responsibility of CAESB, includes civil works to improve the sanitation services to an estimated 80,000 residents until the year The sanitation system would built 72 kms of sidewalk condominium sewer, 11 kms of public network and interceptors, and 2 pumping stations. This system will be connected to an existing one which includes an STP (North STP, tertiary treatment) Closure the Joquei Club Solid Waste Sanitary landfill (US$ 8.3 mil): This activity, to be executed by BELACAP, includes financing the technical designs for the Joquei Club solid waste sanitary landfill closure, and the civil works and equipment according to the technical designs. The preliminary technical alternatives being considered for closing the sanitary landfill include: (a) amplification of the existing leachate collection basin and drainage system; (b) implementation of ground water quality monitoring systems; (c) drilling and implementation of a sanitary landfill gas venting system; (d) complete sealing of the sanitary landfills; (e) greening and reforestation of the area; (f) superficial drainage system, and (g) other investments to ensure a proper closure to avoid any further environmental impacts. 13

18 3.4. Construction of a solid waste sanitary landfill (US$3 mil): This activity, to be executed by BELACAP, will finance civil works to construct a solid waste sanitary landfill for the DF, including appropriate equipment, according to the technical designs that will be developed subsequently to the environmental assessment approval Rehabilitating environmentally degraded areas (US$2.2 mil): This activity, to be executed by SEMARH, will finance the development of technical designs and the execution of works to rehabilitate environmentally degraded areas in the two critical river basins - Descoberto and ParanoB - targeted by the project Waste water sludge treatment (US$5.0 mil): This activity, to be executed by CAESB, will finance equipment that will allow the final disinfection of the sludge produced by the two DF waste water treatment plants using tertiary treatment levels. Component 4: Project Management, Monitoring and Evaluation (US$3.9) The major objective of this component is support the appropriate technical, administrative and financial management conditions to ensure an effective project implementation and achievement of its development objectives. 4.1, Consultancy sewices for assisting project management (US$3.9): This activity will finance contracting a consultancy firm with expertise in managing internationally financed development projects, to assist the Project Management Unit (PMU) in ADASA. The consultant firm will perform the broad specialized tasks needed for managing the multisectoral project activities, including monitoring and evaluation, social communication, auditing and enhancing CECAP. The table below details the resources allocated to each component and their source of financing: Table 1: 1. Policy and Institutional Development 2. Social Inclusion and Environmental Protection 3. Water Resources Protection 4. Project Management Total project costs Non-allocated Front-end fee Total financing required Soject Components Indicative Costs (US$M) o % of Total Bank-financing (US$M) % Bank financing I 57.6 I Lessons learned and reflected in the project design The Brown Environmental Agenda (BEA): The Bank has financed state and municipal projects over a number of decades in Brazil with the dual objective of reversing the lack of basic urban services and of combating the resulting negative impacts on the urban environment and on 14

19 quality of life for city inhabitants. Traditionally, these projects were restricted to specific sectors. A first generation of Urban Water Quality and Pollution Control (PQA) projects, implemented in the 1990s, demonstrated the importance of adopting integrated and multi-sectoral approaches to the problem of urban poverty associated with water quality and pollution control in the urban river basin setting. One key intervention of the PQAs was the urbanization of slums and the improvement of irregular settlements that are major contributors to the domestic pollution of urban water bodies. These projects provided key lessons such as the importance of: (i) sound legal and institutional agreements to promote appropriate relationships between state and municipal governments to enhance project implementation stability and minimize the impact of political changes; (ii) regional and metropolitan issues when addressing the BEA at the local level; (iii) effective subsidy mechanisms to ensure good service quality and financial sustainability; and (iv) integrated basic service provision in densely populated and high risk areas, especially those along river courses where the poor invariably settle, in order to improve the living conditions of most vulnerable communities while reducing urban water pollution. Social Inclusion. Recent experience and analysis indicate that, together with conventional poverty reduction programs, special measures are needed to include the most excluded populations. Important aspects of such measures are: (i) the geographical targeting of pockets of poverty, that have not been reached by conventional programs because they are in high environmental risk areas (flooding, landslides, etc.) occupied by families with no regularized land titles; (ii) ensuring that populations such as women, youth, racial and ethic minorities are systematically included in such programs and have equal access to services and opportunities; and (iii) ensuring that institutional mechanisms recognize the citizenship rights of poor populations, including their access to information and to participate actively in the design, implementation and evaluation of development programs targeted to them. A major outcome of such inclusive social policies has been to increase both the human and social capital as well as the economic opportunities of poor populations. 6. Alternatives considered and reasons for rejection Forced resettlement in Vila Estrutural - Removing the entire population of Vila Estrutural to a new area provided with basic services, following the DF policy for low-income invaded areas, was considered. However, the following aspects impeded the adoption of this alternative: severe urban land scarcity within the DF (only 4 percent remain for urban expansion); long distance of lands owned by the DF in the state of GoiBs; and population conflictive disagreement in being displaced. Deferring investment in Aguas Lindas -Waiting for Saneago or the Municipality of Aguas Lindas to undertake the provision of basic services to the area was also considered. However, due to the poor quality of existing basic services, the lack of local investment capacity to improve these services, and the intensity of the water resource pollution, which put at risk the Descoberto Reservoir, the DF decided to finance these investments. 15

20 C. IMPLEMENTATION 1. Institutional and implementation arrangements The project will be executed by Federal District Water Resources Agency (ADASA), in which a project preparation unit has been created, taking advantage of the existing unit executing the IADB-financed project. This unit has already been formally established and will become the Project Management Unit (PMU) for the execution phase. This unit will coordinate and supervise actions with the nine co-executing agencies, which include: CAESB, SEDUH, SEMARH, ADS, SO, SECAP, BELACAP, NOVACAP and IBAMA/DF. The overall coordination will be carried out by ADASA, whose president will serve as the project s general coordinator. Formal agreements defining objectives, expected results, implementation timetable, monitoring, implementation reports, and resources involved establish the responsibilities of each co-executing agency. ADASA and each co-executing agency will sign its respective agreement. The PMU will be constituted by GDF staff with the following specific tasks; one project executive coordinator, one financial management specialist, one administrative specialist, one procurement specialist and representatives from each co-executing agencies. The PMU will be supported by a management consulting firm that will provide technical expertise and trained specialists in implementing projects financed by international multilateral development agency. 2. Monitoring and evaluation of outcomeshesults The project Monitoring and Evaluation (M&E) system will require three sets of information: (a) gathering water quality data for a group of rivers benefiting from the project intervention; (b) evaluating the urban standard achieved in Vila Estrutural and Aguas Lindas in order simulate the amount of phosphorus abated; and (c) registering the project results achieved per activity. The PMU and CAESB will be responsible for implementing the project M&E system. CAESB already monitors the DF rivers water quality through an efficient monitoring system, and has agreed to provide timely information to the PMU with respect to the water quality of rivers that will benefit from the project. The second item will be achieved by an assessment at the end of the interventions proposed for Vila Estrutural and Aguas Lindas. The existing Water Resource Master Plan provides the comparative baseline for this ex-post assessment. The third item will be covered by the regular project implementation monitoring under the PMU s responsibility. 3. Sustainability Two key aspects enhance the project s sustainability potential. First, the client s commitment to this project is extremely high. It has prepared a sound Carta Consulta, which has been reviewed and approved by the Federal Ministry of Planning, through SEAIN/COFIEX. The FD has explicitly made the choice of financing the Brasilia Environmentally Sustainable Project through the World Bank. Traditionally, the FD s external financing partner has been the IADB, which has financed major infrastructure such as the sanitation project and a large transportation project currently under preparation. This choice results from the project s nature, which has a stronger focus on institutional complexity, as opposed to a hard infrastructure emphasis. The second key aspect that enhances the project s sustainability i s the FD s strong fiscal capacity. Counterpart funds flow is assured. Additional reinforcement is provided by CEF, which jointly with the 16

21 Ministry of Cities, has approved major financing for Aguas Lindas. This financing will complement the FD s counterpart funds. One aspect that has the potential of delaying the project implementation constitutes the complex environmental institutional framework ruling the issuing of environmental licensing. All the project steps for implementing the investment components are conditioned on the approval of IBAMA. Also, political interferences may play an important role in the project execution. 4. Critical risks and possible controversial aspects The following are the project s potential risks project and mitigation measured to address them: Investments are not satisfactory concluded due to technical inconsistence PMU will be assisted by high quality staff L To Components Component I: Failure in developing and executing high standard TRs Component 11: Delays caused by the complex environmental licensing arrangement Component 111: Delays caused by the complex environmental licensing arrangement Project includes hiring highly qualified consultants for preparing TR, and assisting the DF Project preparation has build an intense relationship with regional Ibama, which express its fully support to the project objectives Project preparation has build an intense relationship with regional Ibama, which express its fully support to the project objectives L H H 5. Loadcredit conditions and covenants The following have been established as Conditions of EfSectiveness of the project: (a) the Borrower has adopted an Operational Manual; (b) the PMU has been established in form and substance satisfactory to the Bank; (c) the Financial Management System has been established in a manner satisfactory to the Bank; and (d) the Governor s Decree, which delegates to ADASA the responsibility to cany out the Project on the Borrower s behalf, under terms and conditions satisfactory to the Bank, has been signed; and that the CAESB Agreement and the Executing Agencies Agreements (Conv2nios) have been signed. D. APPRAISAL SUMMARY 1. Economic and financial analyses, The Brasflia Sustentivel Program has two branches of intervention: (i) the reduction of regional inequalities, particularly through the sustainable use of scarce natural resources such as water resources; and ii) assistance to selected investments that will simultaneously diminish pollution levels that threaten strategic bodies of water and benefit areas that are currently marginalized. The principal benefits of the Brasilia Sustainable Program are related to the improvement of environmental quality in the Federal District and the surrounding area (entorno), and the 17

22 improvement of health and quality of life for the urban populations of the municipality of Aguas Lindas, in Goias, and the populations of Vicente Pires and Vila Estrutural. The Program would specifically reach about 175,000 low-income residents of Aguas Lindas and Vila Estrutural. Particularly, the program would also contribute to the preservation of two important sources of potable water and recreation in the D.F.: (i) the lake formed by the dam on the Rio Descoberto, which supplies water to nearly 65% of the D.F. (about 1.34 million people); and (ii) the Paranofi lake, which constitutes a reserve source of potable water and recreation center. Specifically, the Project's benefits are: (i) improved water quality in the principal sources for the D.F., reducing water treatment costs and avoiding contamination and long-term compromise of these sources; (ii) improved water quality of the Paranoa lake for recreation and leisure; and (iii) expanded delivery of potable water, sewerage collection and treatment in the D.F. and the entorno. The Economic Internal Rate of Return (EIRR) of the Program is estimated at 21.2%, with a net present value (NPV) of R$168.9 million, confirming the viability of the proposed investments. The EIRR and NPV results for seven investment subprojects assessed are presented below. A project horizon of 20 years is assumed. Investment Components Vila E&%-al-Microdrainage and Paving I I I 13.8% The financial analysis was conducted with the objective of assessing project investments in terms of their viability and to determine the need for subsidies for those components with less than full cost recovery as required for operation and maintenance over the project horizon of 20 years. Revenue generation from investments in water supply and sanitary sewerage were estimated using the actual tariff structure used by CAESB, which will be responsible for the management of these investments. Revenue from draining and pavement investments in Vila Estrutural were estimated based on expected collection of IPTU. In the case of the restoration of the sanitary Joquei Clube sanitary landfill and the construction of the new sanitary landfill, carbon credits were factored into the estimation of revenue. Overall cost recovery is estimated at 63.4% of the total program cost, with a negative NPV of R$182.8 million. Incremental fiscal revenue overall from the project is estimated at R$ 30.4 million, against a required subsidy of R$75.7 'million. 18

23 Investment Aguas Lindas-Sewerage Collection Vicente Pires-Sewerage Collection Vila Estrutural-Sewerage Collection Vila Esturural-Microdrainage and Paving Total Present Value (R$ million) Fiscal Net Subsidies Revenues Revenue Technical The project is technically sound. The project objectives and components respond to the main priorities raised by the DF key planning tools, notably: the existing Territorial Management Plan (Plano de Desenvolvimento e Ordenamento Territorial - PDOT); the Water Resources Management Plan; and, the Environmental Sanitation Master Plan. These three key planning instruments emphasize the critical need of preserving the DF s water bodies - Descoberto Reservoir and Lake Paranofi - through a set of institutional and physical interventions that the proposed project encompass. The project physical investments have the following technical characteristics: Aguas Lindas: The main objective of this intervention is to abate pollution loads draining into the Descoberto Reservoir, by improving living conditions in Aguas Lindas, a low-income neighborhood. The executing agency is CAESB in consortium with the State of Goifis Environmental Sanitation Company (SANEAGO). To replace and improve the existing partial and precarious sanitation system, three alternative sewerage systems were considered based on costs and technical and environmental protection efficiency. The option selected was the condominial technology largely adopted by CAESB. Improving the sanitation services will entail the following works: 630 kms of condominial sidewalk sewers, 830 kms of public sewers, 11 pumping stations, 10 kms of interceptors and one single sewer treatment plant (WTP) (secondary treatment). The treated wastewater produced by the entire Aguas Lindas population would be discharged into the Rio Verde, since both the Descoberto and the Areias are used for water supply. The Rio Verde drains through a region with low intensity agriculture activities. The impact of this discharged has been simulated through a mathematical model (QUAL 2E) confirming that the water quality of the river will not be affected, the aquatic life standard will remain the same as well as the current water use alternatives offered. The selected waster water treatment technology consists of 6 ascending flow anaerobic reactors, 5 aerated lagoons and a disinfection unit using ultra-violet rays. The sludge generated in the process will pass through a system of mechanical dehydration and will be discharged into the sanitary sanitary landfill. A 25 hectares area owned by the water and sanitation company and located in an appropriate site is reserved for the WTP. It will be constructed in two stages, the first to serve a population of 135,000, and the second (2028) for a 270,

24 Vicente Pires: The main objective of this activity is to abate pollution load contaminating the Vicente Pires River, which drains to Lake ParanoB, by improving living conditions in this lowincome neighborhood through provision of improved water and sanitation services. Designs alternatives have been assessed. The condominia1 technology was selected. It includes the execution of civil works under the responsibility of CAESB. To improve the sanitation services by the year 2024 to an estimated 80,000 residents, the sanitation system would include 72 kms sidewalk condominia1 sewer, 11 kms public network and interceptors and 2 pumping stations. This system will be connected to an existent system which includes a STP (North STP, tertiary treatment). To improve water supply services, the existing system would be rehabilitated and extended through the construction of 330 km of pipeline network, 2 pumping stations, and 5 km of distribution pipeline. Solid waste landfill and sanitary landfill: The DF collects 3,000 to 3,500 tons of solid waste per day. About 50 percent of this amount (1,600 tons) are disposed at the sanitary landfill Joquei, the official DF s land disposal site for the past 35 years. The remaining 50 percent comprise construction debris disposed in specific land fill sites, recycle material and organics processed in the composting units. The Joquei landfill (200 hectares) receives mixed municipal solid waste, excluding construction debris. The landfill is located between the Brasilia National Park and the large slum Vila Estrutural. Most 200 hectares has already been used and covered with soil and vegetation, showing no compliance with rigorous technical criteria. The open waste cells (about 50 hectares) suffer from poor construction solutions and operational procedures. The dump only receives periodic soil cover, which is undertaken after spreading and compaction of the waste. The site is not graded to minimize percolation of rain water,.drainage is not well managed, leachate is not appropriately,collected or treated, and gas is insufficiently managed. The poor design and management resulted in shortening the site operation time life. Studies carried out estimated that the site would continue to be operational for 2 more years. The technical alternatives being considered for closing the sanitary landfill include: a. amplification of the existing leachate collection basin and drainage system; b. implementation ground water quality monitoring systems; c. drilling and implementation of a sanitary landfill gas venting system; d. complete sealing of the sanitary landfills; e. greening and reforestation of the area; f. superficial drainage system and other investments to ensure a proper closure to avoid any further environmental impacts. An EA has been prepared for the sanitary landfill closure, and i s under review by IBAMA/DF. Once the environmental licensing is issued by IBAMA, along with usual additional environmental recommendations, the technical designs will be concluded. In addition, the closure will be properly integrated to the provision of better alternatives for the waste pickers working in the area, as described above. The estimated costs for the closure of the sanitary landfill are estimated at US$4,5 million. These costs would increase to US$ 5,4 million if forced sanitary landfill gas collection systems, including flares, are added. The construction of a new sanitary sanitary landfill is considered the most appropriate solution for a large quantity of the solid in Brasilia. A siting study for the new sanitary landfill is being finalized, analyzing environmental impacts of 3 different sites close to Ceilandia and one in Gama (all within the Federal District). This study evaluates the four options and rates the criteria. It is currently being analyzed by the relevant agencies in the Federal District (SEMARH and 20

25 Belacap) and IBAMA. The new sanitary sanitary landfill to be constructed and operated by a private concessionaire should include several items to be elaborated in subsequent studies, such as geotechnical studies, superficial drainage systems, liners, leachate treatment systems, internal leachate and gas drainage systems, protection belt around the sanitary landfill, flares, gate control and weighbridge etc. The gas collection system will use state-of-the-art technology. The sanitary landfill uses cells coated with an impermeable high-density polyethylene membrane; water residues will be channeled and treated in a waste water treatment plant. Sanitary landfill gas will be collected and channeled to the flares. Vertical wells will be used to extract gas, and their spacing is optimized, aiming at maximizing gas collection and minimizing costs. Gas headers will be designed as a looping system in order to allow for partial or total loss of header function in one direction without losing the gas system functionality. In order to ensure the sustainability of investments improvements proposed above, the project will also finance institutional improvements on the solid waste institutional framework. The project contribution on the institutional front includes financing: developing the solid waste master plan; preparing the sector s regulations based on the master plan recommendations; and, supporting building technical capacity on the solid waste sector. 3. Fiduciary Both the financial management and procurement capacity assessments have been carried out and are filed in the project documents. The financial management assessment found that the project met Bank requirements. The assessment proposed the use of a financial management report and rated as low the financial management risk. Also, it found no major risks requiring special recommendations or actions. Finally, an action plan has been prepared. The procurement capacity assessment found that the DF has implemented projects similar to this one, and it has consistently applied rules for procurement of goods and services, adhering to Law 8666/93 or the procurements rules defined by the IADB. The risk associated with the lack of experience in dealing with Bank-financed procurement would be removed by training and support from a full-time procurement specialist. The project has been rated as average risk regarding procurement. 4. Social The project addresses critical social issues, such as poverty reduction in Aguas Lindas and Vila Estrutural. The integrated and multisectoral intervention proposed to Vila Estrutural will be based on a very participatory approach ratified by several Bank financed projects. Participation is meant to enhance social capital and strengthen community organizations. Enhancing community participation in local governance i s another major goal supported by the project. The intervention in Vila Estrutural will entail resettlement. However, since the intervention has not yet been designed, prior to appraisal only a resettlement framework has been developed. This resettlement framework has been prepared based on the upgrading design alternatives proposed by the EA prepare for Vila Estrutural. Based on these preliminary design alternatives, it is estimated that about 1,000 families will be removed and resettled within the Estrutural perimeter. 21

26 Consultations were undertaken during the EA preparation. Two public consultation events were held, as part of the EA for Estrutural and as part of the EA following the Bank s guidelines. 5. Environment A comprehensive Environmental Assessment (EA) was carried out, including a Resettlement Framework, according to the Bank Safeguard Policies (see Annex 12). The Project is of itself an environmental protection initiative that promotes sustainable metropolitan development. By addressing the major environmental issues in the Parano6 and Descoberto Watersheds, the quality of life in specific low-income settlements, and strengthening the DF environmental agencies, it is expected that the Project will have long-term positive impacts. As part of its objectives and design, the project has a strong environmental emphasis. It will strengthen the institutional capacity of SEMARH and regional IBAMA. The project will assist the DF in reviewing environmental policies and regulations. By drawing up an updated and comprehensive Water Resources Management Plan in correlation with the Territorial Master Plan, the project will improve natural resource management. The project investments will strongly reduce or mitigate social and environmental vulnerabilities and abate substantial pollution loads. It will also protect public health and the quality of life and the immediate environment of households by preventing contact with untreated wastewater. 6. Safeguard policies Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.01) [XI [I Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [I Cultural Property (OPN 11.03, being revised as OP 4.11) [XI Involuntary Resettlement (OPBP 4.12) Indigenous Peoples (OD 4.20, being revised as OP 4.10) [I Forests (OP/BP 4.36) [I Safety of Dams (OP/BP 4.37) [I Projects in Disputed Areas (OP/BP/GP 7.60)* [I Projects on International Waterways (OP/BP/GP 7.50) [I The Project triggers and addresses the following Bank safeguard policies: Environmental Assessment (OP 4.01); Natural Habitats (OP 4.04); Involuntary Resettlement (OP4.12); and Safety of Dams (OP 4.37). The Project design incorporates the mitigation measures for each policy, as described below: OP 4.01 Environmental Assessment (EA). In addition to the project specific environmental assessments required by Brazilian law, a comprehensive EA has been carried out in accordance with Bank policy for Category A projects. The mitigation and enhancement measures (including associated costs, responsibilities and schedule) are summarized in the Environmental Management Plan (EMP). [XI * By supporting the proposedproject, the Bank does not intend to prejudice the final determination of the parties claims on the disputed areas 22

27 OP 4.04 Natural Habitats. The Project will have a highly positive impact on biodiversity and natural habitats. Two APPs exist within the project area - the Vicente Pires and Val0 streams - presenting different levels of environmental degradation. The Project will finance the rehabilitation and protection of the riparian vegetation of these two streams, with measures covered in the EMP. OP Involuntary Resettlement. Only two interventions will require involuntary resettlement: (i) the Integrated Development Project to be carried out in Vila Estrutural, which will require the relocation of approximately 1,000 families, and (ii) the closure of the Joquei solid waste landfill, which will affect 700 the waste pickers who work in the area. The cost of all resettlement activities is estimated at US$9.5 million, and are 100 percent covered by the project budget. The other project activities will not entail resettlement as verified by the technical studies carried out for these activities. OPN 11.3 Phvsical Cultural Propertv. To comply with the Bank s safeguard policy on cultural property, Chance Finding Procedures will be included in all construction contracts. 7. Policy Exceptions and Readiness The project does not require any exceptions form Bank policies. In addition, the project meets the regional criteria for readiness for implementation, as set forth in the procurement and financial management assessments. 23

28 Annex 1: Country and Sector or Program Background BRAZIL: Brasilia Environmentally Sustainable Project Brazil - Main Environmental Issues Key environmental issues in Brazil relate to soil degradation, air, water and soil pollution, deforestation and protection of the Amazon rain forest, protection of the Atlantic Forest, the degradation of the central Brazilian savannas (Cerrado) and other fragile ecosystems. Problems with water supply, sewerage, and solid waste collection services beset also many smaller towns with scant financial and managerial capacity to address them. While overall access of Brazil s urban households to water supply service is high, at about 90 percent, coverage varies considerably from region to region and state to state, and quality differs dramatically from one part of a city to another. Some 56 percent of urban households are connected to a sewerage system and 16 percent have septic systems, but the unevenness of coverage is even more dramatic for sanitation than for water supply. Little of the collected wastewater is treated, adding to health hazards and environmental degradation, especially in urban areas. Coverage with water supply and sanitation is highest in the relatively affluent South and Southeast and lowest in the poorer states of the North and Northeast. A large part of the unserved population lives in periurban areas, slums (fizvelus), and smaller towns, with mainly lower-income populations. In few countries i s the national environment as crucial to development and people s welfare, and at the same time vital to a sustainable global ecology, as in Brazil. Among other things, Brazil has one third of all the tropical rain forest of the world, the largest reservoir of fresh water (20 percent), the second longest coastal line with over 8,500 km, and the savanna (Cerrado) with the highest biodiversity in the world. These natural assets are especially important for the poor for whom they constitute a significant share of their wealth. It is difficult to estimate the social costs of environmental degradation in Brazil. Rough estimates of such costs, focused only on a limited range of the consequences of environmental problems, indicate that they may be in the range of 1-4 percent of the country s GDP per year. This emphasizes the fact that environmental management and protection involve major welfare issues which go beyond simple amenity issues and small externalities. There are clearly direct welfare gains to be obtained from improved environmental conditions, particularly for the poor. The mainstreaming of environmental concerns in and with other sectors is another major challenge for the country. The approach of leaving environmental management almost exclusively to the environmental agencies led to an over-emphasis on command-and-control mechanisms, which tended to create attritions with sector ministries. The poor integration of environmental with sectoral and macroeconomic policies causes environmental aspects to be neglected or considered too late in project planning and sector policy design, leading to high transaction costs. Environmental decisions usually come after economic decisions have been made. In many parts of government resistance remains to incorporating such matters in the planning of core economic and sector decisions. Brazil has done a lot over the past two decades to improve environmental management at both the national and sub-national levels. The progress achieved during this period has stalled or even 24

29 reversed the trend of rapid environmental degradation in some key areas. Several key areas of intervention are currently high priorities, including: (i) increasing the transparency and accountability of the environmental management system (EMS); (ii) improving the effectiveness of the EMS through better coordination and clearer definition of responsibilities among the three levels of government; (iii) increasing the use of economic instruments compared to commandand-control mechanisms; (iv). improving water resources management through increased decentralization, improved local management and increased financial autonomy; and (v) promoting the upstream inclusion of environmental sustainability concerns in the planning and implementation of major development projects. Environment and Poverty The World Bank Environmental Strategy notes that, in general, environmental degradation affects the poor disproportionately. In the case of brown (pollution and urban) problems, a vicious cycle exists between urban congestion and polluted environments with poor socioeconomic conditions. Living in more polluted and inhospitable environments, the poor are at greater risk from air and water pollution, from flood and hillside erosion, and from other forms of congestion and pollution. They can also least afford to pay for preventive or protective health treatment for the impacts. For these reasons, pollution abatement programs, the provision of safe water and sewerage services in Brazil are pro-poor. A poor Brazilian child is six times more likely to die than a child born to a wealthy household; in the Philippines, the same ratio is two. Even air pollution, a relatively equal opportunity hazard, can generate air contaminant concentrations in poorer urban areas double those in richer ones (as has been found in Rio de Janeiro). * Environmental management decentralization According to the new Constitution of 1988, environmental management in Brazil is largely decentralized across the three tiers of government - federal, state and municipal. The federal government establishes the general guidelines and norms and provides enforcement through IBAMA; states and municipalities are responsible for supplemental legislation and its enforcement. The federal government has exclusive competence in certain fields - energy, minerals and mining, and indigenous peoples. In other areas, such as forests, biodiversity conservation, pollution control, and environmental liability, the competences are concurrent (i.e., the responsibility of the Federal Government to adopt general rules is supplemented by the responsibility of the states), although lower levels can only impose more stringent rules and standards than higher levels. States are responsible for implementing federal legislation, resolutions of CONAMA (including environmental quality standards), in addition to formulating and implementing their own policies, including licensing and control of resource use activities. Especially in the management of urban and pollution problems, states have long taken a lead in the country, notably S2o Paulo and Rio de Janeiro states. In practice, pollution management is A comprehensive study and discussion of the brown issues and how they affect the poor is contained in the World Bank report Brazil - Managing Pollution Problems - The Brown Environmental Agenda, 2 volumes, 1998, Report Nr BR 25

30 almost entirely handled by states. Although the Constitution assigns some environmental responsibilities to municipalities, apart from the largest metropolitan cities very few have actually developed capacity in environmental management. Municipalities are responsible for zoning, urban solid waste management and for noise pollution. They have recently been more active in requesting a greater participation in the system, particularly with regard to licensing. The water resources management system i s also highly decentralized. Environmental management instruments The choice of enforcement mechanisms is also largely left to the lowers level of government within the constraints of relevant national laws. In addition, environmental management in Brazil is largely based on command-and-control instruments. The four main being: Environmental quality and emission standards; Land use regulations; Environmental licensing; and Economic instruments. Environmental quality and emission standards are defined by CONAMA, although states can apply more stringent standards. Land use regulations. These include zoning and establishment of conservation units. Urban zoning is responsibility of municipalities, whereas ecological-economic zoning (ZEE) involves the states, municipalities, private sector and civil society, under guidelines and methodologies issued by the federal government. ZEE has not yet been widely implemented3. It may or may not have legally binding character. Traditionally, it has been considered by governments more as scientific data-collection and interpretation exercise rather than a political negotiation subsidized by technical work. Most importantly, zoning, where it has been completed, is rarely implemented, due to a lack of incentivating instruments beyond restrictive legislation, and lack of integration with regional planning. All three levels of government establish public conservation units. In addition, the Forest Code provides for the maintenance of natural vegetation cover in each private rural property as a legal reserve, ranging from as much as 80 percent of properties in the Amazon rain forest to 20 percent in other parts of Brazil. Environmental licenses have been introduced in the 1980s, and are at the core of environmental management. The Brazilian licensing system is probably the most advanced among developing countries. Public and private projects or activities considered to be potentially polluting or representing a risk for environmental degradation require licenses, and in some cases broader environmental impact assessments. Licenses are handled mostly by state environmental agencies. Municipalities or the federal government may be responsible, depending on the size, nature and location of the activity4. Environmental licensing is also mandatory for some fiscal benefits and credit entitlements. The licensing system is consolidated in Brazil, particularly for fixed sources, but infrastructure projects (roads, hydropower schemes, waterways, etc.) face serious uncertainties from licensing. A more detailed discussion of licensing is included in Annex VII. State-wide zoning was funded by Bank loans in the case of Mato Grosso and Rondonia states, but has also not been fully implemented. IBAMA, at the federal level, handles no more than 1% of licenses, which are often for large infrastructure (roads, ports, energy) projects. 26

31 Sanctions such as fines and compensations are imposed by environmental agencies at all levels. Prison sentences can be applied in case of certain environmental crimes. Agreements between a violator and the government authority and/or judiciary (TAC) provide a grace period to achieve full compliance. Fine levels have been revised upward, but are not high enough to motivate treasuries to collect. Many environmental agencies lack incentive to collect them, as they do not get a share of the resulting revenue. Application and collection of fines are complex, subject to long delays, and often not effective. Economic (market-based) instruments are few and have been applied more in order to raise revenues. Instruments to influence behavior are rare and only recently employed. The same is true for market creation instruments, such as tradable permits. As examples of economic instruments (related to forestry) there are (i) a reforestation fee charged on volume of timber exploited, to be paid in lieu of actual reforestation by owners (which is their first option), but the revenues are rarely used for that purpose; and (ii) a forestry tax in the state of Minas Gerais, applied on forest products consumed by industry, which finances the state s forest agency and has created incentives for reforestation and substitution of traditional fuels by charcoal. Environmental criteria have been introduced in several states into the rules of sharing state sales tax revenues among municipalities (ICMS Ecoldgico). In addition to criteria such as sale levels, population and agricultural land area, the percentage of areas under conservation, sanitation coverage and social parameters have been added in some states. Nine states have already established some kind of ICMS Ecoldgico and four states are currently introducing similar legislation. The instrument has created significant incentives for local governments to promote conservation. In a similar vein, federal revenues earmarked for transfer to the states (Fundo de Participaga o dos Estudos - FPE) could - but currently do not - incorporate environmental parameters as incentives to states to improve environmental management. Another example of economic instruments is the entitlement of firms that use recycled plastic material to a rebate of 15 percent of the tax on industrial products (law of 2002). Water charge is an economic instrument recently introduced as part of the new water resource management system. The legislation recognizes water as an economic good, to be charged for to achieve efficient allocation and raise resources for basin water resource management. River basin management councils are free to set prices, but must follow general principles including investment and rationing targets. A recent law has made it possible for ANA to delegate authority to basin committees and to assign water charge revenues to basin agencies. Tradable permits are virtually unused in Brazil. The Forest Code allows for trading of mandatory forest legal reserves obligations among land owners, which could reduce the overall opportunity cost of conservation, but this has hardly been implemented. There is substantial interest, however, of the private sector in benefiting from international trade with carbon credits. A first PCF-funded project (substitution of mineral coal by charcoal in pig iron production) is under implementation while a second6 (municipal land fills) is just starting. PLANTAR Project (P078571) in the State of Minas Gerais Nova Gerar in the State of Rio de Janeiro (P079182) 27

32 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies BRAZIL: Brasilia Environmentally Sustainable Project Sector Issues Projects Latest Supervision [mplementation Progress Water and Sanitation Water Resources Management BR-PE Stio Paulo, Paran6 and Federal Water Quality Projects (closed) BR-PE Water Sector Modernization Project BR-PE Betim Municipal Integrated Vot Yet Effective Not Yet Effective Urban and Municipal Development BR-PE State of Cearh Urban Development and Water Resources Management BR-PE State of Bahia Water Resources Management S - WRM component (ICR rating) S S - WRM component (ICR rating) S BR-PE State of Minas Gerais Municipal Development BR-PE State of CearA Urban Development and Water Resources Management S (ICR rating) S - Urban Component (ICR rating) S S (ICR rating) S - Urban Component (ICR rating) S BR-PE Recife Urban Upgrading Project Other Development Agencies BR- Municipality of Juiz de For a Urban Environmental Rehabilitation (IDB) BR- Municipality of Belo Horizonte DRENURBS (IDB) BR- Municipality of Porto Alegre Environmental Rehabilitation (IDB) Provide for Bank-financed projects only 28

33 Annex 3: Results Framework and Monitoring BRAZIL: Brasilia Environmentally Sustainable Project Results Framework PDO To ensure quality water resources to meet the growing needs of the Federal District and the Brasilia Metropolitan Region, through environmental planning and management activities, integrated with poverty reduction interventions and environmental rehabilitation in the most critical river basins. termediate Results Component One: Policy and Institutional Development Component will finance technical assistance and institutional strengthening in order to create an appropriate technical and institutional environment enabling the GDF to take informed decisions with respect to metropolitan issues especially for promoting a more sustainable urban and environmental development. Component Two: Social Inclusion and Poverty Reduction Component comprises activities to promote social inclusion and reduce poverty including: i) Integrated Development Project for Vila Estrutural, and ii) Support to the Joquei Clube Solid Waste Landfill Waste pickers me Indicators (a) Improved to IQA class 2 the water quality of the Vicente Pires and Descoberto rivers (see methodology described below); (b) Improved living conditions in Vila Estrutural by providing integrated urban environmental services measured by increasing the area Social Environmental Indicator (ISA) (see methodology described below); (c) Generated technical and institutional capacity contributing to the Brasilia metropolitan region development. esul Component One: cators for Each Component 1. High quality technical assistance provided 2. Well targeted institutional capacity activities carried out Component Two : i) Vila Estrutural Social Environment Indicator (ISA) improved (see methodology described below) ii) Joquei Club solid waste waste pickers working in improved social and environmental conditions. Use of Outcome Information Monitor project implementation progress toward achieving project objectives Use of Results Monitoring Component One: 1. High quality technical assistance activities successfully concluded in years 2-6 indicate building capacity 2. Well targeted institutional capacity activities concluded in years 2-6 indicate building capacity Component Two: i) Vila Estrutural Integrated Development Project successfully carried out 2) Social and technical support to waste pickers successfully carried out 29

34 Component Three: Water Resources Protection component will finance activities to i) abate water resource pollution loads in Aguas Lindas and Vicente Pires, ii) close the Joquei Clube solid waste landfill and construct a solid waste sanitary landfill Component Three: i) Aguas Lindas: # households connected to sewerage systems ii) Vicente Pires: # households connected to sewerage systems iii) Closed Joquei Clube landfill iv) Technically and Environmentally sound sanitary landfill constructed Component Three: Indicators demonstrate successful implementation of Aguas Lindas, Vicente Pires and solid waste activities MONITORING METHODOLOGY PROPOSED 1. Improved to IQA class 2 the water quality of the Vicente Pires and Descoberto rivers 0 IQA (water quality index as defined by the Brazilian National Environmental System) establishes that the Vicente Pires and Descoberto rivers must have a water quality classified as 'class 2'. This water quality class must be appropriate for the following uses: possible water supply for human consumption after conventional treatment; recreational purposes with primary contact; and, irrigation of vegetables appropriate human consumption even uncooked; 0 The following parameters will be monitored: PH, color, turbidity, conductivity, total dissolved solids, suspended solids, chemical oxygen demand (DQO), Dissolved Oxigen (DO), biological oxygen demand (DBO), Chlorites, total Phosphorus, Phosphorus-soluble, NO3 nitrates, NH3 ammonium, total nitrogen, total phosphorus, Sulfates, Sulfites, total and fecal Coliphormes; 0 For more than 30 years CAESB carries out a periodical monitoring of these indicators for the Vicente Pires and Descoberto rivers. CAESB will continue the monitoring activities and inform the project; 0 The Descoberto river monitoring includes the following monitoring points: Lajinha, Coqueiro, Queimado, Descoberto. The Vicente Pires river monitoring includes 3 monitoring points: 1 upstream and 2 midstream points. 0 The monitoring points are presented below: Descoberto River Monitoring. Point

35 Vicente Pires Reservoir Monitoring Points CAESB water quality monitoring system Descobertc -iver: Rocinha mor t data 06/05/ /17/ /27/ /30/ /20/ /11 / /12/ /23/ /13/ it data 06/05/ /17/ /27/ /30/ /20/ /11 / /12/ /23/ /13/ ::/I: ,

36 Iescoberto ver: Coc eiro mo int data 06/05/ /17/ /27/ /30/ /20/ /11/ /12/2004 I /23/2004 I i::: 04/13/ I ; : $ Improved living conditions in Vila Estrutural settlement by providing integrated urban environmental services measured by increasing the area Social Environmental Indicator for slums (ISA- F) The Social Environmental Indicator F (ISA-F: Indicador Socio Ambiental para Favelas) was developed for mesuring social and environmental condition in unregulated low income settlements denominated slums. The ISA-F derives from a broad ISA methodology used to monitor urban environmental improvements in a municipal territory. Specifics parameters have been included to enable the ISA-F to capture the socio environmental conditions found in slums areas. ISAF monitor 14 parameters including: water supply coverage; sewerage system coverage; solid waste collection coverage; drainage systems coverage; streets network coverage; geological and geotechnical safety; population density; energy services coverage; land tenure; street cleaning services; public lightning; areas for community use; income indicator; and education indicator. For implementing the ISAF methodology, an assessment will be carried out in Vila Estrutural prior to the project intervention in order to create the base line data. A second evaluation will be carried out at the project mid-term review. And a post-evaluation will be executed after the intervention in Vila Estrutural conclusion. 32

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39 Annex 4: Detailed Project Description BRAZIL: Brasilia Environmentally Sustainable Project COMPONENT 1: Policy and Institutional Development (US$7.6 mil) The main objective of Component 1 is to support institutional strengthening and technical assistance for the enhancement of the technical and institutional environmental enabling the GDF to undertake informed decision-making with respect to metropolitan issues, especially for promoting a more sustainable urban and environmental development. The outcomes of this component will also be fundamental beyond Brasilia and the Entorno region, as the other Brazilian metropolitan regions face similar development challenges. The institutional strengthening and technical assistance will focus on three key metropolitan development issues: (i) Territory Development and Land Management; (ii) Environment and Water Resource Management; and (c) Environmental Sanitation Management. The activities will be executed by SEDUH, SEMARH, IBAMA, ADASA, BELACAP and CAESB, as specified below: Sub component Territory Development and Land Management (US$2.6 mil) This subcomponent encompasses four main thematic areas related to territory, urban, housing and land use policies, and institutional enhancement. By developing studies and providing institutional capacity on these themes, the project expects to make available strategic technical instruments and institutional assets to SEDUH to address key metropolitan and local urban development challenges. The four main thematic areas are: Provision of technical support to improve territory and urban development policies, which includes three main thematic activities: (i) Updating of the territorial management plan for the metropolitan region (PDOT); (ii) Revision of the urban and housing development policy for the DF; and (iii) Development of improved institutional arrangements for metropolitan region coordination Development of updated management technical tools for territory and urban development, including: (i) Development monitoring and evaluation systems for the DF urban development plans; ii. Prepare Local Development Plans accordingly to the the Estatuto das Cidades requirements; iii. Develop simplified tecnical norms for urban subdivision projects; iv. Assess mechanisms to enhance governance levels in metropolitan management; and v. develop strategy to assist unregulated low-income settlements in the DF Assessment of institutional arrangements for territory and urban development including: i. Review SEDUH mandate and internal organization rules; and ii. Evaluate alternatives to strength the regional development coordination Enhancement of institutional knowledgement capacity for territorial and urban development including: i. Promote the dissemination of cutting edge studies on territorial and urban management; and ii. Develop information systems (SICAD, SITU-, SIHAB, property cadastre). 35

40 Sub component Environment and Water Resources Management (US$3.9 mil) This sub component comprises addressing six thematic areas related environment and water resource management. By developing studies and providing institutional capacity on these themes, the project expects to make available strategic technical instruments and institutional assets to SEMARH and IBAMA/DF to address key metropolitan and local urban development challenges. The six thematic areas are described below: Provide tecnical support to improve environmental management policies including: i. Assess alternatives for improving institutional arrangements for environmental management; ii. Review the DF environmental legislation to indicate duplicities and outdated rules; iii. Develop alternatives to improve technical administrative procedures for water resources management; and iv. Support improvements on the DF environmental education program Develop information systems for environmental management including: i. Promote the dissemination of cutting edge scientific knowledgement on environmental management; and, ii. Develop environmental management geographical information system Enhance institutional knowledgement capacity for water resources management including carry out training activities on environmental and water resources management Develop strategic planning for environmental licensing and fiscalization including: i. Review legislation and technical procedures for environmental licensing and fiscalization; ii. Develop regulation and procedures for environmental licensing and fiscalization Develop strategies to protect the federal conservation units in the DF territory including: i. Develop management plans for the conservation units; ii. Develop alternatives to strengthen the NPB and surrounding area land use management. This activity will be executed exclusively by IBAMA/DF Provide technical support to improve water resources management policies including: i. Develop alternatives for improving the water resources institutional arrangement within the DF; ii. Evaluate the consistency of the DF water resources management legislation; iii. Provide support to the implementation of the DF river basin committees and water resources counsel; iv. Carry out the groundwater cadastre; and, v. Assess alternatives to improve technical and administrative procedures on water resources management Develop updated information systems for water resource management including develop information systems for water resources management. Sub-component Environmental Sanitation Management (US$l.O) This sub component comprises addressing four thematic issues related to environment sanitation services. By developing studies and providing institutional capacity on these themes, the project expects to make available strategic technical instruments and institutional assets to BELACAP and CAESB to address key metropolitan and local urban development challenges. The six thematic areas are described below: 36

41 Provide technical support to improve solid waste policies and management capacity including develop regulation for solid waste management based on the solid waste master plan under preparation. This activity will be executed by BELACAP Enhance institutional knowledgement capacity for solid waste management, including training and equipment. This activity will be executed by BELACAP Provide technical support to the institutional, technical and legal framework of CAAB including: i. Technical review of existent sanitation system in the Entorno municipalities; ii. Revise and improve CAAB institutional framework; iii. Develop CAAB ' s internal regulation and related documentation. This activity will be executed by CAESB Provide support to CAESB conclude its environmental certification system and initiate informatic's systems for the Water Museum. This activity will be executed by CAESB. COMPONENT 2 - Social Inclusion and Poverty Reduction (US$31.4 million) The main objectives of Component 2 comprise reducing poverty and promoting social inclusion in localities presenting critical social conditions coupled with actions to abate water resource pollution loads. These objectives will be achieved through the following sub-components; a. Integrated Development Project for Vila Estrutural; and b. Social and Technical Support to the Joquei Clube Solid Waste Landfill Waste pickers. Sub-component Integrated Development Project for Vila Estrutural (US$29.9) Vila Estrutural Integrated Development Project - Planning, Technical Designs and Community Participation The main objectives of this sub-components are: (i) Improve the living conditions in Vila Estrutural, (ii) Insert this community into the regular city planning and services, and (iii) Mitigate the environmental degradation in surrounding areas, including abatement of pollution loads discharged on creeks and rivers; reverse damages in the National Park and restore the connectivity of the biome Cerrado in the area.. SEDUH will play an important role of coordinating this multisetoral task which also involves the participation of the following agencies: CAESB, NOVACAP, BELACAP, ADS, SEMARH, IBAMADF. The technical designs for Vila Estrutural Integrated Development Project will address the following issues: i. Develop alternatives for improving local governance ii. Propose improvements for social services such as education, health, income generation and youth development iii. Develop technical alternatives for improving basic services including water, sewerage, drainage, streets network, paving, solid waste collection, effective household sewerage connection and sewer pits closure 37

42 iv. Develop technical alternatives to improve Vila Estrutural s urban design including regulations to the land use and constructions, and recreational areas v. Develop a Resettlement Plan vi. Develop technical proposal for environmental rehabilitation and protection including: improving the riparian vegetation of the Vicente Pires stream, develop land use regulation for the Val0 stream banks, creation of an urban park and a buffer zone contiguous to the National Park and the FLONA boundaries, creation of biological corridors liking the National Parks to the Vicente Pires and Val0 streams) Vila Estrutural Integrated Development Project - Civil Works and Participation Activities Execution of the civil works and community participation activities proposed by the Planning, Technical Designs and Community Participation tasks carried out for the Vila Estrutural Integrated Development Project. Sub-component Support to the Joquei Clube Solid Waste Landfill Waste pickers (US$1.4) Develop a social inclusion project for waste pickers at the Joquei Club landfill The project will finance technical, social activities and investments needed to improve the working and social conditions of the waste pickers of the Joquei Club solid waste landfill. The main activities to be developed based on the social and technical assessment carried out includes: Technical activities: Update thorough assessment of the waste pickers social and economic conditions; Provide social works to support the waste pickers in their dialogue for an appropriate solution and development of a working plan; Assessment of the capacity of existent recicling units to receive some waste pickers coming from the Joquei Club (JC); Interaction with the techcnical staff preparing the solid waste master plan under to discuss recycling programs being proposed and possibilities of involving the JC waste pickers; Assessment of other opportunities offered by the solid waste collection and disposal services (reciclying centers, street cleaning, solid waste transportation); Social support activities: 0 Improving self-esteem; 0 Improving confident in the dialogue with the public sector and the project; 0 Reducing the number of guns; 0 Providing formal personal documents; 0 Improve cooperative organization; 0 Job skills training; 0 Support informed decision making with respect to selling prices; 38

43 Support to higiene education programs; Support to the families involving them in social development programs, school, health assistance; Support to youth development programs; Execute the social inclusion project for waste pickers at the Joquei Club landfill This activity includes the execution of social and technical support activities, civil works and provision of equipments as proposed by the social inclusion project for waste pickers working at the Joquei Clube landfill. COMPONENT 3 - Water Resources Protection (US$71.5 million) The main objectives of the Component 3 are to finance the execution of activities that will abate water resource pollution loads. The localities of Aguas Lindas and Vicente Pires that will receive from the project investments will also benefit of an improved quality of life. The solid waste disposal activities will also provide a major positive impact in protecting the National Park of Brasilia Improving sanitation services in Aguas Lindas (US$33.6 million) The main objectives of this activity are to abate pollution load contaminating the Descoberto Reservoir and the Areias River by improving living conditions in low-income neighborhood through provision of improved water and sanitation services. It includes the execution of civil works and the responsible agency i s CAESB. Improving the sanitation services will entail the following works: 630 kms of condominia1 sidewalk sewers, 830 k ms of public sewers, 11 pumping stations, 10 kms of interceptors and one single sewer treatment plant (WTP) (secondary treatment). The treated wastewater produced by the entire Aguas Lindas population would be discharged into the Rio Verde, since both the Descoberto and the Areias are used for water supply. The selected waster water treatment technology consists of and 6 ascending flow anaerobic reactor, 5 aerated lagoons and a disinfection unit using ultra-violet rays. The sludge generated in the process will pass through a system of mechanical dehydration and will be discharged into the sanitary sanitary landfill. A 25 hectares area owned by the water and sanitation company and located in an appropriate site is reserved for the WTP. It will be constructed in two stages, the first to serve a population of 135,000, and the second (2028) for a 270, Improve Water and Sanitation Services in Vicente Pires (US$33.8) The main objectives of this activity are to abate pollution load contaminating the Vicente Pires river by improving living conditions in low-income neighborhood through provision of improved water and sanitation services. It includes the execution of civil works and the responsible agency is CAESB. 39

44 To improve the sanitation services to the year 2024 estimated 80,000 residents, the sanitation system would built 72 kms sidewalk condominia1 sewer, 11 kms public network and interceptors and 2 pumping stations. This system will be connected to an existent system which includes a STP (North STP, tertiary treatment) Closure the Joquei Club Solid Waste Sanitary landfill (US$8.3) This activity includes financing the technical designs for the Joquei Club solid waste sanitary landfill closure, the civil works and equipments accordingly to the technical designs. The activity executing agency i s BELACAP. The preliminary technical alternatives being considered for closing the sanitary landfill include: a. amplification of the existing leachate collection basin and drainage system; b. implementation ground water quality monitoring systems; c. drilling and implementation of a sanitary landfill gas venting system; d. complete sealing of the sanitary landfills; e. greening and reforestation of the area; f. superficial drainage system and other investments to ensure a proper closure to avoid any further environmental impacts Construction of a solid waste sanitary landfill (US$3) This activity will finance the civil works to construct a solid waste sanitary landfill, including appropriate equipments, for the DF accordingly to the technical designs that will be developed subsequently to the environmental assessment approval. This activity will be executed by BELACAP Rehabilitating environmentally degraded areas (US$2.2) This activity will finance the development of technical designs and the execution of works to rehabilitate environmentally degraded areas in the two critical river basins (Descoberto and Paranoi) targeted by the project. This activity will be executed by SEMARH Waste water sludge treatment (US$5.0) This activity will finance equipments that will allow the final disinfection of the sludge produced by the two DF waste water treatment plants using tertiary treatment levels. This activity will be executed by CAESB. COMPONENT 4 - PROJECT IMPLEMENTATION MANAGEMENT, MONITORING AND EVALUATION (US$3.9) The major objective of this component is to finance the appropriate technical, administrative and financial management conditions to ensure an effective project implementation. 40

45 4.1. Consultancy services for assisting the PMU This activity will finance contracting a consultant firm with expertise in managing internationally financed development projects. The consultant firm will perform the broad specialized tasks needed for managing the multisetoral project activities, including monitoring and social communication. ADASAPMU is the agency responsible for this activity Project Evaluation This activity will finance contracting specialized consultancy services for carrying out the project evaluation. ADASAPMU is the agency responsible for this activity Auditing This activity will finance contracting specialized consultancy services for carrying out the project audits accordingly to the Bank s requirements. ADASAPMU i s the agency responsible for this activity Enhance GDF funding raising capacity This activity will finance contracting specialized consultancy services for developing a strategic business planning and required office equipments for improving SECAP funding raising capacity, as well as developing Public Private Partnership models for strategic urban environmental sectors. SECAP is the agency responsible for this activity. 41

46 B 3 * L b 0 P C.- e * 8 c 4 e, a M 3 zl.- v: 2 2 e 5 w m S m a e,.m 2 :3 C 0.e Y z 3 0 u c 0 M P 2 2 z Y.M e 0 & L v: id e, 5 e 0 3 v:.- Y *.i Y C.- Ti.3 0 e, > - a v: m P B E 4 9 % n 0 e, > - c4 e, CI 5 e 2 e, m Y 6 C 0 m m > e, c).d C a 9 8 M C.- C.e C 8 a Q 0 e, > -.e 0 C i OD m E 2 E B.- e 0 a 0 b 2 E.e M - 3 z 5 e, u c m 0 M e, 0 c e, 0 9 *.- 5 m -g E w s v: v1 4.-

47 9 v1 e, I- e a B a 0 d v) Y.-.-.I e, 0.- P V m Y * 3.- m m e 2.3 > C e, L4 n e, 5 w v1 v1 $.-.- E & 3 0 m.- * 2 B n * m 2 ll e, C 0 m * 5 ti E? >.- a v1 >.3 Y C e, E 2 E - m S E > C 0 Y e 5.3 Y Q Fn e, Y 0 C e, 0 m e, M *.- B e.- 2 t: *i 3 C 0 m.e * E w s 5 s v1 e, 0 ii.c a Y e, $ 2 9 E r2 E. 2 2 B 4-0 C m m e, Y %.3 > C 0.e *.-.- Y > 0 m M C C m i 3.e.- b Y a u m *.- E; C 0 m g e, Li v1 C m a 3 Y 8 E 2 E E m a 0 e, - E.3 L a 4 C * E e, Eo C m 8.- * a Y.3 * v) E m e,.- G 2 2 B 9 5 e 2 L m e, M c >.-.-!? L m e, > m.- c E 3 - m SL C e, > B.-

48 3 4 W m u m v) W Q U I

49

50

51 Annex 5: Project Costs BRAZIL: Brasilia Environmentally Sustainable Project Local Foreign Total Project Cost By Component and/or Activity US $million US $million US $million 1. Policy and Institutional Development o Social Inclusion and Poverty Reduction Water Resource Management and Protection Project Management and M&E Total Baseline Cost Physical Contingencies Price Contingencies Total Project Costs' Interest during construction Front-end Fee 1.o 1.o Total Financing Required 'Identifiable taxes and duties are US$15 million, and the total project cost, net of taxes, i s US$99 millions. Therefore, the share of project cost net of taxes i s 86%. 47

52 Annex 6: Implementation Arrangements BRAZIL: Brasilia Environmentally Sustainable Project ADASA will be responsible for the project coordination. To undertake such coordination, ADASA will be assisted by a Project Management Unit (PMU), which will have the adequate technical staff and resources for performing its activities. The project institutional arrangement is illustrated below: PMU: The PMU creation is a condition for loan signature. The PMU will be constituted by the PMU' s coordinator and representatives of the co-executing agencies. A consulting firm will be competitively selected to provide technical support to the PMU carry out the project management activities. The consultant firm will have recognized knowledge in managing integrated and multi-sectorial projects supported by international agency financing. The PMU and co-executing agencies detailed responsibilities will be described in the proiect operational manual, which is a condition for the proiect signature. A legal agreement (Convenios) will be sign between each executing agency and ADASA. The document to be sign with CAESB is denominated a 'contract' since it includes transfer of financing funds from the GDF to CAESB and repayment conditions. A draft of these documents will be ready for the project appraisal. A revised as needed version will be included in the negotiation package. During negotiations the final 'convenios' and contract version will be signed. The table below summarizes the co-executing agencies responsibilities during the project implementation. 48

53 inent Brasilia Environmentally Sustainable Project: Executing Agencies Responsibilities = Provide technical support A = Prepare bidding documents = Prepare TR for consultancy and/or technical specifications for works e = participate proposals evaluation committee 0 = review and approve products lt = carry out bidding tender 4 = sign contract I Provide technical support to improve territory and urban I ~~ development policies Develop updated management technical tools for territory, urban and housing development Assess the institutional arrangements for territory and urban development Enhance knowledge management for territorial Provide technical support to improve environmental management policies Develop information systems for environment management Enhance knowledge management for environmental management Develop strategic planning for environmental licensing and supervision TI Develop strategies to protect the federal conservation units in the DF territory Provide technical support to improve water resources management policies Develop updated information systems for water resources management 4 TI 4 I 49

54 2.2.1 Develop a social inclusion project for the waste pickers working at the Joquei Club landfill I Execution of the social inclusion proiect for the waste I Execute the water and sanitation system in Aguas Lindas Execute the water and sanitation system in Vicente Pires TI Execute the closure of the Joquei Club landfill and the works for a sanitary landfill Construction and equipments for a solid waste land fill 3.5 -Waste water sludge disinfection v H 4 I Develop project and execute works for rehabilitating I Consultancy services for project management, monitoring evaluation Evaluation 5.2 -Auditing Enhance SECAP institucional capacity 50

55 Annex 7: Financial Management and Disbursement Arrangements BRAZIL: Brasilia Environmentally Sustainable Project The Project Implementation Unit (PMU) will report to head of the ADASA. A capacity assessment was carried out to determine whether the borrower has, or will have acceptable financial management arrangements in place by loan effectiveness. These include, but are not limited to, capacity to (a) properly manage and account for all project s proceeds, expenditures and transactions; (b) produce timely, accurate and reliable project s financial statements and reports, including Financial Monitoring Reports ( FMRs ), for general and Bank special purposes; (c) safeguard project s assets; (d) engage independent auditors acceptable to the Bank in a timely fashion and (e) disburse Bank funds in accordance to applicable Bank rules and procedures. The project will benefit from existing institutional arrangements for the implementation of the IDB project Programa de Saneamento Basic0 no Distrito Federal. Such arrangements consist of (a) an PMU with six departments (finance, institutional, technical, social, environmental and procurement) whose coordinator, will have the overall responsibility for both the IADB and the Bank s project; (b) a Gerenciadora, an outsourced consortia, reporting directly to the PMU s coordinator; (c) Secretaria de Estado de Infra-Estrutura e Obras, whose staff will support project implementation and (d ) 5 Co-Executing entities, which include CAESB, for approximately 90% of project, SEMARH - Secretaria de Meio Ambiente e Recursos Hidricos do DF, SEDUH - Secretaria de Desenvolvimento Urbano e Habitaqiio do DF, BELACAP - ServiCo de Ajardinamento e Limpeza Urbana do DF and ADS - Ag6ncia d Desenvolvimento Social. The financial management assessment was jointly conducted with the PMU, the Gerenciadora and CAESB and included the (a) discussion with the PMU Coordinator, and the Gerenciadora s finance manager and CAESB s financial management staff; (b) evaluation of financial management systems in place and/or those to be used for project s monitoring, accounting and reporting; (c) review of staffing requirements, including training and qualifications; (d) discussion regarding flow of funds arrangements and disbursement methodology; (e) review of internal control mechanisms (0 discussion with regard to reporting requirements, including the format and content of Financial Monitoring Reports and (g) review of audit arrangements. Financial Management Assessment Conclusion: The overall Financial Management Assessment conclusion is that, provided an external partner with capacity similar to the present Gerenciadora is retained, the project s implementing agency - ADSA through its PMU, with the collaboration of CAESB, Gerenciadora and Secretaria de Obras staff will have satisfactory financial management arrangements in place and meet Bank s minimum requirements. The financial management risk associated with the proiect has been assessed as low. The project s financial management system will be able to provide relevant and reliable financial information, in a timely manner, and to support project s management in the control, planning, implementation and monitoring of the project, towards the achievement of its objectives. 51

56 Financial Management Arrangements Staffing. All financial management s aspects of the project will be handled by the PMU with the support of a Gerenciadora, whose staff will be also based at some of the co-executing agencies for data entry, of ADASA s own staff, and with additional resources provided by the Secretaria de Obras and CAESB, as appropriate. The overall responsibility of finance and administration issues, will rest with the Gerenciadora s finance manager, who in collaboration with the PMUfinancial manager ensures that the system is properly updated on a timely basis by executing agencies staff, and also reviews all supporting documentation before payments are made. Once project activities pick up, it is likely that more accounting and financial management staff will need to be recruited and/or reassigned, both by the Gerenciadora and by ADASA staff. Systems. All payments will be made by the Secretaria da Fazenda do GDF, using the SIGO - Sistema Integrado de Gest5o Governamental, upon instructions from the PMU, and after submission by the executing agencies of a detailed plan of activities and actual expenditures in line with that plan. The SIGO system encompasses control procedures similar to the SIAFI system, utilized at the federal level. All GDF s expenditures and payments are necessarily recorded in the SIGO system under Programas de Trabalho, equivalent to cost centers; from a budgetary standpoint, sources of funds are earmarked by source. More than one Programa de Trabalho may be open for the project; our recommendation is that a limited number be utilized, as to find an acceptable balance between the level of detail required by Secretaria de Planejamento, and PMU and project s reporting requirements. Financial data is entered in another system (SIG), by an executing agency - CAESB - who is linked on-line to the PMU s central server, and by ADASA/Gerenciadora staff, for their own and other executing agencies expenditures. The SIG system, is a well developed parallel system that has been adopted for the implementation of the IDB project and has proven to be a much more flexible management tool, namely in terms of reporting format and project detailed data, when compared to SIGO. Nevertheless, as above mentioned, SIGO will still be utilized for the processing of all project payments, thus ensuring a satisfactory financial management environment, as the system builds on existing government arrangements and embedded internal control mechanisms (commitments, sources of funds by financier except for CAESB s counterpart funds, payments through ordens banccirias only when properly authorized). Financial Reporting and Supervision. The PMU, with the support of the Gerenciadora s financial manager, will ensure the timely production of quarterly financial monitoring reports (FMRs). These FMRs will be produced from the SIG system and will consolidate the project s financial data for all components, including counterpart funds and components exclusively financed from Borrowers resources, if any. Given the Borrowers satisfactory financial management arrangements, the PMU coordination has opted for report-based disbursements from the outset. Accordingly, the format and content of the FMRs, agreed with the Borrower will cover the following items: 52

57 - 1. Financial Reports: FMR 1A - Sources and Uses of Funds ( by disbursement category, with evidence of the Bank s share in the financing of expenditures, cumulative ( projectto-date; year-to-date and for the period ) vs actual expenditures, including a variance analysis; FMR 1B - Uses of Funds by Project Activity or Component, cumulative ( project-to-date; year-to-date and for the period ) vs actual expenditures, including a variance analysis; FMR 1C Cash Flow Forecast ( expenditure forecast for the project and for the Bank s share ); FMR 1D - Reconciliation of the Project Account Phvsical Progress Report: FMR 2 - MonitoringPerformance Indicators; - 3. Procurement Report: FMR 3 Financial management supervision will take place every six months and include (a ) reviewing of quarterly FMRs; (b) reviewing of the auditors reports and follow-up of issues raised by auditors in the management letter, as appropriate; (c) participation in project supervision and (d) updating the financial management rating in the Project Status Report (PSR). Accounting Basis, Procedures and Policies. Project financial statements will be prepared every quarter - FMRs -, and annually. Ideally, the fourth FMR, showing cumulative figures for the period, will be the basis for the auditors work. These statements will be prepared in accordance with consistently applied accounting standards, acceptable to the Bank. (on a cash basis accounting ).As part of the Operational Manual, a financial procedures manual will be prepared, and will provide guidance with regard to all financial and administrative routines. PMU s staff will periodically reconcile expenditures, in the SIG system with payments made through SIGO. Audits. Annual financial statements will be audited by independent auditors, satisfactory to the Bank, in accordance with accordance with acceptable auditing standards. The external audit will be conducted according to Terms of Reference acceptable to the bank. Auditors will be required to issue a single opinion on project s financial statements, as per the guidelines Annual Financial Reporting and Auditing for World Bank-financed activities, of June 30,2003. Auditors will also have to produce a management letter, where any internal control weaknesses will be identified, which will contribute to the strengthening of the control environment. The auditor s report will be submitted to the Bank no later than six months after the closing of the Borrowers fiscal year, and the annual audit will be financed out of loan proceeds. The project may also be audited by the Tribunal de Contas do DF and by the Corregedoria Geral do DF, which might be considered the GDF s Internal Audit Department. The PMU will prepare and consolidate - activities to be implemented by CAESB and the other project components - project annual financial statements for auditing purposes. Disbursements and Flow of Funds Arrangements As previously discussed, the PMU, within ADASA, and with the support of the Gerenciadora and CAESB, will be the primary responsible for project implementation. All payments will be made by the Treasury of the Federal District (Secretaria da Fazenda do GDF), using the SIGO system, upon instructions from the PMU, once expenditures have been incurred and properly 53

58 documented. Payments will be made directly from Treasury, through the issuance of an ordem bancdria, to service providers and contractors, or to CAESB who will then pay c0ntractors.d In order to make payments, the GDF s system requires that funds be committed by source ( Worldand/or GDF, as applicable ), making possible the tracking of loan disbursements to project expenditures, due to this earmarking mechanism within SIGO. As the loan will disburse against management reports, funds will be advanced, based on a cash forecast and upon request from the borrower, from the loan account, in Reais, to an account specifically open for the project (the project accout ) with Banco Regional de Brasilia. Disbursements from the loan account will be made gradually, according to the project implementation needs and in line with its short term cash-flow forecast. Every quarter, with the production of FMRs, expenditures for the period will be accounted for, and revised cash flow forecasts, for the ensuing period, will determine the level of disbursement from the loan account, which will also take into account the project account s balance. Project Flow of Funds (1) WB advances funds into project account upon PMU requests (2) PMU transfers funds from project account into central treasury account (3) GDF s Treasury upon instructions from PMU makes direct payment to providers or contractors (other no CAESB executed components) (4) GDF treasury makes payment to CAESB under contract with CAESB (5) Payments made from CAESB to contractors (6) Supporting documentation submitted to PMU (7) PMU sends quarterly FMRs to the Bank accounting for advances from the Bank (8) PMU sends withdrawal applications to Bank based on cash flow forecast The envisaged flow of funds will not require a tri litional Special Account. InsteaL, a project account, in local currency, will be open at the Banco Regional de Brasilia (BRB) and funds will be directly deposited into this account.. The FMR will show project expenditures and reconcile advances made into the project account with closing balances, and the Bank s share of actual expenditures. The component implemented by CAESB and for which a specific Convhio for the total amount of the component will be signed, will benefit from the company s satisfactory fiduciary arrangements, as per external auditors assessments, including adequately trained staff and systems, and a large experience in procurement and financial management. Payments for works, 54

59 under this component, will require monitoring of physical progress of works, by CAESB staff, and then will be entered into the SIG system, which will update data in SIGO for payment processing. Payments for other project components will be handled directly by the PMU. For Bank monitoring purposes, all payments made for contracts above Bank s prior review thresholds will be separately documented, as part of the FMR. Financial Management Risk Assessment Program Risk Assessment. The Risk Assessment Matrix below, presents the items of potential risk for the project from a Financial Management standpoint. Table 1 - Financial Risk Assessment IDB exnerience vii. Information Systems 1 I I I x I Same as above H-High S-Substantial M-Moderate L-Low The overall Financial Management risk is considered low, provided that a gerenciadora is appointed on approved terms of reference. (with capacity similar to the one who is implementing the IDB project ) 55

60 Annex 8: Procurement Arrangements BRAZIL: Brasilia Environmentally Sustainable Project A. General Procurement for the proposed project would be carried out in accordance with the World Bank s Guidelines: Procurement Under IBRD Loans and IDA Credits dated May 2004; and Guidelines: Selection and Employment of Consultants by World Bank Borrowers dated May 2004, and the provisions stipulated in the Legal Agreement. The general description of various items under different expenditure category are described below. For each contract to be financed by the Loadcredit, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. Procurement of Works: Works procured under this project, would include: large infrastructure works contracts for human resettlement, road paving, drainage, sewage. The procurement will be done using the Bank s Standard Bidding Documents (SBD) for all ICB and the model bidding documents published by SEAIN will be used for NCB contracts. Some contracts will couple civil works with supply and install of equipment, in which cases the standard bidding documents for supply and installation published by the Bank will be used. Special provisions to be added to the Loan Agreement include: (i) there will be no use of two-envelopes, (ii) bracketing (minimum and maximum amount for bids) will not be accepted, (iii) bidders will not be required to reduce bid prices to the price of a lower rejected bid, (iv) bids for civil works contracts cannot be based on a multiplier factor (fator k ). Procurement of Goods: Procurement of goods is likely to be of low volume and will include some specific scientific equipment for Caesb that will be used for lodo analysis. The procurement will be done using Bank s SBD for all ICB and the model bidding documents published by SEAIN for NCB. Procurement of non-consulting services: no contract of non-consulting services was identified. Selection of Consultants: There will be consulting contracts for water resource management plans, hazard management plan, engineering designs, water resources diagnosis. Short lists of consultants for services estimated to cost less than $500,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. B. Assessment of the agency s capacity to implement procurement Procurement activities will be carried out by (i) Secretaria de Obras (SO) of the GDF (Govern0 do Distrito Federal), (ii) Caesb (Companhia de Saneamento do Distrito Federal), and (iii) Novacap (Companhia Urbanizadora da Nova Capital do Brad). 56

61 An assessment of the capacity of the three Implementing Agencies to implement procurement actions for the project has been carried out by Alexandre Borges de Oliveira on November 17, 2004 and later discussed with the client on December 07, The assessment reviewed the organizational structure for implementing the project and the interaction between the project s staff responsible for procurement Officer. There is no major issue/risk identified. The proposed action plan was fully discussed and agreed with the client to ensure ownership of the proposed actions. This action plan should be part of the project implementation documentation and should be agreed to with the Borrower during negotiations as a project component Action Training of procurement staff of all three implementing agencies (SO, Caesb and Novacap) as well as controllers. Include a senior procurement specialist with experience on Bank-financed procurement on the TORs of the project management consulting firm. Adaptation of the procurement module of SIG to generate the procurement plan as a predefined report Prepare the procurement plan for the first twelve months of project implementation Hiring of a procurement specialist under TORs acceptable to the Bank before effectiveness. Once activity number 2 above is completed, this specialist may be replaced by a consultant Timeframe Before effectiveness Firm should be hired up to six months after effectiveness Before effectiveness Before negotiations Before effectiveness The overall project risk for procurement is average. C. Procurement Plan The Borrower, at appraisal, developed a Procurement Plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team on March 21, 2005 and i s available at GDF and the Bank CMU files. It will also be available in the Project s database and in the Bank s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. D. Frequency of Procurement Supervision In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended two post-reviews for the first year of project implementation and annually from there on. 57

62 E. Procurement Methods and Thresholds Goods and Works: Procurement Method Shopping for goods Shopping for works NCB Works NCB Goods ICB Works ICB Goods Thresholds (US$) < 100,000 <500,000 L 500,000 and I 10 million L 100,000 and 5 500,000 L 10 million L 500,000 Prior Review (US$) All above US$5 million All above US$350,000 All All Consultants: Selection Method Thresholds (US$) QCBS Quality and cost Selection based on I200,000 consultant s qualifications Least cost selection 5100,000 Prior Review? 200,000 58

63 Annex 9: Economic and Financial Analysis BRAZIL: Brasilia Environmentally Sustainable Project Introduction The Brasilia Sustentdvel Program has two branches of intervention: (i) the reduction of regional inequalities, particularly through the sustainable use of scarce natural resources such as water resources; and ii) assistance to selected investments that will simultaneously diminish pollution levels that threaten strategic bodies of water and benefit areas that are currently marginalized. Economic benefits of the project The principal benefits of the Brasilia Sustainable Program are related to the improvement of environmental quality in the Federal District and the surrounding area (entorno), and the improvement of health and quality of life for the urban populations of the municipality of Aguas Lindas, in Goias, and the populations of Vicente Pires and Vila Estrutural. The Program would specifically reach about 175,000 low-income residents of Aguas Lindas and Vila Estrutural. Particularly, the program would also contribute to the preservation of two important sources of potable water and recreation in the D.F.: (i) the lake formed by the dam on the Rio Descoberto, which supplies water to nearly 65% of the D.F. (about 1.34 million people); and (ii) the Paranoi lake, which constitutes a reserve source of potable water and recreation center. Specifically, the Project s benefits are as follows: (i) improved water quality in the principal sources for the D.F., reducing water treatment costs and avoiding contamination and long-term compromise of these sources; (ii) improved water quality of the Paranoa lake for recreation and leisure; and (iii) expand the delivery of potable water and sewerage collection and treatment in the D.F. and the entorno. Estimation of benefits Preservation of Potable Water Sources: The preservation of Descoberto lake, the primary water source for the D.F., and of the Commba system, the principal source of future water supply, will generate direct benefits for approximately 1.4 million individuals, who will be integrated as users into the Brasilia water supply system. These benefits result from the actions financed under the project associated with the export and secondary treatment of sewerage from Aguas Lindas and the transport of the treated effluent to the Verde river basin, the construction of a new sanitary sanitary landfill for solid waste in the same river basin, and the territorial management of the basin itself, in terms of containment of discharges, such as urban and rural run-off. Benefits were calculated applying the Continent Valuation method and the transfer of benefits through the adoption of a functional form estimated as a model for natural resources management in the Alto Iguacu Basin under the Water Quality Program (PQA) in the Curitiba Metropolitan region. The research, conducted in 1996, sought to determine the Willingness to Pay (WTP) for improved environmental quality in the Alto Iguacu region, the principal water source for the Curitiba Metropolitan region. Given that the PQA sought to (i) install sanitary sewerage and (ii) control erosion in order to recoup the water source and preserve water quality - both expected outcomes of the proposed project - the transfer of benefits based on this previous research is justified. A 59

64 total of 954 households were surveyed, from which a median WTP of R$3.43 per family per month was calculated, with a variation of 13.4%, drawn from the logit functional form estimated in Table 1. Variable Cons tan t GPARQ DOENC LNRENDA LNVDAP Coefficient Std error t-test Problt(>x , OS OOOOO Mean 1 Std deviation I A ,81148 i GPARQ = 1 if interviewee responds that they world like to have a leisure area near home, 0, otherwise. DOENC = 1 if a family member has an illness associated with water quality, 0, otherwise. LNRENDA = natural log of income LNVDAP = natural log of WTP Eliminating all variables except LNRENDA and transferring the above estimation to the context of the D.F., a WTP for the D.F. was estimated at R$6.57 per family per month. Preservation of Paranoa Lake: Some 255,000 dwellers in Brasilia - particularly Lago Norte and Lago Sul -- will directly benefit from the preservation of water quality in Paranoa lake in leisure and recreational activities. These economic benefits flow from the removal of sewerage discharges from Vila Estrutural and Vicente Pires, by transferring these effluent discharges to treatment stations (ETE Norte and ETE Melchior, respectively); drainage run-off from Vila Estrutural; and the deactivation and environmental recuperation of the Joquei Clube sanitary sanitary landfill. In estimating these economic benefits, as in the previous case, benefits transfer was performed. Under the Basic Sanitation Program for the D.F., financed by the IDB in 1997, a WTP equivalent to R$3.57 per family per month was calculated for the use of Paranoa lake in terms of leisure and recreation.* This estimation applied a Discrete Choice model which incorporated primary and secondary treatment options. Despite the fact that in both Vicente Pires and Vila Estrutural, (i) tertiary treatment of sewerage will be undertaken and (ii) the absence in the model of diffuse discharge removal and the closing of the sanitary sanitary landfill, a conservative decision was made to use the results from the secondary treatment in the 1997 model, as reported in Table 2. Updating the functional form based on the mean income for Brasilia, the WTP was estimated at R$4.49 per family per month. A function developed under the Basic Sanitation Program in 1996 (for the cities of Goidnia and Cidade de GoiBs) was validated via a pilot study in Taguatinga. 60

65 - First Stage (Secondary Treatment) Monthly Household Income (Y 1) Length of stay in home (P5A) Coefficient (t statistic) Mean (4.257) (-1.511) 0.02 Sewerage line nearby (PlOA) Home Value (Precio) Homeowner Age (P2A) (2.410) (-7.969) Second Stage (Primary Treatment) Individuals with Income (P22A) Education (El) (-2.376) 0.19 (3.587) 0.07 (2.288) (3.056) I I Sanitary Drainage in Aguas Lindas and Vila Estrutural: The benefits associated with investments under the project in sanitary drainage are estimated using Contingent Valuation, based on household surveys in Aguas Lindas to determine the maximum WTP. Focus groups were conducted to pre-test and calibrate the household questionnaire, and a subsequent pilot field study in which 30 households were surveyed. The actual household survey sampled 1,027 households, yielding 961 observations, and from which 858 heads of household indicated a willing to pay for a domestic sewerage connection and associated service. The mean WTP observed from the field research was R$12.06 per family per month. An alternative WTP was also estimated, using least squares estimation.' I1 Let Yi equal the WTP for individual i. The population mean can thus be estimated from the sample mean, given by: where n is the number of individuals (i.e., heads of household). Alternatively, a set of characteristics may wholly or partially aid in explaining the variation in the WTP across individuals in the population, which, when identified, can improve the precision of the WTP obtained from equation (1). The basic regression model, as given by: See FREMA" I11 (1981) and MICHAEL and CARSON (1979) for extended details on this methodology (available in project files). 61

66 can be estimated, where Yi is the WTP observed from individual i, X,, X2,... Xk are explanatory variables, Po,P1,...,Pk are the parameters to be estimated, and is the random error term for observation i, normally distributed E - N(0, 02). Following estimation of (2), the conditional mean WTP can be calculated: F=E(Y\XO)=P0 +p,xp +pi +...+p; (3) where Xy is the value for variable X, evaluated at the mean. Explanatory variables were thus selected and incorporated in the WTP estimation, using Least Squares Estimation and drawing on (2) above: where X, = 1 if the residence is owned (0, otherwise), X, is the number of persons living in the dwelling,, number of household individuals that work, x,, education level of head of household, X5 household income, and x6 aggregate household expenditures in electricity, telephone, transportation, education, LP gas, and health. Two models for WTP were estimated: using all variables (Model 1) and eliminating those which were not statistically significant (Model 2). Results are presented in Table 3. Model 1 yields a WTP of R$ while R$ is estimated with only household income ( X, ): 62

67 Table 3: Regression Estimates, Sanitary Drainage, Aguas Lindas and Vila Estrutural Specification 1. Dep. Variable Y 2. Expl. Variables Constant X1 x2 x3 x4 x5 x6 Model I Model I1 Sample Means Coeficiente t Coefficient t (unit) (natural log) R2 F # observations 4. Predicted Value Y E(Y/Xo) (natural log) E(Y/Xo) (antilog) Sanitary Sewerage in Vicente Pires: Based on field research conducted in other areas of the D.F. with similar physical and socioeconomic characteristics, the benefits from sanitary sewerage provision in Vicente Pires were estimated following a transfer of benefits methodology. Specifically, total economic benefits were estimated through adoption of a WTP estimated in 1996 for Recanto das Emas and Vale do Amanhecer during the preparation of the Basic Sanitation Program for the D.F., which is now under implementation. The resulting revised WTP totaled R$36.06 per family per month. Micro drainage and Street Paving: Under the Basic Sanitation Program for the D.F., 502 households were surveyed in three localities which, at the time of the research in 1996, shared economic and demographic characteristics with the proposed project area. The function estimated for the 1996 research is given by the following: AV = a + p2p P3RENTOT + p5ln VALOR, (4) AV = Change in well-being, with and without project; a =constant P13 = public bus does not travel in unpaved streets (l=yes, O=No); RENTOT = Monthly household income in R$; and LNVALOR = Ln Price (R$/month). The WTP estimation updated the monetary value of the constant, drawing on the variation in mean income for the D.F. population between 1996 and 2004, and applying this revised 63

68 ~~ ~ household income to the project area in the eq. (4), yielding a WTP of R$25.05 per family per month. Economic Costs The direct economic costs of the project includes initial investment costs, operation and maintenance, supervision, environmental costs, and acquisition of land and equipment. Also included are costs associated with individual household hook-ups for sanitary sewerage and water supply. A project horizon of 20 years is assumed. Conversion factors for transforming financial costs into economic costs were extracted from Metodologia para Avaliaqiio EconBmica e Financeira de Projetos: a experihcia do PMSS, as follows: Results of Economic Evaluation Unskilled labor Skilled Labor Construction materials Equipment Chemical Products Electricity Overall, the Economic Internal Rate of Return (EIRR) of the Program is estimated at , and a net present value (NPV) of R$168.9 million, confirming the viability of the proposed investments. The EIRR and NPV results for the seven investment subprojects assessed are presented in Table 4. Table 4: Economic Internal Rate of Return and Net Present Value, Brasilia Sustainable Project Present Value(R% million) Investment Components Vicente Pires-Sanitary Sewerage % Vila Estrutural-Sanitary Sewerage % Vila Esturural-Microdrainage and Paving % Total % 64

69 Sensitivity Analysis In order to assess the robustness of the EIRRs to changes in both benefit and cost streams, a sensitivity analysis was conducted and results presented in Table 5. The proposed investments in the preservation of water sources in the Descoberto and Paranoa areas are shown to be fairly robust, in that benefit streams would need to be reduced by 21 to 53% to force their net present value to zero. Conversely, cost overruns of as much as 113% of the original estimates would produce the same effect. Similar results are obtained for Sanitary Sewerage (in Vicente Pires and Vila Estrutural) and Microdrainange and Paving in Vila Estrutural. The proposed investments in Sanitary Sewerage in Aguas Lindas would only require (i) a 3% decrease in benefits or (ii) a 2% cost overrun, to yield a NPV equal to zero. Investment Components Water Source Preservation Parano6 Lake Preservation Aguas Lindas-Water Supply Aguas Lindas-Sanitary Sewerage Vicente Pires-Sanitary Sewerage Vila Estrutural-Sanitary Sewerage Vila Estutural-Microdrainage and Paving Switching Values Benefits Costs -53% 113% -21% 126% -20% 125% -3% 102% -41% 151% -20% 111% -10% 112% Financial Analysis The financial analysis was conducted with the objective of assessing project investments in terms of their viability and to determine the need for subsidies for those components with less than full cost recovery as required for operation and maintenance over the project horizon of 20 years. Revenue generation from investments in water supply and sanitary sewerage were estimated using the actual tariff structure used by CAESB, which will be responsible for the management of these investments. Revenue from draining and pavement investments in Vila Estrutural were estimated based on expected collection of IPTU. In the case of the restoration of the sanitary Joquei Clube sanitary landfill and the construction of the new sanitary landfill, carbon credits were factored into the estimation of revenue. Overall cost recovery is estimated at 63.4% of the total program cost, with a negative NPV of R$182.8 million, as given in Table 5. As such, part of the investment costs will require subsidy. 65

70 Table 5: Financial Analysis: Brasilia Sustainable Project Present Value (R$ million) INVESTMENT Revenue Services Net % cost Recovery Aguas LindasNicente Pires-Water Supply Aguas Lindas-Sewerage Collection Amas Lindas-Sewerage Treatment Vicente Pires-Sewerage Collection Vicente Pires-Sewerage Transport % * % % Fiscal Impact The fiscal impact of water supply results from the fees paid by consumers for the services rendered, as well as the fees assessed for materials and equipment used. In estimating the fiscal impact, the following were considered: Income Tax (1.5%), Social Security Tax -1SS (2%), applicable for works undertaken; PI (10%) and ICMS (17%), assessed on materials and equipment used in these works. Specifically for paving and drainage, the fiscal impact will occur through the Tax on Urban Property - IPTU, assessed on the mean house value, estimated at R$7,000. Incremental fiscal revenue overall from the project i s estimated at R$ 30.4 million, against a required subsidy of R$75.7 million, as given in Table 6. Table 6: Fiscal Impact Analysis, Brasilia Sustainable Present Value (R$ million) Investment Net Revenue Aguas Lindas-Water Supply Aguas Lindas-Sewerage Collection Vila Esturural-Microdrainage and Paving 2.9 Total Subsidies 1 Revenues I Vicente Pires-Sewerage Collection I 3.7 I 10.8 I -7.1 I FVilauri-sewerage Collection I 0.8 I 2.9 I -2.2 I

71 Annex 10: Fiscal Analysis BRAZIL: Brasilia Environmentally Sustainable Project I. Introduction The Federal District is negotiating a loan from the World Bank to the value of US$57 million with a view to financing the Brasilia Sustenthvel ( Sustainable Brasilia ) programme. The aim of the present analysis is to: (i) evaluate the fiscal situation of the DF and (ii) to forecast and evaluate the impact of the proposed credit operation on the future financial situation of the DF. The public accounts of the DF are unusual: (i) The DF receives regular funding from the Union (central government) through the Constitutional Fund ( Fundo Constitucional ). This fund provides all the financing for public security (personnel, current expenditure and investment) and provides a partial contribution to the costs of employing personnel in the health and education areas. Up to 2002, revenue and expenditure in these funding categories were entered by the DF as own-resource income and expenditure. From 2003, however, such transfers were ascribed to the Constitutional Fund and the transactions entered under central government accounting procedures as receipts and expenditure within the domain of the Federal Executive. As a result they no longer appeared in the accounts of the DF. (ii) The DF, in common with other states and municipalities in Brazil, is eligible to receive the benefit of a number of taxes such as the ICMS, the ICTD, the IPVA and the ITDB in addition to the ISS and IPTU. Furthermore, the DF charges for policing and services rendered by third party service providers. (iii) There are no municipalities in the DF. Therefore, unlike the states, it is not obliged to pass on a percentage of the ICMS (25%) or of the IPVA (50%) to municipal authorities. (iv) The DF also receives financial transfers from the States Participation Fund (FPM), the Rural Land Tax ( ITR) and the Tax on Industrialised Products (PI) and is entitled to compensation under LC 87/96 (the Kandir Law), which exonerates exports from payment of the ICMS. (v) The DF possesses neither its own Judiciary nor Public Prosecution Service ( MinistCrio Publico ) - both provided exclusively by the Union. The only official legal body financed exclusively from DF own resources i s the Legislative Branch. The latter embraces the Court of Auditors ( Tribunal de Contas ) of the Federal District. The atypical situation of the DF is not restricted to public finances. The whole economy of the area differs from that of the other Federative Units (ie: states) in that income and employment in the DF are strongly influenced both directly and indirectly by the presence of the Federal and Federal District public sectors. The following outline of the economic situation of the DF has to be viewed against (i) the macroeconomic adjustments introduced primarily between 2002 and 67

72 2003 and (ii) the low levels of economic growth experienced by Brazil as a whole over the same period. II. Fiscal Balances The Federal District (DF) emerged from the period with a number of fiscal problems resulting from hazardous public accounts management. In 1999, the government of the Federal District (GDF) succeeded in reversing the primary deficit of R$ 123 million that was recorded in 1998, managing to achieve a primary surplus of R$ 26 million - equivalent to 1% of Real Net Revenue (RLR). This was possible because receipts in Fiscal Year 1999 increased faster than expenditure, despite the surprisingly short-lived turmoil caused by the exchange rate devaluation in January Nevertheless these improvements were not sufficient to cope with the financing requirements of the DF. By the end of 1999 these registered a shortfall of approximately R$ 47 million. During the period 2000 to August 2004, the fiscal balances of the GDF displayed a fairly comfortable budgetary, financial and asset situation. The situation continued to improve throughout Fiscal 2004 (up to at least the month of August). During this period, with the exception of year 2000, the DF generated positive results on current account which enabled it to finance deficits on capital account and to generate sufficient resources to cover its gross financing requirements. The financial and budgetary balances also returned positive results, pointing to a favorable fiscal situation with low indebtedness. Most of this healthy fiscal situation can be explained by the fact that the DF is in receipt of plentiful funding from the Union by way of transfers for financing expenditure - particularly personnel costs - in key areas of public expenditure such as security, education and health. Ill. Receipts and Expenditure Pe$orrnance In view of the situation applying to current and capital receipts, total revenue at constant prices tended to decline throughout the period This could be partly attributed partly to accounting processes and partly to non-accounting causes. Among the latter, the fall-off in constitutional transfers from the central government (eg: FPE and FPM) and the barely discernible increase in tax revenue, especially that derived from the ICMS were apparent. Tax revenue was not more depleted on account of the fact that from 2003 onwards the IRRF was entered as a Federal District Government receipt. Total expenditure fell in real terms over the period This was true of both current and capital expenditure. Expenditure on personnel and social contributions increased nominally throughout the entire period and were roughly the same for both the working and retired public sector employees (the latter including family members - pensionistas - normally in receipt of pensions from deceased beneficiaries). The DF commits almost almost one third of its personnel budget to payments for retired public employees and the pensionistas for which it is responsible. The public sector pensions deficit is growing, given that the DF has so far failed to implement reforms to the pensions/social welfare system supposed to benefit its employees. Furthermore, no reliable estimates exist of the DF s actuarial deficit in this respect. Expenditure on personnel as a proportion of RCL remained stable during this period and was not a cause of 68

73 fiscal imbalance. This was largely due to transfers from the Union to defray such costs. On the other hand, GDF public sector employment crept slowly upwards over the same period and remained relatively high as a proportion of the size of the DF population. Debt repayment costs relative to RCL have been reasonable because indebtedness, apart from being relatively low, has not increased to a great extent. Over the period as a whole, other current expenditure actually increased, demonstrating the difficulty of containing current expenditure. Capital expenditure was in line with the development of investment basically financed from current savings ( poupanqa ). Government-related expenditure however showed an increase in the area of public security together with a concomitant reduction on expenditure on infrastructure - while the other expenditure groups (administrative, social, economic, etc) remained stable during IV. Conformity with the Fiscal Responsibility Law (LRF) The DF keeps within the limits laid down by the LRF. The ratio between Consolidated Net Debt (DCL) and RCL is well under 2 - the upper limit imposed by the Federal Senate when it approved the regulatory framework for the Law. In fact, during the period the highest percentage of DCL with respect to RCL was 42% (in 2002).Up to August 2004, this ratio was The upper LRF limit imposed on expenditure on personnel was respected by the GDF Executive as well as by the Legislative branch. In the case of the Executive branch, the results are influenced by transfers from the Constitutional Fund by the Union for payments to personnel. In Fiscal 2004 (up to August), personnel-related payments stood at around 32% of RCL. The percentage of credit operations and debt servicing as a proportion of the RCL are well below the legally imposed limits. To August 2004 credit operations represented only 74% of the RCL. V. Compliance with the Fiscal Adjustment Programme Targets The DF subscribed to the 29 July 1999 contract governing the refinancing of its debt with the Union. The Contract of Declaration and Undertaking to Assume, Consolidate and Refinance Debts was authorised by District Law Number of 24 May In accordance with its terms, the value of the operation with regard to the DF amounted to R$642.3 million. In exchange, the DF undertook to carry out a Restructuring and Fiscal Adjustment Programme. The targets and results of the programme over the period are outlined as follows. The ratio between Financial Debt and Real Net Revenue (RLR) was met for each of the years concerned. Moreover, the figures indicate that there was (and is) a margin of indebtedness. The highest level was reached in 2003 when the financial debt stock represented 39% of RLR. The second target related to the primary result. This was achieved in all the years, with the exception of the first year in question. It should be noted that in all the years the primary result was positive. The personnel expenditure target refers only to Treasury sources and to expenditure on Direct Administration personnel and staff working for the autarquias (semi-public bodies), foundations and firms in receipt of funds from the District Treasury. The Own Revenue Collection target was achieved in all the years except the last. It should be noted that the target classification changed from own revenue growth rate (year 2000) to achievement of a determined value in nominal terms of own revenue collection (in the remaining years). The fifth target concerns the percentage of RLR earmarked for investment. With the exception of 2002, the final year of the previous mandate - when investment is usually heavier - this percentage remained below that defined in the annual fiscal adjustment reviews. Normally non- 69

74 compliance with this particular target does not cause the government difficulties. Noncompliance generally means that governments are making special efforts to improve and broaden the economic and social infrastructure of the areas for which they are responsible. It also means that fiscal adjustment has not led to expenditure on investments that remained relatively well protected. Through the implementation of its adjustment programme, the DF has demonstrated that it genuinely seeks to continue its trajectory of sustainability. There is no real evidence of fiscal imbalances during the entire period under analysis. Between 2000 and 2003, the DF improved its fiscal performance, eliminating the budget deficit evident in the first year of the series. In 2002, however, the final year of the previous mandate of the current governor of the DF, both expenditure and indebtedness increased. This reduced the budgetary and primary surplus vis-8- vis the average recorded for the immediately preceding years and increased the ratio between consolidated net debt and the RCL. Other current expenditure for example increased nominally by almost R$400 million from 2001 to 2002, which prompted the STN to set down for PAF a limitation on such expenditure for Fiscal Year 2003 (46% of RLR). This commitment was not complied with by the DF - as also in Fiscal Finally, the fiscal adjustment programme for the period sets out perfectly achievable targets, given the performance to date of the DF, but draws especial attention to two commitments that have not been complied with: (i) reform of the Public Sector Pension system and (ii) cutting back current running costs. VI. Forecast of the Fiscal Situation With the exception of year 2000, the DF had during the period under analysis a negative net financing requirement - its primary result plus its financial receipts were easily able to finance its debt obligations. This allowed the DF to obtain a B STN classification in terms of ability to pay. However, with the exception of 2001, its gross financing requirement was positive, insofar as its primary results and financial receipts were not sufficient to cover amortizations. Taking the performance of as a benchmark, positive (and increasing) primary results can be forecast up to year A forward view of gross financing requirements up to 2013 suggests that additional resources will be necessary - except during the last three years of the period - to enable the DF to cover its net financing requirements and expenditure on debt amortization. Over the coming years, new financing sources -whether credit operations, asset reduction or renewed efforts to increase the primary result - will be needed for the DF fully to meet its commitments. Prospective indebtedness capacity is nevertheless satisfactory. Projecting the RCL to year 2017, and multiplying its value by a factor of two in order to estimate the upper indebtedness limit for each year, the proportion of debt stock vis-8-vis the RCL would be 10.58% at the end of the period - effectively half of that of Furthermore, the forecast indebtedness capacity for indicates that on average the DF will need to disburse annually R$217 million on debt service, tying up an average of only 4.46% 70

75 of the RCL. Debt servicing includes debts arising from new credit operations and includes service on the sum requested from the World Bank for financing the Brasilia Sustentdvel Project. VII. Conclusions The DF has met all the relevant requirements under the Fiscal Responsibility Law and has in essence fulfilled the targets of the fiscal adjustment program agreed with the STN. Analysis indicates that the net consolidated debt of the DF is low as a proportion of RCLor RCR and has in fact increased very little in real terms. The DF has room to increase its indebtedness which is well below the upper limits defined by the Federal Senate when it originally defined the rules for the LRF. Its payment capacity is solid and under the limits laid down in this legislation. Therefore a margin for indebtedness and payment capacity exists even when the parameters of the projected loan requested from the World Bank to finance the Brasilia Sustentdvel project are taken into account. The requirements regarding credit operations and personnel expenditure limits were also met. Despite the success of the fiscal adjustment program, analysis of the DF public accounts highlights a number of difficulties and vulnerable areas. On the receipts side, the DF basically depends on intergovernmental transfers from the Union to guarantee its fiscal balance. Despite the fact that such transfers have declined in real terms over the period under analysis, they amount to around 50 % of current receipts and financial expenditure on personnel in sectors that happen to be the biggest employers in the GDF system: security, health and education. Such dependency leads to a much depleted revenue collection effort - vital for increasing the proportion of own receipts - within the context of current revenue (especially relevant in terms of the ICMS). It can be observed that the relationship between the ICMS and GDP is relatively low for the DF by comparison with other federative units, including those in the centre west region and even with the average for Brazil as a whole. The lower effective tax-take arises also from the award of fiscal incentives by the DF designed to attract private investment and from the frequently employed practice of conceding fiscal amnesties and stretching repayment periods. Increases in the ICMS tend to be sluggish not because the tax base is narrow but because relatively little effort is put into tax collection itself. On the expenditure side three questions arise. The first has to do with the high percentage of expenditure on personnel in relation to the RCL when expenditure affected with resources from the Constitutional Fund is taken into account. When resources on both the expenditure the receipts sides are subtracted, the percentages of earmarked resources fall to artificially low levels. Moreover, the number of public employees is high in relation to the population of the DF. On the other hand, the payroll has grown vegetatively on account of the presence of countless pecuniary benefits allowed by the legislation governing public service jobs. Initiatives to reduce these perquisites could be taken in the context of other reforms such as those needed to deal with the public sector pensions deficit. This leads on to the second question and relates to the above-mentioned shortfall in the GDF pension arrangements. The DF has not yet taken any steps to set in motion a reform of its pensions system. The pension s deficit has in fact ballooned over the period and is now generating an actuarial deficit of undisclosed size - which would certainly be even larger if the 71

76 system were not partially financed by central government. Efforts to introduce pension contributions from retired public sector employees (a measure that now has constitutional backing) would help to reduce the overall pensions deficit and make substantial savings on payroll costs. The future sustainability of the fiscal effort required to bring personnel expenditure under control will depend upon the adoption of a pensions reform which cuts back the resources currently flowing out to retired public employees. The third question relates to the current expenditure costs incurred by the DF government machine. Available figures show that running costs rose substantially between 2001 and 2002 and even more steeply between 2002 and The DF was unable to comply with its undertaking with the STN to reduce these costs to a predetermined percentage of RCL in 2002 or This demonstrates that administrative and payroll costs would be responsible for fiscal imbalances unless they were financed in part by transfers from the Union. Reducing such expenditure would provide space to increase the investment capacity of the DF and to consolidate its fiscal sustainability. Continuation of the fiscal effort and its prospects for success depends more on adjustments on the expenditure than on the receipts side. There is still ample opportunity to progress on both fronts. In the case of receipts, the significant dependency of the DF on intergovernmental transfers of funds from the Federal Government introduces a major element of risk insofar as the availability of such resources is not subject to control by the DF itself. The way to reduce this risk is for the DF to scale-up its tax collection efforts not only of the ICMS but also of other taxes to which the DF is entitled - as well, of course, to reduce the losses of revenue arising from fiscal incentives. 72

77 Annex 11: Safeguard Policy Issues BRAZIL: Brasilia Environmentally Sustainable Project This annex presents the Environmental Assessment and the Resettlement Framework summaries. The full reports can be found in the project documents. I. ENVIRONMENTAL ASSESSMENT Environmental Setting With three million inhabitants, Brasilia is the tenth largest urban concentration in Brazil." Despite its well-known planned urban environment, Brasilia, like most of the largest metropolitan areas in the country, shows high levels of socioeconomic inequality, uncontrolled urban growth, and environmental degradation. The largely uncontrolled urban sprawl of Brasilia undermines the natural capacity of the Cerrado - the most stressed ecosystem in Brazil - to provide key environmental services to support a sustainable metropolitan expansion. High population growth, rising water demand, and unabated pollution in the many unplanned settlements in and surrounding the DF and its Integrated Development Region (RIDE'l) adversely impact the quantity and quality of the available water resources. If left unchecked, these impacts could potentially impose high costs in terms of the erosion of the quality of life and health of the most vulnerable sectors of population, and could ultimately undermine the sustainable development of the region. Brasilia is also of critical environmental importance for Brazil as a whole. It is located the headwaters of three river basins of national and regional importance (the Parani, Tocantins/ Araguaya and S8o Francisco basins); and within a biodiversity reserve in the Ceri-ado ecosystem. In addition, 43% of the DF territory consists of environmental conservation units1*. Thus, promoting socially and environmentally sustainable development in Brasilia forms part of a continuing national strategy to foster sustainable economic growth in the mid-west region of the country. A comprehensive analysis of environmental issues at the regional level highlighted key issues likely to have the most serious impact on quality of life and the environment. It identified two strategic urban watershed basins for the DF and the entorno (the Descoberto and Parano% Basins) as the most critical for long-term urban sustainability. These two watersheds, which drain into Lake Paranoi and the Descoberto Reservoir, also comprise the Brasilia National Park. Lake Paranoi is an artificial lake and a major urban landmark, with substantial economic and environmental value for the population of Brasilia. In addition to being a feature of outstanding natural beauty, the lake provides a range of benefits, from leisure activities to electricity generation. Significant public investments have been made over the years to remove the pollution load discharged into the lake, with most of the investment directed to the collection and treatment of wastewater. At present, the entire formally occupied area draining into the lake has lo About two million in the Federal District and one million in the neighboring municipalities in the states of Goias and Minas Gerais. l1 The RIDE comprises the DF and 22 adjacent municipalities - 19 in Goitis and 3 in Minas Gerais l2 Does not include the Planalto Central protected area. Some of the conservation units, such as the National Park, falls into the category of 'strict protection', outlawing any type of use except biological conservation. 73

78 its wastewater collected and treated at tertiary level. Water quality in the lake is good and in a number of places the quality is suitable for bathing. The Brasilia National Park is an important urban environmental conservation unit located within the metropolitan area of Brasflia. Created in 1961, its main objective is to protect the Cerrudo biome and the water bodies that supply water to the city The Descoberto Reservoir provides 60% of the water supply for the 2,000,000 inhabitants of Brasilia. With the exception of Aguas Lindas, all wastewater produced in the Descoberto Basin is properly collected and treated, and rural activities regulated through a land-use management plan. To ensure protection of the water resources, the Environmental Protection Area (APA) of the Rio Descoberto was introduced in 1986 as a sustainable conservation unit administered by the Brazilian Environmental Agency (IBAMA). The project includes actions to strengthen the environmental management of this conservation unit. Environmental Threats The long-term sustainability of the Parano6 Lake and Descoberto Reservoir is being threatend by pollution loads from untreated sewage of low-income neighborhoods and from an open garbage landfill, as well as encroachment and poaching from low-income developments in close proximity to the Park. The main current source of pollution comes.from two irregular settlements: Vila Estrutural and Vicente Pires on the Paranoh Basin, and Aguas Lindas in the Descoberto Basin. Given that these are not connected to the city s regular network of basic services, the formulation and execution of an integrated technical project is needed for regularizing land tenure and providing urban environmental services in these areas. The Vila Estrutural, created by waste pickers working the Jockey landfill, has a population of about 6,500 families (approximately 30,000 people), making it the largest and most critical slum in the DF from a social and environmental standpoint. The DF urban and environmental councils, together with the official environmental agencies, recognize that the best alternative is to upgrade the urban infrastructure of the Vila Estrutural, mitigating its environmental impacts and at the same time improving the quality of life of the inhabitants. The alternative of relocating it has been ruled out due to the high social and economic costs involved. Adjacent to the National Park, Vila Estrutural also exerts a series of negative impacts on the flora and fauna of the park. The city landfill (the Jockey ) also borders the National Park and Vila Estrutural, causing additional harmful effects on the park environment. Numerous studies indicate that the landfill is also a serious threat to the groundwater. Vicente Pires is an irregular settlement with a high population density (around 3,000 families). While many residents have evolved their own individual solutions for water supply and sanitation, Lake Parano6 water quality studies point to the need to formally bring the settlement into the regular city water and sanitation network. The Jockey solid waste landfill was created at the time Brasilia was built, and its 200 hectares have provided a disposal site for the city s solid waste for over 45 years. Disposal techniques 74

79 have certainly improved over the years but still fall far short of the desirable. At present, the landfill receives about 60% (1.6 tons) of the total solid waste generated by the city; part of the remaining 40% is recycled, and the rest processed into compost. The existing landfill will remain operational, in its present form, for a further two years. The 700 Waste pickers of the Jockev solid waste landfill are organized in cooperatives and maintain constant contact with the GDF regarding the implementation of a program geared to meeting their demands, which is part of a wider initiative agreed with waste pickers and street garbage collector organizations nationwide (the Garbage and Citizenship Forum), with full support from the Ministry of the Cities. This Program, funded by local resources and the National bank for Social and Economic Development (BNDES), is designed to address the needs of all the street waste-collector cooperatives in the DF, including those working at the Jockey landfill. The GDF is currently assigning areas where recycling units might be built and discussing the transfer of relevant land titles to groups of cooperatives. Arzuas Lindas is a sizeable low-income settlement located in the neighboring State of GoiBs, with approximately 130,000 inhabitatnts. Wasatewater is disacharded raw into the descoberto reservoir. The GDF regards abatement of the pollution loads from Aguas Lindas as a top priority, given that the Descoberto reservoir i s a strategic water supply source for the city. Addressing the Major Environmental Issues in the Paranoh and Descoberto Watersheds Vila Estrutural. The Project will finance substantial social and environmental improvements in the Vila Estrutural through integrated and multisectoral interventions. The main activities include: (i) Improving local governance; (ii) Improving social services, to include education, health, income generation activities, and youth development;(iii) Improving basic services, including water, sewerage, drainage, street layout, paving, solid waste collection, effective household sewerage connection and the closure of sewer pits; (iv) Improving the urban design of the settlement, which will involve introducing land-use and building regulations, and establishing recreational areas; (v) In situ population resettlement to protect environmentally sensitive areas, with commensurate improvements to the urban design; and (vi) Rehabilitating and protecting environmentally sensitive areas by means of (i) expanding the riparian vegetation of the Vicente Pires stream, (ii) improving the land use regulations applying to the banks of the Val0 stream, (iii) creating an urban park and a buffer zone adjacent to the Brasilia National Park and the FLONA boundaries, and (iv) creating biological corridors connecting the National Park and the Vicente Pires and Val0 water courses and riparian vegetation. The Project will complement the required investments and will provide social and technical support to the cooperatives working on the landfill to improve efficiency and working conditions. Vicente Pires. The construction of W&S collection networks connected to the city s W&S systems will be financed under the Project, with the wastewater produced being treated in the nearest treatment plant Arzuas Lindas. Although it is located outside the boundaries of the DF, the GDF decided to invest in improving W&S services for its 130,000 inhabitants to eliminate the discharge of raw 75

80 wastewater in the Descoberto reservoir. Financed by the Caixa Economica Federal, a national bank, these investments form an integral part of the Project design. Providing an appropriate solid waste disposal solution. The construction of a solid waste sanitary landfill will be financed by the Project. The location has not yet been defined, since a full EA of the suitability of the area indicated by the city master plan to host the new sanitary landfill concluded that the location was not suitable, given it contained important environmental assets such as springs. Of the five alternative areas examined by the EA, an area next to the largest city wastewater treatment plant appears to be the most appropriate. Owned by the GDF s water company, this area possesses no major environmental assets and no population settlements exist nearby. The EA is being reviewed by the Federal and GDF s environmental agencies, which will jointly decide which other area(s) should be assessed from an environmental standpoint and evaluated from a technical, economic, and social perspective Policy and Institutional Development. The asymmetrical planning and management capacities between the DF - the economic engine for the entire region - and the surrounding municipalities have an adverse impact on the development of the region. With the aim of reducing inequalities and promoting more sustainable regional development, the GDF is looking to the Bank to provide appropriate expertise in planning and management. To meet this demand, the Project includes a strong policy and institutional development component, which will carry out studies that will enable more informed decision-making by the government on sustainable metropolitan development issues. Legal and Institutional Framework for Environmental Assessment Brazilian environmental legislation calls for detailed environmental assessment documents to be presented in accordance with the guidelines established by this legislation. Environmental licenses are issued subject to the environmental assessments being approved for each intervention. To comply with the legislation, environmental assessments have been prepared for: (i) Vila Estrutural; (ii) the closure of the Joquei solid waste landfill; and (iii) five different potential areas for the new solid waste sanitary landfill. A fourth assessment covering the proposed investments in the Vicente Pires area currently under preparation and a simplified EA was prepared for the Aguas Lindas interventions. Two environmental agencies are currently examining the above assessments: SEMARH (the GDF environmental agency) and IBAMA/DF. Once the environmental assessments are approved, the first environmental license (LP - preliminary license ) will be issued. The final technical design for the intervention will then be submitted for approval and award of the second environmental license (LI - installation license ), which allows the bidding for the civil works. At the conclusion of the civil works, IBAMA issues the final environment license following a field review (LO - license to operate ). In the case of Aguas Lindas, the environmental agency of the State of Goi6s will be responsible for analyzing the EA and issuing the proper environmental licenses. To comply with Brazilian environmental legislation, the proposed Project investments will comply with the environmental licensing process as detailed herein. 76

81 The concept, design and specific activities of the Project have been developed in close partnership with IBAMADF, who has expressed full support for the Project both in a number of technical discussions and in the course of public consultation. IBAMA s involvement does not, however, preclude the need for environmental licenses for each Project intervention. The EAs prepared specifically for the Vila Estrutural intervention, the solid waste sanitary landfill, and solid waste landfill closure have been submitted to lbama/df. All Eas have also been reviewed by the Bank. Compliance with the World Bank s Safeguard Policies The Project triggered and addressed the following Bank safeguard policies: Environmental Assessment (OP 4.01); Natural Habitats (OP 4.04); Involuntary Resettlement (OP4.12); and Safety of Dams (OP 4.37). The Project design incorporates the mitigation measures for each policy, as described below: OP Environmental Assessment (EA). In addition to the project spewcific environmental assessments required by Brazilian law, a comprehensive EA has been carried out in accordance with Bank policy for Category A projects. The EA assesses the existing conditions, identifies the potential direct and indirect environmental impacts and proposes adequate mitigation measures for each negative impact identified, along with measures for enhancing each identified positive impact. The mitigation and enhancement measures (including associated costs, responsibilities and schedule) are summarized in the Environmental Management Plan. A public consultation exercise has been carried out, supported by appropriate documentation allowing for a meaningful community participation in the decision-making process. OP 4.04 Natural Habitats. The Project will have a highly positive impact on biodiversity and natural habitats. The Brazilian Forest Code defines a Permanent Preservation Areas (APP) as an area which provides the environmental function of preserving water resources, landscape, geological stability, biodiversity, gene flow of the flora and fauna, protecting soil and ensuring the well-being of the human population. In accordance with Bank policy, these areas constitute Critical Natural Habitats. Two APPs exist within the project area - the Vicente Pires and Val0 streams - presenting different levels of environmental degradation. The Project will finance the rehabilitation and protection of the riparian vegetation of these two streams, with measures covered in the EMP. OP Involuntarv Resettlement. Two interventions, aimed at improving urban standards and quality of life of populations living in low-income settlements, and at ensuring environmental protection of strategic ecological systems, will require involuntary resettlement: (i) the Integrated Development Project to be carried out in Vila Estrutural, which will require the relocation of approximately 1,000 families, and (ii) the closure of the Joquei solid waste landfill, which will affect 700 the waste pickers who work in the area. The other project investments proposed for Aguas Lindas and Vicente Pires will not entail resettlement. The cost of all resettlement activities is estimated at US$9.5 million, and are 100 percent covered by the project budget. OP 4.37 Safetv of Dams. The provision of improved water services in Aguas Lindas will require raising the operating level of the Descoberto dam by 1.5 meters through the placement of additional gate infrastructure in the spillway, This will increase the reservoir yield from 4.7 to 77

82 5.1 liters per second. This reservoir, built in the 1970s, i s managed by the FD W&S company (CAESB), and is regularly inspected for safety. As part of project implementation, a panel of experts, following the guidelines of OP 4.37, will evaluate the designs for the proposed expansion once they are completed. OPN 11.3 Phvsical Cultural Property. To comply with the Bank s safeguard policy on cultural property, Chance Finding Procedures will be included in all construction contracts. Overall Environmental Impacts The proposed Project is expected to be highly positive from an environmental perspective, given that its objectives include environmental improvements, particularly related to the quality and quantity of water resources, as well as policy improvements and institutional strengthening over a broad range of environmental management issues. The Project is of itself an environmental protection initiative. Its objectives and design aim at the abatement of strategic pollution loads that contaminate critical water bodies and an environmental conservation unit. In addition to the environmental interventions, the Project will also improve the quality of life in specific lowincome settlements, support policy and institutional development, and strengthen the DF environmental agencies, in order to promote more sustainable metropolitan development. Water Oualitv and Ouantitv Issues. Implementation of the environmental sanitation system of Aguas Lindas, particularly of the wastewater collection and treatment system, will contribute to the improvement of water quality of the Lake Descoberto, given it will reduce the pollution loads draining into the lake. Diverting the treated wastewaters currently produced in Aguas Lindas to the Rio Verde Basin will significantly reduce the organic and phosphate loads flowing into the future Lake Corumbii IV, thereby contributing to averting the future risk of euthrophysation. Furthermore, the arm of the Areias River - the future headwater supplying water to the DF in accordance with the 2000 W&S Master Plan - will benefit from improved water quality for the local population; The water resources pollution control measures planned for the Vila Estrutural, consisting of drainage, street paving, and sewage collection improvements, along with the provision of water supply and sanitation arrangements for Vicente Pires and the closure and rehabilitation of the Jockey sanitary landfill site, will benefit Lake Parano6 environmentally, maintaining its aquatic ecosystem and its different tourism and leisure attractions, with a corresponding economic spinoff for the DF. At present, the worst water quality exists in the Riacho Fundo and Banana1 arms, precisely those that are most susceptible to renewed degradation in the absence of sanitation interventions in the Vila Estrutural and the Vicente Pires neighborhood. Appropriate Solid Waste Disposal. Foreclosing the activities at the Jockey landfill will bring direct benefits to the resident population of the Vila Estrutural, through the recovery of a degraded area, rehabilitation of sources of contamination of both surface and underground water and the reduction of the numbers of infectious and contagious waterborn disease-carrying vectors. A further benefit to the population will derive from the conservation of the biodiversity and water quality of the Brasilia National Park. The construction of the new Sanitary Sanitary 78

83 landfill will meet the long-held demands of civil society and the Federal Public Prosecutors Office. Rehabilitation of Environmentallv Degraded Areas. The rehabilitation of degraded areas, especially those from which gravel is dredged in the two basins targeted by the Project is a complementary measure designed to ensure good water quality by minimizing the effects of erosion and preserving the biodiversity of the areas. Policy and Institutional Strengthening. Institutional strengthening will produce important benefits in terms of averting environmental risks to the Brasilia National Park and preserving Lake Paranoii and the Descoberto and Corumbii reservoirs. These risks arise mainly from weaknesses detected in present land administration, involving urban, environmental, and solid waste management. Solutions include: training appropriate technical personnel, introducing the technical apparatus, making information available, and above all, instituting new management instruments able to reflect the competences and interests of institutional agents, both in the public and private sectors. Construction Impacts. Infrastructure construction could result in localized short-term environmental impacts, including dusthoise pollution and erosion. Potential air and water quality impacts could result from the extraction and transport of dredged sediments from the drainage improvement work, and unless well-managed, their disposal might also result in longterm water quality degradation. Some of these issues would be addressed through mitigation measures. Involuntary Resettlement. Implementation of project activities will require the resettlement of about 1,000 families that built their houses on the Jockey solid waste landfill and in an area where a buffer zone will need to be created to protect the Brasilia National Park. A Resettlement Framework to comply with the Bank s OP 4.12 has been prepared, and a Resettlement Action Plan will be drafted as part of the technical project for the area. This plan will be submitted to the Bank for review and approval prior to the bidding process for civil works. Environmental Management Plan Since the type, objectives, and activities of this Project respond to the need to rehabilitate and protect key environmental assets, the EMP activities form as an integral part of the tasks to be undertaken by the project, and their costs are already included in the project budget. The main features of the EMP are: Environmental Management System. Aimed at streengthenienfg the environmentral managementy capacity in all agencies involved withthe project. SEMARH is the agency responsible for this task, in partnership with IBAMA/DF. The cost is estimated at US$560,000. Social Communication Program. The preparation and execution of a Social Communication Program is included in the tasks of the consultancy firm that will provide support to the Project Implementation Unit. The contract will last five years and provide an appropriate umbrella for the Social Communication Program that entails carrying out ad hoc activities at appropriate 79

84 times, while ensuring consistency in approach, and cost efficiency. ADASNPMU will undertake institutional responsibility for this activity. The estimated cost is estimated at US$70,000. Institutional Strengthening. The institutional strengthening of regional, environmental, water resources, and sanitation management recommended by the EMP, constitutes Component 1 of the Project. The institutions responsible for implementing the activities under this component are SEDUH, SEMARH, IBAMA, BELACAP and CAESB. The amount is estimated at US$10 million. Preventing Encroachment of the Brasilia National Park, involving a series os structural and nonstructural measures to sterngthen the protection of this natural habitat. IBAMADF is the agency responsible for its implementation. The estimated cost is of US$ 300,000. Social Assistance to the Jockey Landfill Waste pickers. The waste pickers already receive assistance from the GDF through a program that involves solid waste pick-up cooperatives at national level and the Ministry of the Cities. In the DF, the government is donating areas for the associations where recycling units will be built. The Project will complement this budget and develop additional activities to support the cooperatives working at the landfill. The cost of this activity is US$2 million. Water quality monitoring in the Parano6 and Descoberto Basins, will strengthen and build capacity to monitor water quality issues in these key basins. CAESB, SEMARH, IBAMADF and ADASA are the responsible agencies, with the estimated cost included in the subcomponents budget. Rehabilitating Environmentally Degraded Area. This program will include activities such as the restoration the to-be-closed dum site, restoration of of degraded areas in the watersheds, reforestation and erosion control. It will be executed by SEMARH, with an estimated cost of US$2 million. Monitoring Execution of the Sanitary landfill Works. Monitoring the quality of the Project activities will form part of the functions to be performed by the firm of consultants providing support to the PIU. ADASNPMU will be the responsible agency, with an estimated cost of US $50,000. Environmental Education. It will include key comunities in the ewastershed and will address solid waste, park encroachment, water quality protection. The responsible agencies are SEMARH and IBAMADF. The estimated cost is US$400,000. Population Resettlement in Vila Estrutural. Resettlement of people living in risk-prone areas is an integral part of the social, urban, and environmental improvements that will take place in Vila Estrutural. SEDUH is the institution responsible for implementing the resettlement activity, estimated at US$8 million. Environmental Construction Manual. This manual has been prepared as part of the EA and will be included in all civil works bidding documents, as appropriate. 80

85 Stakeholder Consultation As part of Project preparation, a well-attended Public Consultation Meeting was held on 11 February, 2005, to discuss the final EA, which was also made available for public review at the Federal District Water Agency (ADASA). The key issues raised at the meeting are summarized in the EA. The documents also include the list of participants, key issues and recommendations. The terms of reference of the EA have also been subject to a consultation process and a number of highly relevant recommendations made by IBAMA/DF have been incorporated. 1. Project compliance with Bank s safeguard policies and Brazilian environmental licensing policies The table below summarizes the Project s responses to comply with the Bank s safeguards and the Brazilian environmental policies. 81

86 Is I I-

87 11. INVOLUNTARY RESETTLEMENT Two interventions, aimed at improving urban standards and quality of life of populations living in low-income settlements, and at ensuring environmental protection of strategic ecological systems, will require involuntary resettlement: (i) the Integrated Development Project to be carried out in Vila Estrutural, which will require the relocation of approximately 1,000 families, and (ii) the closure of the Joquei solid waste landfill, which will affect 700 the waste pickers who work in the area. The other project investments proposed for Aguas Lindas and Vicente Pires will not entail resettlement. The cost of all resettlement activities is estimated at US$9.5 million, and are 100 percent covered by the project budget. The Resettlement Framework for Vila Estrutural According to the EA for Vila Estrutural, approximately 20% of its families are living in at-risk or inappropriate areas from an urban and/or environmental perspective. Complying with the EA recommendation for the most appropriate alternative from a social standpoint, and in consultation with the community, the GDF opted for an in situ resettlement, where families will be relocated within the perimeter of Vila Estrutural, while observing the appropriate urban and environmental criteria. Since the technical project will be prepared only after the environmental agency has awarded the first of three required environmental licenses, the Borrower has prepared a Resettlement Framework for the Vila Estrutural intervention, in accordance with Bank policy. The Resettlement Action Plan will be developed in the first year of project implementation, based on a fully participatory and consultative process, and will include compensation mechanisms for physical and social losses, as well as offer full social and legal assistance and grievance mechanisms to the population affected. Image 1: Vila Estrutural Community, Joquei Landfill and the Brasilia National Park 83

88 Resettlement Approach According to the thorough Environmental Assessment (EA) prepared to evaluate Vila Estrutural social and environmental needs, approximately 20 percent of its families are living in inappropriate areas from an urban and/or environmental perspective. The EA findings and recommendations were discussed at several consultations with the Vila Estrutural community members and with civil society organizations involved in the conservation of the Brasilia National Park. To comply with the EA recommendation, the GDF chose the alternative of proposing to resettle the families within the perimeter of the Vila Estrutural, observing appropriate urban and environmental criteria since this constitutes the best alternative from a social standpoint. Those families have strongly rejected the alternative of being removed to another area. In addition, the DF does not have a legally-titled area to accommodate this population, as recommended by its policy for unregulated low income settlement. Annex 16 presents a brief overview of the primary socio-economic characteristics of its residents. Resettlement Principles The ultimate objective of the project resettlement framework is to improve the quality of life of those families to be resettled. To achieve this objective, the framework comprises 7 principles: (i) minimize the number of households to be resettled; (ii) provide a set of compensation alternatives for those affected families; (iii) preserve or improve the current living conditions standard of those affected; (iv) ensure the possibility of income recovery; (v) fair compensation to the housing unit; and, (vi) guarantee the provision of social services to those affected. In addition, the GDF is also committed to: (i) initiate the negotiations with the families to be resettled only when all compensation alternatives are available; (ii) ensure an optimal timing for the population to choose the most suitable compensation alternative among those offered by the project; (iii) address the claims raised by the families; (iv) conduct the civil works according to an appropriate resettlement implementation timetable; (v) provide legal and social support to the population; and, (vi) ensure smooth cooperation between the resettlement and civil works teams. Eligibility Criteria The families entitled to the project resettlement compensation alternatives include those covered by the cadastre to be undertaken by the SEDUH for the entire population living in Vila Estrutural. This cadastre constitutes the first activity comprised by the Integrated Development Project that will be prepared for Vila Estrutural in the project s first implementation year. The degree of people affectation will be classified as total or partial and direct or indirect while the property ownership will be defined as owner or tenant. Compensation Policy The project resettlement framework seeks compensation for physical and social losses and also provides a full social and legal assistance during the resettlement process. 84

89 Alternatives: The affected population will benefit from two major alternatives: (i) move to new housing to be constructed within the Vila Estrutural; and (ii) social and financial assistance to move to another neighborhood or city chosen by the family. Tenants will be informed 6 months prior to the civil works commence and will receive social assistance to reintegrate in the new area. Land Titles: Resettlement housing units will be provided with regular land titles, which will be also provided to the entire Vila Estrutural housing units. Housing Model: New housing will be designed in accordance with technical standards and current legislation, and constructed within the Vila Estrutural. Housing mixed-use purposes: In case of impact upon affected properties used for commercial, industrial or mixed-use purposes, the following compensatory measures will apply: (i) access to a housing model allowing the family to continue the activity; (ii) removal assistance; and (iii) social assistance. Removal Assistance: All affected families will receive removal assistance to transfer their movable assets. Legal and Social Assistance The project will provide legal and social assistance to facilitate the resettlement process. The social assistance includes support to the families in the new housing environment aimed at creating the appropriate conditions for social interaction. Grievance Mechanisms The project will create units for facilitating the assistance and grievance mechanisms close to the area from where the families will be removed. These units will constitute an office and a multidisciplinary team. The assistance as well as the Q&A provided will be registered and follow-up will be ensured through a monitoring system to be enforced by the SEDUH. Institutional Responsibilities The SEDUH will be in charge of coordinating all project resettlement actions, facilitating and consolidating the necessary partnerships with all concerned organizations, including communitybased, governmental and business. Monitoring The monitoring of resettlement will include participatory surveys at three stages: (i) immediately following the cadastral survey, to select a group of affected families that would be monitored throughout the resettlement process; (ii) after the negotiation process, following the transfer of housing or payment, and; (iii) between 6-18 months following resettlement. 85

90 Resettlement Plan Methodology The framework discusses the following methodology for the preparation of the Vila Estrutural resettlement plan: Part 1 -Data Collection for Planning a. b. C. d. e. f. g. h. Definition of intervention area and resettlement polygonal Decree of public use for property expropriations Resettlement and property cadastres Notification Scio-economic profile of the affected population Land property study and population assessment Resettlement location model Community participation Part 2 - Elaboration of the Resettlement Plan a. Analysis of the socio-economic profile of the affected population b. Analysis of the affected property c. Quantitative and qualitative classification of the affected population d. Detailed compensation policy e. Detailed legal and social assistance f. Institutional arrangements and responsibilities g. Detailed costs and monitoring plan Institutional responsibilitv The resettlement activities will be coordinated by SEDUH and executed by a team of social workers with expertise in implementing resettlement operations based on the BIRD safeguard policies. These specialists will be hired through the consulting services that will be contracted to assist the PMU in managing the project implementation. Vila Estrutural Resettlement Activities Total Cost (US$ million) Resettlement Action Plan preparation 0.5 Resettlement housing units 8.0 Social and legal assistance 1.o Total 9.5 Bank loan amount % Bank (US$ million) financing % % 1.o 100% 9.5 loo%l Social and Technical Assistance Program for the Joquei Landfill Waste pickers To address the situation of the approximately 750 waste pickers who work in the landfill collecting recyclable material, a resettlement program that aims at improving their social and economic conditions will be developed. Extensive dialogues were carried out between the GDF and ten local scavenger cooperatives and the national Solid Waste and Citizenship Forum of which they form part. As a result, agreement was reached that the GDF would provide nine areas for the construction of an appropriate place to improve the waste collector s activities that 86

91 would allow them to continue exercising their current occupation under better conditions, both in terms of health standards and revenue generation. A preliminary proposal was prepared in consultation with representatives of the organizations and the national organization, and a definite proposal will be developed during the first year of project implementation. The dialogue promoted by the GDF involves all the waste collector cooperatives in the DF, which are organized in 10 cooperatives. There approximately 1,800 waste collectors in the DF and 80% participate in these cooperatives. These entities have agreed upon a project with the GDF that would allow them to continue with their current job but under better conditions, both in terms of health protection and revenue generation. Three of these cooperatives (450 participants) work in existent recycling centers. The other collect from specific neighborhoods such as the public building, which waste have a high value due to the large amount of paper. In other neighborhoods, the households undertake recycle. The dialogue with the Joquei waste pickers are carried out as part of broad dialogue with the all waste collector cooperatives in the DF. As a result of this dialogue, it was agreed that the GDF would provide 9 areas for the construction of an appropriate place to improve the waste collector s activities. These areas are already being assigned to the cooperatives and resources for the building and equipments will be financed by BNDES (US$2.5 million). The alternative offered to the waste pickers working at the Joquei Club landfill includes a construction and appropriate equipments to allow them to continue their activity after the landfill closure, but under more adequate social and technical conditions. A more profound and definitive discussion will take place once two strategic steps are achieved: a. the solid waste master plan under preparation presents alternatives for improving the sector efficiency and solutions for the population living from the solid waste; b. the studies being carried out identify the appropriate location for the sanitary landfill. The cooperatives involved in the dialogue already expressed their desire of continuing to carry out their existent job under better conditions. The positive aspects raised are: personal independency provided by this type of activity and possibility of reaching average revenue far superior to what the formal job market would offer. Development and Implementation of the Social Inclusion Project The Assistance Program entails the provision of social and technical assistance, execution of civil works, and provision of equipment, needed to improve the working and social conditions of the waste pickers of the Joquei Club solid waste landfill. Image 2: Waste pickers of Recycled Material at the Joquei Landfill 87

92 The main technical activities to be developed include: Update thorough assessment of the waste pickers social and economic conditions; Provide social.works to support the waste pickers in their dialogue for an appropriate solution and development of a working plan; Assessment of the capacity of existent recicling units to receive some waste pickers coming from the Joquei Club (JC); Interaction with the techcnical staff preparing the solid waste master plan under to discuss recycling programs being proposed and possibilities of involving the JC waste pickers; Assessment of other opportunities offered by the solid waste collection and disposal services (reciclying centers, street cleaning, solid waste transportation); The main social support activities include: Improving self-esteem; Improving confident in the dialogue with the public sector and the project; Reducing the number of guns; Providing formal personal documents; Improve cooperative organization; Job skills training; Support informed decision making with respect to selling prices; Support to higiene education programs; Support to the families involving them in social development programs, school, health assistance; Support to youth development programs; 88

93 Annex 12: Project Solid Waste Disposal and Clean Development Mechanism - CDM BRAZIL: Brasilia Environmentally Sustainable Project 1. The Joquei Clube solid waste landfill The Federal District collects 3,000 to 3,500 tons of solid waste per day. About 50 percent of these amounts (1,600 tons) are disposed at the sanitary landfill Jockey, the official DF s land disposal site for the past 35 years. The remaining 50 percent comprise construction debris disposed in specific land fill sites, recycle material and organics processed in the composting units. The Joquei landfill (200 hectares) receives mixed municipal solid waste, excluding construction debris. The landfill is located between the Brasilia National Park and the large slum Vila Estrutural. Most 200 hectares has already been used and covered with soil and vegetation, showing no compliance with rigorous technical criteria. The open waste cells (about 50 hectares) suffer from poor construction solutions and operational procedures. The dump only receives periodic soil cover, which is undertaken after spreading and compaction of the waste. The site is not graded to minimize percolation of rain water, drainage is not well managed, leachate is not appropriately collected or treated, and gas is insufficiently managed. The poor design and management resulted in shortening the site operation time life. Studies carried out estimated that the site would continue to be operational for 2 more years. The technical alternatives being considered for closing the sanitary landfill include: a. amplification of the existing leachate collection basin and drainage system; b. implementation ground water quality monitoring systems; c. drilling and implementation of a sanitary landfill gas venting system; d. complete sealing of the sanitary landfills; e. greening and reforestation of the area; f. superficial drainage system and other investments to ensure a proper closure to avoid any further environmental impacts. An environmental assessment has been prepared for the sanitary landfill closure. This EA is under review by IbamaDF, the environmental agency responsible for issuing the licensing for closing the area. Once the environmental licensing is issued, along with usual additional environmental recommendations, the technical designs will be concluded. In addition, the closure will be properly integrated to the provision of better alternatives for the waste pickers working in the area, as described above. The estimated costs for the closure of the sanitary landfill are estimated at US$ 4,5 million. These costs would increase to US$ 5,4 million i forced sanitary landfill gas collection system, including flares, are added. 2. Brasilia CDM sanitary landfill projects: Both Brasilia sanitary landfills, the open dump Jockey and the future sanitary sanitary landfill to be financed by the Brasilia loan, are planned to qualify for this innovative global Greenhouse gas emission trading market. The Project components include investments in a gas collection system and flares at both sites. The main Project components for both sites include: 0 Gas collection system a Flares 89

94 /,--'---- The gas collection system will use state-of-the-art technology. The sanitary landfill uses cells coated with an impermeable high-density polyethylene membrane; water residues will be channeled and treated in a waste water treatment plant. Sanitary landfill gas will be collected and channeled to the power generation units; excess gas will be flared. Vertical wells will be used to extract gas, and their spacing is optimized, aiming at maximizing gas collection and minimizing costs. Gas headers will be designed as a looping system in order to allow for partial or total loss of header function in one direction without losing gas system functionality. Condensate extraction and storage systems will be designed at strategic low points throughout the gas system. Efforts will be made to minimize condensate handling. The flares, to be installed in parallel with the generator sets, will be 2000 m3/hour Modular Ground Gas Flares. The flares employ a biogas technology design and will be skid or base frame mounted ground flares. Ground flare stacks enable higher burning temperature to ensure low emissions. The burner unit is fully adjustable to enable high temperature flaring of the sanitary landfill gas, which will vary in both quality and quantity from site to site, and over time. The unit is comprised of multiple stainless steel burner nozzles mounted onto a pedestal which supports the flare stack and houses the primary and secondary air supply ductwork. Manual and actuated 90

95 louvers are provided to control the air supply and manual valves in the pipe work to control the gas supply. A very conservative estimation for the overall potential of Emission Reductions to be generated at the Jockey sanitary landfill is 2.3Mio tons of C02 within the next 20 years and the new sanitary landfill would be able to capture 1.6 Mio tons of C02 in the same period. As international purchaser would normally purchase ERs only,until the year 2012, when the first commitment period of the Kyoto Protocol ends, the total of emission reductions could sum up to 2,6 Mio tons of C02, considering that the Jockey sanitary landfill start to be closed by end of The international emission market is currently paying around US$ 5 per ton of C02e. Therefore, the expected revenue from a potential CDM project would be US 13 Mio. When considering the overall costs of US$ 9.5 Mio. for the closure of the open dump and the construction of the new sanitary landfill, including the investment in the appropriate collection of methane and flaring, carbon finance will be able to essentially cover the entire investment costs. Payment for emission reductions will occur only after the verification of the performance, Le. during the implementation of the projects and not as upfront payment. 3. Construction of the DF solid waste sanitary landfill The construction of a new sanitary sanitary landfill is considered the most appropriate solution for a large quantity of the solid waste in Brasilia. A sitting study for the new sanitary landfill is being finalized, analyzing environmental impacts of 3 different sites close to Ceilandia and one in Gama (all within the Federal District). This study evaluates the four options and rates the criteria. It is currently being analyzed by the relevant agencies in the Federal District (SEMARH and Belacap) and IBAMA. The new sanitary sanitary landfill to be constructed and operated by a private concessionaire should include several items to be elaborated in subsequent studies, such as geotechnical studies, superficial drainage systems, liners, leachate treatment systems, internal leachate and gas drainage systems, protection belt around the sanitary landfill, flares, gate control and weighbridge etc. The gas collection system will use state-of-the-art technology. The sanitary landfill uses cells coated with an impermeable high-density polyethylene membrane; water residues will be channeled and treated in a waste water treatment plant. Sanitary landfill gas will be collected and channeled to the flares, Vertical wells will be used to extract gas, and their spacing is optimized, aiming at maximizing gas collection and minimizing costs. Gas headers will be designed as a looping system in order to allow for partial or total loss of header function in one direction without losing gas system functionality. The costs for the construction of the sanitary sanitary landfill are estimated to be US$ 3Mio. If an efficient sanitary landfill gas collection system including flares will be installed, the investment cost will increase to US$ 4 Mio. The World Bank is sought to finance only the construction and the sanitary landfill gas collection, but not the maintenance of the operation. 91

96 4. The Kyoto Protocol and Carbon Trading Mechanisms The Kyoto Protocol (KP) aims to reduce the global greenhouse gas emissions and defines that OECD countries and Economies in Transition (EIT) will have to reduce their emissions by 5,2% below the 1990 level in The Kyoto Protocol defines furthermore, that OECD countries will be able to purchase part of the emission reduction commitment through specified trading mechanisms, namely (i) Joint Implementation, which is a trading mechanism between OECD countries and Economies in Transition and (ii) the Clean Development Mechanism (CDM), which sets up an Certified Emission Reduction trade between industrialized countries and developing countries. CDM transactions foresee that OECD countries can purchase Certified Emission Reductions - CERs - from projects in development countries to contribute to their reduction commitment. The Kyoto Protocol entered into force February 16, The Latin America region generally, and Brazil specifically, have been among the most aggressive countries globally in pursuing the CDM opportunity. Private sector and civil society see carbon finance as a natural extension of their desire to attract foreign investment flows and technology transfer. Brazil was an early advocate of including the CDM within the Kyoto Protocol structure, and is basing a significant part of their national sustainable development strategy on the country s ability to attract external financing through the provision of global environmental services for biodiversity protection and climate change mitigation. The World Bank, through the Prototype Carbon Fund (PCF) and related carbon finance vehicles, has taken a leading role in the early implementation of the Kyoto Protocol and can be an important partner in efforts to develop Brazil s world-scale market.. 5. The Role of the World Bank in the Carbon Finance Business,: Today the World Bank Carbon Finance Unit unites already 9 Carbon Funds, summing up more than US$ +350 Mio. Current carbon finance projects in the Bank s Brazil portfolio include: Plantar ProjecVMG, replacement of coal/coke with sustainably produced charcoal in the pig iron sector and Nova (sanitary landfill gas for power generation) in Nova Iguacu, which was the first ever CDM project registered worldwide. Three cogeneration projects (wood residues and bagasse) are being approved right now and several other projects are under development and are screened. 92

97 After having developed first-of-a kind projects in the first phase of the market development to pave the road for other project developers, The World Bank is now very interested in increase the dialog with other buyers of Emission Reductions and to promote as much as possible the crowding-in of the private sector. Carbon Finance has to be seen as a tool to reach the objectives of the CAS and has to fit harmoniously into the Bank s strategy. Therefore, the World Bank will only intend to purchase Emission Reductions (ERs) from projects where the Bank has a direct interest (underlying loan, direct link to Bank operations). In all other cases, the Bank will contribute to capacity building and technical advice on how to set up projects but will not engage as the purchaser 6. Solid Waste Management and Clean Development Mechanism: Capture of methane in the solid waste management sector, specifically from sanitary sanitary landfills represents one of the most attractive options for Clean Development Mechanism projects. Methane is a very powerful greenhouse gas which has a 21 times higher impact than Carbon dioxide. As the capture of methane i s not mandatory by law, this kind of project is seen as additional as defined in the Kyoto Protocol and therefore qualify as CDM project. From a country perspective, it appears that currently the most attractive tool to improve waste management practices on the short run is the use of carbon finance (CF). Although, CF is demand driven and as a rule of thumb only financially feasible for municipalities above 100,000 inhabitants, there are roughly more than two hundred sites that have potential to receive carbon finance by reducing methane emissions in Brazil, 50% involve open dumps. Generally carbon finance payments can easily cover an appropriate closure of open dumps and construct a new sanitary sanitary landfill or appropriately upgrade existing sanitary landfills including the reintegration of waste pickers and find recycling solutions. Power generation under current energy prices and taxation proves to be less profitable even with the subsidy of carbon finance. 93

98 Annex 13: Social Analysis BRAZIL: Brasilia Environmentally Sustainable Project This Annex briefly describes the socioeconomic context of the DF, RIDE, and particularly of the Aguas Lindas de Goiiis and the Vila Estrutural. The evaluation of those issues has been critical to the design of Component 2 - Social Inclusion and Poverty Reduction, presented in Section B of the present document. 1. Demographic Context in the DF and the RIDE The DF s population has grown vigorously since Brasilia s construction, rising from 15,000 in the late 1950s to more than 2 million in Such demographic growth has, by large, challenged the premise that the DF should not exceed 500,000 inhabitants to guarantee its social and environmental quality. With 95 percent of its territory urbanized, the DF has been gradually divided into 19 administrative regions (RA), including Brasilia. The DF density is unequally distributed with 63 percent of the population living in its southwest quadrant. Ceiliindia, Taguatinga, Brasilia and Samambaia alone concentrate 46 percent of its population. In terms of demographic growth, Brasilia decreased -0.5 percent from mid-1990s to 2000, while all other RAs had an average 3.0 percent increase, ranching from 0.08 percent in Ceilandia to percent in Riacho Fundo. The DF is part of the DF Integrated Development Region (RIDE), which comprises 22 municipalities, 19 from the State of Goiiis and 3 from the State of Minas Gerais, and concentrates almost 3 million inhabitants. The RIDE has a demographic growth three times higher than all other Brazilian metropolitan regions. For instance, in 1997, the DF grew 2,s percent and the RIDE 5,7 percent in comparison to 0,4 percent in the Port0 Alegre Metropolitan Region. The RIDE most populated cities are Aguas Lindas, Valparaizo and Luziiinia. 2. The Socio-spatial Poverty of the DF Paradoxically, while the construction of the world s first modern city attracted tens of thousands of migrants in search of jobs, the lack of basic infrastructure to accommodate those incomers resulted in an unplanned occupation ( invasions ) of its larger territory. Urban and environmental restrictive measures were established to control the occupation and access to Brasilia s Plano Piloto, such as the Paranoii sanitary ring implemented in the late 1960s and the two water reservoir created in the 1970s. Earlier invasions were also eradicated and their population settled in satellite cities 20km away the Plano Piloto. Lately, the Plano Piloto unaffordable land and housing prices has contributed to expel the poor, and driven the establishment of innumerous low-income parcels in nearby municipalities, such as Aguas Lindas in the State of GoiBs. Such restrictive urban code has resulted in layers of socio-spatial polarity in which the closer to the Plano Piloto the better the quality of life, particularly in terms of services and infrastructure. In terms of employment, 53 percent of the total DF s population are economically active while 83 percent occupied (IBGE 2000). In the RIDE, according to the National System of Urban 94

99 I percent occupied (IBGE 2000). In the RIDE, according to the National System of Urban Indicators (SNIU), besides the DF, only 6 percent of its total population had a formal job in Adding the informal market, this percent double, showing that only 12 percent of the RIDE total population is economically active and/or occupied. 2.1 Index of Municipal Human Development (IDH-M) for the RIDE The IDH-M was calculated in 2000 for the DF, RIDE, the States of Goiis and of Minas Gerais. The DF presents the country s higher IDH-M ranking, specially with regard to income, followed by the State of Goias (7) and Minas (1 1). Table 1: Index of MuniciDal Human DeveloDment ---AS Longevity (IDHM-L) 0,756 0,723 0,764 Literacy (IDHM-E) 0,935 0,802 0,854 Income (IDHM-R) 0,842 0,624 0,686 State of Minas 0,736 0,850 0,711 - IDHM I I I I Source: IBGE/IPEA/FJP (2000) The IDH-M was combined with the Index of Development (IDD) in order to realize the internal contradictions and achievements within the DF, as follows. 2.2 Index of Development (IDD) for the DF The IDD comprises other three indices, GINI, Education, and Income per Capita, and presents the sum of a set of indicators for the DF socioeconomic status. The Index was calculated in 1996 and 2000 for all 19 RAs due to the absence of a desegregated IDH per RA. The GINI index showed an increase of 5,2 percent in income concentration within the DF in the period. Interestingly, the index revealed that the richer the RA the better the distribution of income while the poorer the worst. The education index focused on the relationship between real and ideal years of school attendance, On average, there was a move up to 5,2 percent in the DF, ranging from 21 percent in Siio Sebastiiio to - 8,5 percent in Planaltina. Despite concentrating the country s higher income, US$ 5,00, which represents more than the double of the national average (BGE 2000), the income is unevenly distributed in the DF. As expected, the R As within the limits of the Plano Piloto (Brasilia, Lago Sul, Lago Norte and Cruzeiro) have the higher domiciliary income (average US$ 700) while those outside have the lowest from US$ 150 to US$50 (Paranoi, Riacho Fundo, Samambaia). Combining all three indexes, the IDD reveals an overall 4,5 percent lower socioeconomic status in the DF from 1996 to 2000, due to loss and concentration of income. Four RAs showed a move up in their IDD due to improvements in education. 95

100 3. Aguas Lindas de Goihs Aguas Lindas de Goiis is a visible result of the DF lack of public investments in adequate services and basic infrastructure in the RIDE municipalities. It also illustrates the impact of the DF restrictive urban occupation code upon the poor, who either cannot afford or is expelled from well provided areas in terms of services, infrastructure and employment opportunities to live in informal parcels outside the DF limits. Dismembered from the Municipality of Santo Antonio do Descoberto in 1997, Aguas Lindas is located besides the Lake Descoberto, which supplies 60 percent of potable water to the DF. The absence of a sewerage and water supply systems, and consequent perforation of irregular artesian wells in the municipality have been seem as the major sources of contamination of the ground waters that supply the Lake Descoberto. Such lack of basic services in general and subnormal occupation has not only disrupted the environment, but the social frame. In 1998, Aguas Lindas presented an infantile mortality rate of 30 percent. This situation has been aggravated by an explosive demographic growth (50 percent a year), which has given to Aguas Lindas the status of the municipality with the highest demographic growth rate of the country. In only three years, Aguas Lindas tripled its population from 30,000 in 1997 to 120,000 in To address that, the governments of DF and of Goiis recently set up a joint action plan in which the Lake Descoberto dam would be raised in 8 percent while the irregular artesian wells substituted by an adequate water supply system. The plan has a twofold objective: to increase the Lake water supply capacity while eradication those existing sources of ground water contamination. 4. Vila Estrutural The Vila Estrutural has its origins in the early 1960s by a small group of waste pickers who used to work in the Joquei Clube open waste landfill. Located 7 km from the Plano Piloto at the RA Guara, the Vila is within the limits of the Brasilia National Park, the Joquei Club and the Petrobrds pipeline. The Vila illustrates a typical invasion from the time of Brasilia s construction, but one of the very few that was not eradicated probably due to its incipient size in its auspices. The Vila grew vigorously in the last decade, rising from 90 families in 1991 to 30,000 residents and a density of 285 inhabitantdkm2 in It is worth noticing that such explosive growth was largely stimulated by candidates who supported poor peoples migration to the Vila in exchange of their votes during recent political campaigns. This represents a change in the characterization of the Vila s occupation from spontaneous to an inducted process due to economic and political reasons. As most spontaneous settlements, public services are almost inexistent and the living conditions are very precarious in the Vila. Comprising 17 residential blocks and 1 working sector, the Vila has few kinder gardens, and 1 ill-equipped police post at its entrance. There are no paved streets, 96

101 no sidewalks, no drainage system, and no cultural places. 90 percent of the houses are supplied with energy, but inconsistently. Many electrical connections are inadequate, a potential source of fires. There are no telephone lines. Many houses are made of carbon paper, and most lack the necessary sanitary conditions. The domestic sewer is collected in fosses at the back of the houses, leading to contamination of the subterranean waters and associated health problems. The tiny streets do not allow the access of cars and of public services, such as the waste collection truck and the fire brigade. In 2003, after ten years of struggle, CAESB implemented a potable water system with hydrometers in all existing houses. 91 percent of its residents settled in the Vila more than 5 years ago. The great majority is original from the Northeast region, specially Bahia, Piaui and Maranhiio while 14 percent migrated from within the DF. Approximately 40 percent of its residents are between 20 and 40 years of age, and 28 percent between 0 and percent of the children between 7 and 14 as well as 84 percent of the population above 15 years of age are literate. 14 percent of children at school age are out of the educational system. 40 percent of the population economically active has no formal job ( autonomous ), including many street vendors and sub-employers. Around 800 people between 18 and 70 years of age work in the Joquei Clube open waste landfill. The Joquei Clube was set up during the construction of Brasilia in the early 1960s, and were the main destiny of its waste till 2000, when the governments inaugurated the waste treatment plants in Asa Sul, Ceilhdia and Brazlhdia. Today 500 tons or 20 percent of the total waste produced in the DF is still dumped in the Joquei Clube, and sorted by those waste pickers as their main source of livelihood. Despite all their exposure to heavy metals and associated problems, such as intoxication and cancer, the work autonomy and income (which is diminishing every year) are still the major motivations keeping those waste pickers working in the Joquei Clube landfill.. Vila Estrutural is considered one of the most violent places in the DF. In 2000, 84 homicides per 100,000 inhabitants were registered. According to residents interview to the newspaper Jornul do Brusil in 2002, deaths and shots at night are usual. Cars are broken while household appliances, bicycles and gas cylinders are robbed at day light. Drugs are openly trafficked., More recently, a new modality of crime has emerged in which gangs expel residents from their houses, and later sell them to buy drugs. The Vila comprises 29 civil society organizations, and 19 sub-governments, one per block, meaning 1 representative per 520 residents. In addition, 1 community radio, 1 catholic and more than 60 evangelic churches, and 213 small business, including supermarket, hairdressers, bars, restaurants, and a car repair shop. People expectations evolve particularly around the importance for them to have a regularized address and all necessary services and infrastructure. As important as providing the residents a better quality of life through those benefits, is the need for creating a sense of inclusion of the community into the DF social frame. That is precisely what the Brasilia Sustentivel Project aims at through an integrated development approach toward the Vila and its residents. 97