PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB972 Project Name. Brasilia Environmentally Sustainable Pro Region

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1 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB972 Project Name Brasilia Environmentally Sustainable Pro Region LATIN AMERICA AND CARIBBEAN Sector General water, sanitation and flood protection sector (100%) Project ID P Borrower(s) GOVERNMENT OF BRASILIA Implementing Agency Environment Category [X] A [ ] B [ ] C [ ] FI [ ] TBD (to be determined) Safeguard Classification [ ] S 1 [X] S 2 [ ] S 3 [ ] S F [ ] TBD (to be determined) Date PID Prepared June 10, 2004 Estimated Date of January 27, 2005 Appraisal Authorization Estimated Date of Board May 20, 2005 Approval 1. Key development issues and rationale for Bank involvement With three million inhabitants, Brasília is the tenth largest urban concentration in Brazil. 1 Despite its well-known plan for urban development, Brasília shows high levels of socioeconomic inequality, uncontrolled urban expansion, and environment degradation, as are found in most of the largest metro areas of the country. For instance, while annual per capita income in the Federal District (FD) is the highest in Brazil (R$14,500), 58% of its population earns less than 20% of this level (R$2,340). In the neighboring municipalities of the entorno 2 in the states of Goiás and Minas Gerais, this proportion is higher than 80%. The largely uncontrolled urban sprawl in Brasília occurs in the most stressed ecosystem of the country, the Cerrado, and compromises 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 FD 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. Brasília s environmental importance lies in two main factors: a) its location at the head waters of three key watersheds of national and regional importance (Paraná, Tocantins Araguaya, and São Francisco); and b) as a reservoir of biodiversity in the Cerrados ecosystem. Additionally, 43% of the FD territory is made up of natural protected areas (APAs). 3 Promoting socially and environmentally sustainable development in Brasília has been part of a national development strategy to foster sustainable economic growth in the center-west region of the country. 1 About two million in the Federal District, one million in the neighboring municipalities in the states of Goiás and Minas Gerais 2 The local name given to areas outside the planned areas-plano Piloto--of Brasília 3 Area de Proteção Ambiental

2 Undoubtedly, a substantial part of this strategy has been achieved over the fifty-year history of Brasília. 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 that affect the capacity and increase the cost of providing urban and regional services. The FD requests World Bank lending assistance to formulate and implement a sustainable development strategy addressing priority environmental and social development issues in the FD and the RIDE. 4 The FD 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 FD would blend the proposed lending operation with a GEF grant, which would seek sustainable productive landscape and biodiversity conservation in the Cerrados. Additionally, the FD is keen to build a partnership with the Bank in order to access carbon credits in exchange for improved solid waste management, which would be financed under the proposed project. The Bank partnership would bring acknowledged experience in conceiving and implementing integrated approaches for addressing the brown environmental agenda in Brazil. In preliminary dialogues, the FD cited the relevance of Bank participation in the Water Quality Projects during the 1990 s, as well as the Bank s renewed involvement in financing municipal governments to undertake integrated interventions. The FD proposed 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. In addition, the proposed project contributes directly to the CAS objective of a more sustainable Brazil, by supporting the sustainable management of natural assets and providing local environmental services, as well as by enhancing cooperation among sub-national governments. Main policy issues to be addressed by the proposed project include the following: (a) Water resources sustainability in the FD: Water Resources Management (WRM) is a priority for the FD. Currently, major interventions with impact on WRM are under execution, such as a large sanitation project, financed by the IDB, that will considerably increase the regional capacity in sanitation coverage and treatment. That project also supports the creation of a water agency (ADASA) with attributes on WRM and sanitation policies. Building on this stock, the FD priorities include (i) investing in regulatory, technical and legal tools to consolidate the implementation of WRM policies; (ii) strengthening inter-institutional coordination such as with ANA (federal water agency) and the São Francisco River Basin Plan, which includes the FD; and (iii) rethinking urban and environmental policies to improve synergies and coordination among sectors. (b) Integration with GEF support Cerrado and biodiversity protection in urban productive landscape: 100% of the FD territory lies in the Cerrado biome. The location of the FD - at the head waters of three key national watersheds underscores the critical role of the FD for the Cerrado, which strongly depends of ground water availability to survive during the extended dry 4 The RIDE is made of up of the FD and 22 adjacent municipalities in Goiás and 3 in Minas Gerais.

3 season. The long-term vision of the FD for protecting the Cerrado includes two integrated axes of actions: (i) reviewing and improving urban expansion policies so as to promote more appropriate land use patterns in buffer zones surrounding protected areas e.g., the National Park; and (ii) supporting enhanced biodiversity conservation policies through mainstreaming of the Cerrado biodiversity within productive systems (e.g., policies improvement, management procedures, relevant knowledge), developing innovative market incentive measures (e.g., supplier certification, purchasing agreements and codes of conduct) to catalyze market forces, and investing in protected area demarcation and land tenure regularization. The former axis is addressed through activities under the proposed project, while the latter axis will be the subject of a future GEF project to be prepared by the FD. (c) Model for management of metropolitan areas in Brazil: Key regional development issues in the RIDE are related to institutional complexity and capacity e.g., the asymmetrical planning and management capacities between the FD and its surrounding municipalities. Articulation among different municipal governments in metropolitan regions is a challenge not only in the FD and RIDE, but also nationwide. The FD is the economic engine of the entire region, and thus greater balance in regional development would protect its own comparative advantages in terms of local development. The ultimate goal is to strengthen the RIDE in order to collectively forge a new model for metropolitan coordination. With this focus, the FD sees as priorities: (i) harmonizing local tax policies to eliminate disincentives that increase regional inequalities, (ii) enhancing inter-institutional coordination, mainly on urban and environmental issues, and (iii) improving technical and legal tools for urban expansion, land tenure and environmental licensing. (d) Land/territorial management: Brasília s creation entailed substantial private land expropriation by the Federal Government. In 2000, about 55% of FD territory was fully expropriated and regularized; 35% was privately owned; and expropriation was pending in the remaining 10%. Until the 1980 s, the public sector controlled land market transactions, including granting areas for low income settlements. Strong urban growth pressure, inefficient land regularization processes and stringent environmental regulation led to a complex and adverse land tenure scenario in the FD. The FD priority is to develop a macro-plan for regularizing poor, consolidated settlements, deploying Estatuto das Cidades incentives. This would be tied to better coordination of urban and environmental policies, as well as improved land cadastre and environmental licensing, today still oriented by a command and control approach. (f) Selected slum upgrading, including land titling, productive investments and employment generation: The Vila Estrutural low income settlement is a main challenge for the FD due to its high social and environmental impacts. The area has been declared a ZEIS 5 under the Estatuto das Cidades, which will allow land tenure regularization and subsequent titling. FD priority is to provide basic infrastructure, institutional equipment and environmental services to improve the social development of the area. The physical upgrades would be combined with productive investments in employment alternatives, especially for those residents who scavenge at the contiguous Joquei Clube waste dump site, which is slated to close within the next two years. (g) Economic incentives: Environmental management in the FD follows the decentralized structure adopted nationally, including the state environmental agency, councils and committees 5 Zona de Interesse Social

4 as important governance mechanisms. Despite its relatively strong institutional capacity, the FD faces critical environmental challenges in enforcing policies and regulations. As such, the FD aims at definitively switching the lose-lose approach of current environmental policies including some incentives with negative impact on environment to more flexible instruments based on incentives conducive to good environmental practice. Improving the efficiency and effectiveness of licensing mechanisms is a major thrust, in parallel with the development of market-based instruments. The FD strategy is to introduce this environmental approach in urban development policies and tools, e.g., adopting tradable permits, ecological taxes (ICMS ecológico). 2. Proposed objective(s) To ensure quality water resources to meet the growing needs of the Federal District and the Brasília Metropolitan Region, through environmental planning and management activities implemented at the regional level, integrated with poverty reduction interventions and environmental rehabilitation in the most critical watersheds. 3. Preliminary description Total project cost is estimated at US$ 115 million. A Specific Investment Loan (SIL) of US$57.5 million is proposed. The FD proposed project has two complementary axes: (i) regional development policies, regulation and planning, including enhancing institutional capacity; and (ii) targeted interventions focusing on poverty alleviation associated with rehabilitating, restoring and protecting strategic environmentally sensitive areas. Targeted interventions focus on two river basins: (i) Descoberto, which produces 60 % of the water supplied to the FD and (ii) Lago Paranoá, a landmark reservoir with recreational value and climate control attributes. The main pollution source of the Descoberto reservoir is the Aguas Lindas poor settlement, located in Goiás but draining into the FD territory. Vila Estrutural and the Joquei Clube dumpsite (serving the entire FD population) put pressure on the contiguous National Park of Brasília, created to protect the Cerrado Biome, as well as many springs that feed into the Lago Paranoá. These low income settlements have unsatisfactory water supply services and inexistent sanitation resulting in a high negative impact on the Descoberto and Lago Paranoá. These services would be provided by under the project through the DF water utility, in association with the Goiás water utility. An institutional arrangement has already been set with the Municipality of Águas Lindas. Component 1- Policy and institutional development: The component would: (i) support regional development and improve technical and legal tools for effectively implementing regionally integrated management; (ii) strengthen WRM management capacities; (iii) enhance environmental management capacity through improvements in institutional arrangements and technical tools at the regional level, and (iv) promote institutional development in key FD agencies such as BELACAP, which manages the city solid waste collection and disposal, SEDUH, responsible for the territory planning, and SEMARH, charged with natural resources management. Institution building activities would include modernization of information and administrative systems to include regional integration duties, training; introduction of new organizational schemes for regional planning and management activities and coordination.

5 Component 2 - Social inclusion and poverty reduction: This component directly addresses poverty, urban services and environmental quality issues in unregulated settlements. Urban development, services and works will be designed and implemented in Vila Estrutural, with the active participation of community members in the decision-making and implementation process. Focused poverty reduction interventions include employment and income generation specially to the population involved with scavenging activities in the Joquei Clube open waste dumpsite. Development of entrepreneurial capacities in recycling and small business will be supported. Component 3 - Water resource management and protection: This component would (i) provide access to improved water and sanitation services to Aguas Lindas; (ii) phase out and remediate the Joquei Clube solid waste dumpsite; (iii) implement a 25-year solid waste management program for Brasília, including construction of sanitary landfill facilities and (iv) finance environmental conservation subprojects in key watersheds to recover degraded areas. Other activities include modeling of private-public partnerships and microenterprise development for waste recycling activities. Component 4 - Project management, Monitoring and Evaluation: Project management, monitoring and evaluation would focus on the establishment of the project management unit and corresponding planning and management support systems, including administrative, financial, procurement, reporting and monitoring systems needed for successful project implementation. 4. Safeguard policies that might apply The project triggers the following safeguards: Environment; Resettlement; Natural Habitats. The appropriate assessments for to comply with the three safeguards are being undertaken as part of the project preparation. A preliminary version of these assessments will be ready for the QER meeting and the final version prior to the Appraisal Decision Meeting. 5. Tentative financing Source: ($m.) BORROWER INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Total Contact point Contact: Paula Dias Pini Title: Social Development Spec. Tel: (202) Fax: Ppini@worldbank.org