Document of The World Bank FOR OFFICIAL USE ONLY Report No: 79896 v1 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF BR MUNICIPAL APL: TERESINA ENHANCING MUNICIPAL GOVERNANCE AND QUALITY OF LIFE PROJECT LOAN 7523-BR Approved on March 27, 2008 TO THE MUNICIPALITY OF TERESINA July 15, 2013 LCSWS SUSTAINABLE DEVELOPMENT DEPARTMENT COUNTRY MANAGEMENT UNIT LCC5C LATIN AMERICAN AND THE CARIBBEAN UNIT This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ABBREVIATIONS AND ACRONYMS BRL Brazilian Real IPMU Minimum Standard of Urbanization Index LED Local Economic Development MTR Mid-Term Review PAC Growth Acceleration Program (Programa de Aceleração de Crescimento) PEFA Public Financial management Performance Measurement Framework PLN Programa Lagoas do Norte PMT Municipality of Teresina (Prefeitura Municipal de Teresina) PMU Project Management Unit (UGP) SEMEC Municipal Secretary of Education and Culture (Secretaria Municipal de Educação e Cultura) WSS Water Supply and Sanitation Regional Vice President: Hasan a. Tuluy Country Director: Deborah L. Wetzel Sector Manager: Wambui Gichuri Task Team Leader: Lizmara Kirchner 2 BRAZIL BR MUNICIPAL APL: TERESINA ENHANCING MUNICIPAL GOVERNANCE AND QUALITY OF LIFE PROJECT CONTENTS Page A. SUMMARY ........................................................................................................................... 4 B. PROJECT STATUS .............................................................................................................. 4 C. PROPOSED CHANGES ...................................................................................................... 5 ANNEX 1: RESULTS FRAMEWORK AND MONITORING ................................................. 7 3 PROJECT NAME RESTRUCTING PAPER A. SUMMARY 1. This Restructuring Paper responds to the request from the Municipality of Teresina to amend the Loan Agreement for the Teresina Enhancing Municipal Governance and Quality of Life Project (Loan 7523-BR) to include the following changes: (i) Extension of the loan’s closing date from July 31, 2013 until December 31, 2014 to enable the completion of ongoing contracts. (ii) Modifications to the project’s scope and activities, which will consequently impact the project indicators. These changes do not alter the main objectives or the structure of the components defined previously in the Loan Agreement. 2. The Project's development objectives are to: (i) modernize and improve the management capacity of Teresina Municipal Government in the financial, urban environmental, service- delivery, and economic development fields, and; (ii) improve the quality of life of the low-income population of the Lagoas do Norte region of the city. The Project has three components, namely: (i) municipal management modernization, city development and project management; (ii) integrated urban-environmental improvement in Lagoas do Norte; (iii) social and economic development in Lagoas do Norte. B. PROJECT STATUS 3. The US$31.13 million loan was approved on March 27, 2008. The Loan was declared effective on September 3, 2008, with an original estimate of US$13.34 million in counterpart financing. Given the 14-month time lapse between project appraisal and negotiations, the municipality was able to obtain an additional US$10 million from the Federal Government (Programa de Aceleração do Crescimento – PAC) to start the implementation of the activities that were at an advanced stage of preparation. 4. Project implementation started well, but suffered delays of over one year related to the difficulties encountered in obtaining satisfactory bids for the detailed engineering designs and main construction works package of the remaining activities to be financed under the project, due to a heated construction market. The designs and works were only contracted after the fifth time the request for proposals and bidding documents were launched. 5. After four and a half years of implementation, disbursements reached 72 percent (US$22.5 million) and 85 percent of the total funds are committed. The project has been rated satisfactory since approval. The modernization of the municipality's financial systems resulted on a 33 percent increase in revenue collections, helping maintain a fiscal equilibrium. The municipality prepared a drainage master plan and a municipal plan for water supply and sanitation and is now compliant with the federal WSS law. Implementation of integrated works (sanitation, urban requalification, drainage and resettlement) in the Area 1 of Lagoas do Norte region is very advanced: the Lagoas do Norte Park has been inaugurated in this area and is being widely used by the community, remaining works interventions on sanitation and transport are to be finalized by December 2013. The resettlement work conducted under the project is considered 4 best practice by the Bank, and the project was showcased as a best practice example of green and inclusive growth by the Brazilian Government at the Rio +20 conference. 6. However, even with the additional funds secured from the Federal Government, the overall project scope had to be reduced as a result of higher than anticipated costs, which is the main reason for the Borrower’s request to restructure the project. This restructuring will allow the better alignment of the activities envisioned within the scope of the Project to the amount of available funding. This misalignment was caused by three factors: a. the wide variation of the exchange rate between the Brazilian Real (BRL) against the Dollar during project implementation going from BRL 2.53 when the project was approved to an average disbursement rate of about BRL 2.03, representing a 20 percent reduction in BRL funds. b. the estimated cost of Project original activities, specifically works, proved to be lower than the actual costs after the detailed engineering designs were prepared; and c. a significant increase (39 percent for the period) of the construction costs in Brazil, due to specific market heating circumstances caused by economic growth, including public and private investments in infrastructure, housing and other civil construction activities, as well as the burden of federal infrastructure investments in the last couple of years, specially through the Federal Government’s PAC. C. PROPOSED CHANGES 7. Extension of closing date. The closing date for the Project will be extended from July 31, 2013 until December 31, 2014, in order to allow for the implementation of remaining project activities that were affected by the delays shortly after effectiveness. An action plan for Project implementation during these 18-months has been agreed upon with the government and is reflected in the latest procurement plan that has been approved for the Project. 8. Project components. For the reasons stated above, there is a need for reduction in project activities and scope, respectively impacting Component 1 (Municipal Management Modernization, City Development and Project Management, for which portion an amendment to the Loan Agreement is required) and Component 2 (Integrated Urban-Environmental Improvement in Lagoas do Norte, for which portion there is no need to amend the Loan Agreement). Changes to the scope of Component 2 have been discussed and agreed upon with the Borrower in the last two years of implementation based on the availability of funds. These have been reflected in the project’s Mid-Term Review aide memoire and formed part of the Municipality’s request to the Federal Government. a. Component 1: Municipal Management Modernization, City Development, and Project Management. Activities related to (i) the modernization of the Borrower’s education management, including the elaboration and implementation of a new education policy for the municipality, as well as (ii) the development and implementation of a local economic development strategy for the Municipality, are to be removed from the project activities to be financed by the Loan. In addition, the following activities related to the modernization of the Municipality’s urban and environmental management are to be removed from the project activities as well: (i) the preparation of a solid waste management master plan; (ii) the development of 5 consolidated strategies for enforcing existing legal and administrative mechanisms required to regularize existing slums and other irregular settlements, and for facilitating access to land; (iii) strengthening the Municipality’s environmental management capacity, including the introduction of an environmental licensing and enforcement control system These activities are being removed mainly due to a shortage of resources, Teresina’s Municipal Government still consider them important and priority activities and is seeking resources from other financiers to undertake a number of these activities. However, it is unlikely that these would be implemented within the project timeline, hence the need to remove them from the project’s scope. b. Component 2: Integrated Urban-Environmental Development. During project design and preparation, the Lagoas do Norte region was sub-divided into four areas and the original project scope of the physical interventions planned under Component 2, as detailed in the appraisal document, was to undertake comprehensive, integrated interventions (drainage, sanitation, urban requalification and resettlement) in Areas 1 and 2, while in Area 3 priority would be given to the implementation of a wastewater system and the resettlement of families at risk, and interventions in Area 4 would focus on installation of macro-drainage and resettlement of families at risk. As a result of the shortage in resources, the scope of physical interventions in the Lagoas do Norte region was reduced to: comprehensive, integrated interventions (drainage, sanitation, urban requalification and resettlement) in Area 1, partial drainage interventions in Area 2 (to ensure proper working of the interventions in Area 1), and macro-drainage interventions in Area 4 (which resolved a recurrent annual flooding in that area). Area 3 will not benefit from any intervention at this stage. Such changes in scope under these activities have been discussed with the Borrower and do not require an amendment to the Loan Agreement as the activities remain unchanged with the only difference being on which areas the activities will be carried out. c. Component 3: Social and Economic Development: There are no changes to this component. 9. Project Results/Indicators. The results framework originally prepared for the project is overly ambitious and does not necessarily encompass indicators that are directly related to the project’s proposed interventions. As such, the Borrower proposes modifications to the results framework, which do not impact the achievement of the Project’s Development Objectives. These revisions will contribute to a more simplified and realistic monitoring of the project’s achievements and impacts, and some of the targets of indicators that remain are also being adjusted to reflect the new scope of the project components. Project Development Indicators are reduced from 15 to 4, while intermediate indicators are reduced from 29 to 13. Details of the proposed modifications can be found in Annex 1. 10. The proposed restructuring involves no other changes in terms of project objectives, institutional arrangements, disbursements arrangements or procurement. The Loan Agreement will be amended to reflect the changes proposed in this Restructuring Paper. The Project Development Objectives remain the same and continues to be achievable with the proposed changes. The project does not have overdue audits, and it is not subject to suspension of disbursements. The objectives of the audit continue to be achievable. 6 ANNEX 1: Results Framework and Monitoring Project Development Objective (PDO): The project's development objectives are to: (i) modernize and improve the management capacity of Teresina Municipal Government in the financial, urban environmental, service- delivery, and economic development fields, and; (ii) improve the quality of life of the low-income population of the Lagoas do Norte region of the city. Revised Project Development Objective: Not applicable D=Dropped Cumulative Target Values Core C=Continue Unit of Data Source/ Responsibility for Results Indicators* N= New Baseline Frequency Measure YR 2 YR 3 YR 4 YR 5/EoP 1 Methodology Data Collection R=Revised PDO Level Municipal Management Improve the municipality's ABCD Consultant R C+ (2005) - - - B Final report PMU/PMT aggregate PEFA score. scale analysis/survey Urban legislation updated on D Yes/No Yes Yes Yes Progress reports demand Conclusion and dissemination of regional environmental PMT strategic evaluation and D Yes/No No No Yes Progress reports records/Project PMU/PMT environmental legislation MIS updated. PMT compliance with new federal water supply and sanitation law, including: (i) Preparation of a municipal WSS plan. (i) yes (i) yes (i) yes Progress reports, Consultant PMU/PMT and (ii) Creation and strengthening C Yes/No No (ii) yes (ii) yes (ii) yes MTR and final analysis/survey WSS regulatory of a municipal WSS (iii) no (iii) yes (iii) yes report and audit entity regulating body. (iii) Formalization of WSS service delivery contractual arrangement. PMU and Implementation of a new New policy Effectiveness D Yes/No No Progress reports Analysis, survey Education primary education policy developed reviewed Secretariat 1 EoP = End of Project D=Dropped Cumulative Target Values Core C=Continue Unit of Data Source/ Responsibility for Results Indicators* N= New Baseline Frequency Measure YR 2 YR 3 YR 4 YR 5/EoP1 Methodology Data Collection R=Revised Increase in municipal revenues as a result of the modernization N % 0 0 33% 34% 35% Every six months SEMF SEMF/PMU activities implemented under the project Quality of Life in Lagoas do Norte Increase in PMT’s standard IPMU Low, IPMU urbanization indicator (IPMU – Low to expected PMT records/ D Medium, expected PMU/PMT ‘�ndice de Padrão Mínimo de Medium (Areas project MIS High (all Areas) Urbanização’. 1+2) Property values (hedonic pricing) in �rea 1 of the WTP survey Household price D % +10% +30% PMU/PMT Lagoas do Norte region (July 2005) survey increase Increase in the percentage of the population reporting improvements in/satisfaction with: (i) urban services (WSS, drainage, solid waste +60% in +70% in Approval MTR and final Public opinion management, public lighting, D TBD approval approval PMU/PMT rating reports survey local transport, etc.); (ii) social rating rating services (health, education, job and training programs); and (iii) quality of life of the local environment Increase of coverage of Bolsa Família Program of eligible Progress, MTR D % 85% 90% 95% PMU/PMT families from Lagoas do Norte and final reports Region. Increase coverage from Family Progress, MTR D % 79% 84% 95% PMU/PMT Health Program. and final reports Increase the population with Progress, MTR personal and work D % 90% 95% 95% PMU/PMT and final reports identification documents Increase access to income and work generation programs % Progress, MTR (Banco Popular, micro-credit D 0% +200% PMU/PMT increase and final reports operations in the north region of Teresina) Number of people benefited Progress, MTR with technical training D # 0 >600 PMU/PMT and final reports 8 D=Dropped Cumulative Target Values Core C=Continue Unit of Data Source/ Responsibility for Results Indicators* N= New Baseline Frequency Measure YR 2 YR 3 YR 4 YR 5/EoP1 Methodology Data Collection R=Revised % of clay workers (oleiros) Progress, MTR working informally reinserted D % 0 100% PMU/PMT and final reports in the formal work market Number of new businesses D # 0 >100 started % of 0-6 year-old children D % 25% receiving pre-school education Number of families directly Progress benefiting from the N # 0 0 10,000 26,000 26,000 Annual PMU Reports interventions in Area 1 INTERMEDIATE RESULTS Component One: Municipal Management Modernization, City Development and Project Management Improve the following PEFA indicators:  Budget credibility (PI-2)  PI 2: C PI 2: B PI 2: B  PI 9: D PI 9: C PI 9: C  Budget comprehensiveness  PI 10: C PI 10: B PI 10: B and transparency (PIs-9 / 10) ABCD  PI 12: D PI 12: C PI 12: C PMT Annual D Mid-Term PMU  Policy-based budgeting (PI- scale  PI 14: D+ PI 14: C PI 14: C+ Report 12)  PI 16: D+ PI 16: C PI 16: C+  Predictability/control in  PI 18: D PI 18: C PI 18: C budget execution PIs-  PI 20: C PI 20: B PI 20: B 14/16/18/20/21  PI 21: D PI 21: C PI 21: C Municipal urban master plan PMT Annual D Yes/No No Yes Yes Mid-Term PMU completed Report Municipal drainage master plan PMT Annual C Yes/No No Yes Yes Mid-Term PMU completed Report Municipal solid waste PMT Annual management master plan D Yes/No No Yes Yes Mid-Term Report PMU completed Urban legislation updated on D Yes/No No Yes Yes demand Decrease in time to obtain % time SEMAE Annual D - 50% 70% PMU PMT environmental approvals decrease Report Financial and operational efficiency of new WSS services: i. No i. Yes i. Yes i. Yes i. Yes ii. No ii. Yes ii. Yes ii. Yes ii. Yes PMT Annual i. Revenues > costs D Yes/No iii. No iii. No iii. Yes iii. Yes iii. Yes Progress Reports Report PMU ii. >90% micro-metering iv. No iv. No iv. Yes iv. Yes iv. Yes iii. > 20-hours of service per day 9 D=Dropped Cumulative Target Values Core C=Continue Unit of Data Source/ Responsibility for Results Indicators* N= New Baseline Frequency Measure YR 2 YR 3 YR 4 YR 5/EoP1 Methodology Data Collection R=Revised iv. Water quality complying with Health Ministry Regulation 518 Implementation of new pre- D Yes/No No No Yes Yes Yes Annual PMU Report PMU school education policy LED Strategy Elaborated D Yes/No No No No Yes Yes Annual PMU Report PMU LED Strategy Implementation D Yes/No No No No Yes Yes Annual PMU Report PMU Initiated PMU Unit in place and functioning (PMU staff nominated/contracted, MIS in C Yes/No No Yes Yes Yes Yes Annual PMU Report PMU place, M&E system in place, etc.) PMU/municipal line entity D Yes/No No Yes Yes Yes Yes Annual PMU Report PMU project staff trained At least 4 Number of municipal 3 2 (Transport, (Transport, department/agencies benefiting (Transport, WSS N # 0 0 WSS Every six months PMU Report PMU from capacity improvements WSS Regulation, Regulation, financed by the Project Regulation) Finance, Finance) Planning) Following improvements to municipal management implemented: i. Management Information system for administrative, financial and human i. Yes i. Yes i. Yes i. Yes resource management ii. No ii. Yes ii. Yes ii. Yes Progress Reports, N Yes/No No Every six months PMU ii. Internal control systems iii. No iii. Yes iii. Yes iii. Yes MTR report iii. Unified system for iv. Yes iv. Yes iv. Yes iv. Yes management of human resources iv. Electronic receipts system (to facilitate collecting of tax revenues) Component Two: Integrated Urban-Environmental Development in the Lagoas do Norte Region All families living in at risk areas in Area 1 resettled to new R # 0 422 housing. 10 D=Dropped Cumulative Target Values Core C=Continue Unit of Data Source/ Responsibility for Results Indicators* N= New Baseline Frequency Measure YR 2 YR 3 YR 4 YR 5/EoP1 Methodology Data Collection R=Revised Number of families benefiting R # 0 168 from improved housing Increase in sewerage coverage R % 9.5% - - 10% 50% in Area 1 Reduction in the incidence of water- and excreta-related D % 501 (2005) 60% 70% 80% 95% disease transmission (episodes/year) BOD: 0.05 – Reduction in the pollution BOD: 5.7 – 3.3 levels of the lakes in Area 1 R mg/l 44.8 - - - DO: 0.002 – (BOD5 and dissolved oxygen) DO: 0.2 – 4.34 0.43 Reduction in travel time between the city center and the D # TBD TBD TBD TBD TBD Lagoas do Norte region Annual reduction in the number D % 211 (2005) 40% 70% of road accidents in the region. Improvement in water supply services: - Continuity D TBD TBD TBD TBD TBD - Pressure - Water Quality Increase in green and leisure m2/ R 1.3 - - - 1.5 space in Area 1 (m2/habitant) habitant Component Three: Social and Economic Development in the Lagoas do Norte Region Increase in eligible families PSF: 79% PSF: 84% PSF: 95% registered in income transfer D % PT: 85% PT: 90% PT: 95% PMU Report PMU projects (PSF and PT Renda) Increase in population with personal employment D % 90% 95% 95% documentation 1,236 Access to job/income creating % D operations/ 28% 44% 62% 89% project increase year Working-age adults benefiting D # 0 (2005) 180 360 540 720 from work/skills training Clay workers (oleiros) reinserted in regular work C % 0 - - 30% 100% market New small business set up D # 11 D=Dropped Cumulative Target Values Core C=Continue Unit of Data Source/ Responsibility for Results Indicators* N= New Baseline Frequency Measure YR 2 YR 3 YR 4 YR 5/EoP1 Methodology Data Collection R=Revised Children attending pre-school D % 22% 25% 25% Increase in handicraft sales D % 20% 30% 40% 50% Number of workshops on arts (drawing, capoeira, recycling, etc.) being provided to the local N # 0 - - 20 25 Every six months Progress reports PMU community by the rehabilitated Teatro do Boi. Number of socio-environmental activities implemented in the N # 0 - 4 10 18 Every six months Progress Reports PMU project’s area of intervention Recycling center for N Yes/No No - - - Yes Every six months Progress Reports PMU construction debris operational 12