Document of The World Bank

Report No: ICR000084

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-45240)

ON A

LOAN / CREDIT IN THE AMOUNT OF US$ MILLION 15.0

(US$ 15.0 MILLION LOAN)

TO THE

FEDERATIVE REPUBLIC OF BRAZIL

FOR

SECOND NATIONAL ENVIRONMENTAL PROJECT

(IN SUPPORT OF THE FIRST PHASE OF THE SECOND NATIONAL ENVIRONMENTAL PROGRAM)

January 15, 2007

Sustainable Development Department (LCSSD) Brazil Country Management Unit Latin America and the Caribbean Region Office

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CURRENCY EQUIVALENTS

(Exchange Rate Effective) Currency Unit

1.00 BRL = 0.46 US$ US$ 1.00 = 2.14 Brazilian Real

Fiscal Year

FY07

ABBREVIATIONS AND ACRONYMS

APL Adaptable Program Loan ANA National Water Agency BNPP World Bank’s Netherlands Partnership

Program COFIEX Inter-ministerial Committee on External

Finance CONAMA National Environmental Council CAS Country Assistance Strategy CZM Coastal Zone Management DI Institutional Strengthening (Desenvolvimento

Institucional) EA Environmental Assets FMR Financial Monitoring Reports GERCO Coastal Zone Management (Gerenciamento

Costeiro) GOB Government of Brazil IBAMA Brazilian Environmental Institute (Federal

Enforcement Agency) INSS Federal Pension System MMA Ministry of Environment NEP-II Second National Environmental Project OEMA Association of State Environmental Agencies PED Decentralized Execution Projects PCU Project Coordination Unit SEAIN Secretariat for International Affairs of the

Ministry of Planning SINIMA National System of Environmental Information SISNAMA National Environmental System UNDP United Nations Development Program WQM Water Quality Monitoring

STATE ABBREVIATIONS AC Acre PB Paraíba AL Alagoas PR Paraná AP Amapá PE Pernambuco AM Amazonas PI Piauí BA Bahia RJ Rio de Janeiro CE Ceara RN Rio Grande do Norte DF Distrito Federal RS Rio Grande do Sul GO Goiás RO Rondônia ES Espírito Santo RR Roraima MA Maranhão SP São Paulo MT Mato Grosso SC Santa Catarina MS Mato Grosso do Sul SE Sergipe MG Minas Gerais TO Tocantins PA Pará

Vice President: Pamela Cox Country Director: John Briscoe

Sector Manager: Abel Mejia Project Team Leader: Renan A. Poveda

Brazil Second National Environmental Project

CONTENTS

1. Basic Information 1 2. Key Dates 1 3. Ratings Summary 1 4. Sector and Theme Codes 2 5. Bank Staff 2 6. Project Context, Development Objectives and Design 3 7. Key Factors Affecting Implementation and Outcomes 7 8. Assessment of Outcomes 12 9. Assessment of Risk to Development Outcome 21 10. Assessment of Bank and Borrower Performance 22 11. Lessons Learned 25 12. Comments on Issues Raised by Borrower/Implementing Agencies/Partners 26 Annex 1. Results Framework Analysis 32 Annex 2. Restructuring 33 Annex 3. Project Costs and Financing 34 Annex 4. Outputs by Component 36 Annex 5. Economic and Financial Analysis 38 Annex 6. Bank Lending and Implementation Support/Supervision Processes 39 Annex 7. Detailed Ratings of Bank and Borrower Performance 42 Annex 8. Beneficiary Survey Result 43 Annex 9. Stakeholder Workshop Report and Results 44 Annex 10. Summary of Borrower's ICR and/or Comments on Draft ICR 45 Annex 11. Comments of Cofinanciers and Other Partners/Stakeholders 58 Annex 12. List of Supporting Documents 59

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1. Basic Information Country: Brazil Project Name: 2nd National

Environmental Project Project ID: P035741 L/C/TF Number(s): IBRD-45240 ICR Date: 01/24/2007 ICR Type: Core ICR Lending Instrument: APL Borrower: FED REP. BRAZIL Original Total Commitment: USD 15.0M Disbursed Amount: USD 7.1M

Environmental Category:C Implementing Agencies

Ministry of Environment Cofinanciers and Other External Partners

2. Key Dates Process Date Process Original Date Revised / Actual

Date(s) Concept Review: 02/27/1998 Effectiveness: 07/11/2000 07/11/2000 Appraisal: 06/21/1999 Restructuring(s): Approval: 12/09/1999 Mid-term Review: 01/31/2002 Closing: 06/30/2003 06/30/2006

3. Ratings Summary 3.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Substantial Bank Performance: Satisfactory Borrower Performance: Satisfactory 3.2 Quality at Entry and Implementation Performance Indicators

Implementation Performance Indicators QAG Assessments (if any) Rating: Potential Problem Project at any time (Yes/No): No Quality at Entry (QEA): None

Problem Project at any time (Yes/No): No Quality of Supervision (QSA): None DO rating before Closing/Inactive status: Satisfactory

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4. Sector and Theme Codes Original Actual

Sector Code (as % of total Bank financing) Central government administration 11 11 Sub-national government administration 89 89

Original Priority Actual Priority Theme Code (Primary/Secondary) Decentralization Primary Primary Municipal governance and institution building Secondary Secondary Environmental policies and institutions Primary Primary Water resource management Primary Primary

5. Bank Staff Positions At ICR At Approval

Vice President: Pamela Cox David de Ferranti Country Director: John Briscoe Gobind T. Nankani Sector Manager: Abel Mejia John Redwood

Project Team Leader: Renan Alberto Poveda Daniel R. Gross

ICR Team Leader: Renan Alberto Poveda

ICR Primary Author: Daniel R. Gross

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6. Project Context, Development Objectives and Design (this section is descriptive, taken from other documents, e.g., PAD/ISR, not evaluative)

6.1 Context at Appraisal (brief summary of country macroeconomic and structural/sector background, rationale for Bank assistance). Country Background: Decentralization of services as part of GOB’s economic stabilization plan – Since 1994, the GOB had focused on economic stabilization, including control of inflation, control of public expenditures, debt reduction, improved efficiency in public sector services, and privatization of state-owned enterprises in key sectors. As part of its reform program, the Federal Government stressed decentralization of government services in the areas of health, education, public sanitation, and others. The 1988 Federal Constitution, mandated Federal-State and Federal-Municipal revenue transfers but in some sectors did not create specific responsibilities for service delivery by States and Municipalities. In the environmental area, the Constitution created "concurrent responsibility" for environmental protection by States and Federal Government creating some ambiguities regarding institutional responsibilities. 1998 Financial Crisis - The financial crisis that struck Brazil in late 1998 had an impact on the environment because the Government made deep budgetary cuts on a number of proposed and existing environmental projects in the Ministry of Environment (MMA). Since then, the economy gradually stabilized and the environment surfaced again as a priority for GOB. In addition, the crisis accentuated GOB's need for fiscal discipline and institutional effectiveness, exerting pressure on ministries and agencies to deliver concrete results. Sector Background: The Ministry of Environment (MMA) officially adopted a policy of decentralization of environmental management. NEP II represented a priority and strategic program for the Ministry of Environment’s decentralization policy due to its innovative design and national approach. Minister Marina Silva, who took office in 2002, presented her program of government as having four major pillars: (a) decentralization, (b) strengthening the national environmental system (SISNAMA); (c) social control, and (d) transversality. Environment has been a growing priority in Brazil because of: (i) growing public awareness of environmental issues and the need for improved environmental management; (ii) increasing government sensitivity to domestic and external criticism of poor natural resource management; and (iii) growing recognition in both the public and private sectors that better environmental management provides a competitive edge to Brazilian business. Environmental problems in Brazil have nevertheless continued to increase in severity. The main sector challenges encountered were:

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Lack of clear and defined responsibility for environmental protection/management (federal x state x municipal levels) – Even though the Brazilian Constitution establishes that the federal, state and municipal governments are all responsible for environmental matters – each with its specific attributions – in practice the Law (Lei Complementar) that would regulate such attributions has not yet been drafted. In fact, the system created overlapping responsibilities and lacunae among the three levels. Even at the federal level, the precise limits of action and attributions of the principal federal enforcement agency (IBAMA) and MMA were far from clear. Weak environmental management capacity of public agencies (particularly re. legislation, monitoring and enforcement) – Brazil is a large country with 27 states at very different stages of management capacity in terms of legislation, monitoring and enforcement capabilities. A study carried out in 1997 entitled “State and Federal Environmental Demands Survey” concluded a weak capacity of the public sector - particularly the state environmental agencies - to manage environmental issues and foster sustainable development. Rationale for Bank Assistance: Bank’s considerable experience on environmental matters and the successful implementation of the First National Environmental Project - The Bank has a substantial history of working on environmental matters in Brazil but only since the early nineties on more direct policies and institutional issues. The First National Environmental Project (NEP-I, Loan 3173-BR), was one of the early Bank stand-alone environmental projects worldwide, basically aimed at strengthening capacity at the federal level and protecting key endangered ecosystems at a national level. The National Environmental Project II – Phase I (Loan 4524-BR) of a three phase adaptable program loan (APL), which is under review here, basically intended to continue efforts of the first NEP by solidifying the national environmental management system. The Bank also had considerable experience in Brazil and elsewhere in the design of decentralized, demand-driven municipal development and natural resource management project components - including the highly successful matching grants (PED) component of NEP I - and in the design and implementation of social funds for rural poverty alleviation. While the latter operations aimed at strengthening municipal governments or poverty alleviation rather than environmental protection, such projects shared many characteristics with NEP II by combining Institutional Strengthening goals and components with the financing of priority investments identified by local stakeholders. 6.2 Original Project Development Objectives (PDO) and Key Indicators (as approved)

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The Second National Environmental Program (NEP-II) seeks to improve environmental quality in priority areas by increasing the effectiveness of environmental institutions at local, state and national levels in Brazil. The PDO of Phase I of the program (the project) is to “strengthen decentralized environmental management at a State and Municipal level through two components implemented in parallel fashion: (a) Institutional Strengthening and (b) Environmental Assets. The first phase of the Program supported the adoption of policy improvements and the enhancement of performance through the strengthening of decentralized environmental management. These policy improvements would allow the states to qualify to receive grants for the implementation of Environmental Assets subprojects to address concrete environmental issues identified in a priority-setting exercise. The indicators for the project were measured in terms of:

• Adoption of policy reforms through the fulfillment of eligibility criteria (See matrix in Section 8.2);

• Building consensus at the State level on environmental priorities and development of strategies for addressing them in twelve states;

• Implementation of subprojects under the Environmental Assets component in at least three States;

• Qualification of at least twelve States for matching grants in Phase II; • Modernize and update environmental licensing systems in at least ten States; • Increased transparency and accountability of environmental institutions through improved

licensing procedures (including the use of new instruments such as compliance agreements, self-regulation, tradable permits and other innovative environmental management instruments) in at least ten states;

• Implementation of improved and decentralized water quality monitoring (WQM) systems and dissemination mechanisms of relevant data to decision makers and the general public in a timely fashion in at least five States;

• Improved and rationalized enforcement capacity through monitoring and licensing activities; • Development of coastal zone baseline studies and improved coastal zone management capacity

in eight States. (See Annex 1 to see fulfillment of each of the project indicators). 6.3 Revised PDO and Key Indicators (as approved by original approving authority), and reasons/justification N.A.

6.4 Main Beneficiaries, original and revised Since the project aimed at attaining measurable improvements in environmental quality in specific regions, the beneficiaries identified were the populations adversely affected by pollution or other forms of natural resource and environmental degradation – particularly the poor. Other beneficiaries

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included: (i) local communities; (ii) States, municipalities and other entities (e.g. river basin committees); (iii) local governments; (iv) NGOs; (v) the private sector; and (v) research institutions. The participatory nature of the Environmental Assets subprojects ensured active involvement of the poor in the design and implementation of the subprojects, as well as municipal and state government agencies responsible for environmental protection and public health. 6.5 Original Components (as approved) The project comprised the following three components: (A) Institutional Strengthening Component; (B) Integrated Management of Environmental Assets; and (C) Project Coordination. Part A: Institutional Strengthening Component Strengthening of institutional capacity at the state level, focusing primarily on the following instruments of environmental management: 1. Environmental Licensing (including enforcement and post-license monitoring capabilities). This subcomponent supported the development of new and/or strengthening of existing state environmental licensing systems and adoption and applicability of innovative instruments to turn the licensing procedures into more efficient and transparent, through development of specific sub-projects. 2. Water Quality Monitoring. This subcomponent supported improvements in WQM systems in participating states through the development of WQM models, water-quality information systems for decision makers and the general public and through the development of specific WQM subprojects: 3. Coastal Zone Management. This subcomponent strengthened the national shoreline management system through a series of studies (including classification of shoreline types, fragile coastal habitats, and socio-economic analyses of coastal and on-shore marine biodiversity), and subprojects aimed at developing environmental zoning activities and management plans. Part B: Integrated Management of Environmental Assets The Environmental Assets (EA) component provided technical assistance to States through MMA and supported a participatory process of priority-setting and the adoption of improved policies, laws and regulations and other measures to improve their overall capacity for environmental management and to address the state’s key environmental priorities. In addition, participating states designed and implemented EA Subprojects aimed at improving environmental quality. Part C: Project Coordination Component

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This component supported the PCU which carried out overall project management, monitoring and evaluation, institutional coordination, financial management, procurement and other necessary administrative activities required by the Project. 6.6 Revised Components N/A

6.7 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations) There were three amendments to the Loan Agreement. The first amendment (June 18, 2003) extended the Closing Date of the Project from June 30, 2003 to June 30, 2005 and cancelled an amount equivalent to US$2,318,500.00 from the Loan at the request of MMA. This amendment was solicited based on: (a) changes of State officials and limitations on the ability to sign operating agreements (convênios) with participating States during electoral periods, causing delays and affecting the disbursement patterns; and (b) states took longer than anticipated to qualify for matching grants and in implementing sub-projects. The first cancellation of loan proceeds was a result of the fiscal austerity package implemented by the Ministry of Finance which led to severe budgetary restrictions on all Federal projects in Brazil and which reduced budget allocations to MMA, affecting the resources destined to NEP-II. As a result, project implementation was adversely affected by the limitation of resources available to finance core activities and components as initially programmed, leading to a reduction in the scope of activities. Other investments in various sectors also experienced similar budgetary constraints. The second amendment (May 25, 2005) extended the closing date of the project from June 30, 2005 to June 30, 2006, bringing cumulative extensions to 3 years. This extension requested by the Borrower was granted to allow: (i) the completion of ongoing Environmental Assets subprojects in qualified states; (ii) finalize key environmental licensing and monitoring activities; and (iii) allow time for the transition and preliminary preparation of phase 2 of the program. The third amendment (June 27, 2005) cancelled an amount US$3,681,500.00 from Loan proceeds at the request of MMA. This cancellation followed the rearrangement of scheduled activities to be completed within the approved closing date (June 30, 2006). Consequently, the cumulative cancellations to the project were equal to about US$6 million. These reductions in the overall budget implied a reduction in scope and scale of EA subprojects. For instance, due to limitations in budgetary allocations, MMA was able to finance 10 EA subprojects in 9 states out of 21 states that qualified for grants during Phase 1. Delays in achieving eligibility, in some cases, also contributed to the inability to finance EA subprojects. Still, it is worth noting, that the number of EA subprojects financed under NEP-II far exceeds the pre-established goal of at least 3 subprojects established at appraisal. The reduction in loan allocation in US Dollars was partly offset by a revaluation of Brazilian currency after appraisal.

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7. Key Factors Affecting Implementation and Outcomes

7.1 Project Preparation, Design and Quality at Entry (including whether lessons of earlier operations were taken into account, risks and their mitigations identified, and adequacy of participatory processes, as applicable) NEP II was prepared following the successful implementation of the First National Environmental Project (NEP-I), from which three important lessons were drawn: (i) Borrower commitment and capacity need to be ensured (Borrower’s capacity to implement projects was limited during NEP-I and there appeared to be difficulties to increase the Borrower’s motivation to implement environmental education and protected areas components); (ii) project components for which there is no clear demand from the end users or beneficiaries are unlikely to succeed; and (iii) institutional strengthening without clear output objectives related to the goals of the institution is unlikely to succeed. These lessons were taken into account in the design of NEP II. A decentralized demand-based component became the centerpiece of NEP II. Under NEP II, the process of achieving eligibility was strengthened and made more flexible. While for NEP I all the States were required to fulfill the same eligibility requirements to access matching grants, under NEP II, participating States were allowed to qualify for matching grants at three different levels with correspondingly different amounts of resources. Also, rather than a uniform set of requirements, States could select from a list of ten different areas of environmental protection and demonstrate their capacity at any of three levels for each criterion1. The size of the grant made available to the States was determined by the total number of points earned by a State in the fulfillment of the eligibility criteria: Class I (5-9 points) entitled a state to a grant of US$2.0 million; Class II (10 -18 points) entitled a state to a grant of US4.0 million; Class III (19 - 27 points) entitled a state to a grant of US$8.0 million2. The principal risks identified at appraisal are presented in Table 1 below (see next page). The risk rating is shown at its appraisal value then at its ex post value. The final column provides an assessment of how realistic the risk rating was and what was the outcome. The Risk Ratings, in general, when confronted with the actual experience of the project, often overstated the risk involved. A few of the risks were understated, however, namely those that are associated with insufficient budgetary allocations from the Ministry of Finance to MMA. As detailed elsewhere in this report, budgetary allocations and releases for the project consistently fell short of expectations in spite of the fact that the project’s financial performance was exemplary since the 1 For instance, under the Forestry Resource Management criteria, level one was achieved by presenting evidence of having adopted State Forestry Legislation and the regulations needed for its implementation. Level two was achieved by providing evidence that the means to effectively enforce forestry legislation were in place. Level three was achieved by presenting evidence that time-bound and enforceable action plans and programs were in place for the effective and comprehensive management of forest resources, involving both the setting and fulfillment of quantitative goals of forest management. States earned one, two or three points for achievement of the corresponding level of eligibility, classifying them into 3 levels. 2 See Table 2 in Section 8.2

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project consistently utilized about 98% of the total funds made available by MMA over its years of operation. This is considered one the best record of any MMA program under recent execution. With regard to participatory processes, the priority-setting exercise and the subsequent implementation of subprojects in participating states provided excellent opportunities for civil society to participate in the setting of priorities and in the design of subprojects. In most States, NGOs participated fully at all stages of the process, with strong encouragement from the Ministry of Environment. Table 1.

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Risk Original

Rating Ex Post Rating

Risk Minimization Measures and Outcomes

Participating Federal and State agencies cannot provide required counterpart funding due to fiscal situation

M H This risk was underestimated. After appraisal there was strong pressure to reduce budgets and the release of fiscal resources as part of the stabilization program adopted by the government that took office in 2002, leading to a cancellation of loan proceeds.

New officials with different priorities

N M After state elections, new officials took some time to become aware of the project and how it functioned. A few did try to change the priorities established in their states, but most were simply delayed in understanding the project. There was pressure on GOB from States and general public help to minimize the likelihood of instability. There were some attempts to change environmental priorities in some states when new officials took charge but they were unsuccessful.

States fail to create appropriate policy environment

M L State environmental officials actually welcomed the project as providing leverage for them to introduce new policy initiatives.

States use political rather than technical criteria to set priorities and/or identify Environmental Assets subprojects

N-M –>-L This risk was overestimated. The clarity of the criteria and the transparency of the decision making process seem to have helped maintain an environment in which technical aspects prevailed over political criteria.

States fail to respond to incentives M L Participation in the project, and particularly fulfillment of the eligibility requirements, far exceeded expectations.

States find it difficult to agree on priorities.

N N While the priority-setting activity sparked lively debate in several states, reaching agreement on priorities was not very difficult at the end of the day.

Fulfillment of eligibility criteria lags behind or moves ahead from predicted time intervals leading to potential delays in disbursement

M H The risk was underestimated. 21 states fulfilled the eligibility criteria but were not awarded matching grants because of the scarcity of funds or the timing of having achieved eligibility (only 9 states managed to develop 10 EA subprojects).

Proponents fail to implement subprojects as designed

M H The nine States that received matching grants have implemented 10 subprojects faithfully. The greatest problem has been that the subprojects had to be scaled back to fit shrinking budgetary resources.

States identify toxic or radioactive waste clean-up as a priority for subproject proposal, which could turn controversial and/or sensitive for stakeholders such as private enterprises, the energy sector, etc.

M N Condition did not occur.

Selection of suitable subprojects for support under the Environmental Assets subcomponent could generate controversy in certain states either as a result of pre-existing political issues or because the process is poorly managed

M N This did not occur.

The Federal government and certain states might find controversial the framework under the Environmental Assets Component

S N The framework and procedures of the Environmental Assets component were well accepted by both the federal and state governments.

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

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7.2 Implementation (including any project changes/restructuring, mid-term review, Project at Risk status, and actions taken, as applicable).

Coordination and overall implementation: The implementation of key activities began well before loan effectiveness, demonstrating the commitment of MMA to the objectives of the project. These activities included a preliminary assessment of the licensing and environmental management systems in the States to determine their strengths and weaknesses and potential areas for intervention. The project PCU has been kept staffed with highly qualified personnel who managed to establish an effective ‘bridge’ between the States and MMA on strategic issues regarding environmental policy issues and project implementation.

Challenges in Implementation: The project never was considered at risk or in peril of not achieving its DO, and thus it did not require any major restructuring in its design. However, there were a number of challenges experienced during project implementation which were addressed accordingly. These included:

(i) Delays in the signing of contracts due to slow administrative procedures by UNDP. MMA has relied on UNDP as a service provider for letting contracts. MMA met with UNDP to seek to make the process more efficient. In addition, the project began planning in advance for contracts (through the POA) taking into account potential delays encountered through UNDP’s procedures;

(ii) Risks of continuity in project implementation due to staff changes in the coordination of the project. MMA accepted the Bank’s recommendation by appointing a new project coordinator the NEP-II team familiar with the key stakeholders and with the overall execution of the project and thus avoiding disruption in project implementation;

(iii) Personnel changes in State administrations leading to loss of institutional memory; (iv) Limitations on the ability to sign operating agreements (convênios) with participating States

during electoral periods, causing delays and affecting the disbursement patterns. (v) Few states (AC, MG, PE) had minor deviations of the procurement guidelines. MMA

provided procurement training courses to all participating States, and issued warnings to States that did not comply with the Bank’s procurement guidelines;

(vi) Reduced budgetary allocation, impoundments and budget freezes from the Ministry of Finance to MMA occurred each year since implementation began as a result of fiscal stabilization programs and currency fluctuations. The MMA and the Bank agreed on two cancellations of loan proceeds in the order of US$6 million, and adjustments in the scope and scale of phase 1. The latter implied a risk for MMA of losing credibility by not being able to provide resources in a timely fashion for the implementation of subprojects in the States. In spite of these reductions, States are willing and interested in participating in Phase 2 of the program;

(vii) Lack of reliable baseline data to measure actual changes in environmental quality through the implementation of subprojects at the state level;

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(viii) A flexible methodology provided by MMA for determining the State’s environmental priorities which was not closely monitored sometimes led to arbitrary decisions (e.g. selecting priorities that matched well the expected size of the matching grants rather than the most pressing environmental problem in the state.

7.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The project PCU established a monitoring and evaluation system to track the implementation of project activities and determine the attainment of DO. The project team has closely followed project implementation against the project indicators from the logical framework in the PAD and has periodically reported on the attainment and progress made in each project component. In 2004, MMA launched a publication highlighting the report of activities and level of implementation of the project during the 2000-2004 time period, and held a high level workshop where the key outcomes of NEP-II were presented and testimonies of key beneficiaries were highlighted (the workshop was hosted by the Minister of Environment with the participation of both Country Director and Sector directors from the Bank). The amount of information generated on the specific outcomes by component activities in each state demonstrates a high level of monitoring and assessment both on technical aspects (including the multiple activities in the participating States) as well as on overall management and administrative aspects (including procurement and financial management). The Bank has also carried out multiple supervision missions (two to three per year) were it has reviewed progress in project implementation from the reports and presentations provided by MMA.

7.4 Safeguard and Fiduciary Compliance (focusing on issues and their resolution, as applicable) The project, as implemented, triggered environmental and social safeguard policies to a limited extent. The only specific safeguard policy triggered was OP4.01 (Environmental Assessment). In addition, framework documents were prepared during the lending phase that which served as basic guidelines for subproject screening and evaluation. Framework documents were prepared by the project team for Indigenous Peoples (OP/BP 4.10) and Involuntary Resettlement (OP/BP 4.12) but these policies were not triggered. Subprojects were screened both by the individual States and by the PCU before being financed. The main subprojects that required environmental assessment were sanitary landfills financed under the Environmental Assets Component in Bahia and Pernambuco States. These subprojects were evaluated and licensed by their respective State Environmental Agencies, fulfilling Bank requirements for EA.

7.5 Post-completion Operation/Next Phase (including transition arrangement to post-completion operation of investments financed by present operation, Operation & Maintenance arrangements, sustaining reforms and institutional capacity, and next phase/follow-up operation, if applicable)

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The project was the first phase of an Adaptable Program Loan (APL) consisting of three phases for a total amount of US$150 million. Due to delays experienced in the transitional period, Phase 2 could not be financed immediately following the close of Phase 1. As described in Annex 1, the Project has exceeded by far the targets set for Phase 1 and has fulfilled the triggers for Phase 2 much earlier than anticipated. This was largely a consequence of the enthusiastic reception of the project by the participating States. The success of the project design and the consequent strengthening of the National Environmental System (SISNAMA) of which the States are the building blocks, have motivated the Ministry of Environment (with the endorsement of the Association of State Environmental Agencies (OEMA) to secure authorization to prepare Phase 2 of the project from the Inter-ministerial Committee on External Finance (COFIEX). 8. Assessment of Outcomes

8.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy) The Bank’s Country Assistance Strategy (CAS) for Brazil for the period 2004- 2007 lays stress on four pillars: equity, sustainability, competitiveness and macroeconomic fundamentals. NEP-II design has contributed primarily to addressing sustainability and competitiveness. The CAS makes reference to the lack of a clear regulatory framework in Brazil, particularly as regards water supply and sanitation. One aspect of the regulatory framework that has drawn considerable attention in Brazil concerns the requirements for environmental licensing that apply to nearly every productive enterprise that has a potential environmental impact. NEP-II made significant contributions to the efficiency and transparency of the environmental licensing system in several different states. For instance, before the project began, only five states had computerized environmental licensing systems in place (RS, PR, SP, BA, and PE). Thereafter, through NEP-II, 7 more states developed their respective licensing systems (SC, MG, GO, MT, AC, PB & CE). The State's commitment to the project's objectives has been noteworthy. Among the major achievements under this subcomponent (Environmental Licensing) were the preparation and adoption of new licensing systems by the State of Minas Gerais, Ceará and Paraíba, and the adaptation of existing digital systems (based mainly on a software package and procedures that originated in the State of Bahia) for use in other states. The specific requirements are available on each State’s website and proponents can prepare the required documentation and submit it for review at their own pace. This has made the environmental licensing process more efficient and agile in these states, addressing a major demand in various economic sectors, especially energy and manufacturing. In addition, a total of 12 states (Acre, Bahia, Ceará, Goiás, Mato Grosso, Minas Gerais, Paraná, Paraíba, Pernambuco, Rio Grande do Sul, Santa Catarina & São Paulo) made improvements in their licensing system by adopting digital systems, decentralizing and/or deconcentrating licensing procedures, developing new operational manuals, training their staff, making the process more transparent by posting data on the internet. These activities have contributed to making environmental licensing more agile and more transparent at the State level. In summary, strengthening environmental licensing contributes not only to sustainability but also to competitiveness in a global environment in which the

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environmental impact of productive systems is increasingly taken into consideration by producers, consumers and governments. NEP-II also focused on sustainability by contributing to the growth and development of WQM systems and specific projects in ten states3. These projects have basically focused on structural, technological, capacity building, and social participation in WQM. The standardization (across states and river basins) of basic WQM parameters and the development of strategic monitoring systems is an essential requirement for the management of river basins, particularly those that are threatened by particular problems such as agricultural runoff, intensive livestock systems, industrial wastes and others pollution sources. NEP-II also contributed to the further development of Coastal Zone Management (CZM) systems at a state level, building on previous work under NEP I. This work created tools useful for managing coastal zones where the majority of Brazil’s population lives and where there are multiple challenges to the stability and sustainability of natural resources arising from urban waste, shipping, erosion and agricultural runoff, aquaculture, resort development and others. The integrated planning approach embedded in the CZM methodology has enhanced the ability of States to deal with a wide array of issues along Brazil’s coast in a comprehensive fashion. This includes integrated planning exercises being carried out jointly between MMA (with NEP assistance) and the Coastline Project (Projeto Orla) under implementation by the Federal Property Office (Departamento de Patrimônio da União).

The project also made numerous contributions to the achievement of Millennium Development Goals Number 7, namely, “To Ensure Environmental Stability.” The contributions have come in various forms, first in the strengthening of monitoring, licensing and planning systems under the Institutional Development Component, and second in the advancing of environmental policies in the States through fulfillment of the eligibility criteria in the policy matrix, and finally from investments made to directly improve environmental quality in the states that received grants for subprojects. It is noteworthy that many of the investments made were in areas of environment that have a direct relationship to human health and well being such as solid waste management, river basin management, water quality improvements, etc.

3 WQM interventions included: (i) Pernambuco (Ipojuca River Basin); (ii) Bahia (Paraguaçu River Basin); (iii) Minas Gerais (upper Velhas River Basin); (iv) São Paulo (upper Tiete River Basin); (v) Paraná (Paraná II and lower Iguaçu River Basins); (vi) Santa Catarina (Tubarão River Basin); (vii) Rio Grande do Sul (Turvo, Santa Rosa and Santo Cristo River Basins); (viii) Mato Grosso (Alto Garças and Araguaia River Basin); (ix), Mato Grosso do Sul (Ivinhema River Basin), and (x) Goiás (Alto Meia Ponte River Basin)

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8.2 Achievement of Project Development Objectives (including brief discussion of causal linkages between outputs and outcomes, with details on outputs in Annex 4) The overarching program development objectives which seek to improve environmental quality in priority areas by increasing the effectiveness of environmental institutions at local, state and national levels in Brazil have been met. Likewise, the PDO specific for Phase 1 of the APL which aims to “strengthen decentralized environmental management at a State and Municipal level through two components implemented in parallel fashion: (a) Institutional Strengthening and (b) Environmental Assets” have been satisfactorily attained. In spite of two cancellations of loan proceeds and delays in implementation of some activities, the project has not only met the key performance indicators, but in all instances surpassed them (see Table 3 below in Section 8.4 and Annex 4 for additional detailed information). For instance, prior to the project, only four states had any kind of computer system for environmental licensing (RS, PR, SP, BA). By the end of phase 1, seven more states had developed digital licensing systems (SC, MG, GO, MT, AC, PB & CE) which has made the licensing process more transparent and efficient. Likewise, before NEP-II, most states had not carried out an assessment to identify their most critical environmental priorities. By the end of the project, 25 out of the 27 states had carried out identification of key environmental priorities and 21 States had qualified for matching grants by fulfilling eligibility criteria leading to improved policy reforms (the initial target was for 12 states qualifying). Likewise, it was foreseen that by, the end of Phase 1, three states would be implementing environmental quality subprojects. At the end Phase 1, 9 states were implementing subprojects. As illustrated in Table 3 below and in Annex 4, NEP-II contributed to the implementation of 43 specific interventions in 17 States4 leading to improvements in decentralized environmental management. The two core components had measurable and observable outcomes. For instance, the implementation of the Institutional Strengthening Component led to the development and improvement of key tools for environmental management in states and municipalities. The environmental licensing process in Brazil has become largely bureaucratic and pro forma for a variety of reasons including the lack of clear regulations, failure to set priorities, poor quality environmental analysis and the lack of post-license monitoring. Thus, even where environmental licenses were issued with clear conditions, there was frequently no follow-up on compliance. The environmental licensing subcomponent therefore contributed significantly to making the licensing a more effective tool for environmental management by standardizing procedures, and making licenses more transparent and enforceable in the participating states. As illustrated in Annex 4, twelve states managed to either develop and/or improve their environmental licensing systems, surpassing the initial goal of 10 states.

4 This number includes interventions in the three Institutional Strengthening subcomponents as well as the Environmental Assets subprojects.

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The WQM subcomponent did not in itself improve water quality but it laid the basis for correctly diagnosing water quality problems and taking effective action to mitigate the problems and improve it in several river basins. Specific complementary actions to improve water quality were taken in the Araguaia (Mato Grosso), Ipojuca (Pernambuco), Paraguaçu (Bahia) and Tietê (São Paulo) basins under the Environmental Assets component. These rivers comprise one of the primary sources of water for the capitals of the respective States; the WQM work allowed State governments to make choices among alternative basin management strategies, and to monitor the impact of specific measures taken. In the State of Bahia, for example, the actions selected included reducing burning as a means of clearing and reducing pesticide use, while in Pernambuco the measures included developing sanitary landfills and protecting the fragile stream head areas. In São Paulo, the measures included encouragement of organic agriculture and reduction in pesticide use in the Tietê headwaters. In Mato Grosso, the EA component financed erosion control in the Araguaia and Taquari headwaters and the results were tangible and visible because the growth of some enormous gullies was arrested. An important lesson is that baseline data must be collected before a subproject is implemented in order to measure the impact of the actions taken. In nearly all cases, the states selected specific environmental parameters that could be measured directly or indirectly. The outcome/impact indicators and output indicator for the WQM subcomponent established that at least five states would have improved licensing procedures implemented. As illustrated in Table 3 below and Annex 4, by the end of the project ten states had established WQM systems through the support of the project. The CZM subcomponent contributed to strengthening the national shoreline management system through a series of studies (including classification of shoreline types, fragile coastal habitats, and socio-economic analyses of coastal and on-shore marine biodiversity), and subprojects aimed at developing environmental zoning activities and management plans. At the end of the project, 11 states improved their planning capacity for CZM (see Table 3 below and Annex 4 for a detailed description of activities per State). Likewise, the Environmental Assets (EA) component contributed not only to the improvement and/or adoption of crucial environmental policies in states through the fulfillment of the eligibility criteria (see Table 2 below), but also to the definition of priorities and to the implementation of EA subprojects. For example, from the outset of the project, nearly all of the States (with the exception of Pará, Amazonas and Rondônia) carried out environmental priority-setting exercises with the assistance and methodology provided by MMA. One benefit of this exercise is that it allowed some States to identify common regional environmental problems such as the one produced from livestock wastes in the three southern states (RS, SC, PR). Participation in the EA component was voluntary, and States selected criteria for which they presented evidence to a ministerial supervisory commission which evaluated their adoption of policy improvements. Thus, fulfillment of eligibility criteria under the EA component served as an incentive for States to carry out policy reforms in environmental management. States could qualify at any of three Levels for each criterion. For each criterion, the attainment of the next higher level required the State to demonstrate increased capacity to manage environmental resources. States earned one, two or

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three points for achievement of the corresponding level of eligibility5. The total points earned by a state would palace it in one of three Classes, corresponding to different Matching Grant amounts. Class I (5-9 points) entitled a state to a grant of US$2.0 million; Class II (10 -18 points) entitled a state to a grant of US4.0 million; Class III (19 - 27 points) entitled a state to a grant of US$8.0 million. Table 2 below illustrates the level of fulfillment for each eligibility criteria, and class attained by each of the participating states by the closing of the project.

5 For example, under the Forestry Resource Management criteria, level one was achieved by presenting evidence of having adopted State Forestry Legislation and the regulations needed for its implementation. Level two was achieved by providing evidence that the means to effectively enforce forestry legislation were in place. Level three was achieved by presenting evidence that time-bound and enforceable action plans and programs were in place for the effective and comprehensive management of forest resources, involving both the setting and fulfillment of quantitative goals of forest management.

Table 2. ELIGIBILITY CRITERIA REGIONS/ STATES

Forest Water Res.

Solid Waste

Econ. Inst.

Licensing Monitoring Protected Areas

Decentralized Env. Mgmt

Participation Other

Class Ranking

NORTH AC - 16 – II AP - 2 Biodiversity 15 – II AM - - - - - - - - - - - PA - - - 1 Fishing 12 – II RO - - - - - - - - - - - RR - - - - - - - - - - - TO - - - - 10 – II

NORTHEAST AL - - - 9 – I BA . - 1 Desertification 13 – II CE . - 13 – II MA - - - - - - - - - - - PB - . - - - 9 – I PE - - - 1 Desertification 14 – II PI - - - - - - - - - - RN - . - 11 - II SE - . - - 9 – I

CENTER-WEST DF - - - - - - - - - - GO - - 2 Fishing 16 – II MT - - 2 Fishing 13 – II MS - 3 Fishing 16 - II

SOUTHEAST ES - - 1 Biodiversity 14 – II MG - - 20 – III SP - 3 Biodiversity 22 - III RJ - - - - - - - - - - -

SOUTH PR - 2 Biodiversity 21 – III SC - - 13 – II RS - 20 - III

Level 1 Level 2 - Level 3

Under the EA component, eligible States could prepare subproject proposals with assistance from MMA, based on the pre-identified priorities. The priorities identified and subprojects approved included the following: (i) water quality and livestock wastes (Santa Catarina, Rio Grande do Sul & Parana); (ii) protection of critical watersheds (São Paulo, Goiás, Bahia, Minas Gerais and Pernambuco); (iii) natural resource conservation involving erosion control and sustainable tourism (upper Araguaia basin in Mato Grosso); and (iv) protection of the Caatinga biome (the gypsum producing region of Pernambuco).

8.3 Efficiency (Net Present Value/Economic Rate of Return, cost effectiveness, e.g., unit rate norms, least cost, and comparisons; and Financial Rate of Return) N/A

8.4 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs, and efficiency) Rating: Satisfactory The overall outcome rating for the Second National Environmental Project is satisfactory based on the design which has contributed to building the key pillars outlined in the CAS for the period 2004-2007 (particularly regarding sustainability and competitiveness). In addition, Phase 1 of the NEP-II surpassed all performance indicators and fulfilled the triggers that would allow the program to move to its second phase, in spite of cancellation of loan proceeds and delays in its implementation. Furthermore, NEP-II has allowed for the consolidation of key aspects of environmental management in participating states and municipalities with regards to environmental licensing, WQM and coastal zone management. Likewise, NEP-II promoted the adoption and improvement of key environmental policies (through the fulfillment of the eligibility criteria for the EA component), and to improvements of environmental quality through the implementation of specific interventions aimed at addressing the participating state’s environmental priorities. The table below illustrates the overall fulfillment of key indicators by closing of the project. Table 3. Achievements per Component

Institutional Strengthening Component End of Project Indicators End of Project Achievements

Environmental Licensing Subcomponent 10 states improve their environmental licensing system

12 states improve their environmental licensing system

Water Quality Monitoring Subcomponent 5 states implement their WQM system 10 states implement their WQM system

Costal Zone Management Subcomponent 8 states improve their capacities of management in Costal Zone Management

11 states improve their capacities of management in Costal Zone Management

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Environmental Assets Component End of Project Indicators End of Project Achievements

12 states carried out identification of their environmental priorities

25 states carried out identification of their environmental priorities

12 states meet eligibility criteria and quality for the implementation of subprojects.

21 states meet eligibility criteria and quality for the implementation of subprojects. 4 states qualify for subproject financing under Phase 2.

3 states carry out subprojects to improve and/or conserve environmental assets

9 states carry out 10 subprojects to improve and/or conserve environmental assets

As highlighted in the tables above, NEP-II contributed to the implementation of 43 specific interventions in 17 States. In addition, it has also played a key role in the following:

(i) strengthening environmental policy at the state and local level (i.e. supported management models for solid waste management in urban centers, infrastructure, environmental awareness and education campaigns, coastal economic-ecological zoning);

(ii) strengthening key instruments of environmental management established in the National Law of the Environment (No. 6938/81), particularly with regard to developing State environmental licensing, and WQM systems which help establish the National System of Environmental Information (SINIMA);

(iii) developing sustainable environmental quality subprojects (such as swine waste treatment, conservation of soils and water resources, sustainable agriculture, etc.);

(iv) establishing strategic alliances and inter-institutional articulation among States and key agencies.

The states’ commitment to the project's objectives has also been noteworthy, and there are numerous outcomes from NEP-II that have been praised and recognized by MMA, including open communication among states to share experiences in the fulfillment of eligibility criteria (contributing to a healthy competition) and the design and implementation of subproject activities.

8.5 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above) (a) Poverty Impacts, Gender Aspects, and Social Development Many of the State subprojects proposed under the Environmental Assets Subprojects contributed to important improvements in quality of life for the poor. This is particularly the case with regard to the solid waste management plans, and the river basin management studies and action plans carried out on the key watersheds that supply water to the capital cities of the States of Pernambuco, Bahia, Minas

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Gerais, São Paulo and Goiás (see Section 8.1). The studies and plans prepared for these River Basins are designed to reduce contamination of water supplies arising from erosion, pesticide use, burning of fields, solid-waste disposal and other sources. Actual works and basin-management programs were carried out in São Paulo, Bahia and Pernambuco. Additionally, the project supported the development of WQM systems in all of these states as well as in Paraná, Santa Catarina and Rio Grande do Sul. In the latter three states, the project supported pilot activities designed to reduce water and soil contamination caused by intensive livestock production on small farms. These subprojects helped to reduce the exodus of small farmers to urban areas, and ultimately improve the water quality conditions on some key watersheds in these states. The project also supported a number of activities aimed at increasing the social benefits of ecotourism in the Araguaia River Basin in Mato Grosso as well as reducing some of the negative social impacts of tourism in the region.

(b) Institutional Change/Strengthening

(particularly with reference to impacts on longer-term capacity and Institutional Development) First, the project generated great commitment by States for the fulfillment of eligibility criteria and great demand for the financing of EA subprojects. While this it itself exceeded the performance indicators set forth at the launching of the project, it also allowed to fostering of a solid working relationship and articulation between the States and MMA, which was not fully articulated prior to NEP-II. Secondly, by strengthening of the National Environmental System (SISNAMA), MMA has internalized many of the products and outcomes and has developed a strong ownership of NEP-II, particularly for the following activities: (i) the National Plan for Environmental Licensing; (ii) the WQM Plan; (iii) Coastal Zone Management; (iv) the development of Solid Waste Management Plans; and (v) the reference data for the Environmental Management System (SIGAB) and for the National Environmental System of Information (SINIMA). NEP-II has been mainstreamed within the Ministry as the primary vehicle for articulation between the States and the Federal Government on Environmental Matters MMA will finance the operating costs of the PCU during the transition phase in preparation for Phase 2 of the program.

In addition, as per Table 4 below, the project has contributed to institutional change in various ways in nearly all of Brazil’s 26 states and the Federal District.

Table 4. Institutional and Policy Change

Activities leading to Institutional and Policy Change Nº of States Identification of Environmental priorities using, among others, various social criteria such as the number of people affected by environmental externalities

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Implement WQM Systems 12 Improved Planning for Solid Waste Management 13 Improved Conditions for Coastal Zone Management. 11

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Implement Environmental Licensing Systems 12 Meet the eligibility criteria and qualify for subproject matching grants

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Implementation of EA subprojects 9 States (implement 10 subprojects aimed at improving environmental

quality)

Perhaps the most significant activity from an institutional perspective was the Environmental Licensing subcomponent of the Institutional Development Component, which led to the creation or strengthening of Environmental Licensing Systems in 12 States. Two states (Bahia and Minas Gerais) have led the others in the development of computerized systems for tracking the progress of the licensing process and opening the way for the use of licensing as an environmental management tool. The systems developed were adapted for use in 9 states (AC, BA, CE, GO, MG, MT, PB, RS, SC) making the process simpler and faster for licensees and more transparent for the public at large. Fulfillment of the criteria on the Environmental Assets Eligibility Matrix also promoted considerable institutional growth through the adoption of new legislation and regulations in several states and through the development of institutional capacity for environmental management in several sectors including: (i) water resources; (ii) forestry; (iii) pollution control; (iv) WQM and other areas. (c) Other Unintended Outcomes and Impacts (positive or negative, if any) The project had a number of very positive collateral benefits. It is worth noting that NEP-II has contributed to a number of institutional partnerships involving State Environmental Agencies, municipalities, NGOs, universities, research centers and training centers, water-resource management agencies, tourism agencies, regional development agencies, agricultural development agencies and the private sector. For instance, NEP II has served as a platform for significant sectoral agreements and environmental mainstreaming including: (i) an agreement between the Itaipú Binational Power Company and the Ministry of Environment (MMA); and (ii) an agreement between MMA and the National Water Regulatory Agency (ANA), whereby ANA has agreed to host one of NEP-II’s key products: the website on water quality in Brazil. This website, financed by NEP II, includes up-to-date monitoring data on several key river basins in Brazil, using a uniform methodology and set of measures. This is the first nationwide instrument of its type in Brazil. Most of these partnerships involve mutual or coinciding interests and they do not depend exclusively on NEP-II funding to persist. In fact, it is important to recognize that NEP II has also served to leverage funds by requiring state matching resources which in some cases, have exceed the value of resources contributed by NEP II. Another notable unintended benefit was that through the identification of environmental priorities promoted by NEP-II, the three southern states (Paraná, Santa Catarina, and Rio Grande do Sul) identified a common problem: the pollution to key watersheds from livestock wastes. In addition, to getting support from the Institutional Development and from the EA Components to address this

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regional issue, in 2002 the Bank managed to secure resources (US$539,000) through the Bank Netherlands Partnership Program (BNPP) Trust Fund to complement activities under the WQM subcomponent under NEP-II. In particular, the project financed through the BNPP focused on two specific activities: (i) developing a decision making tool for use by State licensing agencies and other decision makers and (ii) on the development of a tool for monitoring environmental quality in watersheds heavily impacted by intensive livestock production. The activities promoted through this project benefited from the participation of a wide range of specialized technicians from state environmental agencies responsible for the environmental licensing. This ensured a high level of discussion and analysis regarding the proposed methodologies and procedures. Furthermore, there is currently demand from other states and by MMA to apply the methodology developed by this project in key watersheds of other states which suffer from severe pollution. The outcomes of this project have been presented to MMA, State representatives, environmental agencies from other states and association of swine producers in 2005, and will be published in monograph form jointly by MMA and the Bank.

8.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes) In October 2004 MMA held a high level workshop where the key outcomes and experiences of NEP-II during the 2000-2004 period were presented. This workshop also served to hear the opinions of key beneficiaries (including association of solid waste collectors, swine producers, municipal and state representatives, etc.) who benefited from activities promoted by NEP-II and to have exchanges among participating states. An independent assessment of phase 1 (the National Environmental Program-PNMA-II Activities Report 2000-2004) was published for the workshop, summarizing the key conclusions and status of implementation of the project (available in project files). The workshop was hosted by Minister of Environment and had the participation of country and sector directors. 9. Assessment of Risk to Development Outcome Rating: Satisfactory The risk to development outcome for the project is rated as “satisfactory” for the following reasons:

• Institutional Development. Activities promoted under the project have helped to strengthened the technical and administrative capacity of State Environmental Agencies (OEMAs) to carry out specific environmental management tasks more efficiently (particularly with regards to environmental licensing, coastal zone management and environmental quality monitoring). This enhanced capacity has been tested and incorporated into the OEMAs daily operations, despite changes in state administrations. Thus, there is minimal risk that the outcomes of the project will not be maintained and continued after project closure.

• Awareness raising. Several of the project’s activities and partnerships have contributed to

raise environmental awareness and generate an informed public opinion, which is likely to maintain pressure on states to keep addressing the most critical environmental issues. This

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awareness is also likely to enable the role of civil society, universities and NGOs in maintaining pressure on state governments and on MMA to keep an adequate environmental management.

• Enhanced local demand. The demand by States to participate voluntarily in NEP-II has

exceeded initial expectations and has demonstrated the value of promoting decentralized environmental management in Brazil through concrete incentives. NEP-II has confirmed that a change to the ‘top-down’ approach of environmental management by focusing on enhancing sub-national and local capacity to deal with environmental issues renders concrete benefits, including: (i) creating local ownership in the process of identifying, prioritizing and addressing critical issues; (ii) promoting environmental awareness and enabling the local decision making process; (iii) enhancing local technical and administrative capacity; (iv) allowing states to engage in a healthy competition with one another (and enhancing bilateral technical exchanges) regarding the fulfillment of policy reforms through the project’s eligibility criteria; All of the above reflect that the approach started through NEP-I and enhanced through NEP-II is robust and likely to be sustained with low risks of being derailed.

• Commitment by MMA. The acceptance and recognition of NEP-II by MMA has grown strong

through time (in spite of changes in administration) to the point that it now features as one of the most prominent programs and key vehicles by which the Ministry of Environment articulates with the States. It has also contributed to the development of key policies at a national level (i.e. strengthening the SISNAMA), and many of its key activities WQM, coastal zone management, etc.) have been internalized by MMA. In addition, NEP-II has been the best performing project within MMA from a financial perspective, spending about 90 percent of the allocated from effectiveness through the end of 2005 . Given these characteristics, MMA chose to endorse and support phase 2 of NEP-II for financing in 2005 over other programs demonstrating the high institutional value which has been vested in NEP-II. MMA’s commitment is therefore an ensuring factor of the sustainability of the project’s outcomes.

10. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues) 10.1 Bank a) Bank Performance in Ensuring Quality at Entry (i.e., performance through lending phase) Rating: Satisfactory As mentioned in section 7.1, the Bank prepared NEP-II based on the lessons from the implementation of the First National Environmental Project (NEP-I). The team leader during the preparation of NEP-II was the team leader and an integral member during the implementation of NEP-I, allowing for continuity with the project’s PCU at MMA and for a full integration of the experiences and lessons into project design. Project preparation also benefited from the active participation from country office

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staff which served to provide the required local technical support and as a sounding board on key issues happening in the country which could affect project preparation. The team carried out 8 missions during the preparation period and developed and maintained a close working relationship with the counterparts at MMA which facilitated the preparation process. The team also carried out a series of workshops (Brasília, Rio de Janeiro, and Recife) with representatives from leading NGOs to get their feedback and reach a consensus on critical aspects of project design. These workshops also served to determine the States’ interest and willingness to participate in the project, and to establish the project’s performance indicators. The project team also held three separate workshops with State Environment Secretaries to discuss the project design and make adjustments in the eligibility criteria. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Satisfactory Supervision of the project was continuous and intense, in part because of the relatively innovative aspect of this project and the need to keep track of the various implementation sites where the project was implemented. In all, a total of 14 supervision missions were conducted over the 7 years of project implementation. In addition, there was an active correspondence and constant communication between the Bank and the PCU on virtually all issues of implementation. Aside from project management, all project implementation was carried out by the participating States. Although the supervision budget for the project was low, supervision missions were conducted regularly and they often included visits to specific states to observe project implementation and to discuss the project with the States that were implementing it. These visits included site visits to the States of Bahia, Pernambuco, Mato Grosso, Paraná, Santa Catarina, Rio Grande do Sul. For each supervision mission, a complete monitoring report was presented by the PCU that included a narrative description and assessment of each project component, subcomponent and activity, with indicators of project completion, disaggregated and aggregated financial indicators, procurement and disbursement indicators and discussion of general and specific problems. This was greatly facilitated by the careful attention to project monitoring by the PCU and by the designation of specific team members accountable for each project subcomponent in each participating state. During implementation, there was one overall supervision mission of procurement which reviewed a set of procurement transactions carried out by a random selection of states and by the PCU itself. In addition, for most of the implementation period, the TTL was procurement certified and kept close watch on procurement matters. No serious problems were detected although there were a few cases in which States had reverted to local rather than Bank procurement guidelines. Disbursement and financial management were monitored by the team itself and, again, thanks to the careful accounting and reporting procedures by the PCU, this task was made simple. The project financial audits were submitted on time and in accordance with the Loan Agreement. No major issues were uncovered by the audits. FMRs were submitted at regular intervals and they were reviewed by the project team.

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In summary, the quality of Supervision is rated as satisfactory. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory The Bank’s overall performance is rated satisfactory based on the mix of staff expertise and skills both during preparation and in supervision and by the time dedicated to ensuring compliance with procurement, financial management, safeguards and technical aspects during implementation, in spite of budgetary limitations. Furthermore, there has been little disruption in the continuity of the task teams between lending and supervision. In the life of the project since preparation began, there have only been two task managers. The current TM participated throughout preparation and supervision, and the former TM became an integral team member during the last phase of project supervision. This has guaranteed a solid technical and administrative continuity by the Bank, which has also fostered a strong working relationship with the client and key stakeholders. In addition, the Bank team carried numerous missions and field visits which guaranteed a constant and efficient supervision. In addition, the Bank managed to secure additional financing through a BNPP-TF, which complemented specific project activities in Brazil’s three southern States. The Bank team also acted swiftly during critical times when the GOB requested a cancellation of loan proceeds and extensions to the closing date, and constantly alerted management and the borrower of potential risks during project implementation. 10.2 Borrower (a) Government Performance Rating: Moderately Satisfactory Government performance is rated moderately satisfactory, based on the generally excellent performance of the project staff and the support provided by the Ministry, and State governments. However, because the difficulties caused by the reduction in allocation of resources by the Ministry of Finance leading to the cancellation of loan proceeds, and to a reduction in the scope of project activities, the project cannot be rated as fully satisfactory. While, on the one hand, GOB has been supportive and committed to NEP-II, including the Secretariat for International Affairs of the Ministry of Planning (SEAIN), on the other hand, the GOB failed to provide the necessary resources to NEP-II. In addition, there were frequent delays in disbursement of resources to participating states because of rules prohibiting payments to states in financial default with the federal government. This signified that eligible states could not receive the resources to which they were entitled in a timely fashion. These controls were imposed by the Federal government to promote fiscal discipline, however, with regard to the actual implementation of NEP-II it had some negative consequences, particularly because often the state environmental agencies would be deprived of funding because another state agency was in arrears in its remittances to the federal treasury. The performance by the participating states is considered satisfactory in that they quickly picked up on the eligibility criteria matrix as a mean to carry out reforms and policy improvements and in

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committing to the execution of specific subprojects and activities. Similarly, states provided local counterpart resources and technical staff which supervised the activities carried out under NEP-II. Notwithstanding some delays in qualifying for subprojects and the cases where States employed local rather than the agreed procurement guidelines, the overall performance by states was highly positive. (b) Implementing Agency or Agencies Performance Rating: Satisfactory Support for NEP-II oscillated through project implementation but evolved and grew with time. As highlighted in section 9 above, MMA recognized the impact and value-added of NEP-II and used it effectively to strengthen its own policies (i.e. SISNAMA) and to build a good working relationship with the States. For the most part, MMA supported the PCU and is committed to a continuation of the second phase of the program. In spite of changes in administration and staff, MMA worked closely with the Bank to ensure a satisfactory implementation of the project and the fulfillment of its DO. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory In spite of the significant reduction in the project’s size from its approval to closing and the delays experienced in the execution of some of the project’s activities overall borrower performance is considered satisfactory. The budgetary constraints which resulted from the austerity package from the Ministry of Finance, not only affected NEP-II, but other investments in various sectors as well. The implementing agency oscillated through time but it evolved in demonstrating its commitment to the achievement of project objectives and performed satisfactorily within the budget limitations imposed by externalities outside its control. It is also worth underscoring that the project PCU had an exemplary performance in that it managed to coordinate 43 subprojects and activities in 17 states, and to build efficient partnerships, often under adverse conditions. Moreover, the PCU managed to spend 98% of the resources allocated to the project; a record unmatched by any other project executed by MMA in the same time period. The rating is also based on the growing commitment by MMA and participating States to the program (which provided enthusiasm, dedicated staff and counterpart funding), in spite of recurrent changes in administration. Lastly, the rating is given based on an analysis of the projects results which demonstrate that there is a great awareness of environmental issues and an enhanced capacity at the State level for environmental protection.

11. Lessons Learned (both project-specific and of wide general application) Among the lessons learned from this project was the reaffirmation of the viability of a decentralized approach to environmental management. By transferring decisions and implementation down to the

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State level, the Federal Government was able to accomplish several important goals: (1) leverage policy and regulatory change at the State level; (2) generate enthusiasm, energy and counterpart funding for state selected priorities; (3) build capacity for environmental management at the State level. The project demonstrated that there is a great deal more interest and capacity for environmental protection at the local level, especially when state-level entities are allowed to set their own priorities and develop their own way of approaching the problem. The project also demonstrated that states are quite willing to have their capacity and performance evaluated objectively, especially when the financial incentive to support state-defined subprojects is added. This was initially a sensitive question during project preparation, but the team learned that judgments made using an objective scale with clear criteria were acceptable to the states. Most state officials actually welcomed the opportunity to have their capacity evaluated externally because it gave them leverage for policy changes within their governments. Another lesson learned is that, even in a nominally decentralized system, there may be some resistance by central government (i.e. MMA) to allow decentralized decision making. Often this resistance comes indirectly in the form of fiscal controls. In Brazil, during project implementation, there were several occasions on which financial transfers could not be made to eligible states in a timely fashion because of alleged financial defaults in the states’ obligations to the Federal Government. While these controls are important from the perspective of fiscal discipline, they were sometimes counterproductive in terms of achieving voluntary compliance with national objectives in the environmental area. Often, the fiscal issue was outside the area of control of the State agency. For example, during project implementation, a federal regulation barred federal financial transfers to a state in which any agency was in arrears to the federal pension system (INSS). If for example, a state-run public utility was alleged to be behind in its tax remittances, all other state agencies eligible for federal transfers were penalized including those dispensing critical services.

An important lesson learned was the importance of building an effective communications component into the project. During project implementation, there were times when the project received less funding out of the budget allocated to MMA than other programs that were narrower in scope and performed worse than NEP2. This may have been partly a function of how well the project communicated with its various constituencies. The lesson learned that the success of a project may often depend on its capacity to identify key stakeholders and to communicate with them effectively, in both directions. It is noteworthy that the project enjoyed the continuous strong support of the National Association of State Environmental Agencies (ABEMA) throughout the entire implementation period. The lack of a comprehensive baseline to measure actual improvements in environmental quality through the implementation of subprojects at the state level is an important lesson from NEP-II. While many activities developed under NEP-II had means to measure its evolution, for the most part States had not developed solid baselines which could have improved project monitoring and establish the basis for comparing overall improvements in environmental quality at the end of a specific intervention.

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An additional lesson concerns the delays encountered in the signing of contracts due to slow administrative procedures by UNDP. MMA has relied on UNDP as a service provider for letting contracts, which often experienced delays affecting project implementation. Thus, the value added of the administrative services rendered to MMA by UNDP for the implementation of project activities comes into question for future Bank financed projects, and the need to further develop the administrative (i.e. procurement and financial management) capacity within MMA to stop relying on external service support. On the other hand UNDP also offers certain benefits regarding financial management for which MMA benefited. Lastly, an important lesson for subsequent phases is related to the flexible’ methodology provided by MMA for determining the State’s environmental priorities which was often not closely monitored and which opened the door to arbitrary decisions (e.g., selecting priorities that matched well the expected size of the matching grants rather than the most pressing environmental problem in the state). 12. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies

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(b) Cofinanciers (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society)

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Annex 1. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) Strengthen capacity of environmental institutions at local, state and federal levels to improve environmental quality. The objective of the Project was to assist the Borrower in achieving measurable improvements in environmental quality through strengthening of decentralized environmental management at the Borrower’s state and municipal levels. Revised Project Development Objectives (as approved by original approving authority) N/A (a) PDO Indicator(s)

Indicator Baseline Value Original Target Values

(from approval documents)

Formally Revised Target Values

Actual Value Achieved at Completion or Target Years

Indicator 1 : Environmental quality improvements in priority areas of States

Value (quantitative or Qualitative)

States had several degraded areas subject to be addressed under the project

Achievements of environmental quality targets in participating states.

Improved protection of water quality sources in urban areas - SP, MG, GO, PE & BA; Development of env. mgt. systems for hog farms in RS, SC & PR; Dev. of recovery models for degraded soils area in MT.

Date achieved

11/09/1999 11/09/2006 06/30/2006

Comments (incl. % achievement)

Indicator 2 : Participating states adopt environmental policy improvements and identified priority Environmental Assets

Value (quantitative or Qualitative)

States have not carried out environmental priority-setting exercises, and many lacked specific policies in key areas such as forest resource mgt., solid waste mgt. licensing, etc.

12 states reached consensus on environmental priorities & 12 states provide proof of attainment of eligibility criteria for subprojects.

25 states carried out identification of environmental priorities. 21 states fulfilled eligibility criteria which led to improved policy environmental policy framework. 4 states already qualify for phase II.

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Date achieved

11/09/1999 11/09/2006 06/30/2006

Comments (incl. % achievement)

208% of target

Indicator 3 : States have strengthened their capacity to implement licensing procedures, monitor water quality, and, where applicable, develop management plans for coastal areas.

Value (quantitative or Qualitative)

Most States had weak licensing systems. 13 states had very poor or incipient WQM systems, 4 had minimal systems, and 9 had optimal systems; only 6 states had significant elements of CZM.

10 states improve their environmental Licensingsystems, 5 states implement their WQM systems, and 8 states improve their capacity for CZM.

12 states modernized their licensing systems, 10 states improved their WQM system, & 11 improve their capacity for coastal zoning.

Date achieved

11/09/1999 11/09/1999 06/30/2006

Comments (incl. % achievement)

120% of target

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at Completion or Target Years

Indicator 1 : Establishment of consensus on environmental priorities and development of strategies for addressing them

Value (quantitative or Qualitative)

Most states have not carried out environmental priority-setting exercises, nor action plans to address them.

12 states carry out studies to determine their environmental priorities and strategies to address them.

25 states carried out studies identifying environmental priorities.

Date achieved 07/11/2000 07/11/2000 06/30/2006 Comments (incl. %

208% of target

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achievement) Indicator 2 : Adoption of policy improvements through the fulfillment of eligibility criteria.

Value (quantitative or Qualitative)

Many states had weak policies and institutions. Fulfilling eligibility criteria allowed the states to make improvements in their policy and legal frameworks

12 States meet the eligibility criteria and qualify for subprojects.

21 states meet eligibility criteria and are eligible for financing of subprojects. 9 states manage to develop 10 subprojects. 4 states (and IBAMA) qualify for subprojects under phase II.

Date achieved 07/11/2000 07/11/2000 06/30/2006 Comments (incl. % achievement)

175 % of target.

Indicator 3 : Implementation of Environmental Assets subprojects in at least three states.

Value (quantitative or Qualitative)

States lack projects to address their specific priorities. Participation is bound to a qualification process where states have to identify env. priorities and comply with eligibility criteria.

3 states implement environmental quality subprojects.

9 states have carried out 10 environmental quality subprojects.

Date achieved 07/11/2000 07/11/2000 06/30/2006 Comments (incl. % achievement)

300% of target

Indicator 4 : Develop, modernize and update environmental licensing systems in at least ten states.

Value (quantitative or Qualitative)

Prior to the NEP-II state licensing systems were not fully structured or operating efficiently in all states. There were at least 5 states (RS, PR, SP, BA, PE) with operating environmental licensing systems.

10 states improve their environmental licensing systems.

12 states improve their environmental licensing systems. Participating states have managed to reduce costs and approval times (i.e. from R$2,940,000 to R$455,000; and from 12 months to 7 months).

Date achieved 07/11/2000 07/11/2000 06/30/2006 Comments (incl. %

120% of target

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achievement)

Indicator 5 : Implementation of improved and decentralized WQM systems and dissemination mechanisms of relevant data to decision makers and the general public in a timely fashion.

Value (quantitative or Qualitative)

13 states had very poor or incipient WQM systems for specific water bodies, 4 had regular systems, and 9 had adequate to optimal systems.

5 states implement WQM systems

11 states implement WQM systems

Date achieved 07/15/2001 07/11/2000 06/30/2006 Comments (incl. % achievement)

220% of target

Indicator 6 : Development of coastal zone baseline studies and improved coastal zone management capacity in eight states.

Value (quantitative or Qualitative)

Out of the 11 participating states, only 6 states had adequate instruments for CZM (i.e. mgt. plans, monitoring, env. quality reports, state plans for CZM, and municipal plans for CZM).

8 states improve their capacity for coastal zone management.

11 states improve their capacity for coastal zone management.

Date achieved 07/11/2000 07/11/2000 06/30/2006 Comments (incl. % achievement)

137.5% of target

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Annex 2. Restructuring (if any) N/A

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Annex 3. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Components Appraisal Estimate (USD M)

Actual/Latest Estimate (USD M)

Percentage of

AppraisalINSTITUTIONAL STRENGTHENING

14.60 6.65 45.20

INTEGRATED MANAGEMENT OF ENVIRONMENTAL ASSETS

10.00 5.84 58.40

PROJECT COORDINATION

3.00 3.78 126.00

Total Baseline Cost 27.60 16.27 Physical Contingencies 1.50 Price Contingencies 0.80

Total Project Costs 29.90 Front-end fee PPF 0.00 0.00 0.00 Front-end fee IBRD 0.10 0.00 0.00

Total Financing Required

30.00 16.27

(b) Financing

Source of Funds Type of Cofinancing

Appraisal Estimate (USD M)

Actual/Latest Estimate (USD M)

Percentage of

AppraisalINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

15.00 8.08 53.86

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(c) Disbursement Profile

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Annex 4. Outputs by Component

STATE / COMPONENT / SUB-COMPONENT

PROJETOS

Nº PROJ

1 - ACRE - AC 1 D I / LIC.AMB. - Restructuring and consolidation of the environmental licensing system of the state of Acre 2 - AMAPÁ - AP 1 D I / GERCO - Land administration of the Amazon sector, in the state of Amapá 3 - BAHIA - BA 4 D I / GERCO -Strengthening of the managerial capacity of the state and municipalities to manage the North coastline. D I / WQM - Improvement of the WQM system of the Paraguaçu river basin D I / LIC.AMB. - Integrated information system for environmental licensing in the state of Bahia ENVIRONMENTAL ASSETS – Paraguaçu Basin state of Bahia 4 - CEARÁ – CE 2 D I / GERCO - Integrated Management of the Coastline of Ceará - D I / LIC.AMB. - Institutional development of SEMACE – Environmental Licensing System

STATE / COMPONENT / SUB-COMPONENT

PROJECTS

Nº PROJ

5 - ESPÍRITO SANTO – ES 1 D I / GERCO – Land administration and monitoring of use and occupation of the Espírito Santo coastline 6 - GOIÁS – GO 3 D I / ENV. LIC. – Co-management of environmental licensing and monitoring D I / WQM – Superficial water quality and quantity integrated monitoring system of the upper Meia Ponte Basin ENVIRONMENTAL ASSETS – Protection and conservation of the Meia Ponte River Basin 7 – MATO GROSSO – MT 3 D I / WQM – Water quality and quantity integrated monitoring system of the Das Garças river sub-basin D I / ENV. LIC. – Integrated environmental licensing through the geographic information system ENVIRONMENTAL ASSETS – Conservation of natural resources and fostering of sustainable development in the Mato Grosso region.

STATE / COMPONENT / SUB-COMPONENT

PROJECTS

Nº PROJ

8 - MATO GROSSO DO SUL - MS 1 D I / WQM - Optimization of the existing water monitoring network of the Ivinhema river basin 9 – MINAS GERAIS – MG 3 D I / ENV. LIC.. – Institutional development of the Environmental State System of Minas Gerais /SISEMA-MG; ENVIRONMENTAL ASSETS – Protection and conservation of the natural resources of the metropolitan area of Belo Horizonte; D I /– WQM improvement of the Alto Curso of the Velhas river Basin 10 - PARAÍBA – PB 2 D I / ENV. LIC. – Institutional strengthening and decentralization of the State Environmental Licensing System - SELAP D I / GERCO – Integrated management of the Paraíba do Norte river estuary

STATE / COMPONENT / SUB-COMPONENT Nº

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PROJECTS PROJ

11 - PARANÁ – PR 4 D I / ENV LIC – Decentralized and interactive environmental licensing in the Alto Iguaçu sub-basin D I / GERCO-Integrated management of the coastal zone of Para with emphasis on the marine area ENVIRONMENTAL ASSETS – contamination control resulting from hog raising in the state of Paraná. D I / WQM -Superficial water resources qualitative and quantitative monitoring as a subsidy for its management, Paraná III basin 12 - PERNAMBUCO – PE 5 D I / GERCO - Integrated Coastal and marine environmental management of Pernambuco D I / ENV LIC - Environmental management restructuring and refinement of Araripe region. ENVIRONMENTAL ASSETS – Support the state of Pernambuco in the carrying out of the social, economic and environmental diagnostic in the region of Araripe, state of Pernambuco. ENVIRONMENTAL ASSETS – Environmental protection and conservation of the Ipojuca river Basin in the Agreste Central area of Pernambuco

STATE / COMPONENT / SUB-COMPONENT

PROJECTS

Nº PROJ

13 - PIAUÍ – PI 1 D I / GERCO - Integrated coastal and marine environmental management of Piaui 14 - RIO GRANDE DO SUL – RS 4 D I / ENV. LIC. - Integrated system for licensing and environmental information refinement of the state of Rio Grande do Sul D I / GERCO -Strengthening of the coastal management in the north coastline of Rio Grande do Sul. ENVIRONMETAL ASSETS - contamination control resulting from hog raising D I / WQM in the Rios Turvo, Santa Rosa and Santo Cristo Basins and in the Uruguay hydrographic region. 15 - SANTA CATARINA - SC 4 D I / GERCO - Integrated coastal management in the municipalities of the Porto Belo Peninsula and surroundings and the river mouth of the rivers Camboriú and Itajaí – Açu ENVIRONMENTAL ASSETS – Environmental degradation control resulting from hog raising in Santa Catarina D I / WQM-Water quality in the hydrographic region of Santa Catarina, as a subsidy to water resources management and environmental control. D I / ENV. LIC. - Institutional Development of FATMA - Licensing System Applied to the Environmental Regional Coordination of the Vale do Rio Peixe and the Posto Avançado Ambiental of the Vale do Tubarão in the productive chain of hog raising. 16 - SÃO PAULO - SP 3 D I / ENV. LIC. - Modernization of the environmental licensing and oversight system in the state of São Paulo. ENVIRONMENTAL ASSETS – Protection and conservation of the supply manantial in the metropolitan region of São Paulo. D I / WQM - Information system on line on WQM data, as technical support to the pollution control actions 17 - SERGIPE - SE 1 D I / GERCO - Sergipe coastal zone management plan

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Annex 5. Economic and Financial Analysis (including assumptions in the analysis) N.A.

42

Annex 6. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members

Names Title Unit Responsibility/Specialty Lending Renan Poveda Consultant LCSEN Environmental Specialist Daniel R. Gross Lead Anthropologist LCSEO Task Team Leader

Luiz Gabriel Azevedo Sr. Water Resources Engineer

LCSEN Water Resources Engineer

John Redwood Principal Environmental Specialist

LCSEN Principal Environmental Specialist

Sérgio Margulis Sr. Environmental Economist

LCSEN Environmental Economist

Luiz Carlos Ros Environmental Specialist LCSEN Environmental Specialist

Túlio Correia Financial Management Specialist

LCSFM Financial Management Specialist

Armando Araújo Regional Procurement Advisor

LCSPT Procurement Specialist

Kátia Medeiros Consultant FAO Environmental Protection

Andrew Hurd Consultant LCSEN Natural Resource Management

Supervision/ICR Daniel R. Gross Consultant LCSEN ICR Primary Author

Renan Alberto Poveda Sr Environmental Specialist

LCSEN TTL & ICR Primary Author

Irani Escolano Procurement Specialist LCSPT Procurement Specialist

Claudio Mittelstaedt Consultant LCSFM Financial Management Specialist

George Georgiadas Consultant LCSEN Environmental Specialist Luiz Gabriel Azevedo Sector Leader LCSEN Water Resources Engineer

Sérgio Margulis Sr. Environmental Economist

LCSEN Environmental Economist

Carolina J. Cuba Hammond Program Assistant LCSES Program Assistant & ICR Primary Author

Grace Menck De Oliveira Junior Professional LCSEO Junior Professional

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Figuero Associate Associate (b) Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD M)1 12/23/1999 Satisfactory Satisfactory 0.00 2 06/29/2000 Satisfactory Satisfactory 0.00 3 12/19/2000 Satisfactory Satisfactory 1.39 4 05/11/2001 Satisfactory Highly Satisfactory 1.60 5 11/02/2001 Satisfactory Highly Satisfactory 1.82 6 03/09/2002 Satisfactory Highly Satisfactory 1.63 7 04/17/2002 Satisfactory Highly Satisfactory 1.63 8 12/06/2002 Satisfactory Highly Satisfactory 3.03 9 06/05/2003 Highly Satisfactory Satisfactory 4.30 10 12/11/2003 Highly Satisfactory Satisfactory 5.05 11 06/10/2004 Highly Satisfactory Satisfactory 6.97 12 12/21/2004 Highly Satisfactory Satisfactory 7.07 13 04/30/2005 Satisfactory Satisfactory 7.07 14 06/06/2006 Satisfactory Moderately Satisfactory 7.07 (c) Staff time and cost

Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle No. of staff weeks

USD Thousands (including travel and

consultant costs) Lending

FY95 0.71 FY96 96.32 FY97 50.92 FY98 80.64 FY99 0.00

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FY00 13 0.00 FY01 0.00 FY02 0.00 FY03 0.00 FY04 0.00 FY05 0.00 Total: 13 228.59

Supervision/ICR FY95 0.00 FY96 1.06 FY97 0.00 FY98 17.23 FY99 45.23 FY00 2 71.56 FY01 8 25.75 FY02 11 47.04 FY03 5 56.60 FY04 10 59.20 FY05 12 16.45 FY06 10 0.00 FY07 2 0.00

Total: 60 340.12

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Annex 7. Detailed Ratings of Bank and Borrower Performance Bank Ratings Borrower Ratings

Ensuring Quality at Entry: Satisfactory Government: Moderately Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies:

Satisfactory

Overall Bank Performance:

Satisfactory Overall Borrower Performance:

Satisfactory

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Annex 8. Beneficiary Survey Results (if any) N/A

47

Annex 9. Stakeholder Workshop Report and Results (if any) N/A

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Annex 10. Summary of Borrower's ICR and/or Comments on Draft ICR

MINISTÉRIO DO MEIO AMBIENTE

PPRROOGGRRAAMMAA NNAACCIIOONNAALL DDOO MMEEIIOO AAMMBBIIEENNTTEE IIII

PPNNMMAA IIII

FFAASSEE 0011

SUMÁRIO EXECUTIVO

PERÍODO: JUNHO/2000 JUNHO/2006

Versão preliminar

49

Brasília, dezembro de 2006.

SUMÁRIO EXECUTIVO IMPLEMENTAÇÃO DO PROGRAMA NACIONAL DO MEIO AMBIENTE II – PNMA II FASE 01 Unidade Executora: Programa Nacional do Meio Ambiente II

Ministério do Meio Ambiente Brasil

I – INTRODUÇÃO O Programa Nacional do Meio Ambiente II – PNMA II é direcionado para o aperfeiçoamento e fortalecimento do processo de gestão ambiental no âmbito do Sistema Nacional de Meio Ambiente - SISNAMA, nos três níveis de governo, visando alcançar resultados efetivos de qualidade ambiental e, conseqüentemente, uma melhor qualidade de vida para a população brasileira.

O presente relatório refere-se às atividades do Programa em sua Fase 01, com uma

síntese das ações desenvolvidas no período de junho de 2000 a junho de 2006. O PNMA II, objeto do Acordo de Empréstimo nº 4524 BR, firmado entre o Governo Brasileiro e o Banco Mundial, foi efetivado em 11 de julho de 2000 e encerrado em 30 de junho de 2006. II – PRINCIPAIS INDICADORES DE PERFORMANCE Para uma avaliação do desempenho do Programa foram utilizados os seguintes indicadores: Indicadores Menção Alcance dos Resultados S Sustentabilidade S Impactos no desenvolvimento institucional AS Performance do banco S Performance do tomador S AS = Altamente satisfatório. S = Satisfatório. I = Insatisfatório. III – AVALIAÇÃO DOS OBJETIVOS, DO DESENHO E DA QUALIFICAÇÃO 3.1 – Objetivos originais (segundo o Appraisal Report) Objetivo Geral:

Estimular a adoção de praticas sustentáveis entre os diversos setores cujas atividades impactam o meio ambiente e contribuir para o fortalecimento da infra-estrutura organizacional e de regulamentação do poder publico para o exercício da gestão ambiental nos pais, melhorando efetivamente a qualidade ambiental e gerando benefícios socioeconômicos.

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Objetivos Específicos:

a) Implementar projetos de gestão integrada, com caráter replicável, que sirvam como modelos de desenvolvimento sustentável;

b) Aprofundar o processo de descentralização da gestão ambiental, fortalecendo a capacidade operativa dos estados e municípios;

c) Estimular a adoção de soluções inovadoras e a formação de parcerias entre o poder público e a sociedade civil, para a gestão ambiental;

d) Desenvolver e implementar sistemas de monitoramento ambiental, voltados para a geração de informações que auxiliem a tomada de decisão;

e) Desenvolver ações para aumentar a eficácia do processo de licenciamento ambiental, integrando-o com os demais instrumentos de gestão ambiental;

f) Fortalecer a capacidade de gestão ambiental integrada da Zona Costeira brasileira. Considerações: Os objetivos se apresentaram claros e realistas, sendo inclusive definidos de forma a atender às demandas dos estados, que foram identificadas por intermédio de um processo participativo de consultas. Estas demandas se originaram de um levantamento efetuado para atender a este fim, em 1997. Por ter sido configurado no formato APL, modalidade indicada para programas de longo prazo, o PNMA II foi subdividido em 3 fases, com estimativa de execução em 10 anos. Os objetivos foram definidos para serem cumpridos ao longo de todo o período proposto para o APL. Assim, os resultados alcançados na Fase 01 foram adequados aos recursos disponibilizados para o Programa, à complexidade do desenho, à estratégia de implementação e à capacidade técnica dos executores. O MMA, instituição executora e órgão central do SISNAMA, contribuiu para o alcance dos objetivos do PNMA II, devido a sua ampla experiência na implementação de projetos, que envolvem as esferas federal, estaduais e municipais, bem como a sociedade civil organizada. 3.2 – Objetivos revisados Os objetivos não foram revisados. 3.3 – Componentes originais O PNMA II está estruturado em dois componentes técnicos: Gestão Integrada de Ativos Ambientais e Desenvolvimento Institucional e um componente administrativo de Coordenação e Articulação.

A) Gestão Integrada de Ativos Ambientais: este componente tem por objetivo estimular as

Unidades da Federação à prática de ações sustentáveis visando à conservação e melhoria de ativos ambientais prioritários e à geração de benefícios socioeconômicos.

Considerações: o desenho do componente, principalmente após ajustes de sua estratégia, enfocando a articulação plena com os projetos financiados pelo Componente Desenvolvimento Institucional, se mostrou adequado para estimular nos estados a gestão integrada de recursos ambientais, alcançando melhorias de qualidade ambiental em áreas prioritárias. Por outro lado, o

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processo de qualificação ao Componente contribuiu para impulsionar avanços e melhorias na gestão ambiental estadual.

B) Desenvolvimento Institucional: tem por objetivo o fortalecimento dos órgãos estaduais de meio ambiente - OEMAs na utilização de instrumentos essenciais para o processo de gestão ambiental no País. Os instrumentos trabalhados no âmbito do Componente são: licenciamento ambiental, monitoramento da qualidade da água e o ordenamento territorial da zona costeira, cujas ações são desenvolvidas no âmbito dos subcomponentes Licenciamento Ambiental, Monitoramento da Qualidade da Água e Gerenciamento Costeiro. Considerações: o desenho do componente mostrou-se adequado ao fortalecimento dos OEMAS/SISNAMA, permitindo aprimorar a capacidade técnica e operacional para a utilização de instrumentos de gestão ambiental no País.

C) Coordenação e Articulação: este componente visa proporcionar apoio ao MMA na implementação do PNMA II, mediante o fortalecimento da capacidade técnica e gerencial para a execução das ações do Programa. Além disso, tem por objetivo promover a articulação entre as Unidades da Federação, fortalecendo o Sistema Nacional do Meio Ambiente - SISNAMA. Considerações: o desenho do componente mostrou-se adequado, favorecendo as ações de apoio na implementação do Programa e nas articulações necessárias. Porém, um sistema de comunicação e de divulgação dos resultados deve ser estruturado na Fase 02. 3.4 – Componentes revisados: Os componentes não foram revisados. 3.5 - Contexto Inicial: O desenho do PNMA II guarda relação direta com os objetivos da política do Banco Mundial e do Governo Brasileiro, podendo ser destacados os seguintes aspectos:

- o estabelecimento de prioridades ambientais na Fase 01 visou otimizar o uso dos recursos financeiros e apoiar a tomada de decisão no processo de identificação de projetos potenciais a serem desenvolvidos no Programa. Os resultados obtidos neste estudo foram utilizados como subsídios para a configuração dos projetos estaduais;

- o cumprimento de critérios de elegibilidade buscou incentivar a introdução de melhorias nos sistemas estaduais de gestão ambiental. Os critérios foram baseados nos principais instrumentos e princípios de gestão ambiental em aplicação no País (gestão de recursos florestais, gestão de recursos hídricos, gestão de resíduos sólidos, instrumentos econômicos para a gestão ambiental, licenciamento ambiental, monitoramento ambiental, gestão de áreas naturais protegidas, descentralização da gestão ambiental e participação na gestão ambiental);

- os projetos estaduais implementados na Fase 01 do PNMA II tiveram caráter demonstrativo, visando identificar as melhores soluções técnicas e modelos inovadores de gestão ambiental que pudessem ser disseminados para outras áreas que apresentem questões ambientais semelhantes;

- a implementação do subcomponente Licenciamento Ambiental, conforme atestado por avaliação realizada junto aos executores, trouxe significativos benefícios para as instituições

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estaduais licenciadoras, para a qualidade da prestação do serviço público e para os usuários, mediante agilização do processamento administrativo de obtenção de licenças. O incremento de tecnologia gerencial, representado pela informatização das áreas de licenciamento dos órgãos estaduais de meio ambiente, forçou a racionalização operacional dessas áreas e desses órgãos e conduziu à elevação do grau de eficácia material da licença, especialmente para atender as mudanças da legislação e as suas interpretações, que incidem diretamente nos órgãos governamentais e de maneira indireta aos órgãos do sistema financeiro, pois ao concederem empréstimos aos empreendedores, podem ser responsabilizados por projetos danosos ao meio ambiente.

Os resultados alcançados pelo subcomponente Monitoramento da Qualidade da Água podem ser distribuídos em três linhas:

- estruturação, implantação e operacionalização de redes de monitoramento (instalação de 300 estações de amostragem) em bacias prioritárias estaduais, assim consideradas pela complexidade do uso do solo e da água presentes, ocorrência de conflitos, ou importância estratégica no abastecimento de água de grandes centros urbanos;

- integração de instituições (agenda azul e agenda marrom) em um trabalho conjunto, em que se associam dados de quantidade e de qualidade das águas, simultaneamente à disponibilização das informações geradas para os usuários;

- capacitação e treinamento de gestores públicos e representantes da sociedade civil. A integração de instituições e a associação e disponibilização de seus dados de quantidade e qualidade de águas poderá contribuir para tornar mais eficazes as ações de licenciamento, fiscalização e outorga nas bacias hidrográficas. A articulação das informações geradas nas redes estaduais de monitoramento, para fins de disponibilização e compartilhamento de dados foi viabilizada pelo Portal de Monitoramento da Qualidade da Água, desenvolvido pelo PNMA II e cedido à Agência Nacional de Águas – ANA. O acesso a essas informações auxiliará os comitês de bacias hidrográficas na elaboração de diagnósticos, planejamento de ações de monitoramento, preparação de Planos de Bacia, contribuindo para maior eficiência da gestão de recursos hídricos e estímulo à participação social nessa atividade. O apoio do componente Desenvolvimento Institucional, através do componente Gerenciamento Costeiro, entre outros resultados:

- aperfeiçoamento técnico e operacional de suporte à gestão costeira; - integração com os sistemas de gestão ambiental, recursos hídricos e Unidades de

Conservação; - fomento ao planejamento e desenvolvimento urbano; - ordenamento da maricultura, com ênfase na carcinicultura do Nordeste; - promoção de ações integradas no setor de turismo; - estratégias para promover gestão ambiental integrada.

O Gerenciamento Costeiro contribui, dessa forma, para o fortalecimento dos órgãos estaduais e municipais, através da geração da realização de diagnósticos socioambientais consolidados em

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propostas de zoneamento ecológico-econômicos - ZEE, incluindo diretrizes de ordenamento de usos e ocupações das áreas litorâneas.

IV - Alcance de objetivos e produtos. 4.1 – Resultados/ alcance de objetivos:

O Programa em sua primeira fase alcançou os seguintes resultados:

(i) fortalecimento do Sistema Nacional de Meio Ambiente – SISNAMA, com o ganho de capacidade dos órgãos estaduais de meio ambiente para aplicar os instrumentos da política ambiental e com a cooperação interinstitucional;

(ii) modernização dos sistemas de licenciamento ambiental em 12 Unidades da Federação, que incluiu o fortalecimento de sua base técnica, com ênfase nas seguintes ações: informatização; qualificação de pessoal; atualização de normas legais e de procedimentos administrativos. Também foi priorizada a articulação da atividade de licenciamento com as de monitoramento e de fiscalização ambiental, resultando em melhoria da qualidade da prestação de serviço público que reforçada em sua eficiência, gera economia de tempo e de recursos para os usuários e para o serviço público;

(iii) implementação de sistemas de monitoramento da qualidade da água em 10 estados, com mecanismos de disseminação de informação para os tomadores de decisão e para o público em geral e que, de forma inovadora, estimularam a integração da área de meio ambiente com a de recursos hídricos. Além disto, foi apoiada a organização de bancos de dados e sistemas de informação estaduais sobre a qualidade da água;

(iv) fortalecimento da atuação de órgãos estaduais e municipais para a gestão da zona costeira em 17 estados litorâneos e o desenvolvimento de sistemas de informação de gerenciamento costeiro, contribuindo para disciplinar a utilização e ocupação das faixas litorâneas;

(v) avanços nas políticas ambientais estaduais, particularmente na formulação de legislações específicas para a gestão de resíduos sólidos e de recursos hídricos, promovendo a melhoria na capacidade para a gestão ambiental do País;

(vi) melhoria da qualidade ambiental em áreas estaduais prioritárias, promovida por meio do estabelecimento de novos modelos de gestão ambiental, que incluem a articulação da política ambiental com políticas setoriais, a integração entre os instrumentos de gestão ambiental, e uma maior participação social, garantindo maior efetividade e sustentabilidade às ações implementadas;

(vii) disponibilização de informações referenciais sobre a gestão ambiental no País, integradas ao Sistema Nacional de Informações sobre o Meio Ambiente – SINIMA. Dentre estes, destacam-se:

Diagnóstico sobre a gestão ambiental nas Unidades da Federação, disponibilizado em um bancos de dados na Internet (www.mma.gov.br/port/pnma/sigab/-arquivos/consulta/main.cfm);

implantação de um Sistema nacional de informação sobre a qualidade da água - Portal de Qualidade de Água - em articulação com a Agência Nacional de Águas – ANA;

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estruturação de banco de dados sobre o licenciamento ambiental nas Unidades da Federação (www.mma.gov.br/pnma2dila) e apoio à implementação de um Portal sobre o Licenciamento Ambiental – PNLA no País (página de abertura do MMA);

disponibilização de ferramentas inéditas (modelagem) de apoio ao licenciamento ambiental e à gestão de bacias hidrográficas - Sistema de Apoio à Decisão na Gestão de Bacias Hidrográficas – SAD.

4.2 – Produtos por componentes: Os produtos de cada um dos componentes do Programa estão apresentados nos Anexos 01, 02, 03, 04.

4.3 – Impactos do desenvolvimento institucional:

O PNMA II tem sido incorporado gradualmente pelo MMA no seu marco de gestão, demonstrando seu caráter estratégico e sua utilidade e permeabilidade ao nível estadual e local. Como exemplos, o PNMA II tem provido apoio às seguintes atividades do MMA:

Programa Nacional de Capacitação de Gestores Municipais; Formulação da Política Nacional de Resíduos Sólidos e das estratégias de gestão; Elaboração do Plano Nacional de Recursos Hídricos; Grupos de trabalho sobre licenciamento ambiental e suinocultura; Propostas de redução de gases de efeito estufa, por meio de utilização de mecanismo

de desenvolvimento limpo aplicados à suinocultura. Uma equipe independente, contratada pelo agente financiados, produziu um Relatório de Avaliação qualitativa e revelou um panorama geral positivo, com base em dados recolhidos nas 17 Unidades da Federação em que o Programa está em implementação6. Alguns pontos constantes do relatório produzido por essa equipe de avaliação7 devem ser destacados:

“O PNMA II introduziu novidades relevantes no modo de relacionamento do MMA com os Órgãos Estaduais de Meio Ambiente - OEMAs e estes se beneficiaram de uma desejável mudança em seu papel frente a outros organismos de governo e a atores locais. Destaque deve ser dado a dois aspectos: a implementação de uma matriz de critérios de elegibilidade e classificação hierárquica para o enquadramento no Programa; e a adoção do conceito de ativos ambientais como vetor de materialização do componente principal”.

“Embora resultados já sejam verificáveis, há um consenso entre os atores estaduais de que muito pouco tempo transcorreu para que os frutos dos investimentos do PNMA II tenham se materializado de forma integral e definitiva. A expectativa de continuidade é grande e o grau de satisfação dos protagonistas revela notável adesão aos princípios e práticas adotados pelo Programa.”

6 Foram entrevistadas, nos 17 estados, 142 pessoas entre Secretários de Governo, Coordenadores estaduais

do Programa, Executores descentralizados e Representantes de organizações parceiras. Na ocasião, foram também visitadas áreas de execução dos projetos. Para cada Unidade da Federação foi produzido um relatório contendo os pontos de vista dos entrevistados.

7 Avaliação da Primeira Fase do PNMA II – Documento Síntese (MMA, 2004).

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“... o papel mobilizador do Programa vem resultando em um duplo processo: o aumento do grau de liderança dos Órgãos Estaduais de Meio Ambiente e a convergência de recursos por parte de diferentes organismos para as ações do Programa. Esse aspecto último aspecto constitui elemento deflagrador de novas práticas nos estados, ao permitir que com relativamente pouco investimento do PNMA II, as partes envolvidas passassem a mobilizar aquilo que cada um dispõe - pessoal, equipamentos, infra-estrutura e recursos financeiros. A idéia de romper com a cultura do “não” para passar a uma prática do “como” vem encontrando na implementação do PNMA II um instrumento propulsor.”

V – Principais fatores que afetaram a implementação e os resultados: 5.1 – Fatores que afetaram positivamente O PNMA II contou com agência executora, arranjo institucional e desenho estratégico, que possibilitou cumprir todos os gatilhos de desempenho definidos pelo BIRD, sendo que alguns, inclusive, foram superados. A implementação das ações do Programa, em alguns estados, logrou impactar positivamente outros setores, com isso, levando os estados a alavancarem recursos complementares provenientes de outras fontes, assim como, também, mobilizar outros setores e parceiros. 5.2 – Fatores que afetaram negativamente

Foram considerados os seguintes fatores:

- Instabilidade das equipes técnicas e administrativas: as mudanças das equipes técnicas, tanto a nível federal quanto a nível estadual acarretaram morosidade, visto que demandam tempo na internalização dos projetos e dos procedimentos administrativos e financeiros pertinentes às ações financiadas com recursos internacionais.

- Corpo técnico e administrativo insuficiente e pouco experiente: as carências das

equipes técnicas e administrativas estaduais, tanto no que diz respeito ao número de técnicos disponíveis para os projetos quanto a pouca experiência e capacitação para execução dos mesmos, acarretando lentidão na execução das ações.

- Desenho complexo do Programa: a qualificação dos estados mediante o estabelecimento

de prioridades ambientais e o cumprimento dos critérios de elegilibidade mostrou-se, na prática, um processo de implementação complexa, que envolveu coleta e análise de vasta documentação/legislação ambiental e se estendeu por prazos maiores do que os inicialmente previstos. A formulação e a execução de projetos estaduais envolvendo arranjos institucionais capazes de assegurar a participação e integração das diversas instituições nas ações propostas também tem sido fatores de atrasos. As instituições não têm experiência prévia em executar projetos envolvendo parcerias.

- Formato APL: o PNMA II foi o primeiro Programa, no Brasil, financiado na modalidade

Adaptable Program Loan, o que necessitou um esforço maior, por parte da Coordenação

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Nacional no MMA, de adequações relacionadas às metas e aos recursos e prazos, os quais foram subestimados em relação à complexidade do desenho do Programa. 5.3 – Custo e financiamento:

O Anexo 05 apresenta o quadro financeiro da Fase 01. VI – Sustentabilidade:

O Programa Nacional do Meio Ambiente II – PNMA II, em sua Fase 01, apoiou a execução de 43 projetos estaduais, nas áreas de fortalecimento institucional e gestão integrada de ativos ambientais, para que os resultados destes projetos pudessem, numa segunda fase de realização, produzir resultados efetivos de melhorias de qualidade ambiental. As ações desta primeira fase demonstram que o Programa possui um desenho estratégico, que caminha para o alcance da sustentabilidade, pois, foram observados fatores significativos como:

• O PNMA II é atualmente considerado estratégico dentro do Ministério do Meio Ambiente, como base para o fortalecimento do Sistema Nacional de Meio Ambiente – SISNAMA.

• O PNMA II foi incorporado, de forma permanente, na estrutura organizacional do Ministério do Meio Ambiente – SECEX/DAI.

• O PNMA II está inserido no Plano Plurianual de Governo – PPA, inclusive contando com orçamento para 2007.

VII – Performance do financiador: 7.1 – Banco Mundial - BIRD

O Governo brasileiro, em sua avaliação, considerou satisfatório o apoio do BIRD, na qualidade de agente financiador e de parceiro no período de implementação do Programa. Seus representantes colaboraram, de maneira participativa e integrada, com a Coordenação do Programa, inclusive, no acompanhamento in loco dos projetos executados pelos órgãos ambientais dos estados brasileiros.

VIII – Lições Aprendidas:

Dentre as lições aprendidas destacam-se: - definir e implementar estratégia de comunicação e de divulgação das ações realizadas pelo Programa; - promover a Gestão Compartilhada, definindo claramente o compromisso e responsabilização entre as partes, no planejamento, execução e sustentabilidade das ações, estimulando a co-responsabilidade pelas decisões tomadas garantindo, portanto:

a) a profissionalização da gestão da cooperação; a) envolvimento das diferentes instâncias institucionais, b) a interlocução permanente entre as instituições, por meio de redes de informações eficientes. c) o compartilhamento de pensamentos, experiências e competências.

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- aprimorar o Planejamento Sistêmico: o planejamento deve ser considerado como o momento estratégico e decisório, construído com a participação de todas as instituições e instâncias envolvidas na relação de cooperação e entre estas e outras instâncias do MMA que possam contribuir. Sem que haja segmentação e/ ou compartimentalização das áreas técnicas e administrativas. - privilegiar na Fase 02, as ações de fortalecimento dos níveis municipais e da União. - orientar para que as equipes técnicas estaduais possam se dedicar exclusivamente às ações do Programa. - realizar treinamentos de Organização e Métodos, Planejamento e Gestão para todos os executores envolvidos. - incorporar na metodologia de desenho dos projetos a concepção do Marco Zero (definir indicadores). - inserir todos os órgãos e entidades participantes dos projetos, especialmente, do Componente Ativos Ambientais como signatários dos convênios.

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Annex 11. Comments of Cofinanciers and Other Partners/Stakeholders N/A

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Annex 12. List of Supporting Documents

• The World Bank. 1999 PAD Second National Environmental Project in Support of the First Phase of the II National Environmental Program. Report No. 19857-BR.

• 2002 MTR and General Supervision Mission Reports, Aide Memoires and BTO Reports. • National Environmental Program (PNMA-II). Activities Report 2000-2004. Ministry of

Environment MMA.