Document of The World Bank Report No:...

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 66407-BR

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$100 MILLION

TO THE

STATE OF CEARÁ

WITH A GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL

FOR THE

CEARÁ RURAL SUSTAINABLE DEVELOPMENT AND COMPETITIVENESS PROJECT

(PROJETO DE DESENVOLVIMENTO RURAL SUSTENTÁVEL – PROJETO SÃO JOSÉ III)

March 7, 2012

Sustainable Development Department

Brazil Country Management Unit

Latin America and the Caribbean Region

This document is being made publicly available prior to Board consideration. This does not

imply a presumed outcome. This document may be updated following Board consideration and

the updated document will be made publicly available in accordance with the Bank’s policy on

Access to Information.

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II

CURRENCY EQUIVALENTS

(Exchange Rate Effective March 1, 2012)

Currency Unit = Brazilian Real (R$)

R$1.7146 = US$1.00

R$1.00 = US$0.54

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ATER Rural Technical Assistance

Assistência Técnica e Extensão Rural

BB Banco do Brasil

BNB Banco do Nordeste

CA Community Association

CAGECE State Water and Sanitation Company

Companhia de Água e Esgoto do Ceará

CDD Community-Driven Development

CEDR State Rural Development Council

Conselho Estadual de Desenvolvimento Rural

CENTEC Technological Learning Center Institute

Instituto Centro de Ensino Tecnológico

CMDS Municipal Sustainable Development Council

Conselho Municipal de Desenvolvimento Sustentável

COGERH State Water Resources Management Company

Companhia de Gestão dos Recursos Hídricos do Ceará

CONAB National Supply Company

Companhia Nacional de Abastecimento

CONPAM Environmental Policies and Management Council

Conselho de Políticas e Gestão do Meio Ambiente

CONTAG National Federation of Agricultural Workers

Confederação Nacional de Trabalhadores na Agricultura

CPS Country Partnership Strategy

CTDRS Territorial Council for Rural Sustainable Development

Colegiado Territorial de Desenvolvimento Rural Sustentável

EMATERCE Ceará State Rural Extension and Technical Assistance Company

Empresa de Assistência Técnica e Extensão Rural do Ceará

EMBRAPA Brazilian Agricultural and Livestock Research Company

Empresa Brasileira de Pesquisa Agropecuária

ESMF Environment and Social Management Framework

FECOP State Fund for Poverty Reduction

Fundo Estadual de Combate à Pobreza

FUNASA National Health Foundation

Fundação Nacional da Saúde

FUNCEME Ceará State Meteorology and Hydrological Resources Foundation

Fundação Cearense de Meteorologia e Recursos Hídricos

III

HDI Human Development Index

IICA Inter-American Institute for Cooperation on Agriculture

IPPF Indigenous Peoples Planning Framework

IRR Internal Rate of Return

PA Productive Alliance

MDA Ministry of Agrarian Development

Ministério do Desenvolvimento Agrário

MDS Ministry of Social Development

Ministério do Desenvolvimento Social e Combate à Fome

NGO Nongovernmental Organization

O&M Operation and Maintenance

PAM Municipal Water Plan

Plano de Águas Municipal

PDO Project Development Objective

PPP Public-Private Partnerships

PO Producers’ Organization

PREVINA State Program to Prevent, Monitor and Combat Forest Fires

Programa Estadual de Prevenção, Monitoramento, Controle de

Queimadas e Combate aos Incêndios Florestais

PRONAF National Program to Strengthen Family Agriculture

Programa Nacional de Fortalecimiento da Agricultura Familiar

PTDRS Territorial Rural Sustainable Development Plan

Plano Territorial de Desenvolvimento Rural Sustentável

SDA Ceará State Secretariat of Agrarian Development

Secretaria do Desenvolvimento Agrário

SEBRAE Brazilian Agency for Micro- and Small-Business Assistance

Serviço Brasileiro de Apoio às Micro e Pequenas Empresas

SEDUC Ceará State Secretariat of Education

Secretaria da Educação

SECITECE Ceará State Secretariat of Science and Technology

Secretaria da Ciência e Tecnologia do Ceará

SISAR Integrated Rural Water Supply and Sanitation System

Sistema Integrado de Saneamento Rural

SOE Statement of Expenditure

SOHIDRA State Superintendency for Water Works

Superintendência de Obras Hídricas

SRH Ceará State Secretariat of Water Resources

Secretaria dos Recursos Hídricos do Ceará

UGP Project Management Unit

Unidade de Gerenciamento do Projeto

UGT Project Territorial Management Unit

Unidade de Gestão Territorial

WSS Water and Sanitation Services

IV

Regional Vice President: Hasan A. Tuluy

Country Director: Makhtar Diop

Sector Director: Ede-Jorge Ijjasz-Vasquez

Sector Manager: Ethel Sennhauser

Task Team Leader: Maria de Fatima Amazonas

V

BRAZIL

Ceará Rural Sustainable Development and Competitiveness Project

TABLE OF CONTENTS

I. STRATEGIC CONTEXT .................................................................................................1

A. Country Context ............................................................................................................ 1

B. Sectoral and Institutional Context ................................................................................. 3

C. Higher-Level Objectives to which the Project Contributes .......................................... 4

II. PROJECT DEVELOPMENT OBJECTIVES ................................................................5

A. PDO............................................................................................................................... 5

Project Beneficiaries ........................................................................................................... 5

PDO Level Results Indicators ............................................................................................. 5

III. PROJECT DESCRIPTION ..............................................................................................6

A. Project Components ...................................................................................................... 6

B. Project Financing .......................................................................................................... 7

Lending Instrument ............................................................................................................. 7

Project Cost and Financing (US$) ...................................................................................... 7

C. Lessons Learned and Reflected in the Project Design .................................................. 7

IV. IMPLEMENTATION .......................................................................................................8

A. Institutional and Implementation Arrangements .......................................................... 8

B. Results Monitoring and Evaluation .............................................................................. 9

C. Sustainability................................................................................................................. 9

V. KEY RISKS AND MITIGATION MEASURES ..........................................................11

VI. APPRAISAL SUMMARY ..............................................................................................12

A. Economic and Financial Analyses .............................................................................. 12

B. Technical ..................................................................................................................... 12

C. Financial Management ................................................................................................ 13

D. Procurement ................................................................................................................ 13

E. Social........................................................................................................................... 14

F. Environment ................................................................................................................ 14

VI

Annex 1: Results Framework and Monitoring .........................................................................16

Annex 2: Detailed Project Description .......................................................................................21

Annex 3: Implementation Arrangements ..................................................................................33

Annex 4: Operational Risk Assessment Framework (ORAF) .................................................59

Annex 5: Implementation Support Plan ....................................................................................62

Annex 6: Economic and Financial Analysis ..............................................................................64

Annex 7: Irrigation in Ceará and Project Activities Related to Irrigation ............................69

VII

PAD DATA SHEET

Brazil

Ceará Rural Sustainable Development and Competitiveness

PROJECT APPRAISAL DOCUMENT .

Latin America and the Caribbean

Agriculture and Rural Development

.

Basic Information

Date: Mar-07-2012 Sectors: General agriculture, fishing and forestry sector

(40%), Water supply (25%), Irrigation and

drainage (15%), Crops (10%), Information

technology (10%)

Country Director: Makhtar Diop Themes: Rural markets (35%), Rural services and

infrastructure (25%), Trade facilitation and

market access (15%), Micro, small and

medium enterprise support (15%), Rural

policies and institutions (10%)

Sector

Manager/Director:

Ethel Sennhauser/Ede

Jorge Ijjasz-Vasquez

Project ID: P121167 EA

Category:

B - Partial Assessment

Lending

Instrument:

Specific Investment

Loan

Team Leader(s): Maria de Fatima de

Sousa Amazonas

Joint IFC: No .

Borrower: State Government of Ceará

Responsible Agency: State Secretariat of Agrarian Development - Project Management Unit

Contact: Josias Farias Neto Title: Project Manager

Telephone No.: 55-85-31018112 Email: [email protected] .

Project Implementation Period: Four years

Expected Effectiveness Date: July-31-2012

Expected Closing Date: October-31-2016 .

Project Financing Data(US$M)

[ X ] Loan [ ] Grant [ ] Other

[ ] Credit [ ] Guarantee

mailto:[email protected]

VIII

For Loans/Credits/Others

Total Project Cost (US$M): 150.00

Total Bank Financing (US$M): 100.00 .

Financing Source Amount(US$M)

Borrower 50.00

International Bank for Reconstruction and

Development

100.00

Total 150.00 .

Expected Disbursements (in US$ Million)

Fiscal Year 2012 2013 2014 2015 2016 2017

Annual 00.00 30.00 45.00 20.00 5.00 0.00

Cumulative 00.00 30.00 75.00 95.00 100.00 100.00 .

Project Development Objective(s)

Project Development Objective: The objectives of the project are to: (i) improve the sustainability of

rural production and rural income generation; and (ii) contribute to the Borrower’s efforts to universalize

access to water services. .

Components

Component Name Total Costs (US$ Millions)

1. Economic Inclusion: would promote investments in rural

economic inclusion in the Borrower’s territory, through: (a)

the provision of support for: (i) the preparation of business

plans; (ii) the construction of warehouse facilities (iii)

productive and environmental services subprojects; and (iv)

the development of a state-wide disaster risk management

policy, contingency plans and early warning systems for the

prevention of natural disasters.

70.00

2. Water Services: would support the State’s efforts to ensure

universal access to potable water and water services in rural

areas and for the scaling up of existing water distribution

management system models.

50.00

3. Institutional Strengthening and Project Management: would

support the technical and administrative management of the

Project, including information system, monitoring and impact

evaluation; training and technical assistance activities to

strengthen stakeholders and public functions that are critical

to ensure the project implementation and sustainability.

23.30

.

Compliance

Policy

Does the project depart from the CAS in content or in other significant Yes [] No [X ]

IX

respects?

Explanation:

.

Does the project require any exceptions from Bank policies? Yes [ ] No [ X ]

Have these been approved by Bank management? Yes [ ] No [ ]

Is approval for any policy exception sought from the Board? Yes [ ] No [ X ]

Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ] .

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 X

Natural Habitats OP/BP 4.04 X

Forests OP/BP 4.36 X

Pest Management OP 4.09 X

Physical Cultural Resources OP/BP 4.11 X

Indigenous Peoples OP/BP 4.10 X

Involuntary Resettlement OP/BP 4.12 X

Safety of Dams OP/BP 4.37 X

Projects on International Waterways OP/BP 7.50 X

Projects in Disputed Areas OP/BP 7.60 X .

Legal Covenants

Name Recurrent Due Date Frequency

Project Steering Committee 60 days after

Effectiveness

Description of Covenant

Loan Agreement – Schedule 2, Section I.1: No later than 60 days after the Effective Date, the Borrower

shall establish, and thereafter maintain during the implementation of the Project, a Steering Committee

chaired by SDA, and composed by representatives from key secretariats and organizations, as defined in

the Operational Manual, responsible for providing general oversight and guidance on the strategic and

multisectoral aspects of the Project.


Project Management Unit (1) and

Project Territorial Units (13) 30 days after

Effectiveness


Loan Agreement – Schedule 2, Section I.2 (a) : The Borrower shall create and maintain, until the

completion of the Project: (i) a unit within SDA (the UGP), responsible for the management,

coordination, supervision, monitoring and evaluation of the Project; and (ii) not later than 30 days after

the Effective Date, establish and thereafter operate and maintain until the completion of the Project,

thirteen regional management offices (UGTs) covering the Borrower’s territory, responsible for the

X

coordination and implementation of Project activities in remote municipalities, including the

responsibility to ensure integration and quality of activities under the Project.


Annual Operating Plans November, 30 of

each year Annual


Loan Agreement – Schedule 2, Section I.3: The Borrower shall: (a) prepare and furnish to the Bank

annual operating plans, satisfactory to the Bank, detailing the Project activities to be carried out during

the year following the date of presentation of each such plan, together with the respective sources of

funding, by November, 30 of each year during Project implementation; (b) furnish to the Bank the

approved annual operating plans (including the respective sources of funding) referred to in paragraph

(a) of this Section for each year in question, not later than 30 days after the approval of the Borrower's

annual budget by its Legislative Assembly (Assembléia Legislativa); and (c) thereafter, implement each

of said plans in a manner acceptable to the Bank. .

Team Composition

Bank Staff

Name Title Specialization Unit

Judith M. Lisansky Senior Anthropologist Senior Anthropologist LCSSO

Susana Amaral Financial Management

Specialist

Financial Management

Specialist

LCSFM

Gunars H. Platais Senior Environmental

Economist

Senior Environmental

Economist

LCSEN

Alberto Coelho Gomes

Costa

E T Consultant E T Consultant LCSSO

Edward William Bresnyan Senior Rural Development

Specialist

Senior Rural Development

Specialist

LCSAR

Paula Silva Pedreira de

Freitas

Operations Analyst Operations Analyst LCSEN

Luciano Wuerzius Procurement Specialist Procurement Specialist LCSPT

Mariana Margarita Montiel Senior Counsel Senior Counsel LEGLA

Maria de Fatima de Sousa

Amazonas

Senior Rural Development

Specialist

Team Leader LCSAR

Juliana Menezes Garrido

Pereira

Infrastructure Specialist Infrastructure Specialist LCSUW

Erick C. M. Fernandes Adviser Adviser LCSAR

Jose C. Joaquin Toro

Landivar

Senior Disaster Risk

Management Specialist

Senior Disaster Risk

Management Specialist

LCSUW

Miguel-Santiago da Silva

Oliveira

Senior Finance Officer Senior Finance Officer CTRLN

Erwin De Nys Senior Water Resources

Specialist

Senior Water Resources

Specialist

LCSEN

XI

Daniella Ziller Arruda

Karagiannis

Program Assistant Program Assistant LCC5C

Clarisse Torrens Borges

Dall Acqua

E T Consultant E T Consultant LCSEN

Abdoulaye Sy Young Professional Young Professional YPP

Barbara Cristina Noronha

Farinelli

E T Consultant E T Consultant LCSSD

Non Bank Staff

Name Title Office Phone City

Luis Loyola Irrigation Specialist/FAO 56-2-923-2241 Santiago

Mario Castejon Marketing Specialist/Ag.

Economist/FAO Panama

.

1

I. STRATEGIC CONTEXT

A. COUNTRY CONTEXT

1. Brazil is the largest country in area and population and the biggest economy in

Latin America and the Caribbean (LAC). The Brazilian economy’s solid performance during

the financial crisis and its strong and early recovery, including 2010 growth of 7.5 percent, has

contributed to the country’s transition from a regional to a global power. Despite the recent

economic results and social programs that lifted tens of millions of people out of poverty, its

immense natural resources, and strong development potential, important challenges remain for

Brazil to achieve its vision of joining the group of developed nations within a generation.

Economic and social exclusion, inequality and low access to land stubbornly persist at the root of

poverty. In addition, huge disparities remain across the country’s regions; the Northeast

continues to be the poorest and most unequal among them, with a wide gap between rich and

poor.

2. The Brazilian Government is implementing a strategy to eradicate extreme poverty

and focus on improving opportunities for vulnerable populations. The multisectoral Brasil

sem Miséria program targets the 16.2 million people living in extreme poverty, i.e., those earning

less than R$70 per capita per month (about US$1.50 per day). This implies a strong focus on the

Northeast, where 59 percent of the extreme poor reside.

3. Ceará has made solid progress in improving both economic and social indicators in

recent years and is the third largest economy in the Northeast Region. Between 2007 and

2010 the State’s GDP (currently ranked twelfth out of 27 Brazilian states) grew by an

accumulated 58 percent, well above Brazil as a whole (25 percent). Notwithstanding this recent

progress, the State faces significant challenges: poverty levels are still unacceptably high in

Ceará, with 13 percent of its population living below the regional extreme poverty line1 and

almost a third of the people (31 percent) below the regional poverty line. It is evident that to

sustain social inclusion gains made and substantially reduce current poverty levels, more rapid

and inclusive economic growth will be required.

4. Agriculture is a major sector of the Brazilian economy and is key for economic

growth and foreign exchange. Agriculture accounts for about 6 percent of GDP (25 percent

when including agribusiness) and 36 percent of Brazilian exports. Brazil enjoyed a positive

agricultural trade balance of US$87.6 billion from January to November 2011, 24 percent higher

than the same period in 2010.2 The share of family agriculture in Brazilian food production is 70

percent, which means that it has a strong potential not only for food security and nutrition but

also for economic growth and food price balance. While commercial farms dominate value-

added production, family agriculture nationwide produces 70 percent of manioc, 46 percent of

corn, 63 percent of horticulture, and is responsible for 56 percent of large animal production

(including dairy).3

1 ―Extreme poverty line‖ is defined as the required income to consume the minimum intake (2,000 calories/day),

according to the World Health Organization (WHO). 2 Source: Ministry of Agriculture, Livestock and Supply (MAPA, December 12, 2011).

3 IBGE 2009.

2

5. Technological change in agriculture is essential for poverty reduction. Fostering

development, stimulating economic growth and improving agricultural productivity will help the

rural poor by directly increasing their income and competitiveness. The State is eager to invest in

innovative practices and technologies and capitalize on the key linkages with agro-business and

small and medium enterprises.

6. Main challenges facing productive clusters and public services in rural areas. Low

rural productivity and low access to basic services in Ceará are tied to several constraints, among

the most important of which are: (a) low technological innovation in terms of product, process

and organization, as well as downside risks of production losses and threats to household food

security and weak market intelligence that hinder a coordinated and targeted supply response; (b)

poor access to capital to boost smallholder asset accumulation on several fronts: physical,

financial, human, managerial and social; and (c) a disconnect between technical assistance and

the needs of farmers, both for meeting market demands and reducing vulnerability through

climate change adaptation.

7. Weather severity and water scarcity/unequal distribution. The Brazilian Northeast

experiences chronic water scarcity, with periodic, long and severe droughts that create a number

of economic and social problems and hamper the region’s development. Ceará is one of Brazil’s

driest states, with average annual per capita water availability of 1,150 m3, equivalent to only 4

percent of the national average. The semi-arid Sertão subregion represents 87 percent of the

State’s territory,4 with per capita annual water availability ranging from 400 m

3 to 800 m

3.

Ironically, the Sertão has about 98 percent of the State’s total available water. Given the State’s

climate conditions and variability stemming from heavy droughts, desertification risk and floods

have caused major human disasters with a massive impact on agriculture and food production.

Agriculture will also have to adapt to increasingly variable and unpredictable growing

conditions. In recent years several Brazilian states in different regions have experienced the

heaviest rainfall in their history, which has caused severe floods.

8. Water supply and sanitation in rural Ceará. The State is composed of 184

municipalities with 8.4 million inhabitants,5 75 percent of whom live in urban areas and 25

percent (2.1 million inhabitants) in rural areas. In 2009, potable water supply access in the State

reached 91 percent of the urban population and only 17 percent of the rural population. In

contrast, basic sanitation services reach 37 percent of the population in the urban area and only

0.20 percent6 in rural areas. In this context, the State’s goal to ensure universal access to water

services by 2015 is considered to be overly ambitious because the amount of investment needed

is tremendously higher than what is currently allocated. By the end of the proposed project’s

interventions, that coverage in rural areas will reach 19 percent for potable water supply and 2

percent for basic sanitation services.

9. Despite the State’s strong and continuous investments in water infrastructure,

access to potable water supply and water for irrigation remains weak. Small-scale farmers,

4 Encompassing 150 municipalities out of a total of 184 statewide, IBGE 2010.

5 Source: IBGE Census 2010

6 IPECE, http://www.ceara.gov.br/ceara-em-numeros.

3

especially in the Sertão, often face an extremely low level of access to water resources; the

impact of this is a relatively stunted irrigated area (only 0.3 percent of the State’s total

agricultural area) and periodic lack of potable water supply for rural enterprises and households,

thus significantly limiting the growth of commercial food processing and domestic primary

processing. The lack of adequate basic sanitation systems is also a constraint to producers’

commercial activities, even at the level of the smaller cooperative associations.

B. SECTORAL AND INSTITUTIONAL CONTEXT

10. The State’s Multiyear Development Plan (Plano Plurianual 2012-2015, PPA) seeks

to increase regional and rural development and productivity and builds on the following

tenets:

(a) Regional/territorial approach and integration: Ceará’s thirteen territories (seven of

which coincide with the Federal Government’s Territórios da Cidadania boundary

delimitation) will aid in concentrating and coordinating various federal- and state-

level programs to boost economic and social inclusion.

(b) Climate-smart responses: The proposed project would stimulate innovations that

jointly increase agricultural productivity, increase the efficient use of scarce water,

and promote climate change resilience while reducing carbon emissions.

(c) Innovation: Rural producers must adopt new technologies and access greater

commercial intelligence in order to thrive in dynamic markets. This will require fresh

learning approaches to stimulate a ―rural innovation culture‖ conducive to

competitiveness and capable of connecting education to jobs.

(d) Technology Strategy: By tapping into global knowledge and technology for

dissemination in the local economy, the State will give priority to the establishment of

a network and mechanisms to facilitate the dissemination and adoption of new

technologies and practices among producers and other communities, including: the

direct support of innovative projects through the provision of technical, financial and

other needs; and (ii) the encouragement of change through demonstration projects.

(e) Producers’ Organizations:7 Collective action among small-scale producers can

reduce asymmetric bargaining power in markets dominated by intermediaries.

Previous Bank-financed operations in Ceará have fostered more than 3,500

community associations and cooperatives, mostly composed of small-scale producers

who would be targeted under the proposed operation.

(f) Value chains: Rural producer organizations that participate in value chains can: (i)

improve the uptake of technological innovation; (ii) expand access to timely

commercial intelligence; and (iii) reduce individual risks through risk spreading

across value chain actors.

7 Producers’ Organizations are clusters of small and medium enterprises located in a given territory with productive

specialization and cooperative arrangements.

4

(g) Equity: Equity among value chain actors would be promoted through alliances with

private companies that promote ―win-win‖ market solutions. The project’s inclusive

design will also promote the participation of women and youth.

11. In addressing the State’s agenda, its PPA (2012–2015) reflects the goals of equitable,

inclusive and efficient growth. The proposed project would support priority programs selected

from the PPA and from the State Strategic Plan. Investments will be linked to a very well-

designed strategy focused on: (a) promoting inclusive growth; (b) universalizing potable water

supply; and (c) modernizing and strengthening public institutions.

12. In this regard, the project will mark a shift in the approach to rural sustainable

development and competitiveness: from a traditional rural demand-driven (community-driven

development, CDD) approach to a more strategic and market-oriented approach.

C. HIGHER-LEVEL OBJECTIVES TO WHICH THE PROJECT CONTRIBUTES

13. The Bank has had a long-standing partnership with the Northeast Region and the

State of Ceará, with regular dialogue on the overall lending program, State sector strategies and

specific operations. The proposed project is an important part of both the Bank’s Brazil portfolio

and the focal areas of the Bank’s Agriculture Action Plan (FY10–12), linking with its five focal

areas: (a) raising agricultural productivity, including support to the increased adoption of new

technology, improved agricultural water management, and strengthened innovation systems; (b)

linking farmers to markets and strengthening value addition, including support for investments in

transport infrastructure, strengthened producer organizations, improved market information, and

access to finance; (c) reducing risk and vulnerability, including continued support for safety nets,

better managing food markets, risk management against catastrophic loss, and reduced risk of

major livestock disease outbreaks; (d) facilitating agricultural entry and exit and rural nonfarm

income, including improved rural investment climates, and upgraded skills; and (e) enhancing

environmental services and climate-smart agriculture, including better-managed livestock

intensification, improved rangeland, watershed and fishery management, and support to link

improved agricultural practices to environmental recovery and sustainability (e.g., through

payment for environmental services).

14. The Bank has consistently supported the State’s community-driven Rural Poverty

Reduction Program (known locally in Ceará as the Projeto São José) since its inception in 1993,

and the State has been notable for its willingness to test innovations, e.g., market-based land

reform, fair-trade initiatives, and integration. The Bank’s CDD8 investments in Northeast Brazil

are well documented in their respective ICRs as well as in evaluation studies noting the impact

and cost-effectiveness of the approach. Bank support at this time for a new Rural Development

Project in Ceará pairs its knowledge of a tested and robust new mechanism with the State’s own

policies, experiences and commitment, taking advantage of a social and participatory network

created by the previous projects.

8 Community-driven Development, a participatory approach adopted by the Rural Poverty Reduction Program in

Northeast Brazil

5

15. Ceará has been among the Bank’s primary subnational borrowers in the Northeast

Region. Investment loans to Ceará over the last decade have included education, health, rural

poverty, results-based Sector-Wide-Approach (SWAp) supporting six sectors and nine strategic

government programs, water resources management, water infrastructure and services expansion

and efficiency, and urban development and economic growth in development poles (Cidades do

Ceará Project). Currently, the State has five active projects comprising a total investment of over

US$535 million.

16. The proposed project’s objective and strategy are fully in line with The World Bank

Group's Country Partnership Strategy 2012-2015 (Report # 63731-BR) discussed by the

Executive Directors on November 1, 2011. In the agricultural and natural resource management

(NRM) sectors, the proposed project would support two key challenges outlined in the CPS: (a)

seizing opportunities for innovative and integrated approaches to climate-smart, inclusive

economic growth, focusing on rural productivity; and (b) addressing the competitiveness issues

that Brazil faces in agriculture and NRM. The proposed project would also support the other two

CPS pillars by contributing to an Equitable Brazil by targeting rural access to basic infrastructure

and services for human capital development, and to a Sustainable Brazil through the promotion

of sustainable production systems, including the piloting of incentives schemes for innovations

and technologies.

II. PROJECT DEVELOPMENT OBJECTIVES

A. PDO

17. The project development objectives (PDO) are to: (i) improve the sustainability of rural

production and rural income generation; and (ii) contribute to the State’s efforts to universalize

access to water services.9

18. This will be done by increasing rural productivity in a sustainable manner and also by

improving the competitiveness of organized small-scale rural producers by favoring their

participation in productive clusters chains and by expanding their access to supporting

infrastructure.

PROJECT BENEFICIARIES

19. The project will benefit over 18,000 poor rural producers and particularly small farmers,

as well as nonagricultural rural producers represented by their organizations, such as community

associations, producers’ associations, cooperatives, or other types of legally established

organizations that can provide proof of regular operation. The proposed project would also

provide about 40,000 people with access to water services.

PDO LEVEL RESULTS INDICATORS

9 Water services in this project mean potable water services and basic sanitation services (e.g., septic tanks and

sanitary kits).

6

20. Key results expected from the project are: (a) an increase in the real revenue (inflation

adjusted) of the beneficiary rural producers’ organizations; (b) the number of people in rural

areas provided with access to improved water sources under the project; (c) the number of people

in rural areas with access to improved sanitation under the project; and (d) the increased number

of beneficiary organizations participating in environmental recovery activities and conservation

of focused areas.

III. PROJECT DESCRIPTION

A. PROJECT COMPONENTS

21. Component 1: Economic Inclusion (US$70.0 million, of which US$46.69 million

IBRD financing) would promote investments in rural economic inclusion in the Borrower’s

territory, through:

(a) the provision of support to SDA for: (i) the preparation of Business Plans,

implementation and supervision; and (ii) the construction of approximately five

warehouse facilities in selected rural areas for collecting, processing and distributing farm

products.

(b) the provision of support to POs for the carrying out of: (i) Productive Subprojects; and

(ii) Environmental Services Subprojects, all included in eligible Business Plans.

(c) the provision of support to SDA for the development of a state-wide disaster risk

management policy, contingency plans and early warning systems for the prevention of

natural disasters.

22. Component 2: Water Services10

(US$50.0 million, of which US$33.35 million IBRD

financing) would support the Borrower’s efforts to universalize access to potable Water

Services, through:

(a) the provision of support to: (i) SDA for the preparation and implementation of

engineering designs for selected potable water and basic sanitation infrastructure

investment; and (ii) CAGECE and SOHIDRA for the analysis of engineering designs and

supervision of works for the implementation of selected potable water and basic

sanitation infrastructure investments, using existing water sources to complete the link

between the main water distribution system and the relevant household.

(b) the provision of support to CAGECE and SOHIDRA for the scaling up of existing water

distribution management system models, including SISAR, and the development of pilot

solutions for the sustainable operation and management of Water Services delivery and

management in selected rural areas.

(c) the provision of support to Community Associations for the carrying out of Greywater

Reuse Pilot Subprojects.

10

Water services in this project mean potable water services and basic sanitation services (e.g., septic tanks and

sanitary kits).

7

23. Component 3: Institutional Strengthening and Project Management (US$23.3

million, of which US$15.54 million IBRD financing) would provide support for, inter alia: (i)

the technical and administrative management of the Project; (ii) the necessary updates to SDA’s

management information system, including the design, development and implementation of a

monitoring and impact evaluation module to track progress on results indicators; (iii) the

development and implementation of a training program for technicians, Project Beneficiaries and

stakeholders; (iv) the development and implementation of a communication plan to disseminate

information on the Project; (v) institutional strengthening of TCE-CE for the carrying out of

audits under the Project.

B. PROJECT FINANCING

LENDING INSTRUMENT

24. The proposed operation is a Specific Investment Loan (SIL) in the amount of US$100.0

million. Retroactive financing11

is expected in the amount of up to US$20 million.

PROJECT COST AND FINANCING (US$)

Project Components Project Cost IBRD Financing % Financing

1. Economic Inclusion 2. Water Services

3. Institutional Strengthening and Project

Management

Total Baseline Costs

Physical contingencies

Price contingencies

70,000,000 50,000,000

23,300,000

143,300,000

3,225,000

3,225,000

46,690,000 33,350,000

15,541,100

95,581,100

2,084,450

2,084,450

66.70 66.70

66.70

66.70

64.63

64.63

Total Project Costs

Interest during Implementation

Front-end Fees

Total Financing Required

149,750,000

0

250,000 150,000,000

99,750,000

0

250,000 100,000,000

66.67

100.0 66.70

C. LESSONS LEARNED AND REFLECTED IN THE PROJECT DESIGN

25. Some lessons learned from the implementation of other Bank-supported projects in the

State, such as PCPR12

, and incorporated in project design, include the following:

(a) Partnership with social organizations can be significant for the quality of project-

supported proposals (local investments), particularly regarding the level of community

participation and project assessment for prioritization and implementation of investments.

(b) Market orientation: Verifiable market opportunities must underpin support for poor rural

producers. Effective mechanisms to achieve this include: (i) focusing on existing and new

11

Preparatory activities would be financed by project dissemination events, training, business plans, pilot projects

for productive and water services investments, among others. 12

Projeto de Combate à Pobreza Rural (Rural Poverty Reduction Project, P050875)

8

markets and value chains as part of the eligibility criteria for productive investment

projects; (ii) conducting private-sector consultations during project design; and (iii)

carefully analyzing areas where the public sector can play a catalytic role, based on

current and future market conditions.

(c) Competitiveness clusters: To ensure success, the following factors must be considered: (i)

creating extensive partnerships among players—under a common territorial development

strategy—for value-chain projects; (ii) focusing on technologies for markets with high

growth potential; (iii) reaching sufficient critical mass to acquire and develop state-level

(or national) visibility; and (iv) implementing a common territorial economic

development strategy consistent with the State’s overall development goals.

(d) Value-added arrangements are viable, based on a transparent scheme with proper

incentives. Successful value-added arrangements can be achieved when three key

elements are present: (i) a clear and shared objective and a sound balance of power and

governance among all stakeholders; (ii) a shared risk mechanism; and (iii) commitment to

market principles.

(e) Complementary funding from other sources can increase project results, as shown by the

agreement with MDS and FUNASA, which carried out previous or parallel

complementary actions. Integration with other rural development programs, including the

simultaneous promotion of private productive investments and public socioeconomic

investments, enhances efficiency, project impact and sustainability.

(f) Experiments carried out in previous operations showed that it is possible to increase

procurement efficiency without interfering in the autonomy of community organizations,

by applying the State’s modern bidding tools.

(g) Recent WSP and Bank studies/reports have shown the importance of the demand-driven

approach to guarantee ownership, while ensuring professional expertise to operate and

maintain the provision of water and sanitation systems (WSS) as a means to enable

sustainability.

IV. IMPLEMENTATION

A. INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS

26. The State of Ceará, through SDA, would be the Borrower for the proposed loan, with the

Federative Republic of Brazil serving as Guarantor. SDA will be responsible for overall

management, planning, coordination, monitoring and evaluation of all project activities both at

central and regional levels, as well as for project financial management, procurement,

disbursements and accounting. SDA will also be responsible for implementing the social and

environmental safeguards instruments, as well as for disseminating project results through a

proactive communication strategy. In addition, SDA will ensure that counterpart resources are

foreseen in the State’s budget.

27. The Project Management Unit (Unidade de Gerenciamento do Projeto, UGP) will be

housed in SDA and will be composed of a Project Coordinator, a Technical Advisor for

Planning, a Legal Advisor, a Social Management Advisor, an Environmental Management

9

Advisor, an Information Technology Advisor, six managers (Procurement Specialist, Financial

Administration Specialist, Monitoring and Control Officer, Water Resources Use Manager,

Economic Inclusion Manager, and Institutional Strengthening Manager), technical staff and

administrative assistants.

28. To ensure local coordination and integration between institutions and stakeholders, 13

Project Territorial Management Units (Unidades de Gerenciamento Territorial, UGT) will be

established, covering all the State’s territories, each with three field technicians and one

administrative assistant. One of the three technicians will carry out overall coordination of the

UGT, reporting directly to the General Coordinator. In addition, a Steering Committee chaired

by SDA, and composed by representatives from key secretariats and organizations, as defined in

the Operational Manual, will be responsible for providing general oversight and guidance on the

strategic and multisectoral aspects of the Project.

29. SDA will partner with several institutions, such as EMATERCE, CAGECE, SOHIDRA,

CENTEC and IICA, for project implementation through cooperation agreements to formalize

responsibilities regarding project actions. Their roles, as well as the detailed implementation

arrangements, are described in Annex 3.

B. RESULTS MONITORING AND EVALUATION

30. The project will be monitored and evaluated through the existing Management

Information System (MIS) and databases developed by SDA in the context of previous Bank-

supported operations, in addition to the new Heritage System (Sistema de Controle Patrimonial),

which will feature modern technological tools. The monitoring system will serve as a realistic

and flexible instrument for improving the performance of project implementation through the

timely identification of problems that require immediate attention from managers and allow

corrective measures to be taken. The system will provide systematic and up-to-date information

to managers and partners during project implementation, and will assist in meeting established

criteria and eligibility rules.

31. The project will also conduct an impact evaluation to determine whether and to what

extent the interventions under Components 1 and 3 lead to improved outcomes for producers’

organizations and the families in those organizations. The impact evaluation will test different

extension and technical assistance strategies aimed at raising the quality of business proposals

prepared by the producers’ organizations, encouraging the adoption of new technologies,

improving community-driven processes and social capital in these organizations, and ensuring

the sustainability of investments. These monitoring and evaluation arrangements are further

detailed in Annex 3.

C. SUSTAINABILITY

32. The Borrower has demonstrated commitment to the PDO and has confirmed the

necessary fiscal space for project implementation. Consultations have been conducted across an

array of stakeholders (e.g., CAGECE, COGERH, SOHIDRA, EMATERCE, Banco do Nordeste,

among others) to both inform and verify key elements of project design.

10

33. Component 1 supports a business model with financing shared among POs, through the

National Program to Strengthen Family Agriculture (Programa Nacional de Fortalecimento da

Agricultura Familiar, PRONAF), private financial access and the project (through project

matching grants). It is expected that partnering financial institutions would take on an ever-

increasing role in financing the investments, with market-sourced finance comprising an ever-

larger share of the total investment. In addition, the participation of financial institutions in

assessing and possibly cofinancing viable and sustainable business plans to be implemented

under Component 1 would extend their client base and should work to deepen financial markets

in Ceará.

34. Component 2 builds on previous successful experience in Ceará with local-level

implementation of small-scale infrastructure investments, mainly in rural potable water supply

and basic sanitation services. Past experience reinforces the importance of up-front investments

in local management capacity to ensure that user fees are in place for such services (e.g.,

cleansing of septic tanks) to cover operation and maintenance expenditures. The Ceará

experience was included as a best practice and documented in the Water Partnership Program

grant; the project will follow the same successful model.

35. Furthermore, the project design aims at promoting sustainability at the economic, social,

environmental and institutional levels by establishing specific criteria (detailed in the Project

Operational Manual) for selecting investment proposals such as demonstrated market viability to

ensure that increased incomes promoted by the project are sustained over time, and that the WSS

systems will be sustainably operated and maintained.

36. On the WSS operation and management side, the project has incorporated improvements

to the WSS management model by using as a criterion for investment selection the prior

identification of how the systems will be operated and maintained post-implementation. The

association with the SISAR model, which is a well-established model with more than 15 years of

implementation and with clear guidelines and technical assistance to guarantee the sustainability

of project interventions at the local level, would be highly encouraged.

37. On the social side, the project emphasizes the strengthening of producers’ organizations

to effectively access project and government or private resources and enhance their managerial

capacity. The project also aims at ensuring that women, youth, indigenous peoples and other

vulnerable rural groups can benefit from increased agricultural and nonagricultural rural

competitiveness, as well as from water services investments.

38. On the environmental side, the investment selection criteria will ensure that business

initiatives incorporate environmentally sound practices, and will encourage the adoption of

practices that can maintain or recover environmental services, which can become an additional

source of income. Moreover, selection criteria include compliance with existing relevant federal,

state, territorial and municipal development plans. In particular, the Territorial Rural Sustainable

Development Plans (Planos Territoriais de Desenvolvimento Rural Sustentável, PTDRS) are the

tools that empower local stakeholders for social management through their representative

territorial councils and other representative bodies. These participatory instruments contribute to

11

the State’s objective of strengthening a regional development model, to which this project

contributes, by promoting social and economic sustainability with stakeholders’ commitment.

39. Overall: The Government would play an important role in promoting technology,

sometimes by directly supporting the development and use of technologies or creating a climate

favorable to innovation through various mechanisms and incentives. Sustainability of project

impact would be achieved through the project’s support to participatory processes at every level,

particularly regarding: (a) territorial forums and strategic planning; (b) Municipal Water Plans;

(c) public calls for submission of investment proposals for Components 1 and 2; (d) other state

public agencies as collaborators; and (e) POs in defining business plans, including

implementation and cost sharing, thus increasing the degree of ownership of financed

investments. Furthermore, the roster of technical service providers established by SDA would

ensure quality design and execution of business plans, complementary rural infrastructure and

the associated project. Finally, investment agreements signed among POs, Community

Associations and SDA would detail procedures for the continued operation and maintenance of

these investments, drawing on lessons learned from recent studies in Northeast Brazil on

management models for rural potable water and basic sanitation services. Moreover, these

activities would be an efficient policy tool for triggering change and enhancing the institutional

and financial sustainability of project impacts.

V. KEY RISKS AND MITIGATION MEASURES

A. Risk Ratings Summary Table

Risk Rating

Stakeholder Risk Low

Implementing Agency Risk Moderate

- Capacity Moderate

- Governance Moderate

Project Risk Moderate

- Design Moderate

- Social and Environmental Moderate

- Delivery of Monitoring and Sustainability Moderate

Overall Implementation Risk Moderate

B. Overall Risk Rating Explanation

40. Stakeholder risk is deemed Low, as the political will at the municipal and state level for

the Project is strong, as is also the grassroots support from existing producers and community

organizations, the private sector and financial institutions in Ceará, all of which have actively

participated in consultations during project preparation. The State’s innovative strategy on

inclusive economic growth carries inherent institutional capacity risks. With a relatively complex

12

operation following a multisectoral approach, technical capacity building and project

management are key elements to ensure that the project is implemented in a timely manner.

Previous operations have shown that without effective leadership, project implementation delays

could be high. However, in consideration of the Bank’s long-term partnership and familiarity

with the State, the overall implementation risk is considered Moderate because additional

measures to mitigate the project’s overall risk have been or will be put in place, such as the

Project Management Unit placed under the SDA’s leadership, suitable allocation of financing,

partnerships and collaboration of other State Secretariats, agencies, and stakeholders, business

plan preparation for productive investments, procurement packaging, design flexibility and up-

front preparation of the Operational Manual.

VI. APPRAISAL SUMMARY

A. ECONOMIC AND FINANCIAL ANALYSES

41. Because the proposed project will respond to the explicit demands of its target population

concerning the nature of the project proposals to be considered and eventually supported, a

detailed ex ante cost-benefit analysis of the project as a whole is not warranted. To obtain an ex

ante indication of the financial soundness of the types of investments likely to be supported by

Component 1, indicative production models from different value chains were constructed using

information collected during project preparation. The validity and accuracy of these models will

be verified, and any necessary revision will be incorporated during appraisal. More precise and

representative feasibility indicators could be estimated during implementation, using information

from a larger sample of actual investment proposals under consideration for project financing.

The analyzed projects generated Financial Internal Rates of Return (IRR) greater than 25 percent

in all cases and demonstrate significant incremental contributions to rural producer income

(R$262/month on average). The sensitivity analysis in Table 4 of Annex 7 shows that, in general,

these projects exhibit robust indicators.

42. The preliminary cost-benefit assessment of potable water supply investments to be

financed by Component 2 is based on cases drawn from the Implementation Completion and

Results (ICR) report for the Rural Poverty Reduction Project (RPRP) of Ceará (December 2009),

a precursor to this project. It is expected that the nature of the projects demanded for Component

2 financing will be similar in nature and scale to those implemented by the RPRP. Accounted

costs included the initial investment and annual operating costs, while the benefits were

calculated on the basis of: (i) savings in time used for water collection; (ii) savings derived from

the reduction of waterborne diseases; and (iii) willingness to pay, which is a proxy for the value

families attribute to the availability of potable water. As shown in Table 5 of Annex 7 potable

water supply investments were deemed economically feasible. The financial analysis of Potable

Water Supply projects shows positive results, with IRR above the discount rate of 10 percent.

B. TECHNICAL

43. The project is deemed technically sound and presents strategic complementary actions to

support the State’s efforts to promote inclusive growth. Productive inclusion of small producers

will be achieved by means of project actions to promote their economic development through

market inclusion, by adding value to and increasing the scale of rural productivity. Project

13

actions will also target nonagricultural activities carried out by small producers. The project

design envisages clear selection and ranking criteria for production investments, strongly linked

to the targeted production clusters.

44. Furthermore, the project will strongly contribute to the State’s efforts to ensure universal

access to potable water and basic sanitation in rural areas by financing the extension of potable

water supply infrastructure and basic sanitation services to rural communities. The State’s long-

term experience with the management of rural potable water supply services (such as SISAR)

will be adopted by the project. In addition, the project design includes a strong aspect related to

technical support to producers’ and community organizations, and social and environmental

requirements for project investments, as well as a project capacity-building plan targeting

participating stakeholders.

C. FINANCIAL MANAGEMENT

45. A financial management assessment for the proposed project was conducted during

project preparation, in accordance with OP/BP 10.02 and the Financial Management Practices in

World Bank Financed Investment, dated March 5, 2009, to determine whether SDA has

acceptable financial management and disbursement arrangements in place to adequately control,

manage, account for and report on project funds. Based on the assessment of the executing

agency, the financial management arrangements as set out for this project meet the Bank’s

minimum fiduciary requirements (see Annex 3 for a detailed assessment).

46. The overall conclusion on the assessment of SDA is that the financial management

arrangements, as set out for the proposed project, are adequate. Fiduciary risks have been

identified and mitigated as reflected in the ORAF matrix (see Annex 4). The financial

management supervision missions are expected to be undertaken on a semiyearly basis.

47. In addition, a financial management assessment for the proposed project was conducted

during project preparation at IICA’s headquarter and FM systems were found acceptable and

liable to proper account projects activities (see Annex 3). Details of the arrangements with IICA

are detailed in the Operational Manual.

D. PROCUREMENT

48. The capacity assessment of UGP/SDA reviewed the organizational structure for

implementing the project. It verified that despite the UGP staff’s lengthy experience with Bank-

financed operations, the introduction of private-sector procurement procedures (commercial

practices) for the productive projects, of larger infrastructure packages, and of an enhanced

technical assistance component will challenge the UGP staff’s procurement capacity. To

strengthen this capacity, UGP should hire procurement consultants for centralized procurement,

and technical experts to make sure the projects have sound business plans that propose specific

commercial practices and include criteria to verify economy, efficiency and transparency.

Annual audits of business plan implementation performance and annual procurement audits

could help identify adequacy and weaknesses. The initial implementation phases may require

closer and much more intense supervision by the Bank.

14

E. SOCIAL

49. The proposed project triggers OP/BP 4.10 (Indigenous Peoples) and 4.12 (Involuntary

Resettlement); for details see Annex 3 (Social section). The project will be implemented across

the State’s 13 rural territories and will target family agricultural producers, quilombolas,

indigenous groups, and artisanal fishermen, among other traditional groups at different stages of

social and economic sustainability. It is estimated that project activities will reach approximately

28,200 families, with around 100,000 direct beneficiaries.

50. Indigenous communities in the project area comprise 12 ethnic groups and 22,000 people

who are eligible for project activities according to their expressed interest in participating. These

people will mostly benefit from capacity-building activities planned under Component 3.

However, those with regularized land tenure status may access investment support under

Components 1 and 2. Eligible demands presented by indigenous communities will be initially

analyzed by the representative territorial and/or municipal councils. The project will favor the

representation of indigenous groups in such councils and will accompany their activities to avoid

partial decision making. The criteria for prioritization of indigenous communities were defined

through participatory procedures and in close consultation with indigenous peoples.

51. The Indigenous Peoples Planning Framework (IPPF), dated October 27, 2011,

incorporates these indigenous inputs and recommendations, documents the consultation process,

and takes into account the differing access of potential indigenous beneficiaries to public

policies. The Borrower publicly disseminated the IPPF on its website (www.sda.ce.gov.br); it

was also disseminated in the Bank’s external website (see Annex 3).

52. OP/BP 4.12 (Involuntary Resettlement) is triggered. The proposed project is not expected

to fund any subprojects that could potentially cause significant physical displacement and

economic losses. The project will seek to avoid involuntary resettlement. Nonetheless, some of

the potential subprojects, such as improvements and/or maintenance of rural roads or small-scale

irrigation works, could possibly involve the relocation of people or acquisition of land. It is

expected that, in these cases, the potential numbers of people who might be affected would be

quite small and any land acquisition would also be relatively minor. Because the subprojects to

be developed under the project are not yet known, a Resettlement Policy Framework (RPF),

dated October 27, 2011, was prepared; it was consulted with key stakeholders and publicly

disseminated, and will form part of the Project Operational Manual. The RPF will serve as the

guide to the site-specific formulation of Resettlement Action Plans (RAP), if needed. The RPF

has been consulted and was publicly disseminated on the Borrower’s website

(www.sda.ce.gov.br) and in the Bank’s external website (see Annex 3).

F. ENVIRONMENT

53. The proposed project falls under Category B and triggers Operational Policies 4.01

(Environmental Assessment), 4.04 (Natural Habitats), 4.36 (Forests), 4.09 (Pest Management),

4.11 (Physical Cultural Resources) and 4.37 (Safety of Dams). One of the project’s assumptions

is the adoption of environmental assessment as a cross-cutting theme for all project actions,

http://www.sda.ce.gov.br/


15

which should take into consideration the practice of proper environmental management and

explicit attention to biodiversity, climate change and environmental services.

54. The project does not entail any potential large-scale, significant and/or irreversible

negative impacts. The proposed project interventions will be small-scale, market-oriented/driven

investments. These investments would not cause significant adverse environmental impacts,

since they are related mainly to complementary infrastructure development (i.e., potable water

supply, basic sanitation), new agricultural practices (i.e., product diversification, conservation

agriculture, promotion of value-added products, and product certification) and nonagricultural

activities such as small-scale processing units. Potential adverse impacts from projects will be

limited, site-specific, largely reversible, and readily and reliably mitigated through known

methods. The selection of productive investments will be consistent with: (a) national, state and

local legislation concerning the Brazilian Forest Code, natural habitats and protected areas; and,

(b) World Bank safeguard policies. The environmental safeguard issues are detailed in the

project’s Integrated Safeguards Data Sheet (ISDS) and Operational Manual.

55. Although potential impacts from projects are expected to be small, temporary and of

short duration, the project’s Environmental and Social Management Framework (ESMF) dated

October 27, 2011 specifies guidelines and procedures to be followed by construction contractors,

covering aspects such as location of construction camps, clearance of vegetation, noise, traffic

control, safety signaling, and disposal of construction debris and waste material to be

incorporated in the bidding documents for civil works. Compliance with the practices outlined in

the Project Operational Manual would be a contractual obligation of the contractors. Regarding

small ruminants and irrigation activities under Component 1, potential impacts could arise from

the suite of investment activities related to the desertification process and vulnerability of semi-

arid areas to climate change, exploitation of native vegetation, use of rudimentary management

practices, and increasing demand for firewood for tanneries and meat processing. These impacts

could include soil erosion, the degradation of surface and groundwater, salinity, and improper

disposal of chemical packaging, all with corresponding demands for appropriate mitigation

measures.

56. The Borrower prepared an ESMF for the project, drawing on lessons from previous

operations implemented by SDA, including the RPRP and other projects implemented by the

State of Ceará, with best practices for soil conservation and recovery of degraded areas. The final

ESMF was submitted to the Bank for analysis and no-objection and has been disseminated in the

Bank’s external website and on the Borrower’s website (www.sda.ce.gov.br). See Annex 3 for a

more detailed description of project safeguards.


16

Annex 1: Results Framework and Monitoring

.

Brazil

Ceará Rural Sustainable Development and Competitiveness .

Results Framework .

Project Development Objectives .

PDO Statement

Project Development Objective: The objectives of the project are to: (i) improve the sustainability of rural production and rural income generation; and (ii) contribute to the Borrower’s efforts to

universalize access to water services. .

Project Development Objective Indicators

Cumulative Target Values Data Source/ Responsibility for

Indicator Name Core Unit of Measure Baseline YR1 YR2 YR3 YR4 End Target Frequency Methodology Data Collection

Real revenue increase (inflation adjusted) of

beneficiary rural

producers’ organizations

Percentage 0.00 0 10 15 20 20 Annual

Baseline Report,

Business Plans

and MIS

UGP

New piped household

water connections that result from project

intervention

Number 0.00 700 5.700 9.300 10.000 10.000 Annual

MIS, Annual

Performance

Report

UGP

Number of people in rural areas with access

to ―Improved Sanitation‖ under the

project

Number 0.00 2.800 22.400 36.400 39.200 39.200 Annual

Baseline Study, MIS, Annual

Performance

Report

UGP

Increased number of beneficiary

organizations

participating in environmental recovery

activities

Number 0.00 0 10 10 25 25 Biannual

MIS, Annual

Performance

Report

UGP

.

17

Intermediate Results Indicators

Cumulative Target Values Data Source/ Responsibility for

Indicator Name Core Unit of Measure Baseline YR1 YR2 YR3 YR4 End Target Frequency Methodology Data Collection

Productive investments

implemented and

operational Number 0.00 40 150 350 440 440 Biannual MIS UGP

25% of productive

investments led by

women Number 0.00 10 33 88 110 110 Annual

MIS, Annual

Performance

Report

UGP

Participating rural

producers’ organizations successfully accessing

formal markets (e.g.,

PAA and PNAE)

Percentage 0.00 0 10 30 40 40 Annual

MIS/Annual Accounting

Reports

UGP

Improved efficiency in

agricultural production

through access to environmentally

sustainable technologies

Number 0.00 4 15 35 44 44 Annual MIS UGP

Pilot PES mechanism

established and

operational for sustainable land-use

practices


Basic sanitation investments

implemented and sustainably operated.


Beneficiary

organizations trained in business management

Number 0.00 40 150 200 440 440 Biannual MIS UGP

Number of water reuse pilot projects

implemented with

project support


Potable water supply

systems and basic

sanitation management training provided to

water services managers


18

Training being provided

to government staff and strategic partners in

accordance with the

Project Capacity Building Plan


Number of participants

X

Number 0.00 800 1.600 2.400 3.200 3.200 Biannual MIS, Annual

Report UGP

Training for project

beneficiaries to

encourage adoption of

environmentally sustainable practices


Number of participants in training courses

provided under by the

project

Number 0.00 100 375 825 1.350 1350 Annual

MIS, Annual

Performance Report

UGP

Project results and

lessons learned

disseminated Number 0.00 0 1 7 15 15 Biannual MIS, reports UGP

.

19

Annex 1: Results Framework and Monitoring .

Brazil

Ceará Rural Sustainable Development and Competitiveness .

Results Framework .

Project Development Objective Indicators

Indicator Name Description (indicator definition, etc.)

Real revenue increase (inflation adjusted) of beneficiary rural producers’

organizations

% increase in real revenue (inflation adjusted) resulting from activities supported by the project

New piped household water connections that result from project intervention Number of new piped household water connections resulting from the project intervention. A piped household water

connection is defined as a connection that provides piped water to the consumer through either a house or yard

connection. Thus, these do not include standpipes, protected wells, boreholes, protected springs, piped water provided

by tanker trucks or vendors, unprotected wells, unprotected springs, rivers, ponds and other surface water bodies, or

bottled water.

Number of people in rural areas with access to ―Improved Sanitation‖ under

the project

Cumulative number of people in rural areas who benefited from improved sanitation facilities that have been

constructed under the project

Increased number of beneficiary organizations participating in environmental

recovery activities

Number of beneficiary organizations involved in environmental recovering activities (e.g., riparian systems,

microcatchments and Caatinga biome). .

Intermediate Results Indicators

Indicator Name Description (indicator definition etc.)

Productive investments implemented and operational Number of project-supported activities implemented and operational; and % of investments led by women

25% of productive investments led by women Number of project-supported activities implemented and operational; and % of investments led by women

Participating rural producers’ organizations successfully accessing formal

markets (e.g., PAA and PNAE)

Number of rural producers selling products to institutional markets

Improved efficiency in agricultural production through access to

environmentally sustainable technologies (e.g., irrigation)

Number of producers who previously lacked access to irrigation or used unsustainable technologies gaining access to

environmentally sustainable technologies (e.g., irrigation).

Pilot PES mechanism established and operational for sustainable land-use

practices

Number of producers’ organizations adopting sustainable practices for recovery of environmental services and

receiving PES

Basic sanitation investments implemented and sustainably operated Number of project-supported activities implemented and operational

Business management training provided to beneficiary organizations Number of beneficiaries’ organizations trained in management of productive investments

20

Number of water reuse pilot projects implemented with project support Number of project-supported activities implemented and operational

Potable water supply systems and basic sanitation management trainings

provided to water services managers

Number of beneficiaries trained and managing water services systems

Training being provided to government staff and strategic partners in

accordance with the Project Capacity Building Plan

Number of technicians involved in the project implementation trained and delivering their tasks appropriately. (8

events; 3,200 participants)

Number of participants Number of technicians involved in project implementation trained and delivering their tasks appropriately

Training for project beneficiaries to encourage adoption of environmentally

sustainable practices

Number of beneficiaries trained and adopting environmentally sustainable practices

Number of participants in training courses provided under by the project Number of technicians involved in project implementation trained and delivering their tasks appropriately

Project results and lessons learned disseminated Number of dissemination activities (press releases, videos, publications, workshops, website, video conferences)

21

Annex 2: Detailed Project Description

BRAZIL: Ceará Rural Sustainable Development and Competitiveness Project

1. The Bank has articulated a strategic vision for continued engagement with Ceará and

other Northeast states, emphasizing:

(a) economic growth with inclusion and innovation;

(b) improved water productivity and management; and

(c) structural investments to enhance logistics in coordination with the State of Ceará’s

multiyear investment plan (PPA 2012–2015), converging with this three-pronged

approach.

2. The proposed Specific Investment Loan to the State of Ceara, with a sovereign guarantee

of the Federative Republic of Brazil, in the amount of US$100 million would support the

inclusive growth and sustainable development chiefly by facilitating and strengthening

competitive and innovative productive clusters and activities. Thus increasing income and access

to adequate technologies; and contributing to the State’s efforts to universalize access to basic

rural infrastructure, primarily potable water and basic sanitation services.

3. The identification of the most promising investments and policy interventions has

become a challenging task because the objectives have shifted from increasing outputs and basic

services under the previous Bank-financed Rural Poverty Reduction Projects, to transforming

agriculture into a more responsive, dynamic and competitive sector that includes small

producers. Therefore, the project is based on a multisectoral approach that requires well-

coordinated institutional management, well-designed workflow, and a monitoring system based

on performance and results indicators.

4. The selection of investment areas would be based on the following explicit inclusion

and exclusion factors:

(a) previous productive experience and market demand (private and public markets), allied

with potential improved competitiveness of selected beneficiaries and areas, based on

cluster assessment, a Territorial Development Plan, and a Rural Development Plan,

among other assessments and studies under preparation;

(b) water scarcity with regard to water resource availability, according to the Diagnóstico

das Rotas do Carro Pipa, Pacto das Águas Strategic Plan, Cinturão das Águas Program,

State Strategic Plan for Water Resources, Microcatchment Management Plan, and State

Sanitation Plan, as well as Municipal Water Plans under preparation, all contributing to

improve and universalize access to potable water and basic sanitation services;

(c) environmental and economic sustainability of proposed investments; and

(d) environmentally sensitive areas or areas under the process of desertification or

environmental degradation. Moreover, the aggregation of municipalities/producers and

spatial continuity will be considered as well as economic dynamics, and

complementarities with other policies, programs and projects (including other Bank-

supported projects) with transparent eligibility and prioritization criteria.

22

5. In line with Ceará’s strategic multiyear plan, the project will focus on several of the

State’s strategic regions, combining a different set of criteria for economic inclusion and access

to water resources for purposes of investment eligibility, such as:

(a) Spatial dynamics: through a selection mechanism consistent with the project’s objectives

and components, by regional classification in light of relevant dynamics, in particular

climate and demographics, with some areas facing population losses due to

desertification, for instance. The analysis provides a clear starting point for the selection

of municipalities based on access to basic opportunities and economic development.

Along with the geographic dimension, the full set of the State’s municipalities is reduced

to a much smaller subset that could hold pilot initiatives such as irrigation or production

projects linked to prioritized clusters. Municipalities with low access to potable water,

poor living conditions and low economic dynamics are presented in white (specified as

BBB in the legend) in the map below. Where those municipalities are located in adjacent

areas, forming clusters or regions lagging behind the remainder of the State, it might be

easier to scale up the pilot initiatives for nearby areas that are faced with the same

deficiencies.

(b) Demographic density: an area where small farmers make up a large share of the

population.

(c) Comparative advantage: most regional economies depend on a diverse portfolio of

unprocessed and processed primary-based products; comparative advantage will still lie

in primary activities and agro-processing because of the potential for natural resource

endowments.

(d) Availability of water resources.

(e) Business innovation, particularly the adaptation of existing technologies available in and

outside the State.

23

6. The project also includes disaster risk management requirements for project

investments under Components 1 and 2. The approach will be to have activities at

strategic/policy levels and operational level. At operational level, the proposed investments will

prepare and submit Contingency Plans, focusing particularly on the prevention of floods,

droughts and forest fires. Prevention actions will include environmental recovery actions

targeting riparian forests and vegetation to protect water sources; adequate soil management

techniques; and any action necessary to achieve compliance with the Brazilian Forest Code.

Environmental recovery actions in areas identified by the Forest Code as Permanent Preservation

Areas around water bodies may be considered as maintenance or recovery of environmental

services and, as such, be accounted as part of the community’s or producers’ in-kind contribution

to project investments. The project will seek coordination with the State Program to Prevent,

Monitor and Combat Forest Fires (Programa Estadual de Prevenção, Monitoramento, Controle

de Queimadas e Combate aos Incêndios Florestais, PREVINA) to provide technical assistance

24

on subjects such as alternative soil management, controlled burning, and other environmental

risk management activities to participating producers’ and community associations.

Project Development Objective:

7. The proposed project objectives are to: (i) improve the sustainability of rural production

and rural income generation, and (ii) contribute to the State’s efforts to universalize access to

water services.13

PDO Level Results Indicators

8. Key results expected from the project are:

(a) increase in the real revenue of the beneficiary rural producers’ organizations;

(b) number of people in rural areas provided with access to improved water sources

under the project;

(c) number of people in rural areas with access to improved sanitation under the project;

and

(d) increased number of beneficiary organizations participating in environmental

recovery activities and conservation of at-risk areas.

Project Beneficiaries

9. The project will benefit rural communities (Components 1 and 2) and particularly small

farmers and producers, as well as nonagricultural rural producers (Component 1) represented by

their organizations, such as community associations, producers’ associations, cooperatives, or

other types of legally established organizations that can provide proof of regular operation.

10. The aim of the training program under the project (Component 3) is to reverse the

historical weakness that hinders access to public policies and financial services by various social

groups such as land reform settlers and specific social groups such as quilombolas,14

indigenous

peoples, fishermen and other groups at different stages of achieving effective social and

economic development, thus reversing the current scenario of exclusion. In addition, the training

program will include the strengthening of targeted state agencies and other stakeholders involved

in project implementation.

Project Components:

11. Component 1: Economic Inclusion (US$70.0 million, with US$46.69 million IBRD

financing) is aimed at contributing toward enhancing the competitiveness and economic, social

and environmental sustainability of family producers through increased quality, added value and

increased productivity of family production, and through access to enhanced technologies,

including irrigation. Investments would involve both agricultural and nonagricultural rural

13


sanitary kits). 14

Quilombolas are communities formed by descendants of African slaves, living in rural areas.

25

production activities already successfully developed in communities or with economic potential

represented by successful past experiences, cultural characteristics, market opportunities or local

demand. Furthermore, this component will support environmental conservation or rehabilitation

investments for piloting the design of a model for payment for environmental services (PES) in

the rural landscape.

12. This component will finance consultants’ services, goods, works and nonconsulting

services to support the preparation and implementation of selected investments, and contingency

plans to manage disaster risks.

13. The target beneficiaries for this component are small farmers and producers carrying out

agricultural and nonagricultural activities in rural communities, represented by their

organizations, such as community associations, producers’ associations, cooperatives,

condominiums, or other types of legally recognized organizations. Settlers from the agrarian

reform and specific social groups (e.g., quilombolas, indigenous peoples, and fishermen, among

others) are also targeted as direct beneficiaries under this component.

14. Specifically, Component 1 will support the following investments through three

subcomponents:

(a) Subcomponent 1.1. Support to Productive Investments: this subcomponent would

finance (i) the preparation of business plans and monitorial supervision of

implementation; and (ii) the construction of approximately five warehouse facilities

in selected rural areas for collecting, processing and distributing farm products.

(b) Subcomponent 1.2. Productive Investments: this subcomponent would finance the

provision of support to POs for the carrying out of: (i) Productive Subprojects; and

(ii) Environmental Services Subprojects, all included in eligible business plans. The

investment proposals would define the role of the producers’ organizations in the

context of the productive clusters and promote: (i) productivity-inducing, climate-

smart investments in fixed capital (e.g., plant and equipment, minor productive

infrastructure), training and technical assistance; agricultural innovation, including

quality, labeling, value-added through processing, and contracts with government

institutions, supermarkets, agro-industries, the improvement of agricultural

productivity through small irrigation systems, using existing water sources and

available infrastructure to enhance production/productivity through the adoption of

sustainable systems and technologies.; and (ii) the development of a pilot mechanism

for the payment for environmental services (PES), in collaboration with

environmental and water agencies. Project investments under this subcomponent will

include environmental protection or recovery actions aimed at the restoration or

maintenance of water resources and biodiversity, or the recovery of vegetation cover

for carbon sequestration, to receive such payments. Supported actions would seek the

valuation and enhanced quality of natural resources and environmental services,

improved community management and the establishment of links between PES

sellers and buyers. A conservation fund will be established by the State Government

with Treasury funds to pilot the specialized financial mechanism for providing

payments during the life of the project. The State would continue with the

development of this PES strategy beyond project implementation, based on lessons

26

learned and using its own resources and implementation of rural infrastructures

consistent with productive activities and to make them feasible and/or more

competitive. This subcomponent will also finance the construction of approximately

five warehouse facilities for collecting, processing and distributing products from the

productive clusters selected according to feasibility studies to be carried out by the

project, in selected rural areas.

(c) Subcomponent 1.3. State and sectoral disaster risk management, contingency plans

and early warning system. Under this subcomponent, the project will contribute to

the development and implementation of an integrated state early-warning system that

will allow the State to forecast and provide warnings in case of imminent adverse

natural events. The subcomponent will also finance capacity building and training for

these subjects. This subcomponent will support strategic engagement with state

institutions to promote and begin the development of a state disaster risk management

policy. This activity will catalyze a reform in how the disasters are managed at state

level. At the same time, the project will support the specific development of disaster

risk management aspects in the rural development sector. This activity will include

discussions on how the sector considers the hazards and risk in the sectoral

investments and explore financial protection mechanisms for the agricultural sector.

15. Selection of proposals: Proposals will be selected in each project area through public

calls for proposals aimed at the priorities identified through studies15

of target production clusters

(fruit production, goats and sheep, fish aquaculture, and honey, among other clusters to be

identified during project implementation) carried out during project preparation, as well as

studies on the participation of family agriculture in productive chains and in accordance with the

State’s Territorial Development Plans.

16. Economic inclusion will be the focus of eligibility criteria for selecting proposed

investments, which should: (a) support the conservation and sustainable use of water resources;

(b) introduce technological innovation in production; (c) focus on market access and income

generation; (d) have rural family-based producers as beneficiaries; (e) present demands already

identified in regional development plans; and (f) support the participation of women’s groups or

organizations, considering the target of achieving at least 25 percent of subcomponent

investments led by women. The UGP will form a committee to evaluate and rank proposed

investments, and may invite experts to assist in the evaluation and selection process when UGP

technicians are insufficient or not technically qualified to assess specific proposals.

17. The procedures for the evaluation and ranking of proposals will be further detailed in the

Project Operational Manual. Evaluation criteria include: (a) market viability; (b) priority of the

proposal within the territory; (c) importance of the proposed productive chain to enhance the

competitiveness of family producers in the region; (d) number of family producers addressed by

the proposal; (e) adoption of best practices for soil conservation and water resources

management; (f) environmental sustainability (reduced negative impact, greater recovery of

degraded areas, better environmental suitability); and (g) compatibility with project objectives

and integration with other initiatives.

15

Initial target productive chains were selected in accordance with diagnostics conducted by EMATERCE,

Agropolos, SDA, Banco do Nordeste (ETENE), SEBRAE, and ADECE.

27

18. Furthermore, proposals should include information on: (a) market demand for product

commercialization; (b) availability of and demand for inputs required for production; (c) viability

study; (d) organizational and administrative capacity of the proposing organization; (e) logistics

and strategy for commercializing the products; (f) technical design (description of necessary

works, technical specifications, budget and list of suppliers of the required equipment); (g)

operational framework and sustainability strategy; (h) environmental aspects and specific

measures to prevent or minimize environmental impacts; (i) management plan; (j) financial and

accounting management; and (k) water availability and source (for irrigation investments).

19. Business plan preparation, approval and eventual financing would be further governed by

procedures outlined in the Project Operational Manual.

20. Support will be classified in three investment categories:

(a) Business plan development: Project funds will finance up to 100 percent of the

preparation cost of business plans.

(b) Production investment: These are investments to support the increase in family

production and quality enhancement through access to adequate technologies.

Investments under these production typologies will have an average cost of

US$160,000 for the total investment cost financed by the project. These investments

would target the structure of the production clusters or the introduction of technology

(including irrigation), supporting production or product processing and insertion in

local and regional markets.

(c) Large-scale investments: These may also target the structure of the production

clusters or the introduction of technology (including irrigation), and would mainly be

aimed at the links between product processing and distribution in the selected

productive chains, with the adoption of higher levels of technology for higher added

value and quality, and larger scale of production. Five warehouse facilities in selected

rural areas for collecting, processing and distributing farm products will be executed

directly by SDA after a feasibility study is submitted to the Bank. Such investments

would target access to broader markets, including international markets, creating

central units for processing and/or commercializing family production. The average

cost for large-scale investments is US$700,000.

21. Investment values will be defined and selected based on cluster type. Technical

assistance to investment operations will be provided preferably through publicly funded Rural

Technical Assistance (Assistência Técnica e Extensão Rural, ATER) or through private-sector

providers for at least the first year of execution, based on eligible business plan costs. The

strengthening of participating producers’ organizations provided under Component 3 and

technical support provided by the project’s regional offices should ensure the good technical

quality and sustainability of supported investments. For production investments, the producers’

organizations would be responsible for 20 percent of investment cost sharing, either in cash or in

kind.

28

22. This component’s investments will be executed directly by the producers’ organizations

under the supervision and monitoring of the Project Implementation Unit (targeted-demand

approach linked to the clusters).

23. Larger infrastructure and equipment investments identified to support productive chains,

such as processing units, storage and distribution markets, will be implemented directly by the

State Secretariat of Agrarian Development through the Project Implementation Unit in

collaboration with related State institutions (EMATERCE and CENTEC) to make procurement

processes more efficient and management arrangements more sustainable.

24. Component 2: Water Services16

(US$50.0 million, with US$33.35 million IBRD

financing) would support the State’s efforts to universalize access to potable water and basic

sanitation services in rural areas, selecting investment areas in line with the Federal Program

Água para Todos and the State’s Pacto das Águas, as well as the State’s strategy to eradicate the

water truck (carro pipa) from the water distribution system. Actions under this component are in

line with federal initiatives such as the National Water Resources Policy (Law 9.433/1997),

which calls for decentralized management approaches that include both users and local

communities; and the Federal Integrated Water Supply and Sanitation Policy17

(Law

11.445/2007), which calls for decentralized management of access to water, sanitation, drainage

and solid waste disposal in small localities primarily occupied by low-income households.

25. The 2010 Census identified the existence of around 27,000 rural communities formed by

more than five families each, of which around 2,700 communities comprise 50 to 400

households, totaling 1.4 million inhabitants. The 2008 SNIS18

had identified 302 rural

communities served with potable water supply services; of these, 109 are operated by CAGECE

and 193 are served by municipal WSS operators. The Integrated Rural Water Supply and

Sanitation System (Sistema Integrado de Saneamento Rural, SISAR)19

currently operates potable

water supply services in 570 rural communities. Combined, these services reach only 872

communities. Other communities are still unidentified and/or have access to potable water

supply services that are being operated by stand-alone community associations.

26. Specifically, Component 2 will support the following objectives through three

subcomponents:

(a) Subcomponent 2.1. Extension of WSS services: extend the potable water supply and

basic sanitation infrastructure services in rural Ceará.

(b) Subcomponent 2.2. Scale-up of Operation and Maintenance (O&M) management

models: scale up existing water distribution management system models, including

16


sanitary kits). 17

The Federal Integrated Water Supply and Sanitation Policy (Law 11.445/2007) defines a broader concept of

integrated water supply and sanitation: water supply, sanitation, drainage, and solid waste management. 18

Source: National Information System for Water and Sanitation (Sistema Nacional de Informações sobre

Saneamento SNIS). 19

SISAR is a nonpublic civil entity for community purposes that works as a federation of associations for the

common management of WSS services in a number of communities (multi-communities), in a regional geographical

space that may be intermunicipal.

29

SISAR, and develop pilot solutions for the sustainable O&M of water services

delivery and management in selected rural areas.

(c) Subcomponent 2.3. Environmental sustainability: introduce pilot practices for

efficient water reuse (such as wastewater reuse for irrigating localized agricultural

production) and for environmental rehabilitation or conservation activities aimed at

protecting water bodies.

27. This component will finance goods, works, nonconsulting services and consultants’

services to support the design and implementation of water and basic sanitation services, as well

as the greywater reuse subprojects.

28. Subcomponent 2.1. Extension of potable water supply and basic sanitation services:

This subcomponent will be executed directly by SDA, in collaboration with other related State

Government institutions (CAGECE and SOHIDRA), under the supervision and monitoring of

the Project Implementation Unit (UGP) through a directed-demand approach linked to the water

services universalization strategy. The subcomponent will include the preparation of engineering

designs and works for the implementation of potable water and basic sanitation infrastructure

investments.

29. The potable water supply service would be a collective infrastructure in line with

Municipal Water Plans (already prepared or currently under preparation), using existing water

sources and adding to available infrastructure to complete networks between main water

distribution systems and households, and would include water networks, water treatment

facilities and advanced information system technology for water metering.

30. Basic sanitation services would consist of individual household solutions and include

sanitary kits20

with septic tanks in all communities where potable water supply would be

implemented. Water sources may include existing water pipelines, rivers and small dams

(açudes); the use of wells will require prior analysis of the risks of causing salinization problems.

Subcomponent investments will target communities or community clusters with a minimum of

25 and a maximum of 500 households, where regular potable water supply and basic sanitation

services are not available. Communities must respond to the project’s public call for interest to

participate in project selection. An up-front identification of the entity that will be responsible for

the sustainable operation and management of the water services infrastructure is an eligibility

criterion for the selection of projects to be financed. Localities or clusters with fewer households

will be addressed by other state or federal initiatives.

31. Subcomponent 2.2. Scaling up of O&M management models: This subcomponent will

also be executed directly by SDA, in collaboration with other related State Government

institutions (CAGECE and SOHIDRA), under the supervision and monitoring of the UGP, and

will support the scaling up of existing O&M structure (e.g., SISAR) or the development of pilot

solutions for the sustainable operation and management structure for water services delivery.

This would include technical assistance, acquisition of equipment, capacity building and creation

20

Sanitary kits (kits sanitários) are composed of a toilet, shower, hand-washing sink, washing tank and septic tank.

30

of incentives for new community associations to be included in the O&M management structure.

The SISAR O&M management model would be recommended for adoption.

32. The SISAR O&M management model is a nonpublic civil entity for community purposes

that works as a federation of associations for the common management of water services in a

number of communities (multi-communities) in a regional geographical space (intermunicipal).

This model started around 1995 in a region of the State of Bahia (Central in Seabra) and in a

region of Ceará (SISAR Sobral). In Ceará, this management model was expanded in 2001 to

seven other regions in the State, with one SISAR installed in each planning region. SISAR has as

its key element the organization of a General Assembly formed by all affiliated associations. It

also has a Management Council formed by managers from community associations and

representatives from the State and Municipal Governments; and a Fiscal Council formed

exclusively by managers from the associations.

33. The service provision operational model is characterized by shared management, which is

divided between activities under the responsibility of the local association and activities at the

SISAR level. The latter translate into technical staff for the systems’ maintenance support; for

billing and collecting tariffs; and also for providing training and sanitary education services. The

tariff will cover the local cost of operation (personnel and electricity) and the SISAR costs

(personnel, chemicals and materials, maintenance and administration), or any similar approach.

34. Subcomponent 2.3. Environmental sustainability: The pilot practices and environmental

conservation activities under this subcomponent will have the support of the State Government

but will be executed directly by community associations. (See detailed description of the

institutional arrangements in Annex 3.)

35. Introducing pilot practices: This part of the subcomponent will support pilot practices of

greywater21

reuse for irrigating localized agricultural production in rural communities. This

would include the development of engineering solutions and specific studies (e.g., feasibility

assessments), design and implementation. The selection process for the demand-driven

investments would encourage and create incentives for communities to submit proposals of this

nature.

36. Environmental rehabilitation or conservation services: These activities will be supported

by the beneficiaries (communities), who will be responsible for developing the design and

implementing compensatory environmental activities as counterpart contributions for water

investments, such as: (a) sustainable land-use and conservation practices; (b)

recovery/rehabilitation of riparian forests; (c) tree planting; and (d) protection of the margins of

water bodies, etc. with the aim of decreasing desertification and erosion and preventing natural

disasters. Communities could learn from the State’s past experiences in implementing similar

activities supported by PRODHAM (Bank-supported interventions) in microcatchments.

37. Selection of proposals: Investments under Component 2 will be selected through public

calls for proposals from community associations. Selection criteria will include: (a) a minimum

of 25 households reached by the proposed investment (for the set of smaller communities to be

21

Greywater means wastewater from bathtubs, shower drains and sinks.

31

aggregated, the project will consider the feasibility of an integrated potable water supply

arrangement that avoids long distances for pipelines and distribution networks. These concerns

should be translated, at the appropriate time, into the definition of the limit for the per capita cost

as criteria for prioritization of project investments); (b) the addressing of all local households by

the proposal; (c) where necessary, indication of complementary investments to reach local

universal potable water access; (d) eradication of the need for water truck services; and (e)

communities on the water truck route (Rota dos Carros Pipa), which are a priority due to the

critical potable water supply challenges. The spatial intersection of these communities with the

available water sources in these areas will establish the typologies of systems and their incidence

within the universe of priorities. Proposed investments located in municipalities with a

completed Municipal Water Plan (Plano de Águas Municipal, PAM), as well as proposed

investments including water reuse practices, will rank higher than those with no PAM. The call

for proposals will be further detailed in the Project Operational Manual.

38. Project actions under this component will be complemented by other state projects and

programs such as the Cisternas (rain harvesting) Program, which will address the most isolated

households where potable water supply pipeline extension would be very costly.

39. Component 3: Institutional Strengthening and Project Management (US$23.3 million,

with US$15.54 million IBRD financing) would support project management functions and a set

of activities to strengthen beneficiary organizational structures and public functions that are

critical to ensure the competitiveness and sustainability of project investments. Specifically,

Component 3 would finance: (a) the technical and administrative management of the proposed

project, including equipment and consultants, and safeguard management plans; (b) updates to

SDA’s Management Information System for use in project monitoring, including the design,

development and implementation of an impact evaluation module to track progress on results

indicators, as well as other project-related studies; (c) the development and implementation of a

training program for project beneficiaries (rural producers’ organizations, community

associations, Municipal and Territorial Councils, nongovernmental organizations (NGOs),

service providers, consultants and public servants involved in project management and

implementation, and other stakeholders involved in project implementation); (d) the

development and implementation of a communication plan to disseminate information on the

project; and (v) institutional strengthening of TCE-CE for the carrying out of audits under the Project.

40. Project management will finance the necessary equipment and consultants required to

manage project activities and ensure adequate fiduciary operation (procurement, accounting,

financial management), as well as technical planning, monitoring and impact evaluation of

project actions, including the implementation of the social and environmental safeguard

instruments. Thus, this component will finance goods, studies, nonconsulting services and

consultants’ services.

41. Institutional strengthening under Component 3 would finance training and capacity

building for project stakeholders, including the main beneficiaries (social organizations),

beneficiary consultations, project management, monitoring and evaluation, The training program

will be designed to include the organizations of the most vulnerable social groups, such as

indigenous peoples, quilombolas, youth and women, who have greater difficulty in accessing

public policies and programs. Institutional support would include, among other activities, limited

32

training for municipal-level authorities to participate in the project’s participatory mechanisms

(such as Municipal and Territorial Councils) and intersectoral coordination in complementary

activities.

42. Technical assistance to rural producers and community associations would include: (a)

environmental management and education in agricultural areas, including procedures for

requesting environmental licensing; (b) training in the provision of environmental services in

agricultural areas (e.g., water quality, carbon storage); (c) capacity building for improving

processing or production practices, management and market access for nonagricultural rural

economic activities; (d) training and technical assistance for rural communities to operate,

maintain and charge for rural water supply and sanitation solution services; (e) capacity building

and strengthening of rural community associations to create a culture of sustainable and rational

water use and of protection of water sources; (f) promotion of hygiene and environmental

education programs in rural communities; and (g) strengthening of community water

management structures to ensure long-term sustainable access to water and sanitation services.

33

Annex 3: Implementation Arrangements


Project Institutional and Implementation Arrangements

1. The State of Ceará, through SDA, would be the Borrower for the proposed loan, with the

Federative Republic of Brazil serving as Guarantor. SDA would be responsible for day-to-day

project implementation, including procurement planning, financial monitoring and reporting,

disbursement and internal controls, maintenance of project accounts and preparation of project

management reports. SDA will also be responsible for ensuring that counterpart resources are

foreseen in the State’s budget. SDA will implement Components 2 and 3, and will supervise

implementation of Component 1 by producers’ organizations and parts of Component 2 by

community associations. A steering committee (Comitê de Articulação Estadual do Projeto), led

by SDA with representatives from all Secretariats involved in the project—Secretariat of Water

Resources (Secretaria dos Recursos Hídricos, SRH), Secretariat of Cities (Secretaria das

Cidades), Secretariat of Aquaculture and Fisheries (Secretaria da Pesca e Aquacultura, SPA),

Secretariat of Science and Technology (Secretaria da Ciência, Tecnologia e Educação Superior,

SECITECE), Secretariat of Planning and Management (Secretaria do Planejamento e Gestão,

SEPLAG), Environmental Policies and Management Council (CONPAM), State

Superintendence of the Environment (Superintendência do Meio Ambiente do Ceará, SEMACE),

State Water and Sanitation Company (Companhia de Água e Esgoto do Ceará, CAGECE), State

Superintendence of Water Works (Superintendência de Obras Hidráulicas, SOHIDRA), State

Rural Extension and Technical Assistance Company (Empresa de Assistência Técnica e

Extensão Rural do Ceará, EMATERCE), and Technological Learning Center Institute (Instituto

Centro de Ensino Tecnológico, CENTEC)—would guide the strategic and multisectoral aspects

of the project.

Project administration mechanisms

2. The Project Management Unit (Unidade de Gerenciamento do Projeto, UGP) will be

housed in SDA and will have the following composition: Project Coordinator; Technical Advisor

for Planning; Legal Advisor; Social Management Advisor; Environmental Management Advisor;

Information Technology Advisor; six managers (Procurement Specialist, Financial

Administration Specialist, Monitoring and Control Officer, Water Resources Use Manager,

Economic Inclusion Manager, and Institutional Strengthening Manager); and technical staff and

administrative assistants, totaling a team of approximately 34 people.

3. In addition to general project management activities, the UGP will also form ad hoc

technical committees to analyze the proposed investments to be financed under Components 1

and 2. Experts may be invited to complement the committee when UGP technicians are

considered insufficient or not technically qualified to evaluate and rank proposals.

4. CAGECE and SOHIDRA will play a direct role in the implementation of Component 2

(Water Services), under the coordination of the UGP. Their roles are detailed in the sections

below and in the Project Operational Manual. In addition SDA, will:

34

(a) for the purposes of assisting in the carrying out of Component 2 (a) and (b) of the

Project and to formalize their respective responsibilities under the Project, enter into a tri-partite

agreement (Convênio Tripartite) with both CAGECE and SOHIDRA under terms and conditions

satisfactory to the Bank (―CAGECE-SOHIDRA Agreement‖);

(b) for the purposes of assisting in the carrying out of Components 1 and 2 (c) of the

Project, and to formalize their respective responsibilities under the Project, enter into an tri-

partite agreement (Convênio Tripartite) with both EMATERCE and CENTEC, under terms and

conditions satisfactory to the Bank (―EMATERCE-CENTEC Agreement‖);

(c) for purposes of assisting in the carrying out of Components 1, 2 and 3 of the

Project, transfer a portion of the proceeds of the Loan to IICA under a subsidiary agreement (the

IICA Agreement) to be entered into between the Borrower and IICA, under terms and conditions

acceptable to the Bank, setting forth their respective roles and responsibilities regarding the

implementation of said Parts of the Project; and

5. To ensure local coordination and integration between institutions and stakeholders, 13

Project Territorial Management Units (Unidades de Gestão Territorial, UGTs) will be

established, covering all State territories, each with three field technicians and one administrative

assistant. Field technicians will work across all three project components (Economic Inclusion,

Water Services, and Project Management and Institutional Development) and support the core

areas of project planning, monitoring and control, and procurement and financial administration.

Each technician will be responsible for coordinating project actions in the territory. To ensure

integration and quality of actions, each of the field technicians will coordinate a thematic area

related to project components and one of the three will cumulatively carry out overall

coordination of the UGT, reporting directly to the General Coordinator.

35

Executing Entities

6. SDA will be the State’s executing agency for this project, through the Project

Implementation Unit (UGP). To streamline project implementation, SDA will partner with four

other State agencies (CAGECE, SOHIDRA, EMATERCE, CENTEC and IICA) as collaborators,

through legal agreements to formalize responsibilities regarding project actions. Their roles are

specified below and further detailed in the Project Operational Manual. SDA will be responsible

for the direct implementation of Component 1, Subcomponents 1.1 and 1.3; Components 2 and

3; as well as for supervising the implementation of Subcomponent 1.2 by producers’

organizations.

7. Producers’ Organizations will be responsible for implementing the selected investment

proposals under Component 1, under the supervision of the UGP.

Project Coordinator

I.T. Advisor

Legal Advisor

Monitoring and Control

Officer

Financial Administration

Specialist

Procurement

Specialist

Institutional Strengthening

Manager

Economic Inclusion

Manager

Water Resources Use

Manager

UGP

UGT Coordinator

Institutional Strengthening

Coordinator

Administrative

Assistant

Economic Inclusion

Coordinator

Water Resources Use Coordinator

UGT

Social Mgmt Advisor

Environmental Mgmt

Advisor

Planning Advisor

36

8. CAGECE: The Ceará Water and Sanitation Company (Companhia de Água e Esgoto do

Ceará) is a public company created in 1971. It is connected to the State Secretariat of Cities.

CAGECE will be responsible for the technical, economic, social and environmental viability

analysis of proposed water investments in communities with more than 70 households, for

assisting the UGP in the bidding process for contracting and approving the designs and works, as

well as supervising the implementation of works.

9. SOHIDRA: The State Superintendency for Water Works (Superintendência de Obras

Hidráulicas) was created in 1989. It is connected to the Secretariat of Water Resources and is

responsible for implementing public works in Ceará’s water sector. It will be responsible for the

technical, economic, social and environmental viability analysis of proposed water investments

in communities with at least 25 but fewer than 70 households; and for assisting the UGP in the

bidding process for contracting and approving the designs and works as well as supervising the

implementation of works.

10. EMATERCE: The Ceará Rural Extension and Technical Assistance Company (Empresa

de Assistência Técnia e Extensão Rural do Ceará) was created in 1954 and is connected to SDA.

EMATERCE will be responsible for the technical, economic, social and environmental viability

analyses of proposed rural production investments and for monitoring their implementation.

EMATERCE will also provide rural technical assistance services to producers’ organizations and

assess and verify goods and services supplied to participating organizations by other providers.

11. CENTEC: The Technological Learning Center Institute (Instituto Centro de Ensino

Tecnológico) is a Social Organization (Organização Social, OS). Under the project it will

participate in the technical, economic, social and environmental viability analyses of proposed

nonagricultural investments and in monitoring their implementation. CENTEC will also

collaborate in the preparation of calls for and selection of proposals, provide technical assistance

to the selected investments, and assess and verify goods and services supplied to participating

organizations by other providers.

12. IICA: The Inter-American Institute for Cooperation on Agriculture is a specialized

agency of the Inter-American System for the promotion of agriculture and rural well-being,

focused on making agriculture competitive and sustainable in the Americas. Under the project

IICA will provide technical cooperation in the areas of technology and innovation for

agriculture, health and food safety, agribusiness, agricultural trade, rural development and

training.

37

13. The State of Ceará has adopted a results-based management model to implement

integrated actions in the field (Territorial Development). This territorial approach has proved

effective in channeling the coordinated planning and implementation of disparate federal and

state programs, with perceived efficiency and effectiveness gains obtained through their joint

interaction. Moreover, through a monitoring and evaluation system to accompany the

implementation of strategic projects, a high-level committee coordinated by the State Governor

meets monthly to evaluate the status, taking actions once any problem has been identified.

14. As part of this strategy the proposed project would integrate actions in the field across

three dimensions:

(a) Public Policies and Projects

i. At the State Government level, between the State Secretariat of Agrarian

Development (SDA, EMATERCE, ITECE) and the State Secretariats of

Planning and Management (SEPLAG), Water Resources and Services (SRH,

COGERH, CAGECE, SOHIDRA), Environment (SEMACE), Science and

Technology (SECITECE), COPAM, FUNCEME and the State Council for

Rural Sustainable Development (CDRS); and three Bank-financed operations:

Ceará Inclusive Growth (SWAP II), Water Resources Management

(PROGERIRH), Regional Development (Cidades do Ceará) and two trust

funds: GEF–Caatinga Conservation and Sustainable Management, and the

JSDF–Leveling the Playing Field for Quilombola Communities in

Northeastern Brazil.

38

ii. At the State and Federal Government levels by using the proposed project to

break down the barriers between the rural and urban-focused projects listed

above and to promote the convergence of various state and federal public

policies and respective agencies, e.g., Ministry of Agrarian Development

(MDA), Ministry of Social Development (MDS), National Foundation for

Water and Sanitation (FUNASA), BNB, and Banco do Brasil (financial

services).

(b) Knowledge, research, innovations and technological institutions: Federal and State

Universities, Federal Technical Institute;, and EMBRAPA.

(c) Civil Society and Private Sector

i. OSCIPs: social organizations that deliver public services: SISAR, Agropolos,

CENTEC;

ii. Participatory Councils at state, territorial and municipal levels; and

iii. Private companies: organizations such as FIECE, ABRAS and SEBRAE.

15. Under the proposed project, the abovementioned organizations will be linked for the

generation, transformation, storage, retrieval, integration, dissemination and utilization of

knowledge and information, for the purpose of working in synergy to support decision making,

technical assistance, problem solving, and innovation.

Other institutions involved in project implementation

16. In addition to the collaborating agencies, other institutions will participate at the

following levels: (i) Partner Institutions: will coordinate their existing programs and actions to

leverage project results; (ii) Participating Organizations: composed of social councils, this

category will play a consulting role and contribute to disseminate bids and calls for proposals for

project investment, provide technical opinions on proposals, and provide social control of project

actions; and (iii) Technical Cooperation: will provide technical support to the Community

Associations and Organizations.

17. The following institutions were identified under these three categories of participation: (i)

Partner Institutions: BNB, BB, SEBRAE, EMBRAPA, SECITECE, CONPAM, FUNCEME,

MDA, MDS, Municipal Governments, Secretariat of Cities, Secretariat of Aquaculture and

Fisheries, CONAB, and IFC; (ii) Participating Organizations: CEDR, CTDRS, and CMDS; and

(iii) Technical Cooperation: SISAR.22

22

SISAR: The operation and maintenance of the water services will be carried out, in the majority of the

communities, by the regional SISAR working in the respective watershed where the works are taking place; or any

other operation and management solution proposed by the community and accepted by the State. The process of

community membership in SISAR takes into account a need for the development of an educational program to be

implemented during the course of the works. A set of required legal instruments will be prepared to formalize

SISAR’s responsibility for service provision: (i) An agreement between the State and Municipal Governments

where the former, as the owner of the assets, leases the goods to the latter, as the pensioner concession provider of

services; (ii) Authorizing Law of the Municipal Chamber, allowing the City Government to sign the contract with

the Association and SISAR to provide these services; and (iii) A contract for the provision of services signed by the

Municipality, the Association and SISAR.

39

18. During preparation, the project identified the following complementary actions

implemented by state and federal agencies, which will also reach project beneficiaries under their

public programs with parallel funding, as shown below. The project will seek cooperation

agreements to coordinate such actions with project implementation, under the participating

category of Partner Institution.

Ongoing and foreseen public programs and projects that are complementary to Component 1

(Economic Inclusion):

Institutions Priority Programs Type of Investment and

Estimated Investment Amount

(US$ million)*

Banco do Brasil and Banco do

Nordeste

National Program to Strengthen

Family Agriculture (PRONAF)

Low-cost and long-term rural

credit. US$22.03 million

National Secretariat of Family

Agriculture under the Ministry of

Agrarian Development

(SAF/MDA)

National Technical Assistance

Program for Family Agriculture

(PRONATER)

Rural technical assistance

through public bids aimed at

specific productive chains.

US$8.44 million

Ministry of Social Development

(MDS) and State Secretariat of

Agrarian Development (SDA)

Food Acquisition Program

(PAA)

Public acquisition of products

from family agriculture for the

purpose of donation to social

groups or establishment of public

strategic stocks.

US$8.44 million

Ministry of Education and

Culture (MEC); Municipal

Governments; and State

Secretariat of Education (SEC)

National School Meals Program

(PNAE)

Public acquisitions of products

from family agriculture for

student meals (mandatory use of

a minimum 30 percent of federal

resources provided for school

meals). US$8.44 million

National Secretariat of

Territorial Development under

the Ministry of Agrarian

Development (SDT/MDA)

National Infrastructure and

Services Program for Rural

Territories (PROINF)

Works and equipment related to

commercialization centers and

agro-industry at the territorial

level. US$2.50 million


(MDS) and State Secretariat of

Agrarian Development (SDA)

Ceará’s Goat and Sheep Raising

Development Program

Donation of breeding pairs and

improved breeders, and

distribution of cooler tanks.

US$1.38 million

State Secretariat of Agrarian

Development (SDA)

Tempo de Plantar Distribution of seeds and

seedlings. US$0.12 million

Banco do Brasil Foundation Caatinga Biome Project Various investments in the

honey, goat and sheep

production chains.

US$0.53 million

IBRD and FECAP Mata Branca Project Production activities and

environmental conservation

actions in the Caatinga biome.

US$0.16 million

40

Ministry of National Integration

(MIN)

Program to Support the Araripe

Region (PROMESO)

Various investments in priority

productive chains.

US$0.12 million

National Department of Works

Against Droughts (DNOCS)

Fish Repopulation Program Fry distribution.

US$0.03 million

State Secretariat of Agrarian

Development (SDA)

Program for the Productive Use

of Water

Financing of small irrigated

areas; wind power for irrigation;

protected cultivated fields for

fruit and vegetables; household

vegetable gardens; sustainable

irrigation in floodplains; climate

monitoring equipment.

US$0.08 million * Exchange rate used to estimate amounts: US$1.00 = R$1.60.


(Water Services):



(US$ million)*


(MDS)

Program One Million Cisterns

for the Semi-Arid Region

Construction of individual and

community cisterns.

US$75.00 million

Ministry of National Integration–

National Department of Works

Against Droughts (DNOCS)

Water Resources Program Construction of small dams

(açudes) and larger dams.

US$0.38 million * Exchange rate used to estimate amounts: US$1.00 = R$1.60.


(Institutional Strengthening):



(US$ million)*

SEBRAE Governance of Productive

Chains; and SEBRAETEC

Capacity building; promotional

events; technical missions, etc.,

with emphasis on goat, sheep

and honey production.

Qualification of packaging,

labels and brands.

US$0.15 million

National Secretariat of

Territorial Development under

the Ministry of Agrarian

Development (SDT/MDA)

National Program for Territorial

Development (PRONAT)

Training of Territorial

Development Agents; support

for the management of

agribusiness and

commercialization of products

from family agriculture in the

State’s territories.

US$0.05 million

Banco do Brasil, BB Foundation,

and Banco do Nordeste

Financial Agents Program for

Strengthening Enterprise

Management

Capacity building; business

plans; market assessments.

US$0.19 million

41

Ministry of Science and

Technology; Ceará State

Secretariat of Innovation,

Science and Technology

(SECITECE).

Program for the Implementation

of Technological Vocational

Centers (CVT)

Generation and dissemination of

technology; informal

professional qualification.

US$0.04 million

Secretariat of Cities Local Production Arrangements

Program (APLS)

Support for the governance of

productive chains and

complementary strategic

investments. US$0.25 million * Exchange rate used to estimate amounts: US$1.00 = R$1.60.

Financial Management, Disbursements and Procurement

Financial Management

19. The State of Ceará follows: (i) the Brazilian Accounting Rules (NBCASP), Law 4320/64,

which establish certain high-level accounting principles; and (ii) the Accounting Manual

Applicable to the Public Sector (MCASP), issued under Law 10180 of February 6, 2001 and

Decree 3589 of September 6, 2001. The project would require adherence to the first set of

national accounting standards applicable to the public sector (NBCASP) and the revised

Accounting Manual Applicable to the Public Sector (MCASP) issued under STN Portaria 467 of

August 6, 2009 beginning in fiscal year 2011. The Bank and National Treasury have agreed to

jointly carry out a Gap Analysis (expected in 2013) to confirm that the accounting for the

Brazilian public sector conforms to international accounting standards applicable to the public

sector (IPSAS) or to identify any important differences from the IPSAS. The last Country

Financial Accountability Assessment (CFAA) for Brazil indicated that Law 4320/64 was in line

with international accounting standards.

20. The budget cycle includes planning and implementation of all government activities,

which are to be reflected in the PPA, LDO and LOA.23

All transaction processing uses SDA

institutions, processes and systems that provide for segregation of duties, supervision, quality

control reviews, reconciliations and independent external audits, and meet the needs of the

project. Process flows are clear and well understood by SDA personnel. All project budgeting

and accounting transactions would run through the State’s public accounting system (S2GPR).

All payments will follow the official commitment (empenho), payables (liquidação) and

payment (pagamento) routine. These functions are carried out by the SDA. This system is used

by SDA for recording project transactions, financial reporting and budget execution. The system

is an integrated online system used by SDA.

21. The POA (annual operating plan), after being approved by the Bank, is updated in the

SIOF (integrated budget and finance system) after being approved through the LOA (annual

budget law). Execution is made through State accounting systems (e.g., S2GPR, SIOF) jointly

with MIS2 (used for PCPR2). The asset management system that will monitor the project has the

capacity to record assets, liabilities and financial transactions of the project. The accounting

23

PPA–Plano Pluri-Anual, LDO–Lei de Diretrizes Orçamentárias, LOA–Lei Orçamentária Anual which includes

the Government’s goals and programs that are approved by Sate Congress every five years, 18 months, and 12

months, respectively.

42

system is designed to be able to capture all financial information and allocate among project

activities and categories, and to generate financial reports for project management (including

data to prepare the Interim Unaudited Financial Reports, IFRs). The Electronic Archiving

System is not yet in place. A copy of all supporting documentation is kept in the UGP.

Administrative procedures have been established to ensure that financial transactions are made

with consideration to safeguarding project assets and ensuring proper entry in the

accounting/monitoring systems.

22. For the funds transferred to project executors, MIS2 will run reports to follow up the use

of respective funds and supporting documentation. The asset management module will be

available for the project to allow monitoring of funds received, and the UGP will be able to

monitor at micro level the respective use of the system.

Internal Controls

23. SDA (like other State direct agencies/institutions) lacks an internal control unit or internal

audit department. Internal control is made a posteriori by the Secretariat of the Comptroller

(Controladoria e Ouvidoria do Estado, CGE). SDA’s annual financial statements are available

directly through the system (S2GPR) for internal (CGE) and external (TCE) State auditing.

Reports are available after 18 months of auditing, are available on the Internet and are published

in the State newspaper, in accordance with the World Bank’s disclosure policy.

24. SDA holds the primary fiduciary responsibilities for the project, which will be carried out

by the UGP’s financial office. At the UGP level, staffing is appropriate to assure segregation of

functions and reconciliations of accounts. Policies and procedures are stated in the Project

Operational Manual.

25. Proper internal-level approval required to use the funds (POA) includes three levels of

expenditure approval. The first is made by the project coordinator, the second is approved by the

monitoring and planning coordinator for all expenditures in SDA, and the third is by the State

Secretariat. The system allows budgetary and financial execution follow-up.

26. Staffing: The staff directly involved with FM-related activities include: one financial

manager and one assistant, two accountants, two treasurers, one staff member responsible for

account reconciliation, and one responsible for disbursement requests. Few staff turnovers have

been observed in the FM department, and the respective team structure (together with 13

expected regional offices, when properly trained) was shown to be the minimum staffing

structure to assure proper decentralized execution. Most of the team members were contracted

through a competitive process and have the adequate background to implement the project while

observing the agreed fiduciary arrangements.

27. Detailed staff duties and tasks are detailed in the Project Operational Manual. The main

fiduciary responsibilities of UGP’s financial management staff include: (i) updating the financial

management system, as needed and on a timely basis; (ii) reviewing project expenditure

documentation; observing eligibility criteria, category percentages and counterpart allocation;

(iii) keeping documentation properly archived; (iv) preparing and submitting to the World Bank

quarterly unaudited financial reports (IFRs); (v) reconciling and monitoring data, identifying

43

discrepancies and taking timely corrective action; and (vi) preparing and providing all financial

documentation and reports requested by external auditors and Bank staff.

28. The Project Operational Manual documents these project processes and serve as an

important source for processing steps to be followed during project implementation. It contains

detailed procedures and guidelines for disbursements, payments, approvals, commitments and

reporting, and would be submitted to the Bank for review prior to negotiations.

29. Mitigation measures: risk during implementation. During prior project execution,

weaknesses were related to project delay in documenting the use of funds and providing

respective supporting documentation. Measures include: regional staff properly staffed to

provide timely support to the project, including use of the asset management system, and to

assure that the control process is extended to the local level; systematically assuring that the

control of all funds is also present for the project.

Financial Reporting: IFRs

30. The State’s integrated management system is able to adequately control, account for,

report on, and manage the proposed loan’s financing. A specific cost center will be created in the

system to record all loan transactions, and will be aligned with the structure of the loan to record

transactions by category and component/subcomponent. The system can provide financial

management data in order to prepare respective reports (in both US dollars and local currency),

which are prepared (for Bank purposes) on a cash basis, although State accounting follows

accrual accounting. The IFRs (1-A Sources and Uses of Funds by disbursement category; and 1-

B Uses of Funds by Project Component and Subcomponent) will state the expenditure figures by

quarter, accumulated for the project and accumulated for the year (project-to-date, year-to-date,

and for the period) versus budgeted expenditures, including a variance analysis, and will be

submitted 45 days after the end of each quarter. Any counterpart contribution (in-kind or cash

contributions) supporting the loan’s activities will be reflected (and valued) in the IFRs.

Auditing

31. Annual financial statements would be audited by TCE-CE, satisfactory to the Bank, in

accordance with acceptable auditing standards. The audit would be conducted according to

Terms of Reference acceptable to the Bank. The auditor’s report would be submitted to the Bank

no later than six months after the closing of the Borrower’s fiscal year.

Supervision Plan

32. The scope of project supervision would review the implementation of FM arrangements

and FM performance, identify corrective actions if necessary, and monitor fiduciary risk. It

would take place every six months and include: (i) a review of quarterly IFRs; (ii) a review of the

auditors’ reports and follow-up of any issues raised by auditors in the management letter, as

appropriate; (iii) participation in project supervision; and (iv) updating of the financial

management rating in the Implementation Status Report (ISR).

44

Disbursement

33. The proposed funds flow and disbursement arrangements were considered satisfactory

and will be streamlined within the project to facilitate execution, avoid unnecessary incremental

operational arrangements, and rely as much as possible on Public Financial Management (PFM)

country systems. All payments would be physically made by the Treasury of the State of Ceará

through S2GPR upon instructions from SDA (UGP) once payment obligations have been

incurred and properly documented. Payments will be made directly from the Treasury, through

the issuance of an ordem bancária, to the subprojects, which would pay service providers and

contractors. To make payments, the State system requires that funds be committed by source,

enabling the tracking of loan disbursements to project expenditures. A subsidiary financial

agreement (Convênio de Financiamento) would be signed between the subproject executor and

SDA to receive funds in an account opened for the subproject.

34. The Secretariat of Finance (Secretaria da Fazenda, SEFAZ) will open a segregated

designated account (DA) in US dollars in the Caixa Econômica Federal (CEF) – Sao Paulo (with

Citibank NY acting as the intermediary bank) to receive loan funds, process disbursements in US

dollars and transfer funds into local currency (Brazilian Reais, or BRLs) to a BRL operational

account in CEF in Fortaleza in order to process local currency payments.

35. SDA will be responsible for instructing the State Treasury to make all payments for

works, goods and services (through S2GPR), except in the case of funds transferred to each

subproject where payments will be made by each subproject. Payments will be made directly

from the operational account (through S2GPR) for loan purposes. Such arrangements are

considered appropriate. This arrangement has the necessary segregation and level of approvals

and can speed up implementation. A fixed ceiling of US$10 million will be established. A

schedule of estimated IBRD disbursements and a loan allocation table are provided below.

Estimated Disbursements (Bank FY/US$ m)

FY 2012 2013 2014 2015 2016

Annual 0 30.0 45.0 20.0 5.0

Cumulative 0 30.0 75.0 95.0 100.0

36. The following disbursement methods will be used: Advance and Reimbursement. The

Minimum Application Size with respect to Reimbursements (not Advances) will be in US$1

equivalent. Applications documenting expenditures paid from the Designated Account should be

submitted by the Borrower ideally once a month but not later than once every four months, and

must include reconciled bank statements as well as other appropriate supporting documents.

37. All payments will be made through electronic deposits to each beneficiary’s/consultant’s

bank account. Summary Sheets with Records and Statements of Expenditure (SOEs) will be used

to document eligible expenditures. Disbursements will be made on the basis of SOEs except for

payments under contracts for works above US$5 million equivalent, payments under contracts

45

for goods and nonconsulting services above US$500,000 equivalent, payments under contracts

for contracts with consulting firms above US$100,000 equivalent, and payments under contracts

for contracts with individuals above US$50,000 equivalent. In these cases, all Records must be

attached to a Summary Sheet (SS). Original supporting documentation will be available at

SDA’s headquarters or Regional Offices. The Project will have a Disbursement Deadline Date

(final date on which the Bank will accept applications for withdrawal from the borrower or

documentation on the use of loan proceeds already advanced by the Bank) four months after the

Closing Date. This "Grace Period" is granted in order to permit the orderly project completion

and closure of the Loan Account via the submission of applications and supporting

documentation for expenditures incurred on or before the Closing Date. Expenditures incurred

between the Closing Date and the Disbursement Deadline Date are not eligible for disbursement,

except as otherwise agreed with the Bank.

38. Reports will be reconciled between the FM systems prior to submission and requesting

disbursement to assure adherence.

39. Retroactive financing up to 20 percent is permitted for payments made prior to the

Signing Date but on or after November 29, 2011, for Eligible Expenditures under Categories (1)

to (4) as set out in the Loan Agreement.

40. Subprojects: SDA allocates funds to subproject executors based on subproject budget

estimates and POAs. The POA is updated in S2GPR to be executed. SDA reviews, monitors and

approves the requests for payments to the subproject executors (upon assurance of full

documentation of previous advances/payments). Advances for the subprojects are made to any of

the banks used by the State to execute the subproject .The UGP will reconcile the accounts and

will submit the documentation regarding all actual transactions24

to the World Bank in a timely

manner under each withdrawal application (SOE).

41. Beneficiary counterpart funds: In order to receive funds from SDA, each beneficiary will

need to prove that the equivalent of at least 20 percent of the total amount being advanced has

been allocated as counterpart to the respective projects, observing that in-kind payments cannot

be more than 10 percent. The remaining 10 percent would need to be either the beneficiary’s

own proceeds or other sources at his/her disposal (e.g., grants, commercial bank financing,

cofinancing, etc.). Such amounts will not be considered by SDA when disbursements are

requested under loan proceeds.

42. Payments and operation of bank accounts: The bank account reconciliation will be

prepared on a monthly basis and will be available within 15 days after the end of the month. The

UGP will establish a 30-day cycle for disbursements and cash-flow programming. Supporting

documentation will be retained for at least one year after the receipt of the audit report or two

years after the Closing Date, whichever is later. All expenditure records will be available for

examination by the Bank if considered necessary. In case of activities to be executed by IICA or

any other organization, details will be outlined in the Operational Manual.

24

Payments for Actual Costs Incurred. Disbursements are made on the basis of eligible expenditures incurred or to

be incurred by the executor; therefore the implementation of such subprojects involves a significant amount of

paperwork, expenditure reporting, and fiduciary controls by the UGP.

46

43. In case of IICA, a FMA was undertake at its’ headquarter and FM systems were found

acceptable and is able to proper account for projects activities. Transfers will be made from the

Designated Account to IICA’s operational account based on a maximum of 4 months forecasted

project expenditure but not exceeding US$2 million equivalent, to pay for expenditures under the

project. IICA’s will keep copy of the respective supporting documentation and the originals and

summary information, documenting the use of the transfers, will be sent by IICA to SDA in

order to reconcile the expenditure being documented, with the amounts previously transferred by

SDA to IICA. SDA will then include the expenditure documented by IICA, in the SOE’s and

Summary Sheets to be submitted to the Bank by SDA. Details of the arrangements with IICA

will be detailed at the Operational Manual.

47

Project Flow of Funds

Allocation of Loan Proceeds

Category Amount of the Loan

Allocated

(expressed in US$)

Percentage of Expenditures to

be financed

(1) Goods, works, nonconsulting

services, and consultants’

services required for Subprojects

43,421,700

Up to 100% of the amount

disbursed under a Matching

Grant

(2) Goods, works, consultants’

services, and nonconsulting

services

40,620,300 66.70%

(3) Training 1,334,000 66.70%

(4) Operating costs 10,205,100 66.70%

(5) Front-end fee 250,000 Amount payable pursuant to

Section 2.03 of the Loan

Agreement in accordance with

Section 2.07 (b) of the General

Conditions

(6) Interest rate cap or interest

rate collar premium

Amount due pursuant to Section

2.07(c) of the Loan Agreement

(7) Unallocated 4,168,900

TOTAL AMOUNT 100,000,000

And Treasury Unique Account

(counterpart funds)

Designated Account (US$)

Caixa Econômica Federal

Loan Account

Operational Account (Reais)

Caixa Econômica Federal (CEF),

in Fortaleza.

Subprojects–Beneficiary Account. Process payments of 100% of invoices

as stated under subsidiary agreement and submit supporting documentation

for SDA.

Beneficiary Counterpart (OP).

Provide SDA with supporting

documentation that an additional 20%

of amounts received has been allocated

as CP. Such invoices will not add up for

disbursement purposes.

Direct payments to service

providers

48

44. For the purposes of the table above, the following terms have the following definitions:

(a) ―Nonconsulting services‖ means the costs of services that are of nonintellectual

nature and that can be procured on the basis of performance of measurable physical

outputs, including unskilled-labor communications campaigns, production of videos,

and installation of equipment.

(b) ―Training‖ means expenditures (other than those for consultants’ services) incurred

by the Borrower in connection with the carrying out of training, seminars, and

workshops, including the reasonable travel costs (e.g., accommodations,

transportation costs and per diems) of trainees and trainers (if applicable), catering,

rental of training facilities and equipment, logistics and printing services, as well as

training materials and equipment under the project.

(c) ―Operating costs‖ means the reasonable incremental operational costs (which would

not have been incurred in the absence of the project) related to project technical and

administrative management monitoring and supervision required under the project,

including updates to SDA’s Management Information System, administrative and

operational support staff, office equipment, supplies, travel costs (including

accommodations, transportation costs and per diems), printing services,

communication costs, utilities, maintenance of office equipment and facilities,

vehicle operation and maintenance costs, and logistical services.

Procurement

45. Procurement Risk Assessment. The procurement risk assessment highlighted SDA

staff’s lengthy experience in working with Bank-financed procurement, although this was largely

limited to Community Participation in Procurement procedures. The introduction of private-

sector procurement procedures, known as commercial practices, for the productive project, of the

larger infrastructure packages for Component 2, and an enhanced technical assistance component

would challenge SDA staff’s procurement capacity. For this reason, the overall risk is rated as

High. To reduce the risks, SDA should ensure the participation of the technical sector agencies in

the procurement process, describing and defining roles and responsibilities in each step of the

procurement process and for the respective decision making. The SDA team should be

strengthened by highly experienced consultants who are familiar with Bank Guidelines for works

and consultancies, and by technical experts to ensure the project has sound business plans that

propose specific commercial practices and include criteria to verify the economy, efficiency and

transparency of such practices before the Loan Agreement becomes effective. Annual business

plan implementation performance audits could help identify the adequacy and weaknesses of the

commercial practices used, and annual procurement audits conducted by the State’s Court of

Accounts (Tribunal de Contas do Estado do Ceará, TCE) would help identify compliance and

weaknesses of the procurement arrangements and interactions between SDA and the technical

sector agencies. Because it might be difficult to identify the recommended highly experienced

consultants, the initial implementation phases may require closer and much more intense

supervision by the Bank.

49

46. IICA Technical Assistance. Under a technical cooperation agreement with IICA, the

Borrower will be allowed to transfer funds to IICA under the conditions that: (i) IICA will follow

the Bank’s procurement guidelines for those contracts procured using Loan funds, and IICA

procurement procedures may be used for those contracts procured exclusively using counterpart

funds; (ii) any remuneration paid to IICA (i.e., fees) for its work as implementing agency under

the project shall not be paid out of the proceeds of the Loan, since IICA did not go through a

competitive process for its selection; (iii) the recommendations made by the Bank to the

Borrower regarding financial management and procurement shall be complied with by IICA, and

the Borrower understands that it will be responsible for ensuring its compliance, as stated in

Section 5(d) of Schedule 2 to the Loan Agreement; and (iv) the final draft of the IICA

Agreement shall be submitted to the Bank for no-objection prior to signing.

47. Applicable Guidelines. Procurement for the proposed project would be carried out in

accordance with the World Bank’s ―Guidelines: Procurement under IBRD Loans and IDA

Credits‖ dated January 2011, and ―Guidelines: Selection and Employment of Consultants by

World Bank Borrowers‖ dated January 2011, and the provisions stipulated in the Legal

Agreement. The general description of various items under different expenditure categories is

described below. For each contract to be financed by the loan, the different procurement methods

or consultant selection methods, the need for prequalification, estimated costs, prior review

requirements, and time frame are agreed between the Borrower and the Bank in the Procurement

Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual

project implementation needs and improvements in institutional capacity.

48. Summarized Procurement Plan. The Procurement Plan provides the basis for the

procurement methods used during the project implementation. The Bank received the initial

Procurement Plan on December 15, 2011. This Plan was agreed with the Bank, and the Client

prepared and published the General Procurement Notice in UNDB online prior to negotiations.

The final Procurement Plan was approved by the bank in February 17, 2012 and published on the

Bank’s website prior to negotiation on February 28, 2012.

49. Prior Review Thresholds. Procurement decisions subject to prior review by the Bank as

stated in Appendix 1 to the Guidelines for Procurement follow the thresholds below.

Procurement/Selection Method Prior Review Threshold Limits

ICB Goods, Services > US$0.5 million > 5,000,000

Works > US$5 million > 25,000,000

NCB Goods, Services > US$0.5 million < 5,000,000

Works > US$5 million < 5,000,000

QCBS, LCS, FBS, CQS > US$0.1 million

Individual Consultants (includes sole-source selection) > US$0.05 million

Direct Contracting All contracts are subject to prior review.

Single-Source Selection All contracts are subject to prior review.

Shopping No contracts are subject to prior review.

Commercial Practices No contracts are subject to prior review.

50. Short lists composed entirely of national consultants. Short lists of consultants for

services estimated to cost less than US$0.5 million equivalent per contract may comprise only

50

national consultants, in accordance with the provisions of paragraph 2.7 of the Consultant

Guidelines.

51. Procurement under business plans. Under Component 1, the project would finance

goods, works, services and consultancies, following Commercial Practices (see paragraphs 49–

51 below) or Community Participation in Procurement Procedures, and nonprocurable items

as part of business plans to be proposed, developed and implemented by participating rural

producers’ organizations (POs). Procurement under business plans would include plants and

equipment, minor productive infrastructure, small irrigation systems, rural infrastructure, and

training and technical assistance. Because the main objective of the investments under

Component 1 is to link product processing and distribution in the selected productive chains,

targeting the access to broader markets, including international markets, POs’ procurement

procedures must afford them flexibility and speed to adequately respond to those markets. This

can be best achieved through commercial practices.

52. The provisions described under Section I of the Guidelines apply to all procurement

methods used under the project, that is, all principles, rules and procedures outlined in the

Guidelines apply to all contracts financed in whole or in part from Bank loans. To comply with

such requirements, four main considerations should guide the use of Commercial Practices by

the RPOs.

(a) the need for economy and efficiency;

(b) the need for quality services;

(c) giving all eligible bidders the same information and equal opportunity to compete in

providing goods, works, and services; and

(d) the importance of transparency.

53. POs, as private-sector enterprises, would often meet these concerns by following

established commercial practices other than formal open bidding for their procurement. This is

true because when POs seek a supplier, the really important considerations include quality,

performance, price, delivery, capacity, and assurance of supply. Market forces would ensure a

fair and reasonable price while competitive markets would be the driving force leading to POs

having efficient internal operations. In addition, POs would buy-to-sell a product or service to

raise revenues. POs are for-profit and have the threat of bankruptcy, which forces efficiencies

into their procurement process.

54. In addition, POs would be responsible for 20 percent of business plan financing, which

means business plans include a built-in mechanism to encourage wise procurement and prevent

them from paying too much for goods and services. Because actual commercial practices may

vary significantly from industry to industry, one size would not fit all. Therefore, being able to

accommodate terms and conditions for good procurement would be an important aspect of the

business plans, requiring sound technical understanding of products, services and industries.

Business plans must contain specific criteria to measure performance of the commercial practices

used.

55. Training. ―Training‖ means expenditures (other than those for consultants’ services)

incurred by the Borrower in connection with the carrying out of training, seminars and

51

workshops, including the reasonable travel costs (e.g., accommodations, transportation costs and

per diems) of trainees and trainers (if applicable), catering, rental of training facilities and

equipment, logistics and printing services, as well as training materials and equipment under the

project. These expenditures would be incurred following the agency’s administrative procedures,

which were reviewed and found acceptable to the Bank and will be described/detailed in the

Operational Manual.

56. Operating Costs. ―Operating Costs‖ means the reasonable incremental operational costs

(which would not have been incurred in the absence of the project), related to technical and

administrative management monitoring and supervision required under the project, including

updates to SDA’s Management Information System, administrative and operational support staff,

office equipment, supplies, travel costs (including accommodations, transportation costs and per

diems), printing services, communication costs, utilities, maintenance of office equipment and

facilities, vehicle operation and maintenance costs, and logistics services. These expenditures

would be incurred following the agency’s administrative procedures, which were reviewed and

found acceptable to the Bank and will be described/detailed in the Operational Manual.

57. Procurement Packages planned during the first 18 months after project effectiveness

(including those that are subject to retroactive financing and advanced procurement):

1 2 3 4 5 6

Ref. No. Description Estimated Cost (US$) Procurement Method Domestic

Preference

Review

by Bank

1 Vehicles 700,000 NCB NA Post

2 Office IT

equipment

500,000 NCB NA Post

3 Office

furniture

40,000 Shopping NA Post

3 Warehouse

construction

700,000 NCB NA Prior

4 Water supply

service

expansion

works

10,000,000 NCB NA Prior

58. Consultancy Assignments with Selection Methods and Time Schedule:

1 2 3 4 5 6

Ref. No

Description of Assignment

Estimated

Cost US$

Selection Method Review by

Bank

Time

Schedule

1 Rural economic inclusion studies 390,000 QCBS Prior 08/2012–

12/2013

2 Economic feasibility studies, and

supervision

1,560,000 QCBS Prior 08/2012–

12/2013

52

3 Business plan preparation and

monitoring of economic

inclusion investments

1,560,000 QCBS Prior 08/2012–

12/2013

3 Water supply services feasibility

and design preparation

501,428 QCBS Prior 08/2012–

12/2013

4 Engineering design–water

services projects

501,428 QCBS Prior 08/2012–

12/2013

5 Specialized Individual

Consultancy–Economic

Inclusion–calls for proposals

preparation and proposals

analysis

273,000 QBS Post 08/2012–

12/2013


Consultancy–Water Services–

calls for proposal preparation

and proposal analysis

117,000 QBS Post 08/2012–

12/2013


Consultancy–monitoring of

water services works

668,571 QCBS Prior 08/2012–

12/2013

8 Information Technology

Consultancy

1,228,000 QCBS Prior 08/2012–

04/2013

59. Procurement record keeping. The UGP will maintain detailed procurement records,

reflecting the project’s supply of goods and consultant services, including records of time taken

to complete key steps in the process and procurement activities related to supervision, review

and audits. These records will be maintained for at least two years after the project’s Closing

Date. The records for goods will include public notices, bidding documents and addenda, bid

opening information, bid evaluation reports, formal appeals by bidders and outcomes, signed

contracts with related addenda and amendments, records on claims and dispute resolution, no-

objections and any other useful information. The records for consultant services will include

public notices for expression of interest, requests for proposals and addenda, technical and

financial reports, formal appeals by consultants and outcomes, signed contracts, addenda and

amendments, records on claims and dispute resolution, no-objections, and any other useful

information.

Environmental and Social

60. The Environmental and Social Safeguard issues are detailed in the project’s ISDS and

summarized below.

61. Environment (OP/BP 4.01): The project is rated Category ―B‖ because the impact is

limited in scope, localized, temporary and reversible. The Borrower has carried out an

Environmental and Social Management Framework (ESMF), dated October 27, 2011. The

project implementation procedures will adopt strict environmental ―screens‖ to ensure that

approved investments demonstrate low potential for negative impact. The ESMF assessed the

most common types of intervention expected, and proposed mitigation measures a priori. The

draft ESMF was formally submitted to the Bank in June 2011. The final version was submitted

53

to the Bank and disseminated on the Client’s website and in the Bank’s external website prior to

project appraisal.

62. Natural Habitats (OP/BP 4.04): Although activities are not planned for Areas of

Permanent Preservation (Áreas de Preservação Permanente, APP) and Legal Reserves (Reservas

Legais, RL), activities under the project components should nonetheless lead to positive impacts

on natural habitats through the direct protection and rehabilitation of these areas, following the

provisions of the Brazilian Forest Code. Despite the expected positive impacts, the ESMF, dated

October 27, 2011, includes clear guidance regarding direct and indirect impacts on natural

habitats, in accordance with World Bank policies. The project has provisions to regenerate and

reforest water-producing systems (mainly riparian vegetation), also benefiting local biodiversity

preservation and restoration. Special attention should be given to areas where a desertification

process was already identified by the State (IPECE 2010). These amount to 30,000 km2,

representing 23 percent of the Caatinga biome of Ceará. Investments resulting in any significant

conversion or degradation of critical natural habitats will not be eligible.

63. Forests (OP/BP 4.36): Project implementation is not expected to have negative impacts

on forest resources. Investments that have the potential for conversion or degradation of natural

forest or other natural habitats and that are likely to have significant adverse environmental

impacts which are sensitive, diverse or unprecedented, are ineligible. The project also excludes

activities that require commercial forest harvesting, wood extraction or firewood use in the

productive chain. Activities resulting in reforestation and loss of native vegetation cover will not

be allowed. The project would contribute toward conserving and restoring natural vegetation,

thus generating positive impacts through the maintenance and/or recovery of natural vegetation

on rural private landholdings on steep slopes, along water courses (up to a certain distance from

the riparian margin) or in the vicinity of springs. The project would also contribute toward

conserving and/or restoring a set-aside area called a Legal Reserve (Reserva Legal, RL) in these

private holdings.

64. Pest Management (OP 4.09): The project would not finance any pesticides or other

chemical additives that would trigger OP 4.09. Nevertheless, minor amounts of pesticides would

probably continue to be used in the short term by a small portion of targeted small-scale farms.

The project would encourage and support technical assistance for the adoption of organic

agriculture and of proven, economically and environmentally sustainable Integrated Pest

Management (IPM) practices. The need to use pesticides or herbicides should be indicated in

each proposed investment, as well as the IPM measures to be adopted. When the use of

pesticides or herbicides is justified, an analysis of potential negative impacts resulting from the

use of these chemicals and the risks associated with the inappropriate handling or storage of their

containers should be conducted. The proposals should also include measures to reduce those

risks, in compliance with Law 7802/89. A Pest Management Plan (PMP), which includes the

IPM was prepared and incorporated in the Project Operational Manual, dated December 29,

2011.

65. Physical Cultural Resources (OP/BP 4.11): Project implementation would not cause any

negative impact on known physical cultural resources (PCR). Proposed investments with

expected direct and negative impact on known archeological, paleontological, historical or other

culturally significant sites will not be eligible. Brazil has a well-developed legislative and

54

regulatory framework, which is under federal oversight by the National Institute for Protection of

Historical and Archeological Sites (Instituto do Patrimônio Histórico e Artístico Nacional,

IPHAN). Ceará also has an IPHAN Regional State Agency (4a Superintendência Estadual do

IPHAN) and a Secretariat of Culture (Secretaria da Cultura), which are tasked with the

identification, restoration and protection of PCR in the State. The ―chance findings‖ procedures

would be included in the Project Operational Manual for guidance during project

implementation, particularly in regions with PCR sites already mapped by the IPHAN Regional

Agency. SDA may engage the Secretariat of Culture or other entities with proven experience to

implement ―chance findings‖ procedures.

66. Safety of Dams (OP/BP 4.37): It is not expected that the investments in water supply and

irrigation works will depend on the storage capacity and operation of existing dams. Considering

(i) the high provision of water resources infrastructure installed in the State over the past years,

including the results of World Bank-financed operations, and (ii) the current standard of

excellence in water resources management, with good practices already incorporated in the SRH

and COGERH routine procedures, OP 4.37–Safety of Dams was triggered as a precautionary

measure, not to limit any possibility of using existing water sources. However, no new dam

construction will be financed by this operation. The Borrower is preparing a conceptual

framework of procedures to be adopted during the implementation phase of the project. The

Borrower should arrange for one or more independent dam specialists to: (a) inspect and evaluate

the safety status of the existing dam, its appurtenances, and its performance history; (b) review

and evaluate the owner’s operation and maintenance procedures; and (c) provide a written report

of findings and recommendations for any remedial work or safety-related measures necessary to

upgrade the existing dam to an acceptable standard of safety. Previous assessments of dam safety

or recommendations of improvements needed in existing dams may also be accepted by the

Bank, if the Borrower provides evidence that (a) an effective dam safety program is already in

operation, and (b) full-level inspections and dam safety assessments of the existing dams, which

are satisfactory to the Bank, have already been conducted and documented.

Social

67. Indigenous Peoples (OP/BP 4.10): Indigenous peoples are present in the project area and

will be among the potential beneficiaries. Adverse effects are not expected for them under this

project. There are about 22,000 indigenous peoples in the State of Ceará comprising 12

ethnicities. They are present in 18 municipalities in three distinct areas: the Metropolitan Region

of the capital city, the North coast, and the hinterlands of the Sertão dos Inhamuns. The vast

majority (80 percent) lives in five municipalities: Caucaia, Crateús, Itarema, Maracanaú and

Monsenhor Tabosa. Six ethnic groups (Anacé, Pitaguary, Potiguara, Tabajara, Tapeba and

Tremembé) comprise 94 percent of this population and there are smaller numbers of the Gavião,

Jenipapo-Kanindé, Kalabaça, Kanindé, Kariri and Tapuyo peoples.

68. The Borrower conducted a social assessment that underscored the pressures and threats

faced by these indigenous peoples in terms of their livelihoods and their degree of social and

economic vulnerability. The main constraints they face are related to: land constraints due to

sluggish processes of land regularization; encroachment and land conflicts; inadequate use and

degradation of land; water shortage; inadequate housing and sanitation conditions; poverty and

food shortage; social discrimination and outside resistance to acknowledge their cultural

55

identities; lack of technical assistance and barriers to their access to markets and financing; lack

of income alternatives and heavy dependence upon retirement pensions and government cash

transfer programs.

69. Indigenous groups are eligible for project actions according to their expressed interest in

participating. Project actions involving indigenous groups are expected to contribute toward (a)

reducing their social and economic vulnerability; (b) promoting development alternatives that are

ethnically, culturally and environmentally adequate and sustainable in the short, medium and

long terms; and (c) reversing the processes of impoverishment, economic exploitation,

discrimination, social exclusion, and cultural devaluation.

70. Indigenous peoples living within regularized indigenous lands or having land tenure

rights over plots properly donated to indigenous community associations may propose

participation in project activities under any component. Other groups may only participate under

Component 3 (capacity building and institutional strengthening). Proposals must originate from

indigenous demands validated by their respective communities and organizations through

participatory processes. A broadly consulted Indigenous Peoples Project Framework was

prepared to define the ways and means of project involvement with indigenous groups and

ensure adequate procedures for the participation of this population in the project, which will

focus on three complementary pillars: (a) culturally appropriate dissemination and mobilization

activities, participatory planning, capacity building and institutional strengthening strategies; (b)

promotion of effective participation of indigenous peoples in social networks and in the project’s

territorial and deliberative councils; and (c) investments in productive facilities (under

Component 1) and safer water supply systems (under Component 2).

71. Involuntary Resettlement (OP/BP 4.12): The project is not expected to fund any project

that could potentially cause significant physical displacement and economic losses. In principle,

the project will seek to avoid involuntary resettlement wherever possible. Nonetheless, some of

the potential projects that could be financed under the project—such as investments in rural

infrastructure, the structure of the production clusters, infrastructure for the distribution of

potable water, and activities related to natural disasters and environmental risk management—

could possibly involve the relocation of people or the acquisition of land. It is expected that, in

these cases, the potential numbers of people who might be affected would be quite small and any

land acquisition would be relatively minor. Because the projects to be developed under the

project are not yet known, a Resettlement Policy Framework (RPF), dated October 27, 2011, was

chosen as the suitable instrument and is under the scope of the project’s Social and

Environmental Management Framework, also dated October 27, 2011. The RPF will serve as the

guide to the site-specific formulation of Resettlement Action Plans (RAP), if needed, which in

many cases would be Abbreviated Plans due to the relatively small numbers of people affected

and relatively minor impacts. Abbreviated RAPs would only be used for cases in which 200 or

fewer persons are affected, where they are not physically relocated or would lose 10 percent or

less of their productive assets. The RPF was consulted and publicly disseminated on the

Borrower’s website and in the Bank’s external website prior to appraisal.

56

Monitoring and Evaluation

72. The project will be monitored and evaluated through the existing Management

Information System (MIS) and databases developed by SDA in the context of previous Bank-

supported operations, in addition to the new Heritage System, which will feature modern

technological tools, such as the standard free software tools adopted by the Federal Government

and the State Government of Ceará. Internet access will enable the recording and provision of

information to all interested parties in accordance with the security requirements and defined

access levels. A major advantage of this system is the integration with other systems currently

used by State agencies (SDA’s MAPP/SIAP-S2GPR/SACC/PGE/EDOWEB Systems), which

avoids duplication of information records and maintains data integrity. The system will also offer

the advantage of access to documents in digital format where available, thus avoiding the

accumulation of unnecessary paper and facilitating the process of locating documents.

73. The monitoring system will serve as a realistic and flexible instrument for improving the

performance of project implementation through the timely identification of problems that require

immediate attention from managers, thus allowing corrective measures to be taken. The system

will also monitor project performance against baseline data, check progress according to

outcome indicators, justify the necessary adjustments during implementation, promote the

verification of resource use in relation to project objectives, provide and receive feedback from

stakeholders, and generate inputs for the dissemination of project results. SDA has further

developed an Institutional Arrangement and Results Framework, which will guide: (i) the design

of a workflow, monitoring and evaluation implementation system, and (ii) the implementation of

an evaluation strategy for the proposed operation.

74. An impact evaluation will be developed for Components 1 and 3 of the project with

support from the Bank’s program of impact evaluation in the Agriculture and Rural

Development (ARD) sector (known as Agricultural Adaptations, or AADAPT). Several

background research tasks were carried out during project preparation as well as at appraisal to

understand further: (i) the constraints that farmers and producers’ associations face; and (ii) how

project interventions can best relax these constraints. Based on this analysis, the team developed

testable hypotheses about program impacts and the channels through which the project can affect

outcomes. The following additional background research activities will be carried out to refine

these hypotheses:

(a) An analysis of the main value chains in project areas (e.g., milk and meat processing

and commercialization, fruit or vegetable farming, etc.). The objective of these

value-chain analyses is to understand the challenges that farmers face at the different

stages of their economic activities such as production, processing, and marketing.

(b) Background research on potential recipients of the program will be carried out and

merged with existing agricultural and socioeconomic databases. This database is an

essential building block for the MIS. Information from the database is then analyzed

to guide project design and implementation strategy.

75. The impact evaluation will provide operational guidance to the project throughout its

implementation. In addition to measuring the impact of some of the key project interventions

57

under Components 1 and 3, it will look at complementarities and substitutability across various

interventions that can deliver improved outcomes for producers’ organizations and the families

in those organizations. In particular, the impact evaluation will test the relative effectiveness of

various technical assistance modalities aimed at raising the quality of business proposals

prepared by producers’ organizations and improving the management of the productive resources

to enhance the sustainability of investments. In addition, the project will measure the impact of

providing management training to groups that were eligible for financing but could not be

supported due to limited supply of funds. These impact evaluations will develop a framework to

assert the causality between project interventions (financial support through the matching grant,

extension) by controlling for other factors that may affect receiving the interventions and the

outcomes for producers’ organizations, communities and families. Furthermore, they will help

the project develop a strategy to ensure the sustainability of its policy actions.

76. The outcomes examined in this evaluation will include the following indicators: adoption

of new technologies, improvements in production and productivity, improvement in management

practices, access to markets and governance issues of producers’ organizations (e.g., inclusion of

women and smallholder farmers, management of common investments), and household income

from productive activities. The impact evaluation will provide inputs to project management

during implementation for purposes of potential adjustments to project design and

implementation.

77. Understanding which model of extension and technical assistance services is more

effective, is key to the successful implementation of this project. Extension agents provide

guidance and support to producers’ organizations to identify viable businesses and to develop

and implement their business proposals. These extension agents will be from EMATERCE, the

State rural extension agency, or from the Movimentos Sociais (e.g., Movimento dos Sem Terra,

FETRAECE, etc.).25

Although EMATERCE’s extension agents may have better knowledge of

agronomic technologies and market trends, the Movimentos Sociais have developed, sometimes

over several decades, strong relationships of trust with communities; these relationships facilitate

community mobilization, interest in the project and the transfer of knowledge. Although it will

not be possible to manipulate the coverage of these organizations, and therefore establish

causality between the type of extension provided and the outcomes of interest, the impact

evaluation will provide descriptive insights on the relative effectiveness of these two extension

models by using indicators such as: quality of business proposals prepared by producers’

organizations and their implementation, adoption of new technologies, improved community-

driven processes and social capital (e.g., inclusion of all socioeconomic classes, and resolution of

collective action problems to ensure sustainability of investments).

78. The Bank is also considering the possibility of designing an impact evaluation to measure

the relative impact and cost-effectiveness of different cost-sharing rules in matching grants to

support rural business initiatives. This exercise can help the project to understand how the

matching grant scheme can promote the participation of low-income and disadvantaged groups,

the adoption of new technologies, and access to markets.

25

With 390 extension agents and 610 trainees, EMATERCE lacks dissemination capacity to reach the majority of

the 300,000 agricultural properties in the State of Ceará. As such, the Movimentos Sociais (social movements) are

important organizations for expanding access to extension services in the State.

58

79. The Bank is also considering the possibility of including an impact evaluation for

Component 2, in order to measure the welfare effects of the expansion of access to potable water

supply and basic sanitation in rural areas, with special attention to the following outcomes:

incidence of waterborne diseases, reduction of the time dedicated to water collection

(disaggregated by gender and age group), qualitative assessment of well-being, etc.

80. The data collected and used in this impact evaluation will be fully integrated in the MIS.

These data will come from annual and semiannual surveys of households, communities and

producers’ organizations. The sample sizes will be determined in collaboration with SDA to

ensure representativeness and that indicators can be disaggregated by gender. In addition, the

survey instruments will be developed in coordination with other states with similar projects to

ensure that the data collected are comparable across states in terms of content and quality.

59

Annex 4: Operational Risk Assessment Framework (ORAF)

Brazil: Ceará Rural Sustainable Development and Competitiveness (P121167)

Project Stakeholder Risks

Stakeholder Risk Rating Low

Description:

Reduced commitment to the Project Development Objective. Existing POs could express opposition to the proposed project PDO and

methodology.

Management and coordination of a multisectoral approach, with significant community-level participation/commitment in Component 1.

Risk Management:

Project design is aligned with consensual state development strategy as reflected in the State Multiyear Investment Plan (PPA

2012–2015).

Resp: Bank Stage: Implementation Due Date: Ongoing Status: Not Yet Due

Risk Management:

Continuous dialogue with State counterparts during implementation and well-designed institutional arrangement and a monitoring

system for implementation.

Resp: Bank Stage: Implementation Due Date: Ongoing Status: Not Yet Due

Risk Management:

Continuous consultation with POs in the project area during preparation as well as during implementation, to build consensus on

PDO and methodology. Commercial partnership with key actors in producer chains who jointly with POs participate in business

plan formulation and share market intelligence.

Resp: Client Stage: Implementation Due Date: Ongoing Status: Not Yet Due

Implementing Agency (IA) Risks (including Fiduciary Risks)

Capacity Rating Moderate

Description:

Public-sector employees have constrained capacity to facilitate private-sector

development, particularly in delivering technical assistance for business development and entrepreneurship.

Risk Management:

Project Operational Manual widely disseminated under the project communication strategy; steering committee oversight.

Resp: Client Stage: Implementation Due Date: Jul-31-2012 Status: Not Yet Due

Risk Management:

Strong social oversight already in place and functioning through CEDR

Resp: Client Stage: Implementation Due Date: Ongoing Status: Not Yet Due

Risk Management:

Provide training and consulting services to producers’ organizations and to SDA technical staff and other State agencies involved

in the project implementation, and active in market access initiatives.

60

Resp: Client Stage: Implementation Due Date: Jul-31-2012 Status: Not Yet Due

Governance Rating Moderate

Description: Risk Management:

The objective evaluation of proposed business plans could be co-opted by competing

agendas to distribute political patronage in the targeted area.

Transparency of business plan selection through public bids; Project Operational Manual widely disseminated under the project

communication strategy; steering committee oversight. Strong social oversight already in place and functioning through CEDR

Resp: Client Stage: Implementation Due Date: June-30-2013 Status: Not Yet Due

Project Risks

Design Rating Moderate

Description: Risk Management:

Matching grants to finance business plan implementation could distort financial markets, notwithstanding the thin formal supply of rural finance.

Project is already building dialogue with financial institutions (e.g., Banco do Brasil, Banco do Nordeste) with the aim of their inclusion in the financing of business plans.

Explore alternatives to guarantee financial risk of rural producers’ organizations to improve their creditworthiness.


Social and Environmental Rating Moderate

Description:

Safeguard capacity: The implementation of productive arrangements relies heavily on

the capacity of rural producers’ organizations, which varies widely. Demographic distortions in potential access to project benefits.

Traditional patterns of the social division of labor may hamper women's participation in the productive economy and restrict their access to market-related job

opportunities.

Risk Management:

An Environmental and Social Management Framework and the Indigenous Peoples Planning Framework address safeguard

compliance and propose actions, where needed, to ensure adequate technical capacity.


Risk Management:

A social assessment and an Indigenous Peoples Planning Framework address the main risks and restrictions that may hinder the

participation of these most vulnerable social groups and propose mitigation measures.


Risk Management:

Producers’ organizations’ capacity building, training and technical assistance will be assessed and funded, as needed, under proposed business plans.

Resp: Client Stage: Implementation Due Date: Dec-31-2013 Status: Not Yet Due

Risk Management:

Focus of rural community infrastructure on access to potable water should reduce the domestic workload and free women's time for other productive economic activities. The project will also provide capacity building to women on participation in project

production investments.


Program and Donor Rating

Description: Not applicable Risk Management:

61

Resp: Stage: Due Date: Status:

Delivery Monitoring and Sustainability Rating Moderate

Description:

Delays in fund transfers to producers’ organizations could hinder the implementation

of business plans.

Procurement and financial training to be provided to the organizations as a condition

of disbursement may also lead to delays.

Technical capacity of SDA to adequately design and implement M&E systems could

inhibit the assessment of results and associated impact.

Risk Management:

State has demonstrated previous best practices in managing fund transfers to local organizations, and has ongoing Bank projects being implemented in the State. Capacity building will be provided by the Bank

Bank team (including financial management and procurement specialists) share best practices from other projects in the region.


Risk Management:

Bank team support for impact evaluation design; M&E specialists on Bank team; SDA to contract M&E specialist under Terms of

Reference reviewed by the Bank.

Resp: Client Stage: Implementation Due Date: Dec-31-2013 Status: In Progress

Overall Risk

Implementation Risk Rating: Moderate

Description: The State’s innovative strategy on inclusive economic growth carries inherent institutional capacity risks. With a relatively complex operation following a multisectoral approach, technical capacity building

and project management are key elements to ensure that the project is implemented in a timely manner. The overall implementation risk is considered Moderate because the Bank has a long-term partnership and familiarity with the State, and additional measures to mitigate the project’s overall risk have been or will be put in place, such as the Project Management Unit placed under the SDA’s leadership, suitable allocation of

financing, partnerships and collaboration of other State Secretariats, agencies, and stakeholders, business plan preparation for productive investments, procurement packaging, design flexibility and up-front preparation

of the Project Operational Manual.

62

Annex 5: Implementation Support Plan


Strategy and Approach for Implementation Support

Implementation Support Plan

I. Support for Implementation

1. The strategy for implementation support (IS) draws on the risk profile of the project (i.e.,

ORAF, Annex 4) and aims to enhance the Client’s quality delivery of the proposed project

interventions. As such, the IS focuses on: (i) risk mitigation measures defined in the ORAF; and

(ii) standard Bank supervision, including technical, institutional, safeguards (environment,

social) and fiduciary aspects (financial management and procurement).

2. Semi-annual Bank supervision (including field visits to investments financed under

Components 1 and 2) would concentrate in the following areas:

Strategic: To the extent possible, supervision missions would meet with the Project Steering

Committee (Comitê Articulador) to: (i) review project activities; (ii) reconfirm strategic

alignment of the project’s multisectoral aspects; and (iii) ensure the necessary coordination

across the respective stakeholders.

Technical: Supervision would concentrate on the implementation of the investment cycle

with regard to Components 1 and 2, as well as on ensuring SDA’s ability to provide quality

assurance for the project’s interventions, both centrally in Fortaleza and throughout its

thirteen territorial offices. Randomized field visits would serve to verify compliance with the

Project Operational Manual and encourage adjustments to project design, as needed, given

results on the ground. Market-chain/private-sector specialists (Component 1) and water and

sanitation specialists (Component 2) would complement the permanent Bank supervision

team through short-term cross-support of Bank staff and, as warranted, targeted engagement

of external technical experts. Ongoing support by Bank specialists for M&E and contracted

evaluation expertise, as needed, would continue to strengthen SDA’s ability to both monitor

project progress and assess the impact of interventions.

Safeguards. The Bank worked with and advised SDA staff on the preparation and

consultation of the ESMF for the proposed project. This support would continue throughout

project implementation with regard to the investments financed under Components 1 and 2.

The Bank also worked closely with the Client’s team in the preparation and consultation of

the IPPF, as well as the RPF, and would continue to do so during project implementation.

Fiduciary: The Bank would provide timely, targeted training to POs and SDA prior to

project effectiveness and through periodic supervision during project implementation. These

training courses and supervisions would: (i) prepare SDA staff to work with POs in

conducting procurement under their respective investments, in compliance with the

63

Procurement and Anti-Corruption Guidelines and the Project Operational Manual; (ii) ensure

the capacity of POs to manage the flow of funds and simple accounting procedures, in line

with FM guidance; and (iii) work with SDA and co-executor agencies in building their

overall financial management and procurement capacity to improve and facilitate project

management. Supervision of the project’s financial management arrangements would be

conducted semiannually and as needed in response to client needs. Procurement supervision

would also be carried out semiannually during regularly scheduled Bank supervision.

Client Relations: The Task Team Leader (TTL) would: (i) coordinate Bank supervision to

ensure consistent project implementation, as specified in the legal documents (i.e., Loan

Agreement, Project Operational Manual); and (ii) meet regularly with the Client’s senior

representatives (i.e., SDA and SEPLAG) to gauge project progress in achieving the PDO and

address implementation roadblocks, as they may arise.

II. Skills Mix Required

Skills Needed # Staff Weeks per FY #Trips per FY Comments

Task Team Leader (Supervision) 6 3 Country-based

Procurement Specialist 3 2 Country-based

Financial Management Specialist 3 2 Country-based

Environment Specialist 3 2 Country-based

Social Specialist 3 2 Country-based

Legal Counsel 3 1 HQ-based

Market-Chain/Private-Sector Specialist 5 3 Country-based

Monitoring/Evaluation Specialist 3 2 Country-based

Natural Disaster Management Specialist 2 1 Country-based

Water and Sanitation Specialist(s) 5 2 Country-based

III. Partners

Name Institution/Country Role

Private-Sector Partners Various/TBD by

participating POs

Commercial partners with POs in the preparation

and implementation of viable business plans.

Financial Institutions IFC, Banco do Brasil;

Banco do Nordeste

Linkage with market; complementary financing of

proposed business plans (Component 1).

Water and Sanitation

Partners

CAGECE, SOHIDRA,

COGERH, SISAR, SRH,

ASA, FUNASA

Collaborate on design and management of water

services-related investments (Component 2).

Knowledge and

Learning; Technical

Assistance

EMATERCE,

CENRTEC, EMBRAPA,

CONPAM, FUNCEME,

ITF, SEBRAE, UECE,

UFCE

Collaboration with knowledge sharing, training

courses, specialized technical assistance, research,

studies. (Components 1, 2 and 3)

64

Annex 6: Economic and Financial Analysis


Introduction

1. Because the nature, scope and scale of the proposed investments will result from the

explicit demands of the project’s target population, a detailed ex ante cost-benefit analysis of the

project as a whole is not warranted.

2. In the case of the project’s supporting business plan implementation (Component 1,

Economic Inclusion), although strategic productive chains have been preidentified26

by SDA and

would be given priority during the initial phase of the project, the interested producer groups

responding to market opportunities would ultimately determine the product scope and mix of the

supported project. Total investment in productive projects is expected to be around US$61.6

million for an estimated 440 projects or approximately US$140,000 per project.

3. As is the case for the productive project under Component 1, infrastructure investments

for potable water supply under Component 2 (Water Services), the nature, scope and mix of

investments would ultimately be determined through a demand-driven process, but in this case

also evaluated against the diagnostics of municipal water plans, watershed plans, water-truck

(carro-pipa) routes and the survey of existing water sources and needs of rural communities.

Component 2 would finance some US$50 million in infrastructure for around 40,000 inhabitants,

with an estimated US$1,275 per beneficiary or US$5,102 per household (see summary in Table

1). Investments under this component are expected to include the construction of water networks,

water treatment facilities, and advanced information system technology for water metering, as

well as sanitary kits. Water sources may include existing water pipelines, rivers and small dams

(açudes), while the use of wells will require prior analysis of the risks of causing salinization

problems.

Table 1. Summary of number and investment per project

Total

Investment

(US$)

Number of

Projects

Average per

Project

(US$)

Number of

Producers

(C.1) and

Households

(C.2)

Average per

Rural Producer

or Beneficiary

(US$)

Productive

projects

70,000,000 445 157,303 18,200 3,846

Water services

projects 50,000,000 140 357,142 40,000 1,275

TOTAL 120,000,000 585 58,200

Ex Ante Evaluation of Productive Projects (Component 1)

26

These include sheep and small-ruminant production, apiculture, aquaculture, and fruit and vegetable crops.

65

4. In order to obtain an ex ante indication of the financial soundness of the types of

investments likely to be supported by Component 1, indicative production models were

constructed using primary and secondary information collected during project preparation. The

modeling exercise was based on information from real cases of small producer groups when

possible, and technical information provided by local experts on the specific productive chains.

More accurate and representative feasibility indicators could and should be estimated during

implementation using information from a larger sample of actual investment proposals under

consideration for project financing. Standard procedures should be applied for ex ante and ex

post project evaluations.

5. Indicative financial impact estimates were obtained from the abovementioned investment

models. Feasibility indicators included the Net Present Value (NPV) of incremental net benefit

flows (at a discount rate of 12 percent) and the corresponding Internal Rate of Return (IRR) for

the same benefit streams. Switching values27

with respect to output prices and costs were also

calculated to test the robustness of the financial indicators against volatility in revenues and

costs. The results of this analysis are shown in Tables 2 to 4.

6. Indicative models of productive projects include:

(a) Production and marketing of irrigated (fruit and vegetable) crops: The investment

would support the transition of 12 families from subsistence farming to market-

oriented fruit and vegetable production. Main investments include the construction

of six screenhouses (6 x 1 ha), a packinghouse for fruit and vegetable processing,

tanks for the production of bio-fertilizer, water harvesting and irrigation systems, a

van for transporting produce, as well as technical assistance. Production will be sold

to institutional markets (i.e., PAA and PNAE) and in local markets.

(b) Honey production and marketing: The project aims to increase the quantity and

quality of honey produced by a group of 50 beekeepers. The main investments

would be the acquisition of 1,000 beehives, new processing equipment, the

construction of a honey-processing unit, as well as technical assistance. Produced

honey would undergo sanitary certification by the relevant authorities so producers

would be able to continue supplying formal markets that will soon start requiring it.

(c) Milk processing and marketing: The projects would allow a community of 280 goat

producers to purchase cooling and processing equipment, and to build a facility to

package milk and produce and package yogurt. 500 liters of milk and 500 liters of

yogurt would be sold daily, mostly to institutional markets (PAA and PNAE). Other

investments include of a van for product transport, and technical assistance.

(d) Fish farming, processing and marketing: The projects would benefit 20 families of

artisanal fishermen transitioning into fish farming. The production would take place

in 120 floating cages, with fish at three different growth stages. Main investments

would be the floating cages and associated infrastructure, as well as a building to

process the fish.

27

This is the percentage change that reduces the NPV of the stream of incremental net benefits to zero.

66

Table 2. Financial indicators for the examples of subprojects

Total

Investment

(R$)

Annual

Net

Revenue

(R$)1

NPV

(R$)

IRR Job

Creation

Person/

Year

No. Rural

Producers

Benefited

Fruits and

vegetables 207,334 258,369 1,002,334 75% n.a. 12

Honey 304,576 511,571 703,307 48% 6 50

Milk 609,213 516,534 1,750,020 47% 5 280

Fish farming 329,828 298,723 710,861 48% 7 20 1All costs including family labor and depreciation deducted from gross revenue.

Table 3. Financial indicators for the examples of subprojects (per households)

Total Investment (R$) Annual Financial Net

Revenue (R$)*

NPV (R$)

Fruits and

vegetables 17,278 21,531 83,527

Honey 6,092 10,231 14,006

Milk 2,176 1,845 3,505

Fish farming 16,491 14,936 35,543 *All costs including family labor and depreciation deducted from gross revenue.

Table 4. Sensitivity analysis of the models of the project examples

Switching Value

Output Prices* (%)

Switching Value

Output Prices (R$)

Switching Value of

Running costs** (%)

Fruits and

vegetables -46% - 141%

Honey -22% Honey = R$5/kg 99%

Milk -30%

Milk = R$1.19/lt

Yogurt = R$1.74/lt 27%

Fish farming -18% Fish = R$3.44/kg 28% ** Maximum changes in estimated values of costs and benefits to keep IRR equal or above 12%.

7. The analyzed investments provide significant incremental contributions to rural

producers’ income (R$262/month on average).

8. The sensitivity analysis shows that, in general, the projects are robust with respect to the

variability of running costs and output prices. Fish farming and honey production are the most

sensitive models with respect to changes in output prices. Nonetheless, this degree of sensitivity

in the models is considered quite reasonable.

9. Fruit and Vegetable Crops: These are usually a somewhat risky activity because it is

quite vulnerable to extreme weather events and to pests and disease. These crops show a high

IRR and little sensitivity to changes in output prices (or quantities produced) and operating costs.

10. The most sensitive model with respect to running costs is for milk. Nevertheless, most

costs are related to payments to producers for their raw milk. An increase in the price paid to

producers for unprocessed milk is expected to come from an increase in the price of processed

67

milk, which would translate into higher revenues that would offset the increase in higher prices

paid to producers for their raw milk.

11. Although most milk and honey are currently sold to institutional markets and thus their

long-term sustainability could be questioned, they provide short-term market and price security

during a transitional period in which producers could, with adequate technical assistance,

improve their productivity and marketing skills.

Ex Ante Evaluation of Water Services Project (Component 2)

12. The implementation of Component 2–Water Services is aimed at a better use of the

State’s existing water sources and at supporting the implementation of the State’s strategy for

―universal access to water supply and basic sanitation for rural communities‖.28

13. As previously mentioned, the nature of the project’s implementation strategy as a locally

demanded project does not allow for a meaningful, detailed ex ante evaluation of the project as a

whole. Thus, the preliminary cost-benefit assessment of potable water supply investments to be

financed under Component 2 is based on cases drawn from the Implementation Completion and

Results (ICR) report for the Rural Poverty Reduction Project (RPRP) of Ceará (December 2009),

a precursor to this project. It is expected that the nature of the project demanded for Component

2 financing will be similar in nature and scale to those implemented by the RPRP.

Methodology

14. The benefit/cost ratio and the economic rate of return were estimated. The period of

analysis used was 10 years, which was considered consistent with the expected useful life of the

investments. The discount rate used for the analysis was 10 percent.29

Costs included the initial

investment and annual operating costs, while the benefits were calculated on the basis of: (i)

savings in time used for water collection; (ii) savings derived from the reduction of waterborne

diseases; and (iii) willingness to pay, which is a proxy for the value families attribute to the

availability of potable water. As such, it incorporates the effect of missing or unmeasured

benefits such as comfort, well-being, etc. It was measured using the average payment made by

families for the potable water they receive from the project.

15. The economic indicators of the eight potable water supply projects selected for the

analysis are shown in Table 5.

28

Studies such as Songco (2002) have shown that the investment in public infrastructure, i.e., infrastructure for

water supply, yields substantial improvement in the lives of the poorest, namely when these investments aim at the

improvement of their existing livelihoods (Songco 2002). Baquero et al. (2006) state that access to assets (by rural

populations) enables better risk management and more active participation in social and political life, as well as

better capacity to seize opportunities and more easily confront challenges. 29

This discount rate is lower than that for productive subprojects because investments in infrastructure usually result

in additional unvalued benefits that are expected to exceed unvalued costs.

68

Results

Table 5. Financial analysis of two types of Basic Water Services projects

Average

Present Value

of Investments

(R$)

Average

Present Value

of Benefits

(R$)

Benefit/Cost

Ratio

Internal Rate

of Return (%)

Payback

Period

(years)

Potable water

supply 65,135 96,104 1.48 18 6.2

16. The economic analysis of potable water supply projects showed positive results, yielding

an economic IRR of 18 percent and a benefit/cost ratio of 1.48, meaning that for every R$100.00

invested the project would return R$148.00. A sensitivity analysis30

showed that even when

assuming a cost increase of 10 percent from the base scenario and a simultaneous 10 percent

decrease in revenues, the economic IRR remains above the discount rate, at 11 percent.31

17. In addition to these results, available literature shows the benefits of potable water supply

projects. For example, according to UNICEF (2009) the two main causes of mortality among

children under age five—acute respiratory infections and diarrheal diseases—are closely linked

to poor water quality, hygiene and sanitation. In addition, the UNICEF ―Sanitation for All‖

report states that rural investment in water supply and sanitation results in lower rates of death

and illness, savings in health costs, higher worker productivity, better learning capacities of

schoolchildren, increased school attendance especially by girls, strengthened tourism, and

heightened personal dignity and national pride. The ICR for Ceará’s RPRP reports evidence from

interviews with beneficiaries, indicating a reduction in the incidence of waterborne illnesses,

mainly in children.

References

Baquero, F. Rocha J. Ortega, J. (eds.) (2006). Políticas Públicas y Desarrollo Rural en América

Latina y Caribe: el papel del gasto público. FAO. Santiago. Chile.

Songco, J. A. (2002). Do Rural Infrastructure Investments Benefit the Poor? School of

International and Public Affairs, Columbia University and the World Bank. Vietnam.

UNICEF (2009). Community Approaches to Total Sanitation. Field Notes: UNICEF Policy and

Programming in Practice. New York. USA.

UNICEF. (2001). Sanitation for All – Promoting Dignity and Human Rights. New York. USA.

30

For investments in communities with available electricity before water supply subprojects. These results may vary

for communities without electrical power at the time of water supply investments. 31

The ICR for Ceará’s RPRP does not disaggregate the sensitivity analysis for water supply and rural electrification

investments. Rural electrification projects showed a lower IRR (13 percent) than water supply. Thus, it would be

expected that the increase in investment costs of water supply systems by 10 percent and the reduction of their

benefits by the same 10 percent, would yield an internal rate of return higher than the 11 percent obtained for both

water supply and rural electrification combined.

69

Annex 7: Irrigation in Ceará and Project Activities Related to Irrigation


Context

1. Ceará accounts for about 108,000 ha of irrigated land, which corresponds to only 0.3

percent of the State’s total agricultural area and about one sixth of the potentially irrigable area,

estimated at approximately 620,000 ha.32

This area is managed by a diversity of irrigation users

ranging from large projects (irrigation areas of several thousands of hectares), medium projects

(up to a few hundred hectares), to small-scale irrigation by family agriculture at the level of a

rural community. Most of the irrigated area (over 70 percent) is concentrated in the three

hydrographic regions of Banabuiu, Acaraú and Médio Jaguaribe, with the other eight

hydrographic regions accounting for the remaining 30 percent. Table 1 presents the irrigated area

of existing medium and large public irrigation schemes.

2. The policy of large public irrigation schemes was strongly promoted at the end of the

1960s, with the objective of expanding irrigation in the State. This was consolidated in the mid-

1980s with the creation of the Programa de Irrigação do Nordeste (PROINE). During the early

1990s, the focus changed to deploying medium-scale irrigation schemes with the development

by the State of a program of Regional Irrigation Growth Poles.

3. In 1987 the State created its Secretariat of Water Resources, and in 1992 the State Water

Resources Plan was completed. The Plan identified a network of strategic reservoirs to increase

the State’s capacity to cope with recurrent droughts. After the extreme drought of 1994, which

caused the Metropolitan Region of Fortaleza’s (RMF) water supply system to nearly collapse,

the State built the Canal do Trabalhador as an emergency measure and started planning for other

integration systems to increase the reliability of its water supplies. In 2005 the State Water

Resources Plan was fully revised to update water balances in all river basins and identify

appropriate measures to address remaining supply-demand deficits.

4. The revised 2005 Plan identifies three major types of infrastructure to be developed to

meet the multiple needs of this semi-arid state: (a) a network of small isolated reservoirs to

supply potable water to specific towns and villages; (b) larger reservoirs and integrated pipeline

systems serving a number of municipalities for domestic consumption and other uses such as

irrigation, industrial supply and aquaculture; and (c) several major integration systems, including

the Canal da Integração, to connect key reservoirs with multiyear regulation capacity in order to

improve water supply reliability and cope with the endemic problem of droughts and climate

variability and change.

5. In this regard, the State’s water resources policy has been based on the increase of

infrastructure for the supply of water. The State has a storage capacity of around 18 billion m3,

nearly 90 percent of which is in large reservoirs. In addition, more recent efforts have been made

to construct interbasin transfer infrastructure to guarantee water availability to large metropolitan

areas and gradually integrate more scattered communities throughout the State.

32

1995 Agricultural Census.

70

6. The Bank has a long history of engagement in the State’s water resources management

sector, with strong support to institutional strengthening, planning of new infrastructure,

implementation of 25 multipurpose strategic reservoirs, water supply systems for drought-

stricken and poor rural communities, and construction of the State’s main conveyance system

that supplies bulk water from the Castanhão Dam in the Jaguaribe River Basin to the RMF,

known as the Eixão das Águas, which will secure water supply to more than three million people

and will further supply water to the industrial area of the Port of Pecém.

7. Today, the area irrigated by public irrigation projects is estimated at 50,766 ha,33

of

which over 90 percent is concentrated in nine large projects (e.g., Morada Nova, Icó-Lima

Campos, Baixo Acaraú, Chapada-Apodi), the rest being covered by twenty-three medium-scale

projects (e.g., Xique-Xique, Realejo, Graça, Altinho and Tucunduba).34

Those public irrigation

schemes have been implemented either by the federal agency DNOCS (Departamento Nacional

de Obras Contra as Secas) or by the State of Ceará, that is, through the Secretariat of Water

Resources (SRH). The current strategy on large irrigation projects outlined by the Federal

Government is now to attract private investment in order to implement a public-private

partnership (PPP) structure for rehabilitating those large-scale projects through concession

agreements, and for constructing several new ones.

8. With the infrastructure of the Canal do Trabalhador and the Eixão das Águas, it is

expected that new irrigated areas will be put into operation. The project will support the

formulation and implementation of irrigation models that are inclusive of the small producers

living along this water infrastructure. Those areas are likely to take the form of the medium

irrigation schemes described above, i.e., projects of a few hundred hectares each.

9. The area irrigated by small family producers is very poorly known because of a lack of

data on this type of irrigation. The water source for irrigation is diversified, and includes

different types of infrastructure: small and medium multiple-use dams (açudes), surface alluvial

wells (cacimbas), and traditional wells (poço amazonas or cacimbão) which are underground

dams for water harvesting and conservation for productive uses. Some public investments have

targeted this type of small-scale irrigated agriculture, such as the Poços do Sertão Program; the

São José Project; PRODHAM (Projeto de Desenvolvimento Hidroambiental), under the Bank-

financed PROGERIRH (Programa de Gerenciamento e Integração dos Recursos Hídricos); and

the Sustainable Development Project for Agrarian Reform Settlements in the Semi-Arid

Northeast (Dom Hélder Câmara Project).

10. The specific nature of this type of small-scale irrigated agriculture is that it often enters

into direct competition with other water uses that have greater priority: for population and cattle.

Therefore, considerable investment needs to be made in water resources planning and

management at the decentralized local community level in order to provide stakeholders and

local authorities with the elements of discussion on the possible options for managing water

availability (in terms of quantity and quality) for different users and different uses within the

watersheds.

33

Source: Pacto das Águas 2009. On the other hand, the private irrigated area in Ceará is estimated at about 18,537

ha. 34

Plano Estadual de Recursos Hídricos 2004. Data from 2000.

71

11. With regard to the irrigation methods most commonly used, less than 40 percent of

irrigated land in Ceará is equipped with improved on-farm irrigation systems, such as drip

irrigation or sprinklers. The irrigation method is predominantly surface irrigation (63 percent)

and sprinklers (32.8 percent), with drip irrigation and central pivots accounting for only 3.3

percent.35

12. The Secretariat of Agrarian Development (SDA) has a particular interest in strengthening

the value chain of fruits and vegetables, which has seen a rapid growth in large- and medium-

scale irrigation projects but faces a great number of challenges related to highly demanding

markets, both domestic and international.

Statement of problem and needs

13. The Brazilian Northeast experiences critical problems related to water scarcity, with

periodic, long and severe droughts, which create a number of economic and social problems and

hamper the development of the region. The State of Ceará, due to its specific characteristics, is

particularly susceptible to these climate adversities. It relies heavily on surface water

infrastructure to supply water for multiple uses. Crystalline rock formations occur in about 90

percent of the State’s territory, implying a rather limited potential for groundwater use and

storage due to very small yields and high salt contents. Highly variable rainfall, on the other

hand, requires large surface water storage capacities to ensure reliable water supplies. The

importance of water infrastructure planning and management is widely recognized in the State,

which has consistently treated this subject with high priority.

14. The assessment of problems, needs and potential presented below is based on several key

documents, most importantly the ―Pacto das Águas,‖ which is a visioning exercise that was

conducted in a participatory manner during 2008–2009 at the level of the State, the eleven

hydrographic regions, and municipalities. The Pacto das Águas collects the main aspirations of

the people on water resources use and management, and includes suggestions for programs and

subprograms covering the relevant aspects for a rational state water resources management

policy, among them universal access to potable water and the availability of water for irrigated

agriculture.

15. Many of the large irrigation projects face the following problems: (i) poorly maintained

collective irrigation infrastructure and need for rehabilitation; (ii) low water-use efficiency at

farm level, requiring modern water-saving techniques and practices; (iii) rapid growth of the

population inside irrigation schemes (agrovilas), calling for basic sanitation and the treatment of

water for human consumption; (iv) better monitoring and control of the use of agrochemicals,

which have become a public health problem (deteriorating water quality); and (v) poor technical

and financial management by the water users’ organizations (WUO) and lack of land titles for

irrigation producers.

16. The medium-scale irrigation projects express demands that are, to a certain extent, similar

to those of the larger projects. In addition, they stress the importance of: (i) technical assistance

(TA) in water-saving irrigation techniques and practices; (ii) more diversified TA in production

35

COMAGRI 1996.

72

and post harvest; (iii) preservation of water bodies (aquifers, water sources [mananciais], etc.)

and gallery forest (mata ciliar); and (iv) more rational and integrated water use for multiple

purposes (e.g., human consumption, cattle, fish production, and irrigation) in a coordinated

manner with key stakeholders such as the municipality.

17. Small-scale irrigation by family agriculture faces diversified demands, including: (i)

helping to organize producers; (ii) technical assistance in irrigation techniques, and production

more broadly; (iii) lack of capital for the purchase of machinery and equipment; (iv) preservation

of water bodies (aquifers, mananciais, etc.) and the mata ciliar; and (v) support for participatory

water resources planning and management at the watershed level by irrigation farmers and other

competing water uses.

18. The objective of the productive subprojects using irrigation systems is to support the

improvement of smallholder irrigated agriculture production and productivity in targeted

irrigated areas of Ceará.

Project approach

19. The project uses an integrated approach to irrigation improvement, which supports the

improvement of irrigation infrastructure (collective and on-farm), using existing water sources

and available infrastructure to enhance production and productivity through the adoption of

sustainable systems and technologies. Such systems and technologies should enable greater

efficiency in water use, avoiding water wastage in a region where this resource is scarce during

most of the year, and should minimize the risk of soil salinization or erosion. The project will

provide access to producers currently applying inadequate or less-efficient irrigation

technologies, as well as to producers in the project area who currently lack access to irrigation.

20. Component 3 of the project would provide capacity building for water users’

organizations and farmers’ groups, including the formation of groups, strengthening of existing

groups, and extension and adaptive research to strengthen the value chains of irrigated crops. It

will also support water resources planning and management at the decentralized, local

community level in order to provide stakeholders and local authorities with the elements of

discussion on the possible options for managing the water availability (in terms of quantity and

quality) for different users and different uses within the watersheds in the medium and long

terms.

21. Component 3 will also build the capacity of SDA, SDA territorial units, and producers’

organizations to develop projects and monitor their implementation.

Beneficiaries and project intervention area

22. The project’s irrigation investments will benefit poor rural communities and particularly

small and medium agricultural producers, represented by their organizations, such as community

associations, producers’ associations, cooperatives or other types of legally established

organizations that can provide proof of regular operation.

23. The project intervention area will be defined for each of the types of subprojects defined

by the different specific windows proposed by the selected business plans.

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Types of subprojects

24. The project would support different types of investments:

25. Water Investments for Productive Use at Community Level

(a) This typology would finance preinvestment studies and design, execution and

supervision of projects to support stakeholder groups at the level of small watersheds

(producers’ organizations, watershed committees, etc.).

(b) The main beneficiaries would be small irrigation producers involved in key value

chains (e.g., fruits and vegetables, milk and meat production, etc.). Types of investments

would include: water intake improvement, superficial alluvial wells (cacimbas),

traditional wells (poço amazonas or cacimbão), underground dams for water harvesting,

conservation for productive uses, etc.

(c) The eligibility criteria for this window will be set out in the Project Operational

Manual.

(d) The capacity building provided by Component 3 will encourage consultation with

the different water users groups at the watershed level on the design of the project’s

technical and management model, and will ensure close coordination with the

investments for rural water supply and sanitation proposed under Project Component 2.

26. Design and Construction of Smallholder Irrigation Schemes:

(a) This typology would finance preinvestment studies and the design, execution and

supervision of projects to support eligible farmers’ groups in designing and

implementing irrigation schemes along existing water supply infrastructure, such as

along the Canal do Trabalhador. Investments would include: (i) water intake

construction; and (ii) distribution, regulation and drainage systems.

(b) The PO will be responsible for 100 percent of the operation and maintenance.

27. On-farm Irrigation Technology Improvement:

(a) This typology will finance preinvestment studies and the design, execution and

supervision of SPs to support eligible farmers’ groups and to increase irrigation

performance at the farm level through the installation of improved on-farm irrigation

systems, including: (a) the carrying out of works and provision of equipment at the

farm intake (e.g., installation of pipes, pumping units, filters, meters, pressure

regulators and individual hydrants, and rehabilitation or construction of small

regulation reservoirs); and (b) carrying out of works and provision of equipment on

the irrigation plots (e.g., installation of sprinklers and drip systems, land leveling and

gated pipes).

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