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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$200 MILLION TO THE ARGENTINE REPUBLIC FOR THE NORTE GRANDE WATER INFRASTRUCTURE PROJECT November 17, 2010 Sustainable Development Department Argentina, Paraguay and Uruguay Country Management Unit Latin America and the Caribbean Region Report No: AR 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 Bank s Policy on Access to Information.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective November 10, 2010) Currency Unit = Argentine Peso AR$1.00 = US$0.253 US$1.00 = AR$3.95 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AGN BNA BP CFAA CAS CAF CMU CPS DA EA EIA EMP ESMF ETS FAP FM FY GDP GoA HDI IADB IAU IBNET IBRD ICR IDA IFR INA IP IPMH National Audit Institution (Auditoría General de la Nación) National Bank of Argentina (Banco Naciónal de Argentina) Bank Procedures Country Financial Accountability Assessment Country Assistance Strategy Corporacion Andina de Fomento (Andean Development Corporation) Country Management Unit Country Partnership Strategy Designated Account Environmental Assessment Environmental Impact Assessment Environmental Management Plan Environmental and Social Management Framework Environmental Technical Specifications Fiduciary Action Plan Financial Management Fiscal Year Gross Domestic Product Government of Argentina Human Development Index Inter-American Development Bank Internal Audit Units International benchmarking Network for Water and Sanitation Utilities (World Bank) International Bank for Reconstruction and Development Implementation Completion Report International Development Association Interim Unaudited Financial Reports National Water Institute (Instituto Nacional del Agua) Indigenous Peoples Index of Household Material IPP IPPF KM KV M&E MDG Mercosur MoU MPF NBI NCB NG NGO NGR OECD O&M OM OP PDO PMU PROSAP- II PTA RP RPF SA SBD SEPA Deprivation (Indice de Privación Material de Hogares) Indigenous Peoples Plan Indigenous Peoples Planning Framework kilometers kilovolts Monitoring and Evaluation Millennium Development Goals Southern Common Market (Mercado Comun del Sur) Memorandum of Understanding Ministry of Federal Planning, Public Investment and Services (Ministerio de Planificación Federal, Inversión Pública y Servicios de Nación) Basic Unsatisfied Needs (Necesidades Básicas Insatisfechas) National Competitive Bidding Norte Grande Non Government Organization Norte Grande Region Organisation for Economic Cooperation and Development Operation and Maintenance Operations Manual Operational Policy Project Development Objective Project Management Unit Second Provincial Agricultural Development Project Participation, Transfer and Maintenance of Works Agreement Resettlement Plan Resettlement Policy Framework social analysis Standard Bidding Document Procurement Plans Execution System (Sistema de Ejecución de Planes de Adquisiciones)

3 SIDIF SIGEN SIL TA UCPyPFE Integrated Budget and Accounting System (Sistema Integrado de Información Financiera) General Syndicate of the Nation (Sindicatura General De La Nación) Specific Investment Loan Technical Assistance Executing Unit within Coordinating Unit for Programs and Projects with UEPEX WS WSS External Financing (Unidad Coordinadora de Programas y Proyectos con Financiamiento Externo) Ministry of Economy s Information Unit (Unidad Informática de la Secretaría de Hacienda) Water Supply Water Supply and Sanitation Vice President: Pamela Cox Country Director: Penelope J. Brook Sector Director: Laura Tuck Sector Manager: Sector Leader: Guang Zhe Chen Michel Kerf Task Team Leaders: Patricia Lopez

4 ARGENTINA Norte Grande Water Infrastructure Project CONTENTS I. Strategic Context... 1 A. Country Context... 1 B. Sectoral and Institutional Context... 2 C. Higher Level Objectives to which the Project Contributes... 6 II. Project Development Objectives... 6 A. PDO... 6 B. Project Beneficiaries... 7 C. PDO Level Results Indicators... 7 III. Project Description... 7 A. Project components... 7 B. Project Financing... 9 IV. Implementation... 9 A. Institutional and Implementation Arrangements... 9 B. Results Monitoring and Evaluation C. Sustainability V. Key Risks and Mitigation Measures VI. Appraisal Summary A. Economic and Financial Analysis B. Technical C. Financial Management D. Procurement E. Social (including safeguards) F. Environment (including safeguards) Annex 1: Results Framework and Monitoring Annex 2: Detailed Project Description Annex 3: Implementation Arrangements Annex 4: Operational Risk Assessment Framework (ORAF) Annex 5: Implementation Support Plan Annex 6: Team Composition Annex 7: Preliminary Pipeline of investments indentified by Participating Provinces Annex 8: Norte Grande Development Program: MAPS IBRD iv

5 PAD DATA SHEET ARGENTINA NORTE GRANDE WATER INFRASTRUCTURE PROJECT PROJECT APPRAISAL DOCUMENT LATIN AMERICA AND CARIBBEAN Urban, Water and Disaster Risk Management Unit (LCSUW) Date: November 17, 2010 Country Director: Penelope J. Brook Sector Director: Laura Tuck Sector Manager: Guang Zhe Chen Sector Leader: Michel Kerf Team Leader: Patricia Lopez Project ID: P Lending Instrument: Specific Investment Loan (SIL) Sector(s): General water, sanitation and flood protection (100%) Theme(s): Access to urban services and housing (100%) EA Category: Partial Assessment (Category B) Project Financing Data: Proposed terms: Variable spread loan has a final maturity of 26.5 of years including a grace period of 7 years. [X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: Source Total Project Cost: Cofinancing: Borrower: Total Bank Financing: IBRD IDA New Recommitted Total Amount (US$M) Borrower: Argentine Republic Responsible Agency: Ministry of Federal Planning Public Investment and Services, Coordinating Unit for Programs and Projects with External Financing (UCFyFPE) Contact Person: Pablo Abal Medina Telephone No.: Fax No.: pmabal@minplan.com.af v

6 Estimated Disbursements (Bank FY/US$ m) FY FY11 FY12 FY13 FY14 FY15 FY16 Annual Cumulative Project Implementation Period: February 1, 2011 September 30, 2016 Expected effectiveness date: February 1, 2011 Expected closing date: March 31, 2017 Does the project depart from the CAS in content or other significant respects? Yes No If yes, please explain: Does the project require any exceptions from Bank policies? Have these been approved/endorsed (as appropriate by Bank management? Is approval for any policy exception sought from the Board? Yes No Yes No Yes No If yes, please explain: Does the project meet the Regional criteria for readiness for implementation? Yes No If no, please explain: Project Development objective The Project Development Objective is to increase sustainable access to water supply and urban drainage services in the Norte Grande region of Argentina, by providing investments in infrastructure and supporting institutional development. vi

7 Project description: Component 1: Water Supply and Urban Drainage Infrastructure: This component will finance the rehabilitation, upgrading and reconstruction of water supply and urban drainage systems that are declared eligible during implementation. Component 2: Institutional Development and Technical Assistance: This component will finance: (i) institutional and/or operational strengthening programs for participating water and sanitation service providers; (ii) technical assistance to service providers and regional entities with responsibilities over water and sanitation and urban drainage services and carrying out of studies; (iii) institutional strengthening activities aimed at promoting WSS sector knowledge and capacity building within relevant sector institutions; and (iv) Strengthening of the operational, social, environmental, fiduciary and supervision management capacity of UCPyPFE and Participating Provinces. Component 3: Project Management and Supervision: This component will finance project management and supervision activities (including specialized independent technical supervision and Project audits). Safeguard policies triggered? Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) Yes No Yes No Yes No Yes No Yes No Yes No Yes No Yes No Yes No Yes No Financing Agreement Reference Schedule 2 Section IV.B.1 (b) Conditions and Legal Covenants: Description of Condition/Covenant No withdrawal shall be made for: (b) under category (1) (Works under Subprojects) unless: (i) at least one of the Participating Provinces has entered into a Participation, Transfer and Maintenance Agreement with the Borrower; and (ii) both the Borrower and the respective Participating Province have issued a legal opinion setting forth that the Participation, Transfer and Maintenance Agreement to be entered into as per the condition set forth in paragraph (b) (i) herein has been duly authorized or ratified by the Borrower, through MFP, and the corresponding Participating Province, and once executed will become legally binding upon the Borrower and said vii Date Due Disbursement condition

8 Schedule 2 Section I.E.1 Schedule 2 Section I.E.2 Schedule 2 Section I.E.3 Schedule 2 Section Participating Province in accordance with its terms. Upon the selection of any given Subproject and prior to the carrying out of the pertinent works under said Subproject, the Borrower, through UCPyPFE-UEP, shall: (a) carry out and/or cause to be carried out an environmental/social assessment of the pertinent works, and based on the results of said assessment as determined by the Bank, approve and/or cause to be approved an environmental/social management plan or similar environmental or social safeguards instrument, acceptable to the Bank, for each said works (which plan or similar environmental/social safeguards instrument shall be based on the results of the environmental/social assessment mentioned herein, and the Bank s comments on the results of said assessment, if any), all in accordance with the provisions of the Environmental and Social Management Framework; and (b) immediately after said approval, implement and/or cause to be implemented (as the case may be) the corresponding environmental/social management plan (or similar environmental/social safeguards instrument) in accordance with its terms, and in a manner acceptable to the Bank Without limitation to the pertinent provisions of this Agreement in respect of any given Subproject in which works are involved, and if as a result of the definition of the precise sitting alignments it is determined by the Bank that Resettlement will be involved, the Borrower, through UCPyPFE-UEP, shall: (a) prior to the carrying out of any said works, prepare and/or cause to be prepared and furnish to the Bank, a resettlement plan, acceptable to the Bank (which plan shall consistent with the pertinent provisions of the Resettlement Policy Framework); and (b) thereafter, implement and/or cause to be implemented, said resettlement plan in accordance with its terms and in a manner acceptable to the Bank. With respect to the carrying out of any given Subproject and when so determined by the Bank as set forth in the IPPF and the Environmental and Social Management Framework, the Borrower, through UCPyPFE-UEP shall: (a) prior to the carrying out of any said Subproject, prepare and/or cause to be prepared and furnish to the Bank, an Indigenous Peoples Plan, acceptable to the Bank (which plan shall consistent with the pertinent provisions of the IPPF); and (b) thereafter, adopt and implement (and/or cause to be adopted and implemented) said Indigenous Peoples Plan in accordance with its terms and in a manner acceptable to the Bank. The Borrower, through MPF, shall, prior to the commencement of each calendar year during Project Recurrent Recurrent Recurrent Recurrent viii

9 II.B.4 implementation, create, and thereafter maintain throughout each said calendar year of Project implementation, a specific budget line entry in the national annual budget (starting in calendar year 2011) in order to keep track of the corresponding expenditures incurred during Project implementation. ix

10 I. Strategic Context A. Country Context 1. Recovery from 2001 crisis. Between 2002 and 2008, real Gross Domestic Product (GDP) in Argentina grew on average 8.5 percent per year 1. This strong growth performance was supported by a dynamic expansion of private investment, internal consumption and exports. Strong export growth, fueled by favorable commodity prices, and improved fiscal performance due to increased tax collection generated persistent twin surpluses (fiscal and external), which in turn favored reserves accumulation and debt reduction. Continued primary surpluses, together with a successful restructuring of sovereign debt in 2005, led to a marked reduction in the debt-to-gdp ratios from percent of GDP in 2002 to 56.4 percent at the end of The Government s economic strategy, aimed at supporting the growth momentum, included expansionary fiscal and monetary measures as well as active income policies. As a result, poverty more than halved from 58 percent in 2003 to 23.4 percent in 2007, and unemployment fell from 21.5 percent in 2003 to 8.3 percent in Economic slowdown and recovery. Economic activity started to slow in 2008 due to the impact of the global financial crisis. Real GDP growth declined to 6.8 percent in 2008 from 8.7 percent in 2007 according to official statistics. Economic activity declined further in 2009 due to a drop in external demand, declining commodity prices, a deteriorating domestic investment climate and a severe drought that weighed on agricultural production. Fiscal performance deteriorated in 2009 on account of lower economic activity, counter-cyclical stimulus measures and a sharp decline in foreign trade (primary fiscal surplus fell from 3.1 percent of GDP in 2008 to 1.5 percent of GDP in 2009). The economy rebounded strongly in 2010, fueled by fast growth in internal absorption, external demand (mainly Brazil and China) and commodity prices. A significant revitalization of industrial activity in automotives, basic metals and textiles, and a normalization of agricultural production following 2009 s severe drought, have contributed to the economy s dynamism. Internal absorption has been boosted by consumption and an expansion of public spending. Real GDP grew by 9.4 percent in the first quarter of 2010, and economic activity is expected to expand by about 8 percent in With the onset of the worldwide economic crisis and domestic economic slowdown, the Government of Argentina (GoA) has prioritized an infrastructure investment program as a key part of a countercyclical economic stimulus package. Following the crisis, infrastructure investment grew every year, reaching levels of 4.67 percent of GDP in 2008, and has continued to grow strongly despite the recent economic slowdown. The GoA s Strategic Plan for Territorial Development sets out the two main objectives for its investment agenda: (i) consolidating market forces for the country s inclusion in the global economy and (ii) mitigating isolation asymmetries in the development of disadvantaged regions and communities to ensure a more equitable and sustainable growth for the country, particularly by bridging infrastructure deficits in poorer provinces. The infrastructure investment program is key to overcoming potential bottlenecks to competitiveness and an essential means of tackling endemic 1 By mid-2005 real GDP had recovered to the level immediately before the recession Argentina del Bicentenario: Plan Estratégico Territorial. 1

11 poverty and regional inequalities as well as enhancing living standards in different regions of Argentina. 4. The Norte Grande Region (NGR) epitomizes the marginalization, underdevelopment and extreme poverty enduring in parts of Argentina notwithstanding the economic recovery. The region includes the nine provinces of Catamarca, Chaco, Corrientes, Formosa, Jujuy, Misiones, Tucumán, Salta and Santiago del Estero. Although it covers one-third of the national territory and comprises about 7.5 million people, representing 21 percent of the population, it produces only 10 percent of the GDP and 8 percent of the country s total exports. In contrast to declining national poverty levels, poverty stands at 48 percent of the population (3.6 million people), with 24.6 percent (1.85 million people) living in extreme poverty. According to the latest Bank Provincial Development Index, which compiles measures of poverty and deficits in social and basic infrastructure services for all twenty-four provinces in Argentina, eight of the nine Norte Grande provinces occupy the bottom eight spots. Moreover, illiteracy (at 5.4 percent) is more than double the national average, the infant mortality rate (at 16.2 per 1000 live births) is above the national average of 13.3 per 1000, and the proportion of homes with Basic Unsatisfied Needs (Necesidades Básicas Insatisfechas, NBI 3 ) is 18.6 percent compared to the national average of 14.3 percent. B. Sectoral and Institutional Context 5. The financing of infrastructure investment in Norte Grande is an essential building block for sustained economic growth and reduced inequality in the most marginalized and impoverished region of Argentina. The GoA has requested Bank support to the ongoing Development Program for the Norte Grande Provinces, which has thus far been financed by the Inter-American Development Bank (IADB) through a US$2.4 billion package of loans (with US$500 million in counterpart financing) covering the energy, transport, water and competitiveness sectors. The overall objective of this Program has been to contribute to the sustainable economic development of the Norte Grande provinces and to raise local population living standards by promoting increased productive activities and social well-being. This Program is part of the federal Government s efforts to correct historical imbalances among regions, focused on the implementation of infrastructure works to stimulate and integrate production in these provinces, with a view to narrowing the social and economic divide between this region and the rest of the country. The development rationale for the project is supported by recent research by Calderon and Serven (2004) who underline the importance of infrastructure development for inclusive growth. 4 Annex 8 shows a map of the region with location of the investments financed thus far by the NG Development Program and its four subprograms. 6. Universal coverage and improved service quality is a key challenge for Argentina s water and sanitation sector (WSS). Sector policies have changed repeatedly and drastically over the last two decades. Many of the concessions to private operators introduced in the 1990 s were 3 The NBI is a method of measuring poverty which uses indicators related to people s basic needs, namely shelter, sanitation, education, and minimum income. 4 In a panel study of 100 countries, these authors shows that increased availability and quality of infrastructure can lead to both growth acceleration and inequality reduction. Calderon, C; Serven, L. (2004): The Effects of Infrastructure Development on Growth and Income Distribution. World Bank Working Paper

12 subsequently renegotiated or terminated. The economic and social crisis of 2001 led to a freezing of water tariffs which affected the utilities self-financing capacity, to an extent palliated through the channeling of public funding to the service providers. As a result of these upheavals, many companies are facing financial and operational difficulties and sector institutions have been weakened. With only 80 percent piped water supply and 48 percent piped sewerage coverage (2007), Argentina compares unfavorably with other upper-middle income countries and continues to lag behind some of its neighbors. The same is true of wastewater treatment, with only 10 percent of the collected wastewater receiving treatment. 7. Improving WSS services is a priority for the GoA who has launched an ambitious investment program in the sector. Water services are widely seen in Argentina as a fundamental basic necessity that deserves public funding, a vision which is quite common in the Latin America region. The GoA recognizes that water, sanitation and wastewater treatment help guarantee the provision of certain public goods with important externalities such as health and environmental sustainability. In this context, concessional financing programs are commonly used worldwide including in OECD and middle and high income countries such as the United States, Colombia and Mexico - to address problems of underinvestment in the sector. In Argentina, investments reached US$500 million in 2008, an increase of over 50 percent from the previous year (US$330 million), and almost five times the average of the previous five years (US$120 million for the period of ). These investments include only those managed at the federal level through the Ministry of Planning, and do not account for provincial and municipal governments' investments with their own resources, or those financed by privately managed WSS utilities, NGOs, and others. 8. Some steps have also been taken to increase the efficiency of WSS provision. The GoA is channeling funds through several programs aimed at promoting operational efficiency and service quality improvements and important initiatives are underway at the local level to reorganize regional utilities and improve service quality and performance. Such initiatives are not always optimally coordinated, which has generated some duplication of efforts and some inconsistency between different programs. Initial steps have been taken however to harmonize investment criteria, rationalize federal programs, and coordinate donor activities. 9. The NGR suffers from particularly acute problems in the WSS sector. The NGR is characterized by low coverage rates, poor service levels, contamination of water sources, limited availability of water resources especially in Chaco, Jujuy, and Catamarca, high investment needs and limited funding, as well as governance and institutional challenges. The models for service provision within the region are wide-ranging. Seven out of the nine provinces in the NGR entered into concession contracts with private operators, most of which subsequently underwent renegotiation. While the situation of the different service providers varies significantly, all have been negatively affected by the economic and social crisis of 2001 and the institutional instability of the service providers As a result, the NGR is the most deprived region after the Metropolitan Region of Buenos Aires 5, with nearly 15 percent of the population (more than 1 5 In the Metropolitan Region of Buenos Aires nearly 18 percent of the 14 million residents live in extreme poverty, primarily in the peri-urban areas surrounding the capital city, where 28.6 percent of the population (close to 4 million people) lack household access to water supply and 54.2 percent of the population (more than 7.5 million people) lack household access to sewerage services. 3

13 million people) lacking piped water supply and 61 percent of the population (more than 4.5 million people) lacking piped sewerage services. As shown in Figure 1, the NGR is among the lowest in terms of WSS coverage, with four of its nine provinces ranking the lowest in the nation and only two provinces above the national average. There is also a need to invest in urban drainage infrastructure to reduce vulnerability to flooding. Flooding poses a major challenge to development and disproportionally affects the poor. Cities in the NGR are particularly susceptible to frequent flooding as a result of their location in flat lowland areas. Figure 1: Water Supply and Sanitation Coverage in the Provinces of Argentina % 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% Water Supply Sanitation 0.0% Capital Federal T. de Fuego Santa Cruz Chubut Neuquen Juluy Mendoza Salta Entre Rios Rio Negro San Luis La Pampa La Rioja Corrientes Tucuman Catamarca Santa Fe Cordoba San Juan Buenos Aires Formosa Chaco Sgo. del Estero Misiones 10. Bank support will be aimed at addressing infrastructure gaps as well as sustainability issues in order to generate long-lasting performance improvements in the WSS sector of the NGR. The proposed project will focus on priority gaps in water supply and urban drainage provision while a subsequent project will focus on the sanitation sector. Moving towards greater cost recovery for service providers while maintaining affordability for users, especially the poorest, is a key challenge in the NGR. Nevertheless, service providers in provinces such as Chaco and Santiago del Estero have managed to improve cost recovery since 2007, thanks to several changes in rate structures and pricing levels which were deemed socially acceptable. The Project will seek to build on these successes and on the GoA s commitment to give the NGR prioritized access to concessional public funding to improve operational efficiency and institutional capacity in the region. The Project will pursue two main objectives: (i) it will support the financing of the necessary infrastructure, with specific sub-projects selected on the basis of their poverty reduction impact and their financial and economic viability; and (ii) the Project will also support institutional and capacity strengthening activities aimed at improving the overall efficiency of participating WSS service providers and strengthening the regulatory and monitoring capabilities of provincial authorities. 11. The Project is being prepared in parallel with a proposed Norte Grande Road Infrastructure Development Project, and both projects aim to complement the ongoing Development Program 6 Access to service % from the National Census of Population and Housing (2001). 4

14 for the Norte Grande Provinces. These two projects provide an entry point for further work in this impoverished region. During implementation, close coordination with the Road Project and with the ongoing IADB-financed operations (see Box 1 below) will be sought, carrying out joint supervision missions and seeking, in particular, full coordination and synergies of infrastructure works and institutional strengthening activities. 12. In line with the GoA s strategic priorities, the Bank is supporting a large investment lending program in this region, including these two proposed Norte Grande Infrastructure Projects, the Second Provincial Agricultural Development Project (PROSAP-II, P106684), aimed at improving agriculture productivity and basic agricultural support service effectiveness to increase competitiveness and market access of agricultural products, and the Small Farmer Development Project (PROINDER) Additional Financing (P102446), aimed at increasing productive and organizational capacity in participating poor rural communities. Box 1: GOA s Norte Grande Development Program The Norte Grande Development and Integration Program is part of a National Government strategy for historical redress of this region. The Program, initiated in 2004, comprises financing by international development partners, including four operations by the Inter-American Development Bank totaling US$2.9 billion (IADB Loans No OC/AR, 1764-OC/AR, 2005-OC/AR and 1851-OC/AR), and an operation with the Andean Development Corporation--CAF financing Route 81 in Salta and Formosa. The Norte Grande Development and Integration Program has four main objectives: To revert one of the greatest imbalances in the regional development of Argentina under the framework of an increasing integration process. Develop the basis for egalitarian and sustainable development, with a federal mandate based on the support of key regional competitiveness, seizing its human capital and natural resources. Enhance the quality of life and improve the opportunities of the different communities of the region, accounting for social and environmental aspects. To include public participation and consultation processes. This program seeks to facilitate growth of the productive and services sectors, overcoming barriers to social and economic development of the provinces as a basis for regional integration with Bolivia, Brazil, Chile and Paraguay, recognizing South American integration as a requirement for survival. The development of infrastructure, energy and telecommunication projects, the provision of an inter-oceanic connection to enhance the Mercosur, the exploitation of mining and hydrocarbons as well as the provision of transport corridors and the improvement of trade logistics, will have economic impacts generating employment and promoting and enhancing new and existing industries. The Development Program is supported by an institutional framework under which each one of the nine governors of the provinces involved participates actively, working closely with Ministries and Government officials, supported by the multilateral banks, in designing, implementing and monitoring the proposed projects in the agenda. As mentioned before, the Program comprises investments of US$2.9 billion, and is divided in 4 sub-programs: Energy Subprogram ($1.1 b) - comprises the financing of a high-voltage transmission line for the interconnection of the Northwest and Northeast regions, 1160 km in 500 Kv, with 2 intermediate substations at Monte Quemado (Santiago del Estero) and San Juancito (Jujuy). Road Subprogram ($1.5 b) - comprises several works of construction, rehabilitation and enhancement of different segments of the national and provincial roads networks. This subprogram has been supported by the IADB. Water Subprogram ($300 m) - comprises multiple projects involving sewage, drainage and flood control. Productive Sector Competitiveness Subprogram ($20 m) - supports the main productive chains in the Norte Grande Region removing bottlenecks and potential barriers to sector development. More information is available at: and at: 5

15 C. Higher Level Objectives to which the Project Contributes 13. By increasing investments and improving efficiency and sustainability of service provision in the WSS sector, the Project will contribute to bringing Argentina closer to achieving the water and sanitation targets of the Millennium Development Goals (MDG 7) 7 and will contribute to raising the standard of living of the poor in the NGR. Currently, Argentina is on track to increase water supply accessibility to 84 percent and sanitation services to 55 percent; which is a substantial achievement, but still far from Argentina s MDG targets of 90 percent for water supply and 75 percent for sanitation services by The urban drainage works will contribute to the on-going efforts of GoA, with support from the Bank, to reduce the negative impacts floods have in the NGR, especially among the poor. 14. The objective of the proposed NGR Water Project supports the vision outlined by the GoA to combat poverty and inequality through infrastructure investment. These objectives are consistent with the World Bank Group Country Partnership Strategy (CPS) discussed by the Board on June 9, 2009 (Report No AR) for The main objective of the CPS is to provide selective support to influence specific outcomes in support of Argentina s strategic development goals under three pillars: (i) sustainable growth with equity; (ii) social inclusion and (iii) improved governance. The project will contribute to all three CPS pillars through investments in basic water supply facilities in poor and marginalized regions of the country and supporting sustainability and improved institutional performance. The proposed Project is a part of the Bank's programmatic support to GoA s Development Program for the Norte Grande Provinces, addressing the gap in water supply provision. This will be followed by further investment that will address the sanitation sector. 15. Overall, as a guiding principle for all components and Project financed activities, the project is designed to promote: (i) the planning and programming all interventions based on agreed upon eligibility criteria; (ii) the identification of targets for each intervention that will be monitored and whose attainment will be used as an indication of success; and (iii) the participation of stakeholders in consultation activities and the publication and presentation of programmed activities and results to Project beneficiaries. II. Project Development Objectives A. PDO 16. The Project Development Objective is to increase sustainable access to water supply and urban drainage services in the Norte Grande region of Argentina, by providing investments in infrastructure and supporting institutional development. 7 MDG 7 on environmental sustainability sets a target of reducing by half the proportion of people without sustainable access to safe drinking water and basic sanitation. 6

16 B. Project Beneficiaries 17. Project beneficiaries include people in the nine NGR provinces who will have new access to water supply services and improved water quality and service, and people living in urban areas in which urban drainage will be improved. Based on GoA s preliminary pipeline of potential future sub-projects 8, the estimated number of Project beneficiaries under the proposed Project is over 700,000 people in the NGR. C. PDO Level Results Indicators 18. PDO success will be monitored by the following outcome indicators: (i) Additional number of people in the NGR with access to water supply services resulting from the infrastructure built under the Project; (ii) Evidence that at least 30% percent of additional beneficiaries of the new water supply infrastructure built under the Project are poor (as defined by NBI or sub-project specific socio-economic surveys); and (iii) Regional WSS Information System developed and effective, as evidenced by timely availability of financial and performance data published through an annual report in the website of the Coordinating Unit for Programs and Projects with External Financing (UCPyPFE) and sent to the World Bank s IBNET. III. Project Description A. Project components 19. The GoA has identified a preliminary pipeline of water supply and urban drainage works during the preparation of the IADB-financed NG Water Infrastructure Project, based on the priorities presented by the provinces, amounting to approximately US$245 million (see Annex 7), and estimates that the investment needs in water supply services in the NGR are actually higher. The proposed Project has a framework approach, where specific investments are not known in advance and will be defined during the implementation based on subproject compliance with pre-agreed eligibility criteria. 20. Component 1: Water Supply and Urban Drainage Infrastructure (US$165 million, with US$132 million of Bank funding 9 ): Carrying out of Subprojects consisting on the rehabilitation, upgrading and/or reconstruction of Participating Provinces : (i) water supply systems: including, inter alia, the rehabilitation of selected existing water infrastructure; the expansion of water production and distribution systems (such as water treatment plants, pumping stations, main collectors and secondary networks, and household connections); and the implementation of nonrevenue water-reduction programs, macro- and micro-metering, as well as the carrying out of additional investments, acceptable to the Bank, aimed at increasing operational efficiency; and (ii) urban drainage systems: aimed at reducing flooding vulnerability in targeted cities of the Norte Grande Region. 8 This includes projects identified during the preparation of the ongoing IADB financed Water Infrastructure Project. 9 These amounts exclude price and physical contingencies (see Project Costing in Section B). 7

17 21. Component 2: Institutional Development and Technical Assistance (US$26 million, all financed by the Bank): This component will finance a range of activities expected to improve the regional WSS institutional framework for service provision and generate efficiency improvements. It will fund: (i) Carrying out of tailored institutional and/or operational strengthening programs for participating WSS Service Providers to improve their institutional organization, investment planning, management capabilities and technical, operational, commercial and financial efficiency including, inter alia: (a) the development of WSS-related management and information systems; (b) the development of WSS customer databases and cadastres; (c) technical assistance related to strategic planning, energy efficiency and non-revenue water programs; (d) analysis of cost-recovery options and optimization of rates and subsidy structures; and (e) technical assistance for institutional reorganization; (ii) Provision of technical assistance to WSS Service Providers and regional entities with responsibilities over WSS and urban drainage services and carrying out of studies, all under terms of reference acceptable to the Bank, including, inter alia: (a) technical assistance related to strategic investment planning; (b) technical assistance for feasibility studies and Subprojects design; (c) technical assistance for the carrying out of studies on availability and quality of water resources; and (d) technical assistance for the carrying out of studies for the preparation of sanitation subprojects, all under terms of reference acceptable to the Bank; (iii) Carrying out of institutional strengthening activities aimed at promoting WSS sector knowledge and capacity-building within relevant sector institutions (including the provision of training activities, the organization of workshops and study tours, implementation of dissemination activities and other related supplementary activities acceptable to the Bank); and (iv) Strengthening of the operational, social, environmental, fiduciary and supervision management capacity of UCPyPFE and Participating Provinces through, inter alia: (a) the provision of tailored technical assistance in the screening and assessment of Subprojects (including environmental impact assessments, socio-economic surveys, and other studies acceptable to the Bank); (b) the provision of technical assistance related to monitoring and supervision of construction works; and (c) the provision of training to UCPyPFE s and Participating Provinces permanent staff on Project management and supervision. 22. Component 3: Project Management and Supervision (US$15 million, all financed by the Bank): This component will finance: (i) Carrying out of specialized independent technical, environmental and social supervision, as required; (ii) Carrying out of Project audits and monitoring and evaluation activities under the Project; and (iii) Provision of administrative and operational support (including the provision of Operating Costs) to UCPyPFE in the administration, monitoring, coordination and supervision of Project implementation. 8

18 B. Project Financing Lending Instrument 23. In agreements reached with the GoA, a SIL (Specific Investment Loan) lending instrument has been selected for an amount of US$200 million for the Project. Repayments will be annual, with a total maturity of 26.5 years, including 7 years of grace. Project Cost and Financing Project Components Project cost (US$M) IBRD Financing (US$M) % Financing 1. Water Supply and Urban Drainage % 2. Institutional Dev. and TA % 3. Project Management and Supervision % Total Baseline Costs Physical contingencies Price contingencies Total Project Costs % Front-End Fee % Total Financing Required % IV. Implementation A. Institutional and Implementation Arrangements 24. Borrower and Implementing Agency: The Borrower is the Argentine Republic and the Implementing Agency will be UCPyPFE within the MPF. 10 At present, the UCPyPFE is coordinating several programs financed by multilateral development banks, including the Water Infrastructure Project in the Norte Grande Region co-financed by the IADB. 25. Project Management and Implementation: The UCPyPFE will be in charge of Project administration and execution through a dedicated unit. This unit will coordinate and implement all program activities including the handling of procurement, contracts, and payments to contractors and will act as necessary to meet the Bank s contractual conditions. Through this unit, the UCPyPFE will coordinate with other centralized and decentralized entities at the national and provincial levels, with the MPF providing overall oversight. Flow of funds will be 10 The UCPyPFE was created by Resolution 165/2000 of the Ministry of Infrastructure and Housing, and its duties and responsibilities were modified by Executive Decree 1,142/

19 centralized and there will be no transfers of funds to provinces (details provided in Annex 3). Works will be centrally executed by the UCPyPFE. Upon completion, the WSS assets will be transferred to the provinces and by the provinces to their WSS service providers for their management, operation and maintenance under a Participation, Transfer, and Maintenance of Works Agreement (PTA) acceptable to the GoA and the Bank. Participating provinces will sign the PTA with the MPF and commit to providing the financial resources to properly managing, operating and maintaining Project-financed works. The relevant provincial or municipal WSS service providers will operate the investments at the provincial level, while the relevant agencies for urban drainage works will be defined on a sub-project-by-sub-project basis. 26. The main responsibilities of the UCPyPFE will include the following: (i) Coordinate with provinces to identify sub-projects for financing and carry out necessary assessments to ensure compliance with eligibility requirements; (ii) Provide guidance and support to provinces and WSS service providers on technical, economic, social and environmental aspects in the preparation and implementation of sub-projects; (iii) Coordinate with provinces on the preparation and implementation of the institutional strengthening component; (iv) Supervise the financial management, procurement and disbursement functions of the Project including keeping Project files and records; (v) Retain auditors acceptable to the Bank to audit the Project accounts; (vi) Oversee compliance with Bank safeguard policies on social and environmental issues; (vii) Make official requests for no-objections to the Bank and liaise with the Borrower on official requests for changes to the Project scope or terms; and (viii) Submit semi-annual progress reports detailing progress in achieving Project objectives. The format and content of these progress reports will be approved by the Bank. 27. Technical and environmental supervision. Major works (i.e. sub-projects over US$10 million) will be supervised by a specialized, independent consulting firm. The UCPyPFE will provide further supervision and regularly inspect the works, as well as the implementation of the Environmental Management Plan (EMP) and any social impact mitigation measures that takes place during construction. The implementation of social and environmental mitigation and compensation plans and minor investment projects will be supervised by the relevant agencies entities in charge with support from UCPyPFE as needed, depending on the capacity of the province. Consulting services for the supervision of major investment works will be hired before the contracts for the respective works are signed, according to terms agreed upon with the Bank. 28. Eligibility criteria for sub-projects: Subprojects financed under the Project must meet the following eligibility and readiness criteria: a) Subprojects must benefit low income populations; b) Demonstrated economic, financial, technical, institutional, social and environmental viability through relevant studies; 10

20 c) Current and estimated revenues of the provincial WSS service providers must cover the current and estimated cost of operating and maintaining actual and future projects; d) Participating provinces and/or service providers must demonstrate (as documented in studies) sufficient and sustainable technical, institutional and financial capacity to manage, operate and maintain the investments; e) The guidelines of the Project s Environmental and Social Management Framework (ESMF) must be followed in applying the safeguards related eligibility criteria and to ensure compliance with applicable social and environmental safeguards policies including preparing the necessary safeguards instruments and undertaking consultation and disclosure; f) Sub-projects are considered Category B (or C) investments under Operational Policy (OP) 4.01 on Environmental Assessment and do not involve complex issues with regard to other environmental safeguards policies including those with significant, non mitigable impacts on cultural property or natural habitats including habitats or areas relied upon by indigenous communities for their survival; or involve loss or partial degradation of critical natural habitats; g) Sub-projects and detailed design and engineering studies of sub- projects involving international waterways, as defined and outlined in section 1 and 2 of World Bank Operational Policy 7.50 on International Waterways would not be eligible for funding; h) Sub-projects do not contravene national laws and policies including guidelines related to land use and urbanization plans and Argentina s obligations under international treaties or agreements; i) Participating provinces sign a PTA with the MPF; j) Provinces prepare an Action Plan to address sustainability of the WSS services; k) Provinces will provide required resources for the O&M of the investments; l) The province and the relevant service provider will agree to complying with the rules and guidelines of the Project and implement agreed Action Plans for institutional improvements; m) The province and relevant service provider will submit outcome and intermediate subproject indicators and performance data that will be included in the local WSS information system; and n) Urban drainage interventions financed under Component 1 should be: (i) based on sound, integrated urban drainage plans; and (ii) consistent with other structural and non-structural measures being financed under ongoing Bank projects in the flood protection sector, such as the second phase of the Flood Prevention and Urban Drainage Project. B. Results Monitoring and Evaluation 29. Project progress reports will be prepared by the UCPyPFE on a semi-annual basis and submitted to the Bank. These reports will indicate the progress made under the different components of the Project and measure performance against the results indicators established in the results framework (Annex 1). In addition, progress reports will include information regarding: (i) disbursement performance over the period covered by the report and an updated 11

21 disbursement calendar; (ii) a procurement report, and an updated procurement plan for activities under each of the project s components; (iii) progress in the implementation of the Environmental and Social Management Plan laying out problems identified as well as documenting environmental and social impacts of the project in the areas of intervention; (iv) a section describing potential developments that could affect project implementation, which should consist of a review of the main risks and the impact of mitigation measures envisioned at appraisal; and (v) an annual operation plan for the following year, presented in the second semester report. 30. Collaboration arrangements between the UCPyPFE and the participating provinces for monitoring of relevant outcome indicators and intermediate indicators will be included in each PTA. C. Sustainability 31. Long term project sustainability will be proactively addressed by: (i) the signing of PTA guaranteeing the provision of WSS services in a context of economic and financial sustainability, including an action plan aimed at ensuring a proper management, operation and maintenance of the service provider and its assets as one of the sub-project eligibility criteria; and (ii) the funding of an institutional development component aimed at: (a) improving the overall efficiency of participating WSS service providers; (b) strengthening the regulatory and monitoring capabilities of provincial authorities to promote a more efficient and sustainable provision of WSS services and water infrastructure investments; (c) allocating time and resources to the sound preparation of sanitation subprojects under the next operation; and, (d) developing a the regional WSS information system. The information system will improve knowledge of the WSS services in the NGR and is expected to be made accessible to all sector stakeholders in particular to the service providers and the GoA. This information system will serve to improve sector planning, allocation of resources, policy definition and control and monitoring capabilities. This process will be assisted and nourished during project implementation by ongoing technical dialogue between the Bank team and GoA. Sustainability is also underpinned by the strong ownership and commitment of the GoA to implement the Project within the economic development context of the Norte Grande Devolvement Program. V. Key Risks and Mitigation Measures 32. Potential risks are summarized in the Operational Risk Assessment Framework (see Annex 4). The overall risk within this Project is rated as Medium, driven by likelihood. Risks identified are manageable and mitigation measures are in place. 33. The two main risks identified are: (i) limited implementing capacity at the federal and provincial levels (particularly in the areas of technical design, environmental and technical supervision of large complex works and safeguard management) to successfully implement the Project within a five-year implementation period; and (ii) technical and financial sustainability of WSS service providers given additional operational costs and operating resources required linked to the new infrastructure. Mitigation measures are an integral part of the Project s design (for further details see Annex 4). 12