PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB1183 Project Name. Bahia Integrated Urban Development Region

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB1183 Project Name Bahia Integrated Urban Development Region LATIN AMERICA AND CARIBBEAN Sector General water, sanitation and flood protection sector (50%); Housing construction (25%); Other social services (25%) Project ID P Borrower(s) Government of the State of Bahia, Brazil Implementing Agency CONDER - Companhia de Desenvolvimento Urbano do Estado da Bahia Colina de Sao Lazaro, 203 Federacao Bahia Brazil Tel: Fax: Environment Category [ ] A [] B [ ] C [ ] FI [X] TBD (to be determined) Safeguard Classification [ ] S 1 [] S 2 [ ] S 3 [ ] S F [X] TBD (to be determined) Date PID Prepared October 19, 2004 Estimated Date of March 16, 2005 Appraisal Authorization Estimated Date of Board June 22, 2005 Approval 1. Key development issues and rationale for Bank involvement In Brazil s cities, most of the poor live in unplanned or informal settlements of various kinds, which usually constitute a large part of the urban area. In varying degrees, these areas are characterized by poor access to basic infrastructure and services, environmental degradation, lack of economic and educational opportunities, poor health care and day care facilities, lack of security of land tenure, social exclusion and violence. The consequences include: (i) a deterioration in health conditions and quality of life in general, particularly of the most vulnerable the elderly and the young; (ii) negative economic impacts due to higher costs of health care, loss of productivity, and a poorly trained and uneducated workforce; and (iii) a perpetuation of the vicious cycle of poverty, through poor health, lack of opportunities, and lack of capacity to compete in the job market and generate income. According to data from the 2000 Census, there are about 15 million households in urban informal settlements in Brazil. Additionally, a Bank 2002 study of the dynamics of household formation found that, every year, upwards of 600,000 new urban households nationwide have no housing alternative but the informal sector. In this context, the state of Bahia is no exception. Roughly a third of Bahia s urban dwellers around 3 million people live in households that fall below the poverty line, and urban poverty correlates strongly with informal housing and slums. At 35.7% of households in 2001, the relative extent of urban poverty in Bahia is now higher than in the 1980s (Verner 2004). Sprawling squatter settlement areas in Salvador, such as Alagados or Pau da Lima, are by-words for urban degradation. In the state s intermediate cities, such as Feira de Santana, Ilhéus, Itabuna, Vitória da Conquista or Juazeiro, large and growing areas of informality display similar features to those of Salvador.

2 This situation poses serious obstacles to achieving social justice and cohesiveness, a clean environment and competitiveness/economic diversification, which, along with spatial integration, are the dimensions of the state s medium term strategic development plan Plano Estratégico da Bahia (PEB ). The PEB dimensions are very similar to those of the Bank s Brazil CAS 1. The state s strategic plan correctly identifies widespread poverty as Bahia s key challenge, which was reflected by the creation by the state government of a new Department and Fund for Poverty Reduction, covering both rural and urban poverty. PEB proposes a comprehensive urban poverty reduction strategy, touching especially on the first three dimensions above, and translating into a program called Viver Melhor. The strong correlation between urban poverty and informal settlements in Bahia was demonstrated by the targeting exercise that was carried out by the state government for the Viver Melhor program. The poverty and social exclusion mapping methodology introduced by Aldaiza Sposati in São Paulo was adapted for use in Bahia, and employed with data from the 2000 Census in Salvador and twelve other municipalities. At the same time, informal settlement areas were identified and mapped out. The strong correlation led the government to base its urban poverty reduction strategy on geographic targeting, coupling slum upgrading, i.e. an access to basic infrastructure and services package, with other social spending in the same geographic areas, identified by poverty mapping. Such geographic targeting of poverty reduction actions, leading to improved targeting of social spending, is a key recommendation of a recent Bank study of poverty in Bahia (Verner 2004), which shows that currently only 14 percent of social spending reaches the 1 st quintile of the income distribution. The concept of coupling a slum upgrading package with social support actions is not new. In addition to experiences in Bahia itself, projects like the Bank-funded Guarapiranga in São Paulo (Loan 3504 BR, closed in 2002), the recently started PROMETROPOLE Program in Recife (Loan 4690 BR), the PAT- PROSANEAR Program to extend water supply and sanitation service coverage to the poor (Loan 4532 BR) and Rio s Favela-Bairro (financed by IADB) have utilized integrated approaches to slum upgrading, at a large scale. One of the lessons from such large-scale projects has been the importance of support to resident communities extending beyond the period of the physical works, in the areas of income generation and social development, as well as in the use and upkeep of the new facilities and infrastructure. A promising new approach to urban poverty reduction is emerging from these projects, using urban upgrading as an entry point for a range of social programs. This new approach seems poised to make a key contribution to the attainment of the "Cities Without Slums" Millennium Development Goal (Target # 11). In Bahia, this integrated approach to slum upgrading has included a particularly strong emphasis on social program content. The pilot project at Novos Alagados, in Salvador, which was financed by the Bank s PRODUR loan (Loan 4140 BR), was based on an integrated and participatory methodology, seeking to address the many dimensions of poverty and enhance the asset base of the poor, in one of Salvador s poorest areas. Begun in 1995, the Novos Alagados Urban Upgrading and Social Promotion Project was implemented in the northernmost part of the area known as Ribeira Azul. In 1999, the Government of Bahia launched the Ribeira Azul Program, aiming at replicating the methodology of Novos Alagados in the remaining parts of Ribeira Azul, including the series of squatter settlements on stilts known as Alagados. The Ribeira Azul Program benefits from a Cities Alliance-funded and NGO-executed TA and social support project, through a $5million grant from the Italian Government. 2 In addition to the standard slum upgrading package of provision of basic urban infrastructure, housing improvements and 1 The social justice and cohesiveness dimension roughly corresponds to the Bank s equity pillar; competitiveness/economic diversification roughly corresponds to the CAS competitiveness pillar; the clean environment dimension, to the CAS sustainability pillar. 2 The success of the Ribeira Azul TA project has led the Italian Government to pledge a new grant, of Euro 5 million, which will be used to replicate the Ribeira Azul technical assistance arrangements in Viver Melhor II.

3 environmental rehabilitation, the Ribeira Azul Program devotes significant resources to communitydriven development and participatory planning, plus a range of actions that address social exclusion, inter alia access to basic education, improvement of the quality of education, public health services, support to families (and especially women-headed households) through enhanced day care services and income and employment opportunities. The Novos Alagados Project and the Ribeira Azul Program were part of the investments undertaken since 1995 by the state of Bahia to improve the housing and infrastructure conditions of the urban poor, with financing from various sources, including the recently completed World Bank PRODUR loan (Loan 4140 BR). These investments were collectively known as the Viver Melhor Program. The success of the participatory and integrated approach used at Novos Alagados and Ribeira Azul 3 has led the state government to propose a new phase of Viver Melhor hence Viver Melhor II which will scale up and expand the scope of the previous housing and infrastructure program, transforming Bahia s largest cities that is envisaged in the state s strategic plan. Beyond the magnitude of the need for urban poverty reduction, the momentum and critical mass of local capacity generated by Novos Alagados and Ribeira Azul have encouraged the government to launch Viver Melhor II as a statewide intervention along the same integrated and participatory lines. The poverty reduction strategy of Ribeira Azul and its spending allocation methodology, which will be replicated at a larger scale in Viver Melhor II, are based on a study of poverty correlates in the area. The findings are similar to, and the approach matches key recommendations of, the recent Bank study on poverty in Bahia (Verner 2004): inter alia, the use of a geographic targeting mechanism, in which spending allocations are guided by overlaying poverty and service coverage maps; focusing public spending on items that disproportionately benefit the poor, such as basic services in slum areas; beneficiary participation in design and implementation; the emphasis given to day care and early childhood 4 programs; the emphasis given to education as the strongest poverty reduction correlate; and the resources devoted and emphasis given to monitoring and evaluation, including, importantly, impact evaluation. The Brazil Country Assistance Strategy CAS , approved December 2003, highlights the increasing poverty trends in metropolitan areas, expressed in urban violence and high unemployment. It suggests a stronger focus on metropolitan poverty reduction, and calls for an integrated approach in support of multisectoral, rural and urban development strategies at the sub-national level. The strategic goals of a more equitable, sustainable, and competitive Brazil include as long-term development outcomes reducing extreme poverty, vulnerability, and social exclusion, more equitable access to local services and under strategic goal #4 good governance. The proposed operation is in line with these challenges. The Program fits into at least two of the four building blocks for assistance within the Bank s urban strategy: (iii) scaling up programs to provide services to the poor; and (iv) expanding assistance for capacity building, particularly at the municipal level. The Bahia Integrated Urban Development Project is explicitly envisaged in the CAS (see CAS Annex B3 Brazil: Bank Group Program Summary Proposed IBRD Higher Range Base Case Lending Range Program, FY , in FY04-05, under the Competitiveness pillar). The CAS also calls for transformation of the cooperation with state governments into integrated state strategies and projects, including public expenditure and policy analysis., covering both the rural 3 Although final, quantitative evaluation results for Novos Alagados and Ribeira Azul are not yet available, there is much anecdotal evidence of positive impact, which is confirmed by limited studies and the perceptions of stakeholders, partner organizations, and the government. 4 One of the key poverty correlates in Bahia is young heads of households with young children; furthermore, the gender of head of household affects poverty more in Bahia than in Brazil as a whole (Verner 2004).

4 space and urban centers. In this context, Viver Melhor II is part of a comprehensive poverty reduction strategy to be supported by the Bank in Bahia. This strategy, which is the object of a policy document currently under preparation by the state government, would be supported by Bank-financed projects in health, education, income generation, protection of vulnerable groups, slum upgrading, urban poverty reduction, logistics infrastructure, water resources management, rural poverty reduction and institutional strengthening at the local and state government levels. Some of these projects are ongoing, while others have been proposed. It is envisaged that the proposed operations may form part of an APL whose component loans would fit into a framework document to be presented to the Board along with the Viver Melhor II loan, which is likely to be the first of the proposed operations to get to the Board. The public expenditure and policy analysis content of the integrated state strategy would be ensured by a Horizontal Component in Viver Melhor II, which would be aimed at enhancing state capacity to plan, monitor and evaluate integrated public programs and actions, coordinate multisectoral programs and further improve fiscal management. Viver Melhor II will also include a range of institutional capacity-building actions which would contribute to the implementation of the comprehensive strategy under discussion between Bahia and the Bank, including, importantly, capacity-building aimed at local governments, strengthening their capacity to deal with poverty-related issues. The proposed Viver Melhor II loan, in the amount of $96 million (of a total program amount of $165 million), would be an APL whose loan amounts for the two stages would be respectively $49.3 million and $46.7 million. The financing proposal ( Carta Consulta ) from the State Government of Bahia was approved by the Brazilian Governments Commission for External Financing (Cofiex) and the Minister of Planning in November Project preparation, which is under way, is being carried out by the Urban Development Company of the State of Bahia CONDER, under the overall direction of the state s Department of Urban Development SEDUR. Preparation is co-financed by a PHRD grant from the Japanese Government and contributions from the Italian Government through the Cities Alliance (Ribeira Azul TA Project). In December 2003, the Bank and the Government of Bahia signed the PHRD grant agreement for project preparation. Bank involvement in the Viver Melhor II Program will add to the expertise in urban upgrading projects and municipal development that has already been provided to Bahia through the PRODUR loan (Loan 4140 BR) and the Bank s supervision of the Cities Alliance-funded TA to the Ribeira Azul Program. In Salvador and selected medium-size cities this new program will continue capacity building actions undertaken by PRODUR (Loan 4140 BR). The State of Bahia has shown commitment to working with the Bank by organizing a Project Preparation Unit UTP Viver Melhor II in the state government's urban development company (CONDER), which prepared the Carta-Consulta which was presented to Cofiex. The Governor of Bahia, in February 2004, issued a decree by which a Project Management Unit UGP was established within SEDUR. Between the UGP and the UTP, the Government of Bahia has mobilized its best regular staff in the urban development field for the preparation of Viver Melhor II. The Ribeira Azul Program Management Unit and AVSI, the NGO through which the Cities Alliance-funded TA is provided, are also actively involved in preparing Viver Melhor II. Following a rigorous fiscal adjustment in the early 1990s and the modernization of fiscal management that ensued, the Bahia state government has earned a reputation as a fiscally responsible administration. This reputation is borne out by analysis of the Lei de Responsabilidade Fiscal (LRF) indicators for , which show Bahia in a very comfortable position, in absolute terms and also vis-à-vis other states. Its capacity to take on new debt is high. In addition, the state s high primary surplus in the last four years bodes well for payment capacity. These figures confirm the indication that Bahia, of all Brazilian states, is perhaps in the best position to take on new debt, which was given by STN during the CAS/Portfolio Review held on 27 and 28 September With regard to Viver Melhor II, the proposed operation is specifically included in the fiscal adjustment agreement signed between the Bahia government and STN.

5 2. Proposed objective(s) The projects development objective is to reduce urban poverty in a sustainable manner, targeting the poorest and most vulnerable sections of Salvador and strategic cities of the state of Bahia with access to basic services and improved housing and social support services. Specific objectives are: (i) improved quality of life and asset base for the poor through the provision of basic infrastructure services, improvement of housing conditions and access to urban land, and regularization of land tenure and buildings in slums and unplanned settlements; (ii) improved access to social programs in the areas of income and employment generation, direct support to families survival strategies (e.g. through better and easier to access daycare facilities), health care, education and job training, and initiatives in the area of community security at the local settlement level; and (iii) enhanced state and local government capacity to plan, implement, monitor and evaluate integrated urban poverty reduction strategies involving several different departments, undertake urban upgrading and land delivery, coordinate social policy on the ground through participatory planning, and monitor and evaluate government programs through poverty and quality of life indicators. 3. Preliminary description Based on existing research and preliminary studies, which will be expanded and consolidated during project preparation, the project would be an APL with investments in the five key areas described below. Integration among the various investment lines will be ensured, as in the Ribeira Azul experience, by an area-based and participatory planning process based on local resident and local association involvement in information gathering and analysis and in every step of the planning and implementation process in each community. (a) Access to integrated basic infrastructure and services and access to housing and land for the poor in slums and other poor areas through: (i) civil works for urban drainage, roads, water supply, sewerage, solid waste management, street paving, replacement housing as needed, stabilization of slopes and embankments and flood protection, recreational and community areas, etc.; (ii) improvements in physical access to plots and site layout; (iii) intra- and extra-settlement relocation when remaining in place is untenable; 5 (iv) improving the sustainability and management of basic services; (v) developing mechanisms for starting-up affordable formal land delivery to the poorest segments; (vi) supporting the home improvement and expansion efforts of low-income urban residents; and (vii) supporting regularization of land tenure and buildings in slums and other informal areas. 6 (b) Trunk infrastructure: This component will include trunk infrastructure (macro-level works) that may be necessary to integrate targeted informal areas into the fabric of the formal city, such as: (i) macro sewerage and drainage; (ii) access roads; (iii) water supply mains. 5 As in Ribeira Azul, every effort will be made in Viver Melhor II to minimize resettlement. When absolutely necessary due to situations of risk or other project imperatives, relocation will be to nearby areas. 6 Regularization processes provide security of land tenure to existing occupants, while affordable land delivery mechanisms, which cater to new households entering the housing market, are necessary to prevent new slum formation.

6 (c) Integrated social development: this component will be driven by the participatory planning process in each area of intervention. According to the needs and demand of each area, it will seek to create conditions for sustainable urban poverty reduction through a subset or combination of the following: (i) income and employment generation, including job creation in depressed areas by wide use of laborintensive construction techniques and local labor in the public works to be financed by the project; (ii) direct support to families survival strategies (e.g. through increased day care facilities); (iii) primary health care, primary education and job training; and (iv) initiatives for enhanced security at local community level. As in Ribeira Azul, this component will give priority to identifying, strengthening and health care, primary education and job training; and (iv) initiatives for enhanced security at local community level. As in Ribeira Azul, this component will give priority to identifying, strengthening and partnering with existing public and non-governmental institutions and programs. (d) Community Organization and Development. This component will include: (i) identification of patterns and structures of community organization and leadership, and implementation of local participation strategies; (ii) participatory information gathering and analysis, leading to community diagnosis of constraints and opportunities; (iii) participatory planning, design and execution of physical interventions; (iv) identification, evaluation and strengthening of local organizations and facilities providing social services; (v) preparation and execution of a plan for social and technical support to local residents after implementation of each sub-project s physical interventions, including health and environmental education and notions on appropriate use and maintenance of the new facilities provided by the project, as a pre-condition for impact and sustainability. (e) Institutional capacity-building for urban poverty reduction will include: (i) development and implementation of urban planning and land development mechanisms and tools; (ii) development and implementation of tools to keep track of the development of informal settlements, and measure/monitor urban poverty indicators; (iii) development of sound subsidy structures and cost recovery strategies; (iv) support to the strengthening of the institutional framework for urban poverty reduction, including building the necessary relationships among state and municipal agencies and between state and local governments; (v) through a Horizontal Component, strengthening of the state government s capacity to plan, monitor and evaluate its programs and strengthening of the state s fiscal management; and (vi) provision of technical assistance and capacity-building, including in-service training and provision of the necessary equipment, to the state s Departments and local governments, to enable them to use the instruments developed and disseminated by the project. The thirteen strategic cities that will be involved in Viver Melhor II are Salvador, Alagoinhas, Barreiras, Eunápolis, Feira de Santana, Ilhéus, Itabuna, Jequié, Juazeiro, Paulo Afonso, Serrinha, Teixeira de Freitas and Vitória da Conquista. They were chosen by the government according to the following criteria: (i) cities of the state s Basic Urban Network (40 cities, representing 58 percent of Bahia s urban population); (ii) out of the previous list, municipalities concentrating 80 percent of the state s of economic activity (23 municipalities, representing 53 percent of Bahia s urban population); (iii) those with population higher than 80,000; and (iv) those located along one of the state s main transport routes. The result was the above list of 13 municipalities, which concentrate 44 percent of Bahia s urban population. In all of these cities, studies undertaken by the borrower using 2000 Census data and GIS applications have led to the identification and preparation of socio-economic profiles of poor and vulnerable sections, according to an adaptation of the Map of Social Exclusion methodology developed in São Paulo. Adjoining areas thus identified have been grouped together in so-called macro-areas for intervention. Such macro-areas for intervention, as in the case of Ribeira Azul in Salvador, not only gather adjoining informal settlement areas with similar characteristics, but also conform a physical planning and intervention unit, which in the case of Viver Melhor II coincides with a river basin or sub-basin. This makes it easier to plan the infrastructure components of the intervention, identifying and articulating trunk

7 infrastructure needs and local-level infrastructure needs. Using river basins or sub-basins as planning units will help the project to conform to, and support the implementation of, the state s integrated water resources management plan and municipal and state government plans for water supply, sanitation and urban drainage. In the case of Salvador, trunk infrastructure needs in the case of water and sanitation have been largely dealt with by the Bahia Azul program, but there are major deficiencies in the other cities. Trunk infrastructure needs and linkages to water resources management, watsan and drainage are being identified for sample macro-areas in Salvador and Ilhéus as part of project preparation. 4. Safeguard policies that might apply Environmental Assessment (OP/BP 4.01) Involuntary Resettlement (OP/BP 4.12) Cultural Property (draft OP OPN 11.03) 5. Tentative financing Source: ($m.) Borrower 64.0 International Bank For Reconstruction And Development 96.0 Italian Government Grant 5.0 Total Contact point Contact: Ivo G.P. Imparato Title: Sr Urban Spec. Tel: (55 11) Fax: (55 11) iimparato@worldbank.org Location: Sao Paulo, Brazil (IBRD)