Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-73850) ON A LOAN IN THE AMOUNT OF US$ 110 MILLION ARGENTINE REPUBLIC

Transcription

1 Public Disclosure Authorized Document of The World Bank Report No: ICR Public Disclosure Authorized IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-73850) ON A LOAN IN THE AMOUNT OF US$ 110 MILLION Public Disclosure Authorized TO THE ARGENTINE REPUBLIC FOR A BASIC MUNICIPAL SERVICES PROJECT October 27, 2015 Public Disclosure Authorized Social, Urban, Rural and Resilience Argentina, Paraguay and Uruguay Country Management Unit Latin America and the Caribbean Region

2 ABBREVIATIONS AND ACRONYMS CURRENCY EQUIVALENTS (Exchange Rate Effective 09/29/2015) Currency Unit 1.00 = US$ 0.11 US$ 1.00 = 9.41 FISCAL YEAR 2015 AADT BMSP CAF CAS FRL GoA GDP IDB INDEC IRF ISR MDP I MDP II MINPLAN M&E MS NBI O&M PAD PDO PIU PROMEBA SIL SLA TA TTL UCPPFE UEC UEP Annual Average Daily Traffic Basic Municipal Services Project Banco de Desarrollo de América Latina (Latin American Development Bank) Country Assistance Strategy Fiscal Responsibility Law Government of Argentina Gross Domestic Product Inter-American Development Bank Instituto Nacional de Estadística y Censos (National Institute of Statistics and Censuses) Involuntary Resettlement Framework Implementation Status and Results Report Municipal Development Project I Municipal Development Project II Ministerio de Planificación Federal, Inversión Pública y Servicios (Secretariat of Public Works at the Ministry of Federal Planning, Public Investment and Services) Monitoring and Evaluation Moderately Satisfactory Necesidades Básicas Insatisfechas (Unmet Basic Needs) Operation and Maintenance Project Appraisal Document Program Development Objectives or Project Development Objectives Project Implementation Unit Programa Mejoramiento de Barrios (Neighborhood Upgrading Program) Specific Investment Loan Subsidiary Loan Agreement Technical Assistance Task Team Leader Unidad Coordinadora de Programas y Proyectos con Financiamiento Externo Unidad Ejecutora Central (Central Executing Unit) Unidad Ejecutora Provincial (Provincial Executing Unit) Senior Global Practice Director: Sector Manager: Project Team Leader: ICR Team Leader: ICR Main Author: Ede Jorge Ijjasz-Vasquez Anna Wellenstein Christoph Prevost Augustin Maria Marisa Garcia i

3

4 ARGENTINA Basic Municipal Services Project CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1. Project Costs and Financing Annex 2. Outputs of Component Annex 3. Economic and Financial Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5. List of Supporting Documents MAP ii

5 A. Basic Information Country: Argentina Project Name: AR Basic Municipal Services Project Project ID: P L/C/TF Number(s): IBRD ICR Date: 10/27/2015 ICR Type: Core ICR Lending Instrument: SIL Borrower: Original Total Commitment: Revised Amount: USD M Environmental Category: B ARGENTINE REPUBLIC USD M Disbursed Amount: USD M Implementing Agencies: Central Executing Unit (Unidad Ejecutora Central, UEC) in the Coordinating Unit of Programs and Projects with External Financing (Unidad Coordinadora de Programas y Proyectos con Financiamiento Externo, UCPPFE) of the Ministry of Federal Planning, Public Investment and Services (Ministerio de Planificación Federal, Inversión Pública y Servicios, MINPLAN). Cofinanciers and Other External Partners: B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 04/07/2005 Effectiveness: 06/01/ /01/2007 Appraisal: 12/02/2005 Restructuring(s): 06/09/ /22/ /03/ /17/2013 Approval: 06/06/2006 Mid-term Review: 02/01/ Closing: 03/31/ /30/ /30/2015 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Moderately Satisfactory Moderate Moderately Satisfactory Moderately Satisfactory iii

6 C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory Quality of Supervision: Moderately Satisfactory Implementing Agency/Agencies: Moderately Satisfactory Overall Bank Overall Borrower Moderately Satisfactory Performance: Performance: Moderately Satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: Yes Yes Satisfactory Quality at Entry (QEA): Quality of Supervision (QSA): None None Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Sanitation Sub-national government administration Urban Transport Wastewater Treatment and Disposal Water supply Theme Code (as % of total Bank financing) City-wide Infrastructure and Service Delivery Decentralization Municipal governance and institution building Water resource management iv

7 E. Bank Staff Positions At ICR At Approval Vice President: Jorge Familiar Calderon Pamela Cox Country Director: Jesko S. Hentschel Axel van Trotsenburg Practice Manager/Manager: Anna Wellenstein John Henry Stein Project Team Leader: Christophe Prevost David Sislen ICR Team Leader: ICR Primary Author: F. Results Framework Analysis Augustin Maria Marisa Garcia Project Development Objectives (From the Loan Agreement) The objective of the Project is to improve the quality of: (a) basic municipal services, through the provision of water supply and sanitation, urban drainage and roads infrastructure in an equitable and fiscally sustainable manner within the territorial jurisdiction of Participating Provinces; and (b) life of the population to be benefited by the provision of said services. 1 Revised Project Development Objectives (as approved by original approving authority) N/A (a) PDO Indicator(s) Indicator Indicator 1 Value quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Original: One million consumers benefit from improved access to reliable and safe water supply and sanitation, urban drainage infrastructure and improved roads Revised (2012 restructuring): One million consumers benefit directly or indirectly from improved access to reliable and safe water supply and sanitation, urban drainage infrastructure and improved roads 0 1,000,000 1,000,000 (direct + indirect beneficiaries) 1,463,486 (297,158 direct beneficiaries; 1,166,328 indirect beneficiaries) Date achieved 04/03/ /31/ /30/ /30/ PDO formulation in the PAD is slightly different: Improve the quality of life and the quality of basic municipal services through the provision of water supply and sanitation, urban drainage, and roads infrastructure in an equitable and fiscally sustainable manner. As per the ICR guidelines, the PDO from the Loan Agreement will be used as a basis for this evaluation. v

8 Comments (incl. % achievement) Revised target 146% achieved. The indicator was revised to clarify that the project would have direct and indirect beneficiaries. Direct beneficiaries were defined as residents of properties having benefited from new access to water supply, sanitation, and drainage, or directly adjoining a road improved under the Project. Given the type of investments financed under the Project, the subprojects also benefited populations beyond the direct beneficiaries as defined above. For example, system-wide improvements to municipal water supply systems provided improved quality of service to a wider population than just those provided with new connections. In the case of improvements in urban and productive roads, the population benefitting from improved traffic conditions was also assessed, in addition to the direct beneficiaries. Indicator 2 Value quantitative or Qualitative) Beneficiaries in a majority of subprojects for water, sanitation, urban drainage and urban road have greater NBI on average than the municipal average. N/A Yes Yes (12 municipalities) Date achieved 04/03/ /31/ /30/ /30/2015 Comments (incl. % achievement) Target achieved. Necesidades Básicas Insatisfechas (NBI) is an index used by the Government of Argentina to measure access to basic needs - crowding, housing, sanitation, educational status and related measures. It was envisaged at preparation that the indicator could be measured based on census information at the census tract level, to compare the NBI of the areas covered by the Project with the average NBI at the municipal level. During implementation, it became apparent that this method could not be applied due to the difficulty in defining the project area in a way that could allow to compare the NBI in this area with the municipal average. In December 2013 the Implementing Agency and the World Bank agreed to measure the indicator as the number of subprojects implemented in a municipality with an NBI higher than the average NBI of the respective province. Based on the 2011 census information from the National Institute of Statistics and Censuses (INDEC) (Instituto Nacional de Estadística y Censos), 12 out of the 21 participating Municipalities have a higher NBI than the Provincial average, representing 55 percent of the sample. (b) Intermediate Outcome Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years COMPONENT 1 Original: 200,000 new consumers are connected to water supply networks Indicator 1 Revised: 250,000 consumers have access to infrastructure and improved networks for water supply and sanitation services Value quantitative or 0 200, , ,129 Qualitative) vi

9 Indicator Baseline Value Original Target Values (from approval documents) vii Formally Revised Target Values Actual Value Achieved at Completion or Target Years Date achieved 04/03/ /31/ /30/ /30/2015 Revised target 69% achieved. The indicator was modified to include both water and sanitation beneficiaries and to increase the target value from 200,000 to Comments (incl. % achievement) 250,000. Given that the BMSP was designed as a Framework Project, Municipalities demand shifted towards more road investments, and subprojects in water supply had a lower demand than initially anticipated. Although the indicator was not achieved even after being modified during restructuring, other subsectors (new users for sanitation and roads) exceeded the targets. Original: 600,000 new consumers are connected to sanitation and sewerage Indicator 2 networks Revised: 16,000 new consumers are connected to sanitation and sewerage networks Value quantitative or 0 600,000 16,000 28,600 Qualitative) Date achieved 04/03/ /31/ /30/ /30/2015 Comments (incl. % achievement) Indicator 3 Revised target 178.7% achieved. The target value was modified to better reflect subproject demand from Municipalities. The demand to finance sanitation and sewerage works under the Project was significantly lower than expected at the appraisal stage due to the availability of grant financing for this type of investment under other national programs. 500,000 consumers receive access to improved sanitation and sewerage networks. Value quantitative or 0 500, Qualitative) Date achieved 04/03/ /31/ Comments (incl. % The indicator was dropped during 2012 restructuring. achievement) Indicator 4 Each subproject for water and sanitation includes a mechanism for achieving full cost recovery of O&M costs for investments Value quantitative or N/A Yes N/A Yes Qualitative) Date achieved 04/03/ /31/ /30/2015 Comments (incl. % achievement) Achieved. All water and sanitation subprojects were designed with a mechanism for O&M cost recovery. In the cases of the subprojects in the Province of Santiago del Estero (Monte Quemado and Campo Gallo), the introduction of cost recovery mechanisms is being considered but has not yet been implemented. The Bank continues to support the Provincial government on comprehensive policies for sustainable service delivery; and the introduction of the proposed cost recovery mechanisms appears likely. Given that the wording of this indicator

10 Indicator Baseline Value Original Target Actual Value Formally Values (from Achieved at Revised approval Completion or Target Values documents) Target Years refers only to the inclusion of a mechanism, and not the actual cost recovery, the indicator is considered as achieved. Indicator 5 Original: 100 km of urban drainage Revised: 10 km of urban drainage Value quantitative or Qualitative) Date achieved 04/03/ /31/ /30/ /30/2013 Comments (incl. % achievement) Indicator 6 Revised target 42% achieved. The target was not achieved because the list of subprojects financed under the Project changed after the targets were adjusted. Given that the BMSP was designed as a Framework Project, Municipalities demand shifted towards more road investments, and subprojects in urban drainage had a lower demand than initially anticipated. Although the indicator was not achieved even after being modified during restructuring, other subsectors (new users for sanitation and roads) exceeded the targets. Original: 200,000 beneficiaries benefit directly from improved urban drainage Revised: 20,000 beneficiaries benefit directly from improved urban drainage Value quantitative or 0 200,000 20,000 7,200 Qualitative) Date achieved 04/03/ /31/ /30/ /30/2013 Comments (incl. % achievement) Indicator 7 Revised target 36% achieved. This indicator includes beneficiaries from the only two subprojects (in Rafaela and San Martin) that financed urban drainage. The BMSP was designed as a Framework Project and Municipalities opted to finance other types of works rather than drainage. As mentioned before, even though the indicator was not achieved, it should be noted that indicators in other subsectors (new users for sanitation and roads) exceeded the targets. 85 percent of investment cost for urban drainage is recovered from direct beneficiaries Value quantitative or N/A Yes N/A No Qualitative) Date achieved 04/03/ /31/ /30/2015 Comments (incl. % achievement) Indicator 8 Not achieved. All subprojects were prepared along with financial evaluations that included specific provisions for cost recovery. In the case of urban drainage subprojects, the majority of the direct beneficiaries would pay for improvements through provincial taxes. However, by the end of Project implementation, the application of cost recovery mechanisms was reviewed, as was found that Provinces subsidized investment costs in the two urban drainage subprojects. Therefore, zero percent of investment cost was recovered from direct beneficiaries. Original: 30 km of rehabilitated and paved urban roads Revised: 75 km of rehabilitated and paved urban roads Value viii

11 Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years quantitative or Qualitative) Date achieved 04/03/ /31/2012 2/19/2014 Comments (incl. % achievement) Indicator 9 Revised target 114% achieved. The final value achieved reflects beneficiaries from seven subprojects: Rafaela, Maipu-Godoy Cruz, Gral. Pueyrredon, Rosario de la Frontera, Guaymallen, Rosario and Cerrillos. Original: 90 km of rehabilitated and paved productive roads Revised: 125 km of rehabilitated and paved productive roads Value quantitative or Qualitative) Date achieved 04/03/ /31/ /19/2014 Comments (incl. % achievement) Indicator 10 Revised target 105% achieved. The final value achieved reflects beneficiaries from subprojects Roca-Allen, Roca-Cervantes and Lules. 200,000 beneficiaries receive access to improved urban roads 1,196,473 (122,829 Value quantitative or 0 200, direct beneficiaries and 1,073,644 Qualitative) indirect beneficiaries) Date achieved 04/03/ /31/2012 4/30/2015 Target 598% achieved. The target was significantly exceeded because the project financed more urban roads than what was originally anticipated at project Comments preparation. The reported value corresponds to the estimated direct and indirect (incl. % beneficiaries from the Azul, Cerrillos, Frias, General Pueyrredon, Guaymallén, achievement) Lules, Maipu-Godoy Cruz, Rafaela, Roca-Allen, Roca-Cervantes, Rosario, and Rosario de la Frontera subprojects. Indicator percent of investment cost for urban and productive roads is recovered from direct beneficiaries Value quantitative or N/A 85% N/A 24.4% Qualitative) Date achieved 04/03/ /31/ /30/2015 Comments (incl. % achievement) Target partially achieved. All road subprojects were prepared with a provision for cost recovery from direct beneficiaries. However, the provisions for cost recovery were only partially implemented and the ex-post financial analysis indicates that only 24.4 percent of the investment cost for urban and productive roads was recovered from direct beneficiaries. COMPONENT 2 Improvements in basic commercial and operational indicators for municipalities Indicator 12 and provincial service providers including: reduction in leakage rates in case of water supply; improvement in billing and collection rates - arrangements for ix

12 Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years operations and maintenance in place and effective; arrangements and targets for cost recovery outlined in each subproject are achieved 2 Value quantitative or N/A N/A N/A Qualitative) Date achieved 04/03/ /31/ Comments (incl. % achievement) Not gathered. The improvements measured by this indicator would have been supported by TA, which was not implemented due to provinces objection to borrow for this activity. The indicator was not dropped during restructuring because a TA activity was being prepared for the Province of Nequén at that same time. Nevertheless, the Province opted out and did not request funds for the activity. Terms of reference had been prepared with a focus on management of the sanitation subprojects that were financed. COMPONENT 3 Indicator 13 80% of subprojects have been implemented as scheduled on an annual basis Value quantitative or N/A Yes N/A Yes Qualitative) Date achieved 04/03/ /31/ /30/2015 Comments (incl. % achievement) Despite obstacles throughout implementation, the Project was able to commit most funds and deliver the subprojects to a greater number of beneficiaries than originally planned. Indicator 14 Regular independent technical reviews find the quality of subproject implementation as satisfactory. Value quantitative or N/A Yes N/A Yes Qualitative) Date achieved 04/03/ /31/ /30/2015 Comments (incl. % achievement) Achieved. The technical quality of the subprojects was found to be satisfactory. The independent technical reviews were carried out regularly by technical specialists in relevant sectors hired by the Bank. The reviews were based on site visits to all 22 subprojects. All technical comments on subproject implementation provided by the review were satisfactorily addressed by the implementing agency. 2 Indicators noted here are indicative for different types of subprojects and the UEC, in association with UEPs and participating municipalities, will outline, monitor and report on key indicators for each subproject for technical assistance. x

13 G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 11/20/2006 Satisfactory Satisfactory /04/2007 Moderately Satisfactory Moderately Satisfactory /11/2007 Moderately Satisfactory Moderately Satisfactory /06/2008 Moderately Satisfactory Moderately Satisfactory /24/2008 Moderately Satisfactory Moderately Satisfactory /21/2009 Satisfactory Satisfactory /30/2009 Moderately Satisfactory Moderately Unsatisfactory /05/2010 Moderately Moderately Unsatisfactory Unsatisfactory /24/2010 Moderately Moderately Unsatisfactory Unsatisfactory /16/2011 Moderately Moderately Unsatisfactory Unsatisfactory /05/2011 Moderately Satisfactory Moderately Satisfactory /11/2012 Moderately Satisfactory Moderately Satisfactory /16/2013 Moderately Satisfactory Moderately Satisfactory /13/2013 Moderately Satisfactory Moderately Satisfactory /06/2014 Satisfactory Satisfactory /17/2014 Satisfactory Satisfactory H. Restructuring (if any) Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO IP Amount Disbursed at Restructuring in USD millions 06/09/2008 MS MS /22/2010 MS MS /06/2012 Yes MS MS Reason for Restructuring & Key Changes Made An amendment to the loan agreement was approved to allow participating Provinces -upon written delegation by the pertinent Eligible Entity (Municipalities)- to carry out and finance Subprojects instead of the pertinent Eligible Entity. The project was restructured (Level one) to trigger the OP 4.12 on Involuntary Resettlement. (i) The project s closing date was extended from March 31, 2012 to November 30, 2013 (20 months). xi

14 Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO Amount Disbursed at Restructuring in USD millions 07/17/2013 MS MS IP Reason for Restructuring & Key Changes Made (ii) The percentage to be financed by the Bank loan for Categories 1 (Water Supply and Sanitation) and 2 (Urban Drainage and Roads) was increased from 75% to 100% (dropping co-financing by Municipalities). (iii) Funds were reallocated from Category 1 to Category 2 to reflect municipalities higher demand for road infrastructure (rehabilitation and pavement). Funds from Category 3 (Capacity Building and Training) were also transferred to Category 2. (iv) The project adjusted the Results Framework to reflect changes in indicators. The Project s closing date was extended from November 30, 2013 to April 30, 2015 (17 months). I. Disbursement Profile xii

15

16 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. Argentina's recovery in the years following the economic crisis was impressive. After three years of fast growth (averaging roughly 8.8 percent during ), at the time of Project approval in 2006, gross domestic product (GDP) had recovered to pre-crisis levels. A Country Assistance Strategy for the period was approved in May 2006 with the objective of supporting Government efforts to transition from crisis recovery to sustained, private sector-led growth with improved equity and reduced structural poverty. Support to infrastructure development represented the main lending area in the CAS, recognizing the need to rebuild key infrastructure capacity following several years of decline in infrastructure investment Within Argentina s federal structure, subnational governments play a key role in service delivery, although both provincial and municipal governments have remained highly dependent on transfers from higher levels of governments. Additionally, in spite of a high level of decentralization from the federal to the provincial level, the municipal sector has remained underdeveloped in Argentina. Municipalities are dependent on the provinces, which dictate their organization, taxing powers, and basic service delivery responsibilities. Priorities were identified at Project appraisal to enhance the municipal sector s capacity to finance, manage, regulate and deliver infrastructure services while at the same time improving the efficiency and sustainability of investment. These included: (a) improving the municipalities financial autonomy, accountability, and market discipline, (b) improving the use of public funds to leverage access to private capital investment, and (c) scaling up capacity building activities. 3. Municipal expenditures have been increasing in the period following the crisis but have remained a small fraction of overall public expenditure, and financial autonomy at the municipal level has not improved. Between 1990 and 2005, municipal expenditure fluctuated between 2 and 2.8% of GDP. Since 2006, municipal expenditures have been increasing, reaching 3.4% of GDP in However, this increase has taken place in the context of a faster expansion of overall public expenditure, reducing the share of municipal expenditure in the total public expenditure from 8.5% in 2006 to 6.7% in In addition, Fiscal reforms following the crisis have taken the form of greater concentration of revenues and centralization of authority over debt management. At the time of project preparation, the National Government had introduced two main instruments of fiscal coordination: the Federal Fiscal Responsibility Law, enacted in 2004 through Law and the provincial debt authorization mechanism enacted through Resolution 1075/93 issued by the National Ministry of Economy and Production. The latter resolution grants powers to the Ministry of Economy and Production to authorize all domestic and external provincial and municipal borrowing operations that are denominated in foreign currency or that commit, as collateral, resources from the federal revenue sharing system. 4. The BMSP was designed to contribute to the higher-level objectives of the Country Assistance Strategy (CAS) and was included in the lending program of the CAS. The Project substantially supported one of the CAS s three pillars, sustained economic growth with 3 Country Assistance Strategy for the Argentine Republic The World Bank. Report No AR 4 The CAS noted that Average total investment in infrastructure during the 1990s remained well under 2 percent of GDP, placing Argentina at the lower end among Latin American countries. 5 IERAL (2013), Anatomía del Gasto Público Argentino: Expansión en la última década y desafíos a futuro based on data from MECON. 1

17 equity and social inclusion, and its objectives were fully consistent with those of the CAS: to seek opportunities to build on an investment partnership to support Government efforts to transition from crisis recovery to sustained growth with equity and reduced structural poverty. Expanding access to all segments of Argentine society, in all parts of the country, to basic services was a key element in meeting these strategic objectives. 5. The Project was structured around three key investment sectors (Water Supply and Sanitation, Urban Drainage and Roads, and Capacity Building and Training), which broadly corresponded to local needs across provinces and which formed the core of emerging civil works and investment demand from municipalities expected to participate in the Project. Municipal governments in Argentina are primarily responsible for the provision of basic water and sanitation services (including solid waste management), local urban transport investment and management, traditional municipal investments such as drainage and street lighting, and a host of smaller local services such as parks, cemeteries, and markets. 6. The provision of basic municipal services in Argentina has been facing several challenges in key sector issues, including (a) expanding the coverage of basic services; (b) improving the efficiency by which services are delivered; (c) reducing the cost of services and making them sustainable by improving the selection process through which infrastructure is designed and rightsizing investment; and (d) putting in place cost recovery mechanisms which, in the context of the limited fiscal capacity of municipalities to finance investment through general revenues, address financing needs for operation, maintenance, and depreciation. 7. Bank s previous experience in Argentina. The Bank had accumulated over 15 years of experience supporting the Government through two other previous municipal projects: Municipal Development (MDPI) and Second Municipal Development (MDPII). With a focus on physical infrastructure and training, both projects aimed to mobilize resources for municipal investments and build municipal capacity for investment planning and execution. The Basic Municipal Services Project (BMSP) built upon that experience and recognized the need to focus and deepen the Bank s engagement. The Bank s engagement and the Government s approach had been successful in maintaining financial flows to local governments in the face of the economic crisis and in providing a source of funds for capital investment. BMSP maintained that trajectory and supported the Government s efforts to provide a source of investment resources for fiscally sustainable municipalities. Finally, the operation aimed to maintain the Bank s presence in Argentina and to engage in a medium-term policy dialogue to further address the sector s reform and development needs. 8. Bank s value added in Subproject design and selection to improve Municipal Capital Investment Planning. BMSP sought to assist participating municipalities in three fundamental ways: - First, by focusing investments on a selected set of high-impact basic services sectors, namely water and sanitation, roads and urban drainage which, when properly targeted, can have significant economic and social benefits. - Second, by enhancing the technical, economic, and financial screening of subprojects and of service providers to ensure rightsizing of investments and to advance towards service sustainability. - Third, by introducing incremental but important changes in the institutional arrangements. For instance, by involving sector actors in Project oversight at the provincial and central levels, and by embedding local investments within provincial sector plans prepared by each province. 2

18 1.2 Original Project Development Objectives (PDO) and Key Indicators 9. Project Development Objective, Loan Agreement 6 : The objective of the Project is to improve the quality of: (a) basic municipal services, through the provision of water supply and sanitation, urban drainage and roads infrastructure in an equitable and fiscally sustainable manner within the territorial jurisdiction of Participating Provinces; and (b) life of the population to be benefited by the provision of said services. 10. Key Indicators: (1) One million consumers benefit directly or indirectly from improved access to reliable and safe water supply and sanitation, urban drainage infrastructure and improved roads; (2) Beneficiaries in a majority of subprojects for water, sanitation, urban drainage and urban road have greater NBI 7 on average than the municipal average. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 11. PDO Indicator 1 was reworded during the 2012 restructuring to define the target beneficiaries as either direct or indirect, and to account for beneficiaries of improvements made in both new and existing infrastructure. Calculating direct and indirect beneficiaries varies according to each subproject, but can be differentiated in broad terms. Direct beneficiaries refer to residents of properties having benefitted from new connections to water, sanitation and sewerage supply networks, as well as those bordering improved roads. Indirect beneficiaries refer to a wider population, such as people that live in the area where the subprojects were carried out and who are also benefitting from the overall economic and social impacts attributed to them. The detailed descriptions of direct and indirect beneficiaries for each subproject are presented in Annex 2 Outputs of Component 1. Table 1. Changes in PDO indicators Original Project outcome indicators One million consumers benefit from improved access to reliable and safe water supply and sanitation, urban drainage infrastructure and improved roads. Beneficiaries in a majority of subprojects for water, sanitation, urban drainage and urban road have greater NBI on average than the municipal average 8 Updated One million consumers benefit directly or indirectly from improved access to reliable and safe water supply and sanitation, urban drainage infrastructure and improved roads. Same. 6 PDO formulation in the PAD is slightly different: Improve the quality of life and the quality of basic municipal services through the provision of water supply and sanitation, urban drainage, and roads infrastructure in an equitable and fiscally sustainable manner. The PDO was not formally revised, despite issues with inconsistent wordings. Due to Argentina s political situation, the World Bank Board did not discuss any Argentina-related projects for a period of 3.5 years between 2011 and 2014 (see Factors affecting Implementation), during which period no document related to Argentina (including Level 1 Restructurings) was submitted for approval to the Board of Directors. 7 Necesidades Básicas Insatisfechas (NBI) is a measure used by the Government of Argentina to measure access to basic needs - crowding, sanitation, educational status and related measures. 8 The indicator was designed to compare the value of the '# of households with at least 1 NBI' for each 3

19 1.4 Main Beneficiaries 12. Primary beneficiaries: The project s primary target groups were the direct and indirect beneficiaries of the capital investments (water supply and sanitation, urban drainage, and roads infrastructure), through improvements in their quality of life. In the majority of subprojects, direct beneficiaries were individuals with homes or other kinds of properties (e.g. farms and businesses) that gained new access to water supply, sanitation and drainage, or bordered improved roads. In addition to these direct beneficiaries, subprojects benefitted larger groups within the participating municipalities. For example, road improvement subprojects brought benefits in terms of traffic congestion and reduced travel times as well as lower vehicle operation costs. Investments in water supply systems generated benefits beyond the new connections provided through system-wide improvements in the quality of service. These benefits were identified through the social and economical analysis prepared for each subproject during implementation, and the quantification of indirect beneficiaries was estimated for each subproject on this basis. 13. Secondary beneficiaries: Eligible beneficiaries include municipalities and basic service providers, regulators and policymakers in the water and sanitation and roads sectors through capacity improvements derived from project preparation, implementation and technical assistance for capital investment planning. 1.5 Original Components (as approved) 14. Component 1: Municipal Infrastructure (US$ million, including US$ 99.4 million of Bank financing). The component financed investments to improve water supply and sanitation, urban drainage, and basic transportation access services in participating provinces and municipalities. Specifically, investments in the following sectors will be included: - Basic Water and Sanitation, including the construction and rehabilitation of production infrastructure, primary and secondary water supply networks, sewer network rehabilitation and expansion, water treatment plants, construction, rehabilitation and expansion of existing wastewater treatment and disposal facilities. - Urban Drainage and Small Retention Works, including the rehabilitation and expansion of drainage network and small retention works. Subprojects under this component would be relatively small and would complement investments under - where possible - the parallel flood protection APL. Typical investments would include main drainage and secondary networks, manholes and junctures. - Urban and Productive Roads, including works for the pavement and rehabilitation of urban, municipal connector and productive roads in order to both increase access and improve traffic flows through paved roads for under-serviced urban neighborhoods and rehabilitate priority segments of productive roads that will have an important impact on the reduction of logistics costs. 15. Component 2: Institutional Strengthening of Municipalities and Service Providers (US$ 5.0 million, including US$ 5.0 million of Bank financing). The component was designed to finance technical assistance primarily at the municipal level for improved planning, management participating municipality with that for the specific project area as measured at the level of census tract(s), the specific methodology for measurement was expected to be developed during implementation. 4

20 and operational capacity that aims specifically to improve the quality and coverage of water, sanitation, sewerage, urban drainage and roads services. Eligible beneficiaries include municipalities and basic service providers, regulators and policy makers in the water and sanitation and roads sectors. Subprojects for technical assistance under this component would also be on-lent to municipal and provincial service providers in a manner similar to Component 1 for works. The component would finance demand-driven technical assistance including, but not limited to: - Capacity building for technical, economic, financial, social and environmental preparation and assessment of subprojects. - Multi-year strategic investment planning and budgeting. - Tariff reviews. - Updating and improving cadaster of users. - Improvements in billing, collection and commercial management. - Technical exchanges, twinning and outreach activities. - Information, communications and education campaigns in key service sectors. - Poverty targeting and monitoring mechanisms as part of investment planning. - Preparation of territorial sector development and urban development plans. - Business and operational planning for service providers. 16. Component 3: Program Management (US$5.3 million, including US$5.3 million of Bank financing) to finance the operating expenses associated with program management, monitoring, evaluation and supervision. The component financed the staffing of the Central Executing Unit/Unidad Ejecutora Central (UEC) with technical specialists including sanitary engineers, environmental experts, roads experts and economists to effectively support subproject development and assessment, as well as procurement and financial management staff. Additional key activities to be financed under the component through external technical assistance and consultant services included: - Project preparation assistance. - Monitoring of poverty impacts. - Impact evaluation. - Public opinion monitoring. - Independent technical review of works. - Dissemination and outreach activities, including efforts to promote good practices at the local level. 1.6 Revised Components 17. Not applicable. 1.7 Other significant changes 18. A total of four Project Restructurings were carried out. The first restructuring (2008) introduced changes in implementation arrangements, mainly transferring responsibilities from the Municipal to the Provincial level. The second restructuring (2010) triggered the OP 4.12 on Involuntary Resettlement for a subproject in Rio Negro, and for any potential resettlements in existing or future subprojects. The third restructuring (2012) extended the project closing date, reallocated funds between components and adjusted the Results Framework to reflect demand. The last restructuring (2013) introduced a second extension of the project closing date. Further details of each restructuring are presented in section 2.2 Implementation. 5

21 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 19. The project preparation introduced improvements based on the work and outcomes of previous projects in Argentina. Albeit their successful ratings, past investments responded to a large variety of municipal needs, all of which did not necessarily focus on achieving economic growth and poverty reduction. The BMSP sought to focus the menu of subprojects for each investment type to those that would result in positive economic and social impacts. It did so by establishing a specific menu of eligible investments identified as key basic municipal services (water supply and sanitation, roads and drainage), and strengthening the requirements for subprojects using detailed technical eligibility criteria that was agreed during project preparation. This was done to ensure the relevance and sustainability of eligible investments. At appraisal a set of potential subprojects was identified and appraised. In addition, the process of subproject preparation and screening during implementation also included a systematic economic and financial analysis of every subproject. 20. The project design incorporated lessons learned in implementation and on-lending processes from the Bank s earlier operations supporting municipal development activities in Argentina. A three-layered implementation structure (i.e. federal government, provinces and municipalities) was selected to maintain the sectoral dialogue at the national level, while at the same time involving provinces and municipalities. The operation relied on the existing structure for on-lending through public sector budget between federal, provincial and municipal governments and for repayment along the same lines, instead of using intermediation. The project did not aim to introduce reforms. To lessen foreign exchange risks, the GoA decided to on-lend to participating provinces in United States Dollars, which in turn would on-lend to municipalities in local currency. 21. The operation reflected the GoA s preferences on resource allocation, organizational structure and targeting. The GoA requested to separate the BMSP s implementation (through the Ministry of Federal Planning) from that of the Subnational Governments Public Sector Modernization Project (through the Ministry of the Interior). It was noted at appraisal that, as a result, the BMSP was nearly a pure investment operation. However, the project was expected to advance the municipal development agenda through improved transparency in the allocation of subloans to eligible subprojects and improved focus on well-dimensioned sustainable investments. The Project Appraisal Document (PAD) also notes that the GoA chose not to restrict the number or geographical spread of participating provinces. It was recognized that the resulting small amounts allocated to each participating province would limit the Project s impact in terms of leveraging investments to provincial reforms, and the operation was thus presented as a first step focused on improving sustainability and introducing better project eligibility and management practices. 22. Based on previous project experiences, changes were integrated into subproject proposals. The project incorporated eligibility criteria as a filter for project selection, and to increase the quality of project proposals and provincial sector strategies (water, sanitation and transportation) to define an investment plan. Subproject proposals included plans for cost recovery of project investments. Also, the Project did not allow any expenditures in equipment. 6

22 2.2 Implementation 23. The project experienced delays in signing the Loan and declaring effectiveness. The project was approved in June 2006, but was not declared effective until June This delay was mainly due to the procedures of the GoA that required the signature of a national decree, and which affected most projects in Argentina. Let alone the processes which had to be completed at the national and provincial level following the Project s approval by the WB s board of executive director, the Project met the criteria for readiness for implementation at appraisal, and there were no additional delays in signing the Loan and declaring effectiveness. 24. Continuous changes in pipeline of subprojects required new projects to be identified and prepared during implementation, involving a lengthy process and adding further delays. Project design was overly optimistic when estimating the time length for approval of subprojects. Before their implementation, subprojects required meeting the following conditions: (i) adoption of Provincial Debts Laws 9 that authorized the Provincial Executive to access project funding; (ii) preparation of Provincial sector plans; and (iii) Bank approval after fulfilling all the key eligibility criteria participation. Only after these three conditions were met, a Subsidiary Loan Agreement (SLA) between the national government and the participating province was processed. Subsidiary agreements specified the amount of funds each province was receiving from the Project, and the total amount of funds approved by the Subsidiary Agreements could not exceed the total envelope of the project. In some cases, the SAs with Provinces were amended because the selected subprojects, which changed over time, exceeded the initial funding envelope. 25. Table 2 below illustrates the timeline for local debt laws approval, signing of Subsidiary Agreements and start of procurement procedures. As of 2008 (two years after the project approval), only the province of Rio Negro had signed a Subsidiary Agreement 10. Project implementation improved after 2008, and by 2010, eight subsidiary agreements had been signed and 100% of resources had been assigned to subprojects. It is important to note that after the project s first restructuring in 2008, which allowed the Provinces to take debt instead of the municipalities, the project advanced at a faster rate. 26. The Bank and UEC provided significant support to Municipalities to ensure timely preparation of subprojects. The Municipalities had limited capacities in project preparation, especially in meeting requirements related to economic and cost recovery analysis, technical specifications, procurement procedures and safeguards compliance. Although the Bank and UEC provided substantial and continuous support, it was not enough to avoid numerous Bank revisions of project documents and delays in implementation. Project design provided for the financing of capacity building for preparation of subprojects under Component 2, which would have been helpful in this case. However, most provinces and municipalities proved unwilling to finance technical assistance activities with loan proceeds resulting in very limited execution of the activities identified under Component 2. 9 Adoption of Provincial Debt Laws requires authorization by the Ministry of Finance for the Province to take on more debt, and approval by the local legislative body. 10 August 2008 Aide Memoire. 7

23 Table 2. Timeline: Local Debt Laws, Subsidiary Agreements, and Procurement Province Buenos Aires La Rioja Mendoza Neuquén Río Negro Santa Fe Salta Santiago del Estero Tucumán Municipality Provincial Debt Laws Approval Signing of Subsidiary Agreements Procurement General Pueyrredón Azul 2013 Capital /2014 Capital 2012 Guaymallén 2010 Maipú- Godoy Cruz / San Martín 2010 Chos Malal 2009 San Patricio del Chañar 2012 Roca-Allen 2006 Roca /2009 Cervantes 2011 Rafaela 2010 Rosario Rufino 2010 Cerrillos 2012 Rosario de la Frontera 2012 Campo Gallo 2013 Frías 2013 Herrera Monte Quemado 2013 Bella Vista Lules Shifts in the political and financial environments diminished demand for Bank financing. The circumstances under which the BMSP was designed changed immediately after project approval and effectiveness. Although it was initially assumed that the demand for Bank funding from Provinces and Municipalities would be high given the shortage of funds for capital investments, many other sources of funding later became available. With more options to choose from, requiring fewer conditions for project approval and execution (e.g. economic evaluations of subprojects and safeguards requirements), the Bank s financing became a less attractive source. Since this development was unforeseen at preparation, most of the original subprojects that were to be financed by BMSP were dropped. The process to identify new subprojects for which provinces and/or municipalities were willing and able to borrow took longer than anticipated. Project implementation was therefore extended by three years. Similarly, even though the justification to include a Capacity Building Component was initially sound, Project design overestimated the Municipalities demand to finance capacity building activities with debt. 28. Amendment to the Loan Agreement (Restructuring 1). On June 9, 2008 an amendment to the loan agreement was approved to allow participating Provinces -upon written delegation by the 8

24 pertinent Municipalities- to carry out and finance Subprojects instead of the Municipality itself. Based on low municipal capacity, some Provinces believed that centralizing project implementation at the provincial level would ensure better quality implementation. 29. Triggering of OP 4.12 on Involuntary Resettlement (Restructuring 2). On June 22, 2010 the project was restructured (Level one) to trigger the OP 4.12 on Involuntary Resettlement. At the time of appraisal no resettlement had been anticipated, but in 2009 the Bank was informed that a subproject in the province of Rio Negro (productive roads in Roca-Allen) involved the demolition of one house and resettlement of two individuals. The Bank team reviewed the case and concluded that in spite of proactive efforts of the Central and Provincial executing units, the management of the case did not fully comply with the Bank s OP Consequently, a Remedial Action Plan was prepared and approved by the Bank in November 2009, and the second restructuring was approved in June 2010 to trigger OP 4.12 so that the operation could develop the appropriate mechanisms to manage and prepare for any resettlement issues that could arise under implementation. 30. Extension of closing date, reallocation of funds and revision of Results Framework (Restructuring 3). The third restructuring was approved in March 2012 and included an extension of the closing date, a reallocation of funds between components and a revision of the Project s Results Framework. At the time this third restructuring was approved, the Project had disbursed 30 percent of the financing amount, and the list of subprojects to be financed had been mostly finalized (albeit with significant differences from the initial list considered at appraisal). The BMSP was prepared as a Framework Project that included subprojects on a subset of provinces and three sectors (water and sanitation, urban drainage, roads), as reflected in the PDO. When the Project was designed, Provinces were consulted and a list of potential subprojects was pre-identified. As the Project started implementation, demand from the Provinces changed as other sources of federal funding became available. As a consequence, the final list of subprojects financed by BMSP was different than the one identified at preparation. The relative importance of sectors changed, namely with demand concentrated in road projects rather than in water and sanitation. 31. On March 6, 2012, the project was restructured to reflect the above-mentioned changes in the following way: (i) The closing date was extended from March 31, 2012 to November 30, (ii) The percentage to be financed by the Bank for Categories 1 and 2 was increased from 75% to 100% (dropping co-financing by Municipalities). (iii) Funds were reallocated to better reflect municipalities demand. Demand for road infrastructure was significantly higher than anticipated while demand for water supply and sanitation was lower. Twenty million dollars were transferred from Category 1 (Water) to Category 2 (Urban Drainage and Roads). Also participating Provinces showed little interest in using Category 3 expenditures (Capacity building and Training) since other sources of non-reimbursable funding for these kinds of activities became available. For this reason, US$4.4 million were reallocated from Category 3 to Category 2. (iv) The project adjusted the Results Framework to reflect changes in indicators. 32. The table below summarizes the changes introduced in the Results Framework. While the PDO remained unchanged, the PDO Indicator 1 was modified to differentiate between direct and indirect beneficiaries. The target values for intermediate outcome indicators for Component One were modified to reflect Provinces actual demand in each sector (i.e. decreasing target values under basic water and sanitation and urban drainage subprojects, and increasing target values under urban and productive roads subprojects). 9