Document of The World Bank€¦ · FUNCEME Fundação Cearense de Meteorologia Ceara Meteorological...

Document of The World Bank

Report No: ICR1973

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-45310 IBRD-76300)

ON A

LOAN

IN THE AMOUNT OF US$136.0 MILLION EQUIVALENT

AND AN

ADDITIONAL FINANCING LOAN

IN THE AMOUNT OF US$103.0 MILLION EQUIVALENT

TO THE

STATE OF CEARÁ

WITH THE GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL

FOR A

CEARA INTEGRATED WATER RESOURCES MANAGEMENT PROJECT

December 28, 2012

Sustainable Development Department Brazil Country Management Unit Latin America and the Caribbean Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective May 15, 2012)

Currency Unit = Real (R$) R$1.00 = US$2.02 US$ 1.00 = R$0.50

FISCAL YEAR

ABBREVIATIONS AND ACRONYMS

CAGECE Companhia de Água e Esgoto do Ceará Ceara Water Supply and Sanitation Company

CAS Estratégia de Assistência para o País Country Assistance Strategy COGERH Companhia de Gestão dos Recursos

Hídricos Ceara Water Resources Management Company

CQS Seleção Baseada na Qualificação do Consultor

Selection Based on the Consultants’ Qualifications

DNOCS Departamento Nacional de Obras contra a Seca

National Department of Works against Droughts

DO Objetivos de Desenvolvimento Development Objectives EIA Estudo de Impacto Ambiental Environmental Impact Assessment EMF Arcabouço de Gestão Ambiental Environmental Management

Framework ERR Taxa de retorno econômica Economic rate of return FM Gerenciamento Financeiro Financial Management FMR Região Metropolitana de Fortaleza Fortaleza Metropolitan Region FSL Empréstimo com Amortização Constante Fixed-Spread Loan FUNASA Fundação Nacional da Saúde National Health Foundation FUNCEME Fundação Cearense de Meteorologia Ceara Meteorological Foundation FY Ano Fiscal Fiscal Year ICB Concorrência Internacional para

Contratação de Obras International Competitive Bidding

IDACE Instituto do Desenvolvimento Agrário do Ceará

Ceará Agrarian Development Institute

IERR Taxa Interna Econômica de Retorno Internal Economic Rate of Return IFRR Taxa Interna Financeira de Retorno Internal Financial Rate of Return IWRM Gerenciamento Integrado de Recursos

Hídricos Integrated Water Resources Management

LCR Região da América Latina e Caribe Latin America and Caribbean Region LCS Seleção pelo Menor Custo Least-cost Selection M&E Monitoria e Avaliação Monitoring and Evaluation NCB Concorência Pública Nacional National Competitive Bidding NGO Organização Não Governamental Nongovernmental Organization O&M Operação e Manutenção Operation and Maintenance PAC Programa de Aceleração do Crescimento Growth Acceleration Program

PAD Documento de Avaliação do Projeto Project Appraisal Document PCPR Projeto de Combate à Pobreza Rural Rural Project Alleviation Projects PIU Unidade de Implementação do Projeto Project Implementation Unit PGRH Projeto de Gerenciamento de Recursos

Hídricos da Bahia Bahia Integrated Water Resources Management Project

PROAGUA Nacional

Programa Nacional de Desenvolvimento dos Recursos Hídricos

Federal Water Resources Management Project – Additional Financing

PROAGUA Semi-árido

Sub-programa de Desenvolvimento de Recursos Hídricos para o Semi-Árido Brasileiro

Federal Water Resources Management Project

PRODHAM Projeto-Piloto de Gestão de Micro-bacias Micro Watershed Management Pilot PROGERIRH Projeto de Integração e Gerenciamento

dos Recursos Hídricos do Ceará Ceara Integrated Water Resources Management Project

PROURB Projeto de Desenvolvimento Urbano e Gestão de Recursos Hídricos do Ceará

Ceara Urban Development and Water Resources Management Project

QAG Grupo de Garantia de Qualidade Quality Assurance Group QCBS Seleção com Base em Qualidade e Custo Quality- and Cost-Based Selection REA Avaliação Ambiental Regional Regional Environmental Assessment SAT Equipe de Salvaguardas Safeguards Advisory Team SBD Documento Padrão de Licitações Standard Bidding Document SEAIN Secretaria Especial de Assuntos

Internacionais Secretariat for International Affairs

SIAFI Sistema Integrado de Administração Financeira

Integrated Federal Financial Administration System

SIGERH Sistema Integrado de Gestão de Recursos Hídricos

Water Resources Management Integrated System

SIGMA Sistema de Informações Gerenciais Project Information System SOE Declaração de Gastos Statement of Expenditures SOHIDRA Superintendência de Obras Hidráulicas do

Ceará Ceara Hydraulic Works Company

SRH Secretaria de Recursos Hídricos. Secretariat for Water Resources TOR Termo de Referência Terms of Reference UGPE Unidade de Gerenciamento de Programas

Especiais Special Programs Management Unit

WRM Gerenciamento de Recursos Hídricos Water Resources Management WUA Associação de Usuários de Água Water User Association

At Appraisal: Vice President: David de Ferranti Country Director: Gobind T. Nankani Sector Director: John Redwood Project Team Leader: Larry D. Simpson

At ICR: Vice President: Hasan A. Tuluy Country Director: Deborah L. Wetzel Sector Manager: Karin E. Kemper Project Team Leader: Erwin De Nys/Paula Freitas ICR Team Leader: Erwin De Nys/Paula Freitas

BRAZIL

Ceará Integrated Water Resources Management Project

CONTENTS Data Sheet

A. Basic Information…………………………………………………………………....i

B. Key Dates…………………………………………………………………………....i

C. Ratings Summary…………………………………………………………………...ii

D. Sector and Theme Codes…………………………………………………………... ii

E. Bank Staff…………………………………………………………………………..iii

F. Results Framework Analysis……………………………………………………….iii

G. Ratings of Project Performance in ISRs……………………………………………xi

H. Restructuring (if any)………………………………………………………………xi

I. Disbursement Profile…………………………………………………………….....xii

1. Project Context, Development Objectives and Design ............................................... 1

2. Key Factors Affecting Implementation and Outcomes ............................................... 6

3. Assessment of Outcomes .......................................................................................... 14

4. Assessment of Risk to Development Outcome ......................................................... 22

5. Assessment of Bank and Borrower Performance ..................................................... 23

6. Lessons Learned ........................................................................................................ 26

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ........... 28

Annex 1. Project Costs and Financing .......................................................................... 30

Annex 2. Outputs by Component .................................................................................. 32

Annex 3. Economic and Financial Analysis ................................................................. 41

Annex 4. Bank Lending and Implementation Support/Supervision Processes ............. 47

Annex 5. Beneficiary Survey Results ........................................................................... 50

Annex 6. Stakeholder Workshop Report and Results ................................................... 51

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 53

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 57

Annex 9. List of Supporting Documents ...................................................................... 58

Annex 10. Safeguards ................................................................................................... 59

MAP IBRD 39667

i

A. Basic Information

Country: Brazil Project Name: Ceara Integrated Water Resources Management Project

Project ID: P006449 L/C/TF Number(s): IBRD-45310,IBRD-76300

ICR Date: 12/31/2012 ICR Type: Core ICR

Lending Instrument: SIM Borrower: STATE OF CEARA BRAZIL

Original Total Commitment:

USD 136.00M Disbursed Amount: USD 237.28M

Revised Amount: USD 237.28M Environmental Category: A Implementing Agencies: Secretariat of Water Resources Ceara Water Resources Management Company Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 07/27/1998 (OP) 02/05/2008 (AF)

Effectiveness: 05/24/2000 05/24/2000 (OP) 11/24/2009 (AF)

Appraisal: 03/15/1999 (OP) 09/16/2008 (AF)

Restructuring(s):

11/26/2001 05/21/2002 09/02/2002 12/04/2002 10/31/2003 06/08/2006 10/31/2006 04/29/2008 12/24/2008 02/12/2009 04/07 /2009

Approval: 01/06/2000 (OP) 12/18/2008 (AF)

Mid-term Review: 08/01/2002 (OP) 08/01/2004 (OP)

10/14/2003 (OP) 07/14/2010 (AF)

Closing: 06/30/2006 04/30/2009 (OP) 12/31/2011 (AF)

ii

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Unsatisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Unsatisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Moderately Unsatisfactory

Quality of Supervision: Moderately Satisfactory Implementing Agency/Agencies:

Moderately Unsatisfactory

Overall Bank Performance: Moderately Satisfactory Overall Borrower

Performance: Moderately Unsatisfactory

C.3 Quality at Entry and Implementation Performance Indicators

Implementation Performance Indicators QAG Assessments

(if any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

Satisfactory

Problem Project at any time (Yes/No):

Yes Quality of Supervision (QSA):

Satisfactory

DO rating before Closing/Inactive status:

Moderately Satisfactory

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) General agriculture, fishing and forestry sector 6 Sub-national government administration 14 14 Water supply 86 80

Theme Code (as % of total Bank financing) Land administration and management 34 25 Other environment and natural resources management 15 Rural services and infrastructure 33 30 Water resource management 33 30

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E. Bank Staff Positions At ICR At Approval

Vice President: Hasan A. Tuluy David de Ferranti Country Director: Deborah L. Wetzel Gobind T. Nankani Sector Manager: Karin Erika Kemper John Redwood Project Team Leader: Erwin De Nys/Paula Freitas Larry D. Simpson ICR Team Leader: Erwin De Nys/Paula Freitas ICR Primary Author: Erwin De Nys Paula Freitas F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) (a) Increase the sustainable water supply for multiple uses, improve the efficiency of Ceará's integrated water resources management system and decrease vulnerability of poor populations to cyclical drought through: (i) improvements in the institutional, legal and administrative managerial frameworks with emphasis on participatory management mechanisms; (ii) the rehabilitation and new construction of the hydraulic infrastructure aimed at the integrated management of river basins; (iii) the development and consolidation of sustainable cost recovery, management, operation and maintenance systems for the hydraulic infrastructure; and (iv) the integration of environmental policies with water management policies. The main performance indicators are: (i) the percentage increase in the volume of bulk water supplied by COGERH, the states water resources management company; (ii) the increased reliability of water supply and resistance against droughts; (iii) the implementation of new and/or improved water resources management, operation and maintenance tools; (iv) increase in the number of users with enhanced reliable access to quality water; and (v) the percentage of recovery for fixed and variable costs of providing water. b. Stimulate multiple use, efficient and shared management of Ceará's water resources. The project would support the following actions: (i) organization and strengthening of river basin committees and water user associations; (ii) implementation and propagation of more effective water use and management technologies; and (iii) education, information and training of the general public and water users aimed at efficient water use, demand management and the reduction of waste. The main performance indicators are: (i) the increase in the number of river basin committees and water user associations, including the number of people participating in these entities; (ii) the decrease of the physical waste of water and the increased productivity in the economic sectors which use water as a production input; (iii) the percentage of billed water services v/s collections of bills. c. Promote the improved management of soil and vegetation in tributary watersheds to enhance water conservation, minimize erosion and maximize natural water storage

iv

mechanisms, through the adequate management of critical micro-basins and groundwater resources. The project would foster the hydro-environmental recovery of selected micro-basins in the state by increasing the vegetated area, controlling run-off, minimizing erosion, increasing water retention times, increasing groundwater recharge, developing aquifer management plans and recharge zone protection plans, improving the local infrastructure and production methods; and by evaluating new technologies. The main performance indicators are: (i) hectares of rehabilitated watershed vegetation, (ii) number of micro-basins stabilized, (iii) measured runoff hydrographs as a function of time and volume for specific microbasins, (iv) measurement of volumetric erosion in key microbasins and sedimentation change in key catchments, (v) number of recharge protection zones established, (vi) number of aquifer and groundwater management plans developed. Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Increase in the volume of bulk water distributed by COGERH. Value quantitative or Qualitative)

6.92 m3/sec (volume monitored by COGERH at baseline)

17.00 m3/sec accumulated 17.45 m3/sec

accumulated

Date achieved 05/24/2000 12/31/2011 12/31/2011 Comments (incl. % achievement)

The increase attributable to the Project is 10.53 m3/sec. After completion of the six pipelines under the AF, expected by mid-2013, the total increase attributable to the Project will be 10.78 m3/sec (107% achievement).

Indicator 2 : Increase in the recovery margin/level of fixed and variable costs of the integrated system.

Value quantitative or Qualitative)

70% of O&M costs as informed by COGERH at implementation start

100% recovery 100% recovery


100% achievement. COGERH has become self-sufficient from the State since 2003. 94% of fixed and variable costs come from water charges, and the remaining 6% is from other sustainable revenue.

Indicator 3 : Increase in the levels of guarantee of water supply.


10,333.36 million m3 total volume of water accumulated in dams monitored by COGERH



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Date achieved 05/24/2000 12/31/2008 12/31/2011

Comments (incl. % achievement)

Original target considered the increase result of the six reservoirs under the Original Project. Two reservoirs completed under the AF, led to total increase of 359.33 million m3. When all dams are complete, total will 438.65 million m3 (156% achievement)

Indicator 4 : Implementation of new management tools to improve the efficiency of Ceara's Integrated Water Resources Management System, such as permit and tariff policies.


Weak integrated mgmt system presenting fragile institutions and policies and lacking coordination among them. Bulk water tariffs without underlying analysis, applied only to urban use.

Well-integrated and efficient management system presenting consolidated institutions and policies and effective coordination among them.

Well-integrated and efficient management system presenting consolidated institutions and policies and effective coordination among them. Introduction and application of water tariffs in all sectors; strengthened bulk water operating agency.

Date achieved 05/24/2000 12/31/2011 12/31/2011


100% achievement. O&M plans for hydraulic structures; Real time data for reservoir operations; dam safety rules and procedures; groundwater monitoring; groundwater mgmt plans started; prioritization of hydraulic infrastructure selection criteria.

Indicator 5 : Increase in the number of users with stable and guaranteed access to water for multiple uses.


116 Not defined 380

Date achieved 05/24/2000 12/31/2011 12/31/2011


The indicator refers to bulk water users. No target was defined for this indicator. The actual value includes large urban water supply agency CAGECE, industrial and large touristic entrepreneurships, and a portion of the irrigation perimeters users.

Indicator 6 : Decrease in the physical waste of water and increase in use efficiency through new technologies and the increase in productivity of sectors that use water as a raw material.


30% 25% Not available


The Project did not have any specific intervention related to reducing bulk water losses in its design. CAGECE actual water losses in 2011 for four systems were lower than expected reaching 10-20%. Efficiency of water use by sector was not

vi

measured.

Indicator 7 : Increase in the number of people participating in river basin committees and water user associations.


3 basin committees 11 basin committees 12 basin

committees


110% achieved. 12 basin committees functioning with 494 member institutions with 2 representatives each.

Indicator 8 : Decrease in erosion and increase in vegetated soil; increase of water availability in dry season.


Erosion: 26.00 ton/ha/year Vegetated soil: 65% in pilot areas

Erosion: 13.00 ton/ha/year Vegetated soil: 80% in pilot areas

Erosion: 20.33 ton/ha/year in pilot areas

Date achieved 05/24/2000 12/31/2008 12/31/2008


The project's design was to implement pilot schemes in four micro-watersheds to test the technical and social viability of soil and moisture conservation and learn lessons. The actual results refer to the first micro-watershed with monitored results.

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Incremental m3 of water made available to the Fortaleza Metropolitan Region. Value (quantitative or Qualitative)

6.62 m3/sec volume made available at baseline

1.9 m3/sec increase in volume

13.21 m3/sec increase in volume


695% achievement. The original target only considered the four new reservoirs to be financed under the Original Project. Actual increase is due to four new reservoirs sections I, II and III of the Integration Canal.

Indicator 2 : Decrease in the number of people subject to water rationing.

Value (quantitative or Qualitative)

0 Not defined.

minus 300,000 interior minus 2.6 million in FMR


Target was not set at Appraisal. 300,000 people in the interior and 2.6 million in the FMR are no longer subject to water rationing due to the construction of 8 reservoirs plus the construction of Sections I, II and III of the Integration Canal.

Indicator 3 : Increase in the volume of water used for different activities, i.e. human water supply, irrigation, industry and tourism.

vii


Not available. Not defined.

Industry: 0.33 m3/sec, urban water supply: 13.45 m3/sec, Irrigation: 3.09 m3/sec Others: 0.58 m3/sec Total: 17.45 m3/sec


Actual values correspond to water supply by COGERH to paying bulk users in 2011. No baseline data or targets were defined at Appraisal. Total water release by COGERH from 136 reservoirs in 2011 was 47.3 m3/sec.

Indicator 4 : Increase in the number of sites with groundwater available in the dry season. Value (quantitative or Qualitative)

No underground dams. Not defined. 27 underground dams.


This indicator specifically referred to small underground dams to be built under the PRODHAM pilot in four micro-watersheds.

Indicator 5 : Increase in are of the vegetated areas along riverbeds. Value (quantitative or Qualitative)

0.00 28.0ha 47.6ha


170% achievement. This indicator referred to PRODHAM pilot project and resulted in about 47.6 ha of recovered vegetation in the four watersheds of the pilot project.

Indicator 6 : Increase in total and per ha agricultural production in the microbasins. Value (quantitative or Qualitative)

Not available. Not available. Not available.


Actual production (total and per ha) was not measured within the pilot project because of the time needed for the results to materialize. Rather, attention was given to monitoring the means to achieve agricultural production increase.

Indicator 7 : Entities members of the State Water Resources Management System are adequately staffed.


Not available. Not defined.

COGERH adequately staffed. SRH adequately staffed until 2007, not so after 2007.

Date achieved 05/24/2000 12/31/2011 12/31/2011


COGERH was able to hire permanent staff whereas SRH lost many permanent employees and consultants after 2007 to the heated private sector who were not replaced with other permanent staff. The Government did not authorize opening of new vacancies to SRH.

viii

Indicator 8 : Water charges reach a sustainable level of cost recovery. Value (quantitative or Qualitative)

70% of O&M costs as informed by COGERH at implementation start.

100% of O&M costs 100% of O&M

costs


100% achievement. COGERH has become self-sufficient from the State since 2003. 94% of fixed and variable costs come from water charges, and the remaining 6% is from other sustainable revenue.

Indicator 9 : Number of water use permits issued by the State as Project is implemented. Value (quantitative or Qualitative)

2000 25000 6740

Date achieved 05/24/2000 12/31/2008 12/31/2011


New water permits issued since 2000 to all sectors: industry, water supply, irrigation and tourism. Given the wide coverage of bulk water users currently achieved in 2012, the original target of 25000 seems to have been highly overestimated or incorrect.

Indicator 10 : Number of water user associations created. Value (quantitative or Qualitative)

30 150 108

Date achieved 05/24/2000 12/31/2011 12/31/2011


This indicator referred mainly to river basin and irrigation associations. The less-than-expected increase was more than compensated by the creation of 44 reservoir management commissions for the participatory management of the water in reservoirs.

Indicator 11 : Hydrological monitoring system developed and implemented. Value (quantitative or Qualitative)

No system. System implemented. System

implemented.

Date achieved 04/25/2000 12/31/2011 12/31/2011


100% achievement. COGERH monitors the level of 136 reservoirs. FUNCEME implemented 70 data collection platforms with meteorological sensors for air temp, relative humidity, solar radiation, precipitation, wind velocity and direction, atmospheric pressure.

Indicator 12 : Plan of Operation and Maintenance finalized and in use. Value (quantitative or Qualitative)

No Plan. Plan completed and in use. Plan completed and

in use.


100% achievement. The Plan was used for the selection and prioritizing of the dams to be financed by the AF.

Indicator 13 : Dam safety and inspection program implemented. Value (quantitative or Qualitative)

No Program Program implemented. Program

implemented.

ix

Date achieved 05/24/2000 12/31/2011 12/31/2011


100% achievement. COGERH keeps a dam safety group and does systematic inspections of the 136 dams detecting need for rehabilitation and/or other actions. A dam safety panel provides technical advice to SRH on the design and construction of new dams.

Indicator 14 : Bulk water tariff strategy developed and under implementation. Value (quantitative or Qualitative)

No strategy. Strategy implemente. Strategy

implemented.

Date achieved 05/24/2000 12/31/2008 12/31/2008


100% achievement. COGERH carried out a tariff study implemented in 2003. A working group was created by State Water Resources Council to study tariff costs for irrigation perimeters. Decree issued on May 3, 2010 was issued including irrigation tariffs.

Indicator 15 : Public information campaign conducted. Value (quantitative or Qualitative)

No campaign Campaign conducted Campaign

conducted

Date achieved 05/24/2000 12/31/2008 12/31/2008


100% achievement. A campaign for the Rational Water Use Plan was carried out by COGERH in the ambit of the Original Project. Since then, other information campaigns have been carried out with the river basin committees and water management commissions.

Indicator 16 : Reservoirs, pipelines and integrated distribution systems constructed.


n/a 6 reservoirs; and 1 integrated system

12 reservoirs; 6 pipelines; and 1 integrated system

8 reservoirs; and 1 integrated system

Date achieved 05/24/2000 12/31/2008 12/31/2011 12/31/2011 Comments (incl. % achievement)

Based on mid-December supervision mission: 3 additional reservoirs to be completed by December 2012 and 5 pipelines to be completed between December 2012 and May 2013.

Indicator 17 : Hydraulic infrastructure rehabilitated. Value (quantitative or Qualitative)

n/a 25 dams 29 dams 29 dams

Date achieved 05/24/2000 12/31/2008 12/31/2011 12/31/2011 Comments (incl. % achievement)

100% achievement. 23 dams were rehabilitated under the Original Project and 6 under the AF. Other dams were rehabilitated by COGERH with funds from the Federal Government.

Indicator 18 : Water and soil recovery in selected microbasins. Value (quantitative or Qualitative)

0 4 microbasins 4 microbasins

Date achieved 05/24/2000 12/31/2008 12/31/2008 Comments (incl. %

100% achievement. All four pilot microbasins planned for interventions under PRODHAM were benefited with water and soil recovery activities.

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achievement)

Indicator 19 : Hydrogeological, socioeconomic and institutional plans carried out and implemented.


No Plan 4 Plans 2 Plans

Date achieved 05/24/2000 12/31/2011 12/31/2011


50% achievement. The original plans foreseen as target were replaced by specific monitoring activities carried out directly by COGERH. Studies were carried out for the aquifers in the Metropolitan, Potiguar and Araripe and Campo de Dunas Pecém/Paracuru.

Indicator 20 : Increase in efficiency in the implementation of water permits in the irrigation sector.


5% 50% 47.5%

Date achieved 01/01/2009 12/31/2011 12/31/2011


95% achievement. Formula: water volume allocated with permits for the irrigation sector / estimated water volume used by the irrigation users x 100. The increase refers mainly to the introduction of water permits to the irrigation perimeters.

Indicator 21 : Water charge index. Value (quantitative or Qualitative)

10% 37% 36.7%


99% achievement. Water charge is measured with the formula: water volume charges paid / estimated water volume used by users x 100

Indicator 22 : Water volume made available with the construction of the Integration Canal. Value (quantitative or Qualitative)

0 22.0m3/sec (installed capacity)

11.0 m3/sec (delivered)

Date achieved 05/24/2000 12/31/2011 12/31/2011


100% achievement. The target refers to installed capacity. The Canal was designed and built to deliver up to 22.0m3/sec (two siphons of 11 m3/sec each) of water to FMR. Purposely, so far one siphon implemented, delivering 11.0 m3/sec for current needs.

Indicator 23 : Number of people receiving water from the pipelines constructed under the Additional Financing.


0 144000 0


The zero in the actual value results from the fact that the pipelines under the AF are still being finalized. After the six pipelines are completed by May 2013, 144,000 people will be benefited.

xi

G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP

Actual Disbursements (USD millions)

1 06/29/2000 Satisfactory Satisfactory 0.00 2 10/05/2000 Satisfactory Satisfactory 0.00 3 06/22/2001 Satisfactory Satisfactory 4.35 4 09/24/2001 Satisfactory Satisfactory 5.09 5 03/25/2002 Satisfactory Satisfactory 10.02 6 09/03/2002 Satisfactory Satisfactory 19.69 7 09/04/2002 Satisfactory Satisfactory 19.69 8 10/16/2002 Satisfactory Satisfactory 21.83 9 12/09/2002 Satisfactory Satisfactory 26.41

10 05/21/2003 Satisfactory Satisfactory 36.55 11 12/15/2003 Satisfactory Satisfactory 52.30 12 06/18/2004 Satisfactory Satisfactory 57.84 13 12/15/2004 Satisfactory Satisfactory 75.29 14 04/19/2005 Satisfactory Satisfactory 75.43 15 12/28/2005 Satisfactory Satisfactory 81.13 16 06/09/2006 Satisfactory Satisfactory 95.39 17 12/18/2006 Satisfactory Satisfactory 119.63 18 06/13/2007 Satisfactory Moderately Satisfactory 124.12 19 12/20/2007 Satisfactory Moderately Satisfactory 126.39 20 03/14/2008 Satisfactory Satisfactory 126.39 21 11/06/2008 Satisfactory Satisfactory 131.75 22 05/01/2009 Satisfactory Satisfactory 133.15 23 12/19/2009 Moderately Satisfactory Moderately Satisfactory 136.00 24 05/24/2010 Moderately Satisfactory Moderately Satisfactory 142.00 25 12/05/2010 Moderately Satisfactory Moderately Satisfactory 157.15

26 06/27/2011 Moderately Unsatisfactory

Moderately Unsatisfactory 168.14

27 08/10/2011 Moderately Satisfactory Moderately Satisfactory 168.14 28 01/22/2012 Moderately Satisfactory Moderately Satisfactory 205.86

H. Restructuring (if any)

Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made DO IP

11/26/2001 S S 5.09 Works category percentage increase.

05/21/2002 S S 12.59 Works category percentage

xii

Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made DO IP

increase.

09/02/2002 S S 19.69 Works category percentage increase.

12/04/2002 S S 26.41 Increase limit of disbursements made via SOE.

10/31/2003 S S 43.90 Works category percentage decrease.

06/08/2006 S S 95.39 Works category percentage decrease and extension of closing date.

10/31/2006 S S 114.21 Works category percentage decrease.

04/29/2008 S S 126.39 Extension of closing date. 12/24/2008 S S 131.75 Extension of closing date. 02/12/2009 S S 131.75 Extension of closing date. 04/07/2009 N S S 133.15 Reallocation of loan proceeds.

I. Disbursement Profile

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1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. This Implementation Completion and Results report (ICR) evaluates the performance of the Ceará Integrated Water Resources Management Project (PROGERIRH), implemented with a first loan approved Jan. 6, 2000 (Ln. 45310-BR) in the amount of US$136.0 million and with Additional Financing (AF, Ln. 76300-BR) in the amount of US$103.0 million for the same project objectives, approved on Dec. 18, 2008. The AF loan was closed on December 31, 2011. A six-month extension of the ICR was approved on June 19, 2012 to allow for completion of pending construction of water works and compliance with social and environmental safeguards obligations under the Project.

2. Climate and Water. More than 90% of the area of the State of Ceará (148,920 km2) and population of about 8.5 million (2010), is located in a tropical semi-arid zone (sertão). The remaining 10% stretches along the more humid Atlantic coast, including the capital city Fortaleza and its metropolitan region with 3.6 million inhabitants. Mean rainfall in the sertão is less than 800 mm p.a. and highly irregular; in the coastal region, it is greater than 1,000 mm, and up to 1600 mm in Fortaleza. Variability of rainfall in Ceará is among the highest in the world. Rain falls mostly in the first half of the year; the second half is generally dry. Without storage, all rivers are dry for parts of the year. Periodic droughts affect not only the semi-arid interior but also the coastal region and Fortaleza. Groundwater of good quality is limited due to the crystalline rock geology underlying most of the state.

3. Climate and Development. Ceará has been among the poorest states of Brazil, as the semi-arid climate and its recurrent droughts traditionally allowed only precarious subsistence farming and extensive animal grazing. Climatic uncertainties did not favor investments. Recurrent droughts led to major migration to the large cities of the Northeast, the Amazon, or Rio de Janeiro and São Paulo. Those that remained were supplied with water from trucks. The more vulnerable parts of the population stayed behind and faced severe problems such as educational neglect of generations of rural children and youths. The rapid growth of the Fortaleza Metropolitan Region (FMR) during the last 70 years was due in large part to the rural exodus triggered by recurrent droughts. Providing water to the increasing population of the FMR was a serious challenge for the State at the time of project preparation.

4. Water Infrastructure and Management. Reservoirs to store water between seasons and years were the traditional response of governments to droughts for more than 100 years, but they were built and operated in an ad-hoc, unplanned, uncoordinated and non-integrated fashion. Until the early 1990s, droughts were considered emergencies, not as recurring events to be expected and managed. Storage was insufficient and managed inadequately, without integration within river basins, and facilities for water distribution (pipelines or canals) were lacking. Planning did not emphasize multiple, competing uses of water, and data on rainfall and river flows were scarce. Hydraulic infrastructure was inadequately operated and maintained, dam safety was not assured and water supply to the fast-growing Fortaleza region was not guaranteed. Water use was uncontrolled and free, and water users participated little in water management.

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5. The adoption of new water management policies by the State of Ceará during 1987-1996, ahead of the National Water Law (1997), made Ceará the pioneer of water resources management (WRM) in Brazil. In 1993, the Bank financed the PROURB project1. It included a specific WRM component to support the implementation of the 1992 state’s new water law. PROURB helped build a number of strategic medium-size reservoirs in the state, and supported strengthening of WRM to a limited degree, but it lacked the integration of management, particularly integration of river basins and among institutions. The PROGERIRH Project discussed here is the third Bank-financed project to assist the State of Ceará in implementing modern WRM policies, planning and management tools to overcome the impact of recurrent droughts. The Project was preceded by the Ceará WRM Pilot Project (Loan 4190-BR, closed in 2002) to provide planning, methodologies and institutional strengthening for the PROGERIRH project.

6. At project start, Ceará had already achieved the following:

Water Resources Management and Institutions: • The State Secretariat for Water Resources (SRH) was created in 1987. • The first State Water Resources Plan had been formulated in 1991. • The State Water Resources Policy was enshrined in state law (Law 11.996 of 1992),

and included the definition of a State WRM System. • A State Water Resources Council had been operational since 1992. • Three out of the eleven river basins of the state had established committees, and 30

water users associations had been formed. • A water rights policy was defined and being implemented (1994), and bulk water

charges were defined for some uses and collected partially (since 1996). • A state company (COGERH) was created in 1993 to manage bulk water, alongside an

agency responsible for construction of hydraulic works (SOHIDRA).

Infrastructure: • Plans for a large river basin transfer from the Castanhão reservoir (finished in 2002)

in the Jaguaribe river basin to the Fortaleza Metropolitan Basin and the industrial and port region of Pecém had been drawn, but the canal’s final design and alignment had not yet been decided.

• Priority investments in reservoirs and conveyance structures had been identified. • There were 117 strategic reservoirs operated by COGERH in 2000, with a total

storage of 10.3 billion m3. The state’s largest reservoir – Castanhão – was under construction and to be completed in 2002, by the federal agency National Department against Droughts (DNOCS).

• The “Worker’s Canal” (Canal do Trabalhador) to supply the Fortaleza Metropolitan Region had been built in an emergency in 1993/4 to carry water from the Jaguaribe river basin to the FMR, but fell into disrepair a few years after2.

1.2 Original Project Development Objectives (PDO) and Key Indicators

1 Ceará Urban Development and Water Resources Management Project – Loan 3789-BR (ICR No. 29362 of May 18, 2004) – 1995-2003. 2 It was rehabilitated with federal funds but serves now mainly irrigation demands, not the FMR.

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7. The PDO was threefold and contained the following performance indicators described in the PAD:

Objective Main indicators A. Increase the sustainable water supply for multiple uses, improve the efficiency of Ceará’s integrated WRM system and decrease vulnerability of poor populations to cyclical drought through:

(i) percentage increase in the volume of bulk water supplied by COGERH, the state's WRM company;

(ii) increased reliability of water supply and resistance against droughts;

(iii) implementation of new and/or improved WRM, operation and maintenance tools;

(iv) increase in the number of users with enhanced reliable access to quality water; and

(v) percentage of recovery for fixed and variable costs of providing water by COGERH.

B. Stimulate multiple use, efficient and shared management of Ceara’s water resources.

(i) increase in the number of river basin committees and water user associations, including the number of people participating in these entities;

(ii) decrease of the physical waste of water and the increase in use efficiency through new technologies and increased productivity in the economic sectors which use water as a production input;

(iii) percentage of billed water services versus collections of bills.

C. Promote the improved management of soil and vegetation in tributary watersheds to enhance water conservation, minimize erosion and maximize natural water storage mechanisms, through the adequate management of critical micro-basins and groundwater resources.

(i) hectares of rehabilitated watershed vegetation; (ii) number of micro-basins stabilized; (iii) measured runoff hydrographs as a function of time

and volume for specific micro-basins; (iv) measurement of volumetric erosion in key micro-

basins and sedimentation change in key catchments; (v) Number of recharge protection zones established; (vi) number of aquifer and groundwater management

plans developed. 8. As was common practice for many Bank projects at the time, no baseline or target values were given in the PAD for most of the indicators. While some indicators are macro i.e. referring to the WRM system of Ceará as a whole, others are related to specific results of the hydro-environmental pilot project PRODHAM such as (i) to (v) linked to the third dimension of the PDO (section C in the table above). It is important to highlight that Project preparation was assessed and considered “satisfactory” by QAG. A detailed output matrix using the indicators list from PAD Annex 1 was included in the Project Implementation Plan, which was part of the preparation package at the time. In addition, baseline and target values were agreed with the Borrower for most indicators at project start, monitored throughout implementation and reported in the ISRs. During the preparation of the Additional Financing (AF), additional indicators were agreed with the Borrower, monitored during implementation, and reported in the ISRs. The indicator list in PAD Annex 1 and the new indicators agreed for the AF were taken as basis for the results presented in this ICR and its data sheet.

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1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 9. The PDO and key indicators remained unchanged throughout the life of the Project. During the preparation of the Additional Financing (AF), a few other indicators were agreed with the Borrower but were not included in the Project Paper because the team understood it was not required. These indicators were, however, included in the ISRs and monitored during the implementation of the AF.

1.4 Main Beneficiaries 10. The PAD identifies both the rural and the urban population of the State’s semi-arid interior as principal beneficiary groups through new and rehabilitated reservoirs and water conveyance facilities, guaranteeing drinkable water, improved health conditions and increased agricultural production from irrigation and leading to economic and demographic decentralization (as opposed to prior centralization in the FMR). The reservoirs built under the Project benefited an estimated population of about 300,000. Poor rural communities were also the target of the micro-watershed pilot component PRODHAM (Component 5). The urban population of the FMR was another principal beneficiary group, to which the largest of the six components was aimed (Integration of Key River Basins, Component 3), with expanded and more reliable water supply. The Integration of River Basins with the construction of the Integration Canal assures water supply during drought periods to the FMR, with an estimated beneficiary population of 3.6 million, of which an estimated 6-10% are extremely poor people.

1.5 Original Components 11. Component 1: Management and Institutional Component (US$ 25.0 million, 10% of total estimated cost). Building on progress made in the institutional, legal and management frameworks of the state, this component sought to enhance the work done by then, refine the systems and continue the implementation of sustainable practices in the management of the resources. The component was divided into five sub-components: (i) Hydro-meteorological Information System; (ii) Sustainable Operation and Maintenance of Bulk Water System; (iii) Dam Safety and Inspection Program; (iv) Basin Committee Organization and Training; (v) Water Tariff Evaluation; (vi) Market-Based Water Transfer Mechanisms; and (vii) Public Information and Education Program.

12. Component 2: Strategic Reservoir Network (US$22.2 million, 9 percent of total estimated cost). Design and construction of key infrastructure critical to the provision of water supplies to rural water-short areas and to reduce the vulnerability of the citizens of the state to cyclical drought in the short to medium term.

13. Component 3: Integration of Key River Basins (US$166.8 million, 67.5 percent of total estimated cost). Provision of reliable and quality water supply for industrial, municipal and domestic purposes within the Metropolitan Basin of Fortaleza through a new river basin transfer from the Jaguaribe river. The component included also an analysis of the best option for this diversion and its executive designs.

14. Component 4: Restoration of Existing Bulk Water Infrastructure (US$23.2 million, 9.4 percent of total estimated cost). Continue the evaluation process of existing

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bulk water supply infrastructure and begin implementation of restoration measures for those systems deemed most critical to ensuring continued supply of bulk water in the short term.

15. Component 5: Micro Watershed Management Pilot Project – PRODHAM (US$5.0 million, 2 percent of total estimated cost). Rehabilitation of micro watersheds (fourth-level tributaries) in four pre-defined areas of the State. The pilot project was to develop methodologies for a functioning approach for local community involvement, implementing technically, socially, environmentally and economically sustainable solutions for improved management of soil and vegetation in the tributary watersheds by enhancing water conservation, minimizing erosion and maximizing moisture storage.

16. Component 6: Groundwater Management (US$5.0 million, 2 percent of total estimated cost). Most of the state of Ceará is situated on crystalline rock formations with scarce good-quality groundwater, requiring water storage in surface reservoirs during the rainy season (January - May). In two regions of the state, however, there are significant groundwater resources, and the component focused on these two areas through the Cariri and Coastal Zone sub-components. In the Cariri region, the Component aimed at collecting and producing relevant data regarding its groundwater situation; and developing and implementing an action plan for improved groundwater management. The activities in the Coastal Zone focused on the development of a groundwater management plan including identification and preservation of critical recharge zones to ensure long term sustainability of the resources.

1.6 Revised Components 17. Additional Financing (AF) for this Project of US$ 103.0 million was approved by the Board on December 17, 2008, with a closing date of December 31, 2011. While project objectives remained the same, project components were consolidated in two major areas: (a) WRM, and (b) hydraulic infrastructure 3 . AF was to fund another six strategic reservoirs and associated water conveyance structures (pipelines).

1.7 Other significant changes 18. Extensions of Closing Date: The original Project had four extensions of Closing Date, from June 30, 2006 to May 31, 2008, then to December 31, 2008, to February 15, 2009 and finally to April 30, 2009. The closing date was extended in order to allow full disbursement of the original Loan. With the approval of AF, overall project closing was extended to December 31, 2011.

19. Amendments to the Loan Agreement: The original project Loan Agreement had seven amendments. The first four (November 2001, May 2002, September 2002 and December 2002) raised loan funding for Category 1 – Works from 50% to 95% until withdrawals had reached US$22.1 million. The last three amendments (October 2003, June 2006 and October 2006) gradually reduced loan financing for the same category to compensate for the initial increases. These changes in the Loan Agreement responded to the Borrower’s needs of financial resources in the initial phases of the construction of the river basin transfer infrastructure. 3 Annex 2 presents a detailed description of the original Project and Additional Financing components.

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20. Additional Financing: The Ceará Integrated WRM Additional Financing Loan was designed to scale up the activities financed under PROGERIRH mainly through additional hydraulic infrastructure and consolidation of the institutional framework for integrated water resources management. The development objectives remained unchanged, but the components were rearranged and consolidated into two. The Loan in the amount of US$103 million was approved by the Board on December 17, 2008, became effective on November 24, 2009, and the Closing Date was December 31, 2011.

2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 21. The Project was generally well prepared but included four key shortcomings: (i) unrealistic estimates (see paragraph 24); (ii) lack of baseline and target data; (iii) a couple of irrelevant indicators; and (iv) inadequate risk analysis regarding availability of counterpart funds. The PAD did not include baseline and target data in the results matrix for most of the indicators. The Project was solidly based on experience gained with the water resources sector in Ceará under the Ceará Urban Development & Water Resource Project (PROURB). The Federal WRM Project PROAGUA had already started in 1998 on the basis of the new national water resource legislation and was supporting similar concepts as PROGERIRH across the states of the Brazilian Northeast. Ceará had already created the most important legal and institutional instruments for water resource management in the 1990s. Through the loan for PROGERIRH, the Bank recognized the unique commitment and progressive stance of the Government of Ceará with regard to water resource management and decided to embark on a longer-run program in support thereof. As additional support for the institutional and analytical dimensions of WRM and for the preparation of PROGERIRH, the Ceará WRM Pilot Project was carried out between 1998 and 2002 (Loan 4190-BR).

2.1.2 Assessment of Project Design 22. The project development objectives (PDOs) were in line with the goals of the Country Assistance Strategy for Brazil at the time (CAS 1996-99) as documented in Annex 1 of the PAD. The PDOs were relevant and achievable. However, as it was the practice at the time, they were not translated into operational outcome indicators, which were also not quantified in terms of baseline and target values. Several alternatives to the adopted project strategy were considered and described in the PAD. The Project strategy combining strengthened water management and institutions and infrastructure was deemed most sustainable to reach the Project objectives and was reconfirmed at the design stage of the Additional Financing.

23. The project design by components followed broadly the PDOs. It adequately linked institutional development and the expansion of physical infrastructure, which was reflected even more explicitly in the two components of the Additional Financing. The Project took into account the management capacity of the State’s institutions correctly and included strengthening for improved implementation of WRM tools and increased participatory management of river basins. The financial viability of the bulk water

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provider, COGERH, and adequate water tariffs were stressed as essential for the sustainability of water resources development.

24. Regarding infrastructure, the basin integration through the Integration Canal was a major focus of the Project because of the need to secure water supply to FMR through the largest reservoir in the State, Castanhão, expected to be completed in 2002. However, given that the study of the optimal solution for the water transfer from the Jaguaribe river basin to the Metropolitan basin had not been concluded by Appraisal, and the final layout and design for the Integration Canal had not been decided, cost estimates were very approximate. Consequently, Project costs were established as the result of the loan size predetermined by the Federal Government’s external financing committee and the loan funding percentage prescribed by Bank management. It was envisaged at Appraisal that real costs could be higher and larger counterpart funding could be required to conclude the Integration Canal with its three sections, but it was considered opportune to start the Project and secure additional resources later as needed, which proved to be a correct approach and well calculated risk eventually. 25. The construction of strategic reservoirs complemented the effort to increase water storage in the state initiated with PROURB and followed by PROAGUA. In addition, the rehabilitation of existing infrastructure was a priority to support COGERH in the mandate of operating and maintaining the state’s bulk water infrastructure. The pilot micro-watershed component (PRODHAM) to design methodologies to promote watershed conservation by and for the rural poor was well-conceived although it lacked clarity in the selection of its monitoring indicators, which made it difficult to evaluate. Soil degradation and even desertification in the semi-arid region are serious problems not only for small farmers, but also shorten the life of reservoirs through siltation. The pilot component added complexity, but also enhanced relevance and innovation to the Project.

26. The economic and financial analyses were carried out with appropriate methodologies, depth and detail, including an analysis of the fiscal and distributional impact. The analyses did not include the Institutional Development component, which is difficult to evaluate in terms of economic benefits. Financial analysis showed the critical dependence of COGERH as bulk water provider on bulk water sales and appropriate tariffs, particularly with regard to water supplied to the FMR, and thus underlined the need for careful analysis of water charges and proposed changes to the tariff structure.

27. The deep involvement of the Bank in Ceará’s water sector, the uncertain overall funding requirements over the medium term and the need to implement institutional improvements as well as new infrastructure, suggests that an Adaptable Program Loan (APL) might have been a more suitable lending instrument than a SIL, with successive tranches to fund time slices of infrastructure investments conditioned on progress with policy and institutional adjustments. The issue was raised at the Concept meeting. The team pointed out the advantage of using a programmatic financing instrument. However, that would have meant splitting the proposal into a phased approach while the infrastructure proposed was needed through a single intervention in order to facilitate the integrated river basin management approach within the State. Besides, given the urgency of the implementation of the proposed Project in response to the drought situation in the State at the time, any delays caused by the interjection of an APL at that point would have offset its advantages.

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28. Project preparation took adequate account of relevant safeguard policies. The project was rated as Category A for environmental purposes. The Bank policies on Environmental Assessment, Natural Habitats, Pest Management, Physical Cultural Resources, Involuntary Resettlement and Dam Safety were triggered. No indigenous populations existed in Ceará that would be affected. A detailed description on safeguard activities is included in Annex 10.

29. The Additional Financing (AF) provided continuity to the financing of PROGERIRH activities consistent with the project’s objectives and components. It contributed to the financing of scaled-up activities to enhance the impact of the Original Project. It also contributed to continue the high level dialogue between the Bank and the Government, strengthened with the inclusion of water resources indicators in the SWAp operation, carried out in parallel. The AF activities included the: (a) completion of the Integration Canal; (b) implementation of additional water storage and supply; and (c) consolidation of institutional and legal reforms of the State’s water resource management system and the use of instruments for allocating water among it multiple uses. Although the implementation period of the Additional Financing was limited to three years from the closing date of the Original Project, the team considered it feasible to implement the proposed activities under that timeframe. The assessment was made considering that the new infrastructure design and studies had already been prepared and considered acceptable by the Bank, and the implementing agencies teams were experienced and showed good performance under the Original Project. This situation changed after Board approval of the AF as most of the team left SRH as a result of the changes in State Administration. Besides, due to delays in the processing of the AF, including delays in approval by Senate, the actual implementation period was reduced to two years.

2.1.3 Borrower Commitment 30. The Borrower’s commitment to the objectives, strategy and content of the Project was adequate. The Borrower’s Water Policy Sector Letter, dated August 5, 1999, documented such commitment before negotiations. The project was ready for implementation at loan signing. The Bank had already approved four reservoir sub-projects that complied with requirements of economic viability, resettlement planning, environmental impact assessments and dam safety. Bidding for these dams was started right away in February 2000. The final design of the Integration Canal, however, had not yet been decided as the studies were being finalized. For the Additional Financing, the designs and safeguard studies of the six proposed dams were completed before implementation start. The counterpart funds considered for the AF included an additional amount of US$76 million spent by the Government with the construction of the Canal under the Original Project.

2.1.4 Risks and Mitigation Measures 31. Selected major risks identified at appraisal were: (a) financial counterpart funds are unavailable: modest risk. To the contrary, given the uncertainty about total project cost, this risk was actually high. No mitigation measures were proposed; (b) Lack of political and social support for the necessary legal and institutional reforms: modest risk. Public information and awareness campaigns had been built into the project design. However, the QAG quality-at-entry assessment rightly raised this risk to

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high in view of the perceived low public acceptance of increasing bulk water tariffs sufficiently to guarantee financial sustainability of COGERH; (c) difficulty of Project Implementation Unit (PIU) to coordinate all foreseen actions: modest risk. In light of the complexity of the Project, but also of prior Borrower experience with Bank loans and built-in strengthening of the executing agency (SRH), modest risk was appropriate. The Project provided for hiring of specialized consultants and training of the PIU.

32. QAG “Quality at Entry”. A Quality at Entry Assessment was carried out by QAG and rated “satisfactory” in May 2001 (one year after appraisal). All aspects of the Project were rated either “highly satisfactory” or “satisfactory”, with the exception of Fiduciary Aspects that were rated “marginal” as the financial management requirements had not been met before negotiations. The Assessment recognized the sound design of the Project, which was, however, not adequately reflected in the PAD, especially in the targets and indicators matrix. In addition, although not pointed out in the Assessment, there were four key shortcomings in Project design: (i) unrealistic cost estimates (see paragraph 24); (ii) lack of baseline and target data; (iii) a couple of irrelevant indicators; and (iv) inadequate risk analysis regarding availability of counterpart funds.

2.2 Implementation 33. The Original Project achieved most of its objectives, but with delays. The Additional Financing extended the Project scope by including additional reservoirs and conveyance systems; however, it faced serious difficulties in executing planned activities within its three-year implementation period.

2.2.1 Factors contributing to successful implementation 34. The Borrower had exceptionally strong interest and ownership in the Project, in the physical as well as in the institutional components. During the first six years, the Borrower did not spare efforts to raise the additional counterpart funds required and was successful in doing so. The Borrower had prior experience with large investments in WRM, including procurement and financial management skills. Responsibilities were well-defined and well-distributed among the three principal agencies (SRH, COGERH and SOHIDRA). Capacity was strengthened with high quality technical experts, especially during the Original Project.

35. The Bank supervised Project implementation in all aspects (physical, social, environmental and institutional) continuously, vigorously and with frequent deployment of specialists. The Bank’s insistence on appropriate resettlement and on environmental mitigation and compensation measures was crucial for successful implementation and compliance with safeguard policies. The stronger than usual Bank involvement was positively recognized by the Borrower and staff concerned. The Bank also provided technical assistance where necessary, for example, on complex groundwater issues.

36. QAG “Quality of Supervision”. A Quality of Supervision Assessment was carried out by QAG and gave an overall rating of “satisfactory” in October 2006. The assessment results included a number of strong elements and a few shortcomings pertaining to the quality of monitoring and evaluation (which was hampered by the original design problem with matrix of indicators), leading to Moderately Satisfactory ratings in two dimensions. These, however, were largely offset by the presence of an experienced and

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qualified team located in the Country Office, effective supervision of technical aspects, excellent relations with the borrower, and tireless effort to convince an experienced and sophisticated borrower to adopt an innovative approach to water resources management. On balance, QAG judged the strong aspects to overshadow the shortcomings and therefore rated the overall quality of supervision Satisfactory.

2.2.2 Factors contributing to implementation problems 37. The Original Project suffered from two serious delays: first, the difficulties in concluding works on one of the six reservoirs (Pesqueiro), including the resettlement activities; second, the late start of the construction of sections II and III of the Integration Canal (in 2005, rather than in 2001 or 2002) 4. The Pesqueiro reservoir experienced the most troubles during construction, including the implementation of its resettlement component (agrovila)5, due to problems with the contractor that led to the cancellation of the contract and rebidding of the works. The bidding process for the contract of the sections II and III of the Integration Canal also suffered delays caused by lack of definition from the Borrower on the format of the bidding (two processes or one with two lots) and by the failure of the prequalification process recommended by the Bank and the need to initiate a new international bidding process later on.

38. Changes in state government in 2007 interrupted the flow of implementation, especially during the last six months of tenure of the old Administration, when government activities and spending are generally reduced, and again during the first six months of the new government, as political and staff appointments and decision making on spending are slow to occur. In this context, in 2007, SRH lost some of its capacity with the loss of many of the staff and consultants that had worked on the Project for many years and represented part of the institutional memory. This affected project management and administration and certain functions of the Project, such as coordination and supervision of the resettlement and environmental activities for each dam/reservoir.

39. The Additional Financing phase also suffered important delays that led to the non-completion of some Project activities before the closing date. Delays related mostly to the infrastructure component and were caused by difficulties with the timely completion of procurement processes by SRH due to the changes in staff and the need for additional training on Bank’s procurement guidelines; problems with some contractor’s financial capacity that led to execution delays and one cancellation of contract; and the need of revision of engineering designs. The AF loan was approved in December 2008, but signed only in September 2009 and became effective in November 2009, with a closing date of December 2011, whereby it only had an effective 2-year implementation period. Delays in getting the AF signed were due to procedures for processing loans between the Federal Government and the State and the need to obtain Senate approval.

4 The Integration Canal consisted of five sections. The first three of them would bring water from Castanhão reservoir to FMR and were supported by PROGERIRH. Sections IV and V continued bringing water until Pecem Port industrial area and were completed with Government funds. 5 The agrovila is the agricultural village that was built by the contractor to resettle the families displaced by the construction of the reservoir.

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40. At the AF Project closing, two of five dams had been completed6, and the other three were still under construction, as well as the six conveyance systems planned under the Project. As of mid-December 2012, the degree of completion of the three remaining dams was 75% for Gameleira dam, 92% for Mamoeiro dam and 96% for Jatobá dam, and the degree of completion of the conveyance systems (pipelines) were 33% for Ipaumirim, 42% for Itapipoca, 90% for Ipueiras, 70% for Antonina do Norte, 80% for Madalena, and 95% for Amontada. None of the works had supervision contracts in place as the Government decided to discontinue supervision activities through external firms (supervision was done through SOHIDRA) although there was an agreement with the Bank that supervision by an external firm should be carried out throughout the whole implementation. This decision had impact in the quality of supervision of works and environmental mitigation activities as SOHIDRA does not have enough staff to carry out the required close supervision of all works. In addition, the supervision firms were responsible for preparing the “as-built” reports of the dams and pipelines, which include the actual final design of each infrastructure, which most times differ from the original design. In mid-December 2012, the Bank carried out a supervision mission to the State to verify the status of each work. According to the results of the mission, it is expected that Gameleira and Jatobá dams will be fairly completed by end-December 2012; leaving small adjustment works to be carried out in January 2013 while Mamoeiro dam completion is expected by February 2013. With regards to the conveyance systems, it is expected that Amontada and Ipueiras pipelines will also be completed by December 2012; leaving small adjustment works to be carried out in January 2013. The completion of Madalena and Antonina do Norte pipelines is expected by February 2013. With regards to Itapipoca pipeline, the Borrower has carried a new procurement process to contract the completion of works as the original contract was canceled due to financial problems with the contractor. The new contractor is mobilizing resources to start the services and completion is expected by May 2013. Ipaumirim pipeline works are paralyzed. The contractor has entered into a judicial dispute with the implementing agency with a request to cancel the contract that has not been accepted by the agency. Once the dispute is resolved and works are resumed, it will require an additional six months for completion. Finally, another pending issue by mid-December 2012 refers to the 35 houses built by the Project in 2011 for the families resettled as a result of the construction of the Umari dam. Since completion, the houses have been presenting structural problems and the solution was to demolish and reconstruct all of them. The original contractor is doing so at no additional cost, in groups of five houses, and the families are being temporarily relocated into houses rented by the Government. Due to the pending works and resettlement issues not resolved by December 2012, the Bank will continue the supervision of these activities until completion in 2013.

41. Cost Overruns. The Original Project costs turned out to be even higher than expected, and required a prolonged search for additional funds on the part of the Borrower. While cost overruns may not have affected the achievement of results, they detracted from smooth implementation of works and institutional improvements. Cost 6 After further consideration, the Borrower decided to replace the construction of the sixth planned dam (Trairi) with the preparation of technical, environmental and resettlement studies for another dam that was considered of higher priority. The construction of Trairi dam was taken out of the Project scope as other alternatives to provide water supply to the beneficiaries had been implemented.

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increases were due in part to the final layout and design of the Integration Canal, especially of its third reach; increase in the costs of iron used in the Canal pipes; and overall construction costs rise. In addition, the devaluation of the Brazilian currency led to significant inflation in the construction sector in Brazil, with price increases of 69% between 1999 and 2004.

42. The Bank showed flexibility in mitigating cash flow problems of the State. It adjusted the financing percentage for works for a limited time to 95% in the original Loan, while the State secured additional funding. The Borrower secured loans from national banks in 2002-2006. In addition, the Bank’s SWAp loan to Ceará in 2004 also contributed funds to the State’s WRM program. Finally, the State received additional federal funding for other reservoirs and conveyance systems and for the Integration Canal. The Borrower gave absolute priority to the Canal, minimizing expenditure that could be postponed.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 43. The PAD contained a list of outcome and output indicators (many without targets). At Project startup, the Borrower’s own Project Implementation Plan (PIP, April 2000) used the PAD list and contained a large and comprehensive number of output indicators, including baseline and annual target levels up to 2005, but not for outcomes. The baseline and targets for most indicators included in the PAD were agreed with the Borrower at Project start, were monitored during implementation and reported in the Implementation Status Reports (ISRs). Although the AF Project Paper did not include a new results framework, the team agreed with the Borrower and monitored specific AF related indicators, which were also reported in the ISRs. SRH kept detailed records of physical and other outputs and reported them regularly to the Bank. Supervision missions checked these reports, which were also used for this ICR.

2.4 Safeguard and Fiduciary Compliance 44. Major attention was given to the carrying out of environmental assessments and the preparation of environmental management plans for reservoir and canal works, the supervision and implementation of environmental management plans, the resettlement of people displaced by the construction of reservoirs, and dam safety. SRH maintained special units to manage resettlement and environment. Safeguard application was thoroughly addressed and supervised by frequent Bank missions and by targeted visits concerned with resettlement, environmental mitigation or compensation measures, and dam safety. Although the Borrower was proactive and succeeded in dealing and overcoming most safeguards related issues during implementation, a problem persisted in the resettlement of the Gameleira dam and the 35 families resettled in that area in January 2001 only had access to energy and water by December 2012 despite many recommendations and alerts given by the Bank in different supervision missions in 2011 and 2012. In addition, the poor quality of construction of the houses in the resettlement area of Umari dam should have been identified during implementation of works. This situation is only being resolved in December 2012, more than one year after completion of works. Therefore, the overall safeguard compliance rated was downgraded to Moderately Unsatisfactory. The specific aspects are detailed in Annex 10.

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45. Procurement and Financial Management. There were no major issues of compliance with Bank procurement rules and procedures. The project had a large number of procurement processes and 3 agencies, SRH, SOHIDRA and COGERH were involved in the preparation and implementation of the procurement activities. SRH had a key role in the procurement of works, goods, consulting and non-consulting services, with the responsibility of planning and monitoring the procurement processes, preparation of documents. All this work was done with the inputs (technical specifications/ terms of reference) provided from the respective technical departments. SRH rapidly responded to the Bank recommendation to strengthen its capacity, hiring a procurement specialist for the overall duration of the project and in 2008 one staff of the State General Attorney Office (PGE) was relocated to the SRH to help out with the procurement workload.

46. Project financial management was considered to be moderately satisfactory throughout project implementation. The project had several shortcomings related to the submission of the quarterly financial monitoring reports (IFRs) during FY11. Errors and inconsistencies in the IFRs were found during supervision, which together with non-compliance regarding the use of an automated FMIS (Financial Management Information System) to monitor and generate the IFRs, led to the temporary downgrade of the project's FM rating. These issues were eventually addressed properly by the client. The FMIS was integrated with the state's accounting systems, in accordance with the Bank's guideline regarding use of country systems. Outcome and financial controls of the project were not impacted. Annual audit reports for the Project were submitted regularly, with unqualified opinions by the external auditor on the project's financial statements.

2.5 Post-completion Operation/Next Phase 47. At the closing date (Dec. 2011), six reservoirs built under the first phase and two of the five reservoirs planned under the AF had been completed, while three reservoirs remained under construction. In addition, all six pipelines planned under the AF were under construction. It was agreed between the Borrower and the Bank that the Government would finance the completion of all pending works during 2012 with the continued supervision of the Bank team. By mid-December 2012, none of the pending works had been completed yet but the Government remained committed to complete part of them by end December 2012 and the remaining ones by May 2013. 48. No follow-up actions are planned by SRH to expand and mainstream the soil and moisture conservation efforts started under the watershed pilot. However, some lessons have been incorporated in other Government initiatives in other sectors. As evidenced by the state-wide mobilization around water through the “Pacto das Águas” (2009) and building on the environmental diagnoses of strategic reservoir made by COGERH under the AF, the state has become more aware of the water quality and sources of pollution in the reservoirs. Going forward, more attention will need to be given to water quality issues, including through a more integrated planning of land and water use at the basin level and broader intersectoral coordination. The closing workshop of PROGERIRH made clear the state’s awareness of the water quality challenges as reflected in Annex 6. The proposed new Bank Project7 for Ceará State includes further funding from the Bank for

7 Program for Results (PforR) operation being prepared with the State including three different sectors.

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the water resources and water supply and sanitation sectors with an integrated plan for water quality related policies and investment activities.

49. The Ceará Government is now working on the design of one of the largest water infrastructure projects planned in the State and even in the Northeast: the Ceará Water Belt (Cinturão das Águas), conceived as a gravity-fed conveyance system of approximately 1,300 km length and flow rate of 30 m3/s, which is planned to use water from the São Francisco River Inter-Basin Transfer Project. The Ceará Water Belt is being conceived to attend 100% of all water demands for human consumption, industrial, tourism and irrigation by 2040.

3. Assessment of Outcomes Rating: Moderately Unsatisfactory (MU)

3.1 Relevance of Objectives, Design and Implementation 50. The project development objective remains consistent with the current Country Partnership Strategy (2012-20158) and its strategic objectives, in particular, in view of its contribution to regional development of the semi-arid Northeast through strategic water infrastructure investments, expansion of water supply to poor and urban households and increase climatic resilience. Project objectives are also relevant with regard to current priorities of the Brazilian Government, such as inclusive growth and reduction of poverty, with emphasis on the Northeast (semiarid) region. The importance of water for both economic development and reduction of poverty in Ceará state will grow, even more so in the light of expected impacts related to increased climate variability.

3.2 Achievement of Project Development Objectives 51. Project achievements were crucially important to the development and consolidation of the water resources sector in the State of Ceará, which is today considered as best practice in the country. The institutional strengthening achieved and the water resources management instruments implemented and improved have been remarkable. At the same time, the construction of the Integration Canal with reliable provision of water to the Fortaleza Metropolitan Region and to the development of the state’s industrial park at Pecém Port have had significant positive impact and taken the State to the next level of development. In that context, some of the achievements were actually “highly satisfactory”, however, they have been downgraded to “satisfactory” due to the delays in implementation. If only the Original Project achievements were considered in this ICR, the Project would be considered Satisfactory. However, due to the non-completion of works under the Additional Financing by December 2012, the long time it took to address resettlement issues at Gameleira dam, and the delays in addressing the problems with resettlement houses in Umari dam area, the overall project outcome has been rated as “moderately unsatisfactory” (MU). Given the economic, social and political importance of water issues in Ceará, there is no doubt that all pending works will be successfully completed and will fulfill their intended development and poverty reduction objectives. However, for the purposes of this ICR, they have not been fully achieved yet.

8 Report No. 63731, discussed by the Executive Directors on September 21, 2011

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52. The achievement of the PDO is evaluated against its three main dimensions: (A) Increase the sustainable water supply for multiple uses, improve the efficiency of Ceará’s integrated WRM system and decrease vulnerability of poor populations to cyclical drought. (B) Stimulate multiple use, efficient and shared management of Ceará’s water resources. (C) Promote the improved management of soil and vegetation in tributary watersheds to enhance water conservation, minimize erosion and maximize natural water storage mechanisms, through the adequate management of critical micro-basins and groundwater resources. These will be discussed individually below, together with the pertinent indicators included in the Results Frameworks of the PAD.

A. Increase the sustainable water supply for multiple uses, improve the efficiency of Ceará’s integrated WRM system and decrease vulnerability of poor populations to cyclical drought. Rating: Moderately Unsatisfactory (MU) 53. This objective refers to the ability of COGERH to supply more water more reliably from new and rehabilitated reservoirs and pipelines, and, mainly through a new river basin transfer, from the existing Castanhão reservoir to the FMR through the Integration Canal. It also refers to the financial sustainability of COGERH’s operations. The objective was largely achieved in urban areas but not in rural areas because of the significant delays in the construction of reservoirs and pipelines during the AF phase. The MU rating is the result of the accumulated delays in the completion of works, whereby by Project closure (including a six-month extension of the ICR) two dams and six pipelines had still not been fully completed. While these works will be completed and the expected benefits will be sustainably materialized, within the context of this ICR, those outcomes and benefits are not yet achieved.

54. Outcome - Increase in the volume of bulk water distributed by COGERH: As a result of the Project, the regulated bulk water supply increased 152%, from 6.92 m3/s in 2000 (baseline) to 17.45 m3/s in 2011 9. The increase contemplates the operation of sections I, II and III of the Integration Canal, from Castanhão reservoir to FMR. The six pipelines that had their construction initiated by the AF10 will represent, when completed, another 0.25 m3/sec of bulk water distributed by COGERH. About 76% of the total volume went to urban/human consumption, 18% to irrigation, 4% to fish and shrimp farming, and 2% to industrial use. Most of this supply was subject to water charges (except some public irrigation schemes and most irrigators that have not yet been awarded water rights). The increase also includes the supply to the FMR, guaranteed in great part through the new Integration Canal. Since the Original Project was prepared, the FMR population has increased from 2.2 million to 3.4 million. The Canal has permitted to meet this rapidly growing demand and avoid even worse droughts than in the past.

9 The total increase was larger, but included contributions from reservoirs not financed under this project. The medium bulk water release in 2011 from all 136 reservoirs managed by COGERH amounted to 47.3 m3/sec. 10 Two of them will be completed by December 2012; another two are expected for completion by February 2013 and one by May 2013. The sixth one is 33% completed by mid-December 2012 but the works are paralyzed as the contractor has entered into a judicial dispute with the implementing agency with a request to cancel the contract that has not been accepted by the agency. Once the dispute is resolved and works are resumed, it will require an additional six months for completion.

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55. Outcome – Increase in the recovery of fixed/variable costs of the integrated system. In less than 20 years, COGERH evolved from being highly subsidized to recovering 100% of its O&M costs as evidenced by 2011 figures. In 2011, COGERH had operating revenues of US$18.9 million, and operating costs of US$20.1 million, covering the difference from financial revenues and ending with a pre-tax profit of US$438,600. The investment cost of the hydraulic infrastructures receives financial support from the Government treasury. Cost recovery evolved over time and was achieved by COGERH with the support of studies to define the costs of supplying bulk water by major system and by user sector, communication campaigns, and central Government support to an adequate tariff strategy. Compared to other water resources management entities in Brazil and even at the global level, COGERH’s financial autonomy is remarkable.

56. Outcome – Increase in the level of guarantee of water supply. The water supply guarantee level was increased through the establishment of additional reservoir capacity of 370 million m3 with the construction of eight strategic dams and reservoirs (six under the first phase and two under AF). This increase will be complemented with an additional 70 million m3 after the other three reservoirs being implemented under the AF are completed by end December 2012. This is taken as the incremental reservoir storage and incremental regulated release capacity. The incremental reservoir capacity guarantees water supply during the annual dry seasons and drought periods. The eight new reservoirs already completed are capable of delivering a regulated discharge of 2.77 m3 per second to users in the interior of the State, benefitting an estimated population of 250,000. However, due to the delays in the completion of the six pipelines under the Additional Financing, an additional 140,000 intended beneficiaries are still waiting for the completion of the works.

57. In addition, the Integration Canal plays a major role in delivering water supply to the FMR from the Castanhão reservoir. Water supply to the FMR is thus guaranteed during drought periods, as evidenced during the 2012 drought, which was the worst of the last four decades. The water delivered to FMR is currently, on purpose, restricted by the capacity of one siphon (11 m3/s), but could readily be doubled, when demand requires, by building an additional siphon.

58. No specific indicator had been included in the PAD directly linked to the objective of decreasing vulnerability of poor populations to cyclical drought, however, the Project included activities that led to its achievement. The reservoirs built under the Project increase the availability of a dependable water supply, across drought periods, to the population near the reservoir and downstream of each dam, particularly to urban population in towns of the State’s interior served by pipelines, estimated overall at about 300,00011 people. Both rural and urban populations in the interior include a significant segment of extremely poor families (households with monthly per capita income less than R$70 in 2010), ranging from 15% to 47% 12. A conservative estimate is now that vulnerability to cyclical drought has decreased for at least 45,000 extremely poor people in the interior. The largest component of the project, the Integration Canal, assures water supply during drought periods to the FMR, with a population 11 250,000 from the first six reservoirs, 49,600 from two reservoirs and conveyance pipelines under AF. 12 C. Nascimento de Medeiros e V. Rodrigues de Pinho Neto (IPECE), Análise espacial da extrema pobreza no Estado do Ceará, VII Encontro Economia do Ceará em Debate, 2011, based on IBGE Census 2010.

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estimated as 3.6 million, of which an estimated 6-10% are extremely poor people, resulting in at least 210,000 extremely poor people benefited. 59. Outcome - Increase in the number of users with stable and guaranteed access to water for multiple uses. COGERH has been able to increase the number of paying bulk water users from 116 in 2000 to 380 in 2011, and total invoicing of water charges from R$8 million in 2000 to R$42.0 million in 2011. Such users include the largest client, the urban water company CAGECE. The sectoral coverage of water users was increased in 2010 to include also irrigation, fish and shrimp farming and bottling of water. At least one large public irrigation system has already become a paying user of bulk water (Tabuleiro das Russas).

60. The Project achieved the implementation of new and improved water resources management tools through strengthened WRM institutions. Under the Project, the State Cadaster of Water Users laid the foundations for higher efficiency, achieved with more consistent implementation of water permits and charges. Management tools were not necessarily new, but they had not been implemented widely before the Project. Apart from the strengthening of the principal WRM institutions (SRH and COGERH), the project was instrumental in proposing and implementing water tariffs for all sectors, in collecting water charges, in making available real-time data for reservoir management, in effective operation and maintenance of a larger network of reservoirs and conveyance structures, in implementing a dam safety policy and procedures, screening and ranking of new hydraulic projects for their technical, economic and environmental viability, and in monitoring groundwater resources and starting to control their use.

61. SRH, jointly with COGERH, has registered about 15,500 water users in the State Cadastre of Water Users under this Project, up from about 4,600 in 2003. Within that universe, about 6,200 water right awards had been issued by SRH by March 201013. Registration of users and uses is a first condition for efficient allocation and for charging for water. Some 47% of the estimated actual water use by large irrigators is reported to have been made under water rights awarded by SRH (but not necessarily charged for). Charging for water use in Ceará had begun in 1996, but only for urban water supply and industrial use. The coverage of charges was expanded in 2010 to other sectors, such as irrigation, fish and shrimp culture. Through the Project, new proposals for the structure of water tariffs were developed, and adopted after extensive discussions and negotiations with user representatives and basin committees, and through a work group of the State Water Resources Council. The proposals were based on an analysis of the capacity to pay of typical users, but also on the need to cover the O&M cost of COGERH. Only users consuming more than 1.44 m3/month are subject to water charges. By 2011, there were about 380 paying users, including all large clients, such as the Ceará Water and Sewerage Company, CAGECE. Users are invoiced by COGERH and all revenue stays within COGERH.

62. Under the current tariff structure, the price of water varies among sectors. Industry is charged most heavily (from R$0.432 to R$1.485/m3), followed by the water supply company CAGECE that provides water to the FMR (R$0.099) and fish and shrimp culture (from R$0.003 to R$0.036). Charges for irrigation use are the lowest, varying 13 COGERH prepares the issue of water rights for issue by SRH.

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from R$0.001 to R$0.013/m3. Until 2016, irrigation water tariffs are further reduced by rebates. This reflects a political and cultural reality in the state, in which water for irrigation has traditionally been considered a free good and where irrigation users carry a large political weight.

63. The Loan Agreement called for a pilot to try market-based allocation of water rights. Such pilot was not implemented due to legal impediments in the Brazilian law. Water rights in Brazil, and thus also in Ceará, are not allocated to the highest bidder and cannot be transferred by the designated right holder to another user.

64. The Project created a network of 70 automated data collection and transmission platforms for hydro-meteorological data over the entire State and installed remote monitoring of water levels in 125 of 136 strategic reservoirs, allowing more efficient reservoir operation. This includes management for flood mitigation in the large Jaguaribe basin. These platforms were transferred for operation by the Ceará Meteorological Foundation (FUNCEME). COGERH publishes on its website current data for reservoir levels and rainfall in the state, thanks to a very strong collaboration with FUNCEME.

65. The State Secretariat for Water Resources (SRH) was strengthened as key entity responsible for water resources policy and management. SRH developed the capacity to oversee and coordinate the executing parts of the WRM system (COGERH and SOHIDRA), to create an effective interface to basin water committees, to lead water resources planning and to fulfill its functions in allocating water rights to bulk users. However, this capacity has diminished to a certain extent since 2007, when many staff and consultants left SRH. Since then, SRH was able to hire a few temporary staff but no permanent hiring has been authorized by the State Government. The State Water Resources Plan was updated in 2005, but not thereafter. In 2009, the “Pacto das Águas” (Water Pact) was prepared under the leadership of the State Assembly with participation of different sectors, institutions and civil society. This document presents an updated State approach to dealing with water related issues.

66. The most significant institutional success of the Project has been the strengthening of COGERH, the state agency responsible for bulk water operation. COGERH expanded and trained its staff and improved its operational instruments and decision support systems, with the support and collaboration of other entities like the Ceará Meteorological Foundation (FUNCEME), which also benefited from the Project. It also increased the real-time data available for reservoir and canal operations, generated internal rules and guidelines for operation and maintenance of water infrastructure, and increased dam safety. The agency has also become financially autonomous with the growing income from water charges.

67. COGERH monitors and operates 136 strategic reservoirs built by both the State and the Federal Government, with about 18.3 billion m3 of storage, up from 117 reservoirs and 10.5 billion m3 of storage in 2001. The Project has increased dam safety in the state as a permanent feature of design, operation and maintenance of hydraulic structures, not only because of Bank safeguard requirements. In addition, COGERH has produced and is implementing effective operation and maintenance plans for its large hydraulic systems (reservoirs and canals), including the Integration Canal.

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68. The selection of new hydraulic structures to be built is part of efficient water management. The Project has applied careful screening of new dam projects with regard to economic viability, environmental impacts and resettlement requirements and costs, and this practice has become routine in water resource investment planning in the state.

B. Stimulate multiple use, efficient and shared management of Ceará’s water resources. Rating: Moderately Satisfactory (MS) 69. Shared, decentralized water management is a feature of both the Brazilian water resource legislation and that of Ceará. It has been pioneered effectively and comprehensively in Ceará, in large part under this Project, as a key element of the State Integrated WRM System (SIGERH).

70. Outcome - Increase in the number of people participating in river basin committees and water user associations. The Project has promoted the installation of nine, with 494 member institutions with 2 representatives each, out of the twelve Water Basin Committees, covering now all of the state of Ceará. Furthermore, since 2007, the State replaced the previously existing Water Users Associations into the new form of Water Management Commissions, each linked to a major reservoir. There are now 44 formal Commissions, in addition to 34 informal local commissions that will over time be converted to formal Commissions. Members in Committees and Commissions represent water users, organized civil society, and local, state and federal government. The Project has given strong support for the mobilization, organization, training and logistics of the committees.

71. Basin committees and Management Commissions play an active role in the annual allocation of water, and in related decisions regarding maximum and minimum discharge from a basin’s reservoir. The deliberations are informed by data and forecasts provided by COGERH and FUNCEME. The committees and commissions participate in conflict resolution and in disseminating their decisions. The commissions also have responsibilities in terms of environmental surveillance, water quality control, reporting of illegal activities in the reservoir (such as illegal fishing, or illegal logging in the river beds). Shared management of water at the basin and reservoir level is expected to have contributed to a more socially efficient (equitable) allocation and use of water. It has also broken the de-facto monopoly use of water of certain large users in some basins.

72. Outcome - decrease in the physical waste of water: The Project did not have any intervention specifically related to reducing bulk water losses and their measurement. However, water loss was measured at 6% (compared to 30% at baseline) in one industrial supply system of the FMR, where COGERH implemented metering system in 2011. At the same time, CAGECE has shown reduction of potable water losses rates significantly higher than originally expected. CAGECE actual water losses in 2011 for four systems, Catu, Carmina, Malcozinhado, and FMR, were measured at 12%, 10%, 11%, 20%, respectively; well below the expected losses rate of 25%, 25%, 25%, 65%.

73. Outcome - Increase in use efficiency through new technologies and increase in productivity of water by sectors that use water as raw material. The Project did not have any intervention providing new technologies to specific sectors (e.g. irrigation) to increase water use efficiency or water productivity. Accordingly, efficiency of water use as sectoral output per unit of water was not measured. However, use efficiency is

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expected to have increased as a consequence of user registry, issuing of water rights and charging for bulk water use.

C. Improved management of soils in watersheds. Rating: Satisfactory (S) 74. Outcome – Decrease in erosion and increase in vegetated soil. This component and its associated indicators are related to four specific pilot projects, through which the Project would develop intervention methodologies for subsequent ex-project replication and scale-up. The Project successfully implemented the four pilot projects to introduce and test soil and moisture conservation, by building underground dams, terrace systems, and recovery of riverine vegetation by local communities, in four micro-watersheds.

75. Overall, the four pilots were successful in preventing a scenario of further soil and water loss from inappropriate land use practices, at least in parts of the watersheds. The essential outcome of the pilots were the lessons learned from their implementation, in terms of viable technologies, need for public sector support, community mobilization and participation, and costs. Successful, replicable practices have been amply documented in seven concise primers, and the findings of scientific monitoring have been published in six papers and six books, including an evaluation of the socio-economic process and its results. The replication and scale-up of the methodologies developed will contribute to decreasing erosion and increasing vegetation state-wide. However, the results could only be monitored and reported in numbers for one of the pilot areas. The other micro-watersheds were rolled out later and given the time needed for those physical processes (erosion reduction, vegetated soil increase), these results could not be monitored quantitatively but the process by which the pilots were implemented has been validated by the Project team and beneficiaries. The results produced by the pilots are the following:

Actions Results Number of successive sediment retaining dams constructed 3.332 Number of underground dams constructed 27 Number of cisterns constructed 470 Recovery and preservation of riverine vegetation 18,03 hectares Production of dead cover 42,48 hectares Level cultivation - dry-farming system 2,20 hectares Construction of surrounding stone barriers 70.682 meters Production of permanent vegetation buffers 3.81 meters Terracing 129.928 meters Production of seeding 95.553 Reforestation 29,49 hectares Recovery of degraded areas 5,23 hectares

76. The Project has strengthened cooperation among institutions and stakeholders on groundwater management within the State and also between Ceará and the neighboring State of Rio Grande do Norte. It has generated knowledge about important groundwater

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aquifers in the state, in the coastal region (particularly in the FMR), in the Cariri region (important for urban water supply), and for the Apodi aquifer (important for irrigation) located at the boundary with Rio Grande Norte. Knowing the characteristics of these aquifers in terms of quantity, quality, recharge and safe yield, monitoring their behavior, having registered existing wells and involvement of groundwater users in the process permits more effective, efficient and participatory management of the aquifers, including future conjunctive use. It also helps to preserve the aquifers’ buffering capacity, thus increasing resilience during prolonged drought. The development of effective groundwater management plans based on increased knowledge and continuous monitoring is a challenge ahead.

3.3 Project Efficiency 77. Most Project activities have been completed and achieved the desired outcomes overall by December 2012. Part of the outcomes will be achieved with some delay as a result of the delays in the completion of the dams and pipelines under the AF diminishing Project efficiency accordingly.

78. Economic analysis ex-post. The economic analysis of selected new reservoirs and of the hydraulic works for the water supply to the FMR was repeated with actual data, following the same methodology used as at appraisal. Costs included capital costs, O&M costs, resettlement, environmental compensation, and water treatment costs for urban water supply. Benefits were estimated based on two types of use: human/urban water supply and industrial water supply 14 . The economic rates of return (ERR) on three strategic reservoirs in the PAD ranged from 13% to 15%, and for the same reservoirs ranged ex-post from 7% to 15%. The investments in the Fortaleza Metropolitan Region (FMR), including the Integration Canal, the Aracoiaba Reservoir, the Worker’s Canal, and rehabilitation works, show an ERR of 13%, compared to the appraisal estimate of 16%. For the project as a whole (94% of project cost), excluding the investments in institutional strengthening and policy reform, the ex-post ERR is 11%, compared to the appraisal estimate of 14%. The reason for the differences between appraisal and the ex-post analysis is mainly due to the higher than anticipated costs, both investment and O&M costs. Details of the analysis are given in Annex 3.

3.4 Justification of Overall Outcome Rating: Moderately Unsatisfactory (MU) 79. Overall outcome rating of the Project is “moderately unsatisfactory”, in line with the ratings for the achievement of the three main dimensions of the PDO discussed above.

3.5 Overarching Themes, Other Outcomes and Impacts 80. All of the outcomes of the project were actually intended. The poverty impact could not be ascertained with precision, but is expected to have been highly significant for at least a quarter million of poor and extremely poor people by sparing them from the impacts of severe periodic droughts. It is expected that this might reduce migration from rural to metropolitan urban areas, and stimulate population growth of medium-size urban

14 Irrigation was not included as it was not relevant at the three reservoirs analyzed.

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centers in the interior. All of the institutional strengthening under the Project was included in the design.

81. The outcome and lessons learned from the watershed management pilots could be quite significant as a basis for poverty reduction on a larger scale in rural areas of the entire Brazilian Northeast. That would require new institutional channels for replication and scale-up of the methodologies adopted and “lessons learned”.

82. The construction of sections I, II and III of the Integration Canal was intended to provide reliable water supply to Fortaleza Metropolitan Region, which was achieved. At the same time, it allowed for the completion of the infrastructure by the State with the construction of sections IV and V until Pecém Port and its industrial area. The Integration Canal has become one of the main vectors for the economic development of the State providing guaranteed water from Castanhão reservoir. It is also the main infrastructure of the State that will allow for the adequate and immediate use of the additional water being transferred from the São Francisco river basin that is expected to reach the State in 2013.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 83. A workshop called by the State Government to assess and discuss the outcomes of the PROGERIRH project was held in March 2012 in Fortaleza. Participants included government officials involved in the water sector, current and former project staff, university professors, and representatives of river basin committees. The meeting was helpful in highlighting the achievements of the Project, as well as the historical context and precedents. All participants were highly appreciative of Project results and impacts, and deplored the end of a period considered as extremely positive for WRM development in Ceará. The rather intensive role of the Bank in the Project was mentioned as an important factor of success. The workshop was also useful in defining the challenges the State now faces, such as guaranteeing the quality of reservoir water though integration and coordination with other State policies, the need to promote watershed soil and water conservation more broadly, and the need to serve dispersed rural inhabitants not yet served by medium and large reservoirs.

4. Assessment of Risk to Development Outcome Rating: Moderate (M) 84. The key elements of water management that were strengthened under the Project – user registration, allocation of water rights, charging for bulk water and participatory basin and reservoir management – are not under any significant threat. Collection of water charges has shown a vigorous upward trend, and is increasingly accepted by the stakeholders as a necessary means of managing scarce water resources. At the same time, the strengthening of the river basin committees will have to be taken over by COGERH after twelve years of continued support by the Project. This will represent a new challenge to incorporate the costs and ensure adequate assistance to the committees. In addition, the operation and maintenance of the hydro-meteorological network currently under the responsibility of FUNCEME is not guaranteed. Coordination efforts between COGERH and FUNCEME should be made to ensure the adequate funding of the network.

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85. The risk of poor maintenance of the new reservoirs and conveyance systems is deemed low. Maintenance of hydraulic structures is one of the main functions of COGERH and for which it collects adequate revenue. Maintenance is not dependent on Government budget allocations. Failure of maintenance, particularly of the reservoirs and the Integration Canal, would quickly trigger complaints from basin committees and management commissions, creating extreme political pressure on COGERH to perform well.

86. There is, however, a new important risk to the strategic reservoirs (not only to those built under the Project): deterioration of water quality through eutrophication as a result of human activity is becoming an increasing threat. Eutrophication is a consequence of untreated waste water effluents released into rivers and reservoirs, runoff of fertilizers used in agriculture, of cattle dung washed into reservoirs, and also of fish culture. It is compounded by the fact the water turnover rate of reservoirs is relatively low in the semi-arid climate. Recognizing these new challenges, the Government has approached the Bank to formulate and implement water quality related policies and investment activities, through a closer coordination of sector policies (urban development, sanitation, agriculture and water resources) in the State15.

87. Although the construction of three dams and six pipelines was not completed by mid-December 2012, the risk of non-completion by the Government in 2013 is very low. These are priority infrastructure works to the State, and their completion is particularly urgent in the context of the current very dry season and the expectation of increased droughts related to climate change. The adequate and reliable availability of water in the State is an unquestioned and absolute economic, social and political priority.

88. A further threat is the sedimentation of reservoirs from erosive processes in the watersheds, which will eventually reduce live storage and thus the useful life of reservoirs. However, awareness of this threat still appears to be low. The PRODHAM watershed conservation pilot has been crucial in demonstrating feasibility of erosion control and soil moisture conservation by small farmers, but there is as yet no apparent program or a capable agency to mainstream the pilot results widely. This requires some new Government initiative.

5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry. Rating: Satisfactory (S) 89. The Project was consistent with the Government and the Bank priorities because of the importance of sound management and safe access to water in the State of Ceará. At the same time, it built on an existing and evolving program for development of the state water sector. QAG rated quality at entry as satisfactory. The background work for preparation was sound and the lessons learned from earlier Bank financed projects supporting Ceará’s water sector were adequately taken into consideration. Criticism on the design was related to: (i) the lack of operational outcome indicators which were not quantified in terms of baseline and target values (although this was common practice at

15 Program for Results (PforR) operation being prepared with the State including three different sectors.

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the time as evidenced by QAG’s quality of entry satisfactory rating), and (ii) the overall cost estimate. Otherwise, all relevant aspects were adequately covered: technical, social/ resettlement, environmental, procurement, financial management and economic and financial viability.

(b) Quality of Supervision. Rating: Moderately Satisfactory (MS) 90. Bank supervision is rated moderately satisfactory. The Bank team supported effective implementation through regular and appropriate supervision missions towards the achievement of development outcomes. The supervision effort of the Bank over about twelve years was strong, continuous and comprehensive. There were at least forty-five full supervision missions and technical visits to cover specific components. Each full supervision mission went through all pertinent technical, fiduciary, social and environment aspects and recorded needs for action by the Borrower and implementing agencies in the Aide Memoire. The Bank team could have been more proactive in restructuring the Project to revise its results framework and formally include the correct and agreed baseline and target information. However, baselines and targets were promptly agreed with the Borrower at implementation start and monitored throughout the Project life, including reporting in ISRs.

91. During the original Project, when funding difficulties threatened to impact performance, the Bank was flexible in adjusting financing percentages and reallocating the loan proceeds, and helped mitigate the fund shortage through SWAp loans to the state and to a certain extent also through the PROAGUA loan. In addition, the Bank provided substantial Additional Financing to increase the scope of the Project. With the delays in the AF, several works remained incomplete at closing date; the Bank then obtained an agreement from the Borrower that all unfinished work would be concluded with State funds by 2012, and the Bank continued to supervise that implementation throughout 2012 and will continue supervising the implementation until completion of all works as some of these works will only be completed in 2013.

92. Despite the strong and continued supervision support provided by the Bank team, which would justify a “satisfactory” rating, the Quality of Supervision is being rated as “moderately satisfactory” for two main reasons: (i) the Bank’s assumption (based on the client’s good track record both in the implementation of water projects and in other Bank operations) that the Borrower would complete the works relatively early after Project closure, proved unjustified, in view of the fact that several works are still unfinished one year after closing date, and (ii) the last ISR prepared before the closing date in December 2011 too optimistically rated the achievement of the PDO as “moderately satisfactory” even though only two dams, out of five, and none of the six pipelines had been completed by then.

(c) Justification of Rating for Overall Bank Performance. Rating: Moderately Satisfactory (MS) 93. The overall Bank performance is rated as moderately satisfactory, in line with the same ratings for quality at entry and supervision.

5.2 Borrower Performance

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(a) Government Performance. Rating: Moderately Unsatisfactory (MU) 94. The performance of the Government of the State of Ceará is rated moderately unsatisfactory. It strongly supported the Project during preparation phase and most of the implementation. During implementation, it gave priority to the completion of major infrastructure works under the Original Project, notably the Integration Canal, and provided the necessary support to a continuous strengthening of Ceará’s institutional framework for WRM (especially COGERH), which is now considered as one of the best institutional set-ups for WRM in Brazil.

95. However, the State Government has shown a lack of pro-active handling of several non-performing works contracts of dams and pipelines, especially during the AF phase of the Project. This led to severe delays in construction and compliance with both social and environmental safeguards. This is partly related to the fact that from 2007 onwards, the Government was not able to retain many experienced and dedicated technical staff and consultants, mainly in SRH and SOHIDRA as most of them left to the heated private sector or other Government institutions, thus causing a decline in the technical follow-up of the Project by the Implementing Agency. Also, the Government did not open new job vacancies and adequately staff SRH and SOHIDRA with permanent personnel, which was only achieved for COGERH. Finally, the State Government was not always effective in guaranteeing the timely collaboration of other state agencies, such as the Environmental Secretariat or the Land Institute, although eventually these agencies performed their part in environmental compensation and mitigation, as well as in land titling to the resettled population.

96. In addition, under the Additional Financing phase, the Government was not able to achieve the results agreed with the Bank for completion of all works during 2012. Although delays in the execution of works are partially related to financial problems with contractors, several delays in contract execution relate to inadequate allocation of funds to these contracts after the closing date. In addition, the Government has also decided to stop the external supervision of works activities by a contracted firm. Instead, it decided to continue supervision of works via the State superintendence responsible for surveillance of contractors’ performance (SOHIDRA), which is not adequately staffed to perform the necessary supervision required by the Project. Finally, the long delay in providing a permanent solution to the energy and water supply of the resettlement area of Gameleira dam could have been avoided by a stronger action from the Government side to resolve the problem. In that area, 35 resettled families only in December 2012 received access to energy and water despite many recommendations and alerts given by the Bank in different supervision missions in 2011 and 2012.

(b) Implementing Agency or Agencies Performance. Rating: Moderately Unsatisfactory (MU) 97. The main Implementing Agency was SRH. COGERH and SOHIDRA executed specific parts of the Project as delegated by SRH. FUNCEME was responsible for few activities during the first years of the original Project. The implementing agency overall performance is rated moderately unsatisfactory (MU). On the one hand, SRH carried out its planning, implementation and policy functions adequately, especially in the first phase of the Project. It established and maintained special units to implement the watershed

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conservation pilot, to coordinate the environmental mitigation and compensation activities and to carry out resettlement. The effort of SRH to implement resettlement in accordance with Bank rules within the Brazilian legal context (which does not have a resettlement law) is commendable.

98. On the other hand, especially during the AF, its action was characterized by several deficiencies, such as insufficient action on delays in construction work, and inadequate attention to resettlement and environmental mitigation works. This occurred because the supervision capacity of the SRH was not strong enough (particularly in the later years) and SOHIDRA was not adequately staffed or its staff were not well trained in supervising environmental and social aspects in contractors’ work. As a result, the effectiveness of SRH and SOHIDRA in supervising and enforcing environmental safeguards and contract clauses vis-à-vis the contractors was not satisfactory and has contributed to the non- achievement of most AF infrastructure related results.

(c) Justification of Rating for Overall Borrower Performance: Moderately Unsatisfactory (MU) 99. The overall Borrower performance is rated as moderately unsatisfactory, in line with the ratings for Government and Implementing Agency performance discussed above.

6. Lessons Learned 100. The Government of Ceará has continuously expanded and reinforced its water system over the last decade, in great part through the Project. This involved not only expansion of infrastructure but also improvements in management and user participation. By doing so, it has connected more people and more uses to the system and increased their level of guarantee of water supply. This tendency will continue with the arrival of the water from the São Francisco River Inter-Basin Transfer Project to the state of Ceará.

101. Ceará’s institutional model separating planning and policy formulation from implementation of water resources instruments with financial sustainability is relevant for other states of northeast Brazil that are faced with similar WRM challenges and could be adapted to their specific contexts. The state of Ceará has put very significant efforts over the last decade to consolidate and strengthen its institutional set-up for water resources planning and operation and maintenance of its key water infrastructure. By implementing improved policy and management tools, such as permit and tariff policies, it achieved the objective of financial sustainability of COGERH. Therefore, Ceará is arguably the best prepared state of the Northeast to receive the water of the São Francisco River Inter-Basin Transfer Project and address its associated financial and operational challenges.

102. A strong political will is needed to integrate institutions around water resources management. Ceará still has a lot to achieve in this area, as evidenced by the case of the PRODHAM pilot, which brings together different aspects of water management. This pilot, although widely recognized as a success story in terms of environmental management, farmers’ participation and income generation, has hitherto not been scaled up for lack of institutionalization of its model. More broadly, the state needs to further develop institutional capacity to formulate and implement water resources policies in conjunction with different entities (e.g. agriculture, tourism, urban

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development, industry etc.), especially to address the critical water quality challenges, but also to address challenges related to dam safety, which require strong inter-sectoral collaboration mechanisms.

103. Participatory, decentralized WRM at the river basin level is key for achievement of improved management of resources. Firstly, the decentralized support by COGERH, through its eight regional offices, undoubtedly contributed to consolidating and strengthening the water allocation process by the River Basin Committees. Secondly, the strong collaboration between Ceará’s Meteorological Foundation (FUNCEME) and COGERH greatly facilitated the use of climate and hydrology forecasts into this allocation process. Looking forward, and considering the expected changes in precipitation and temperature from climate variability and change, these processes will likely be challenged by changes in terms of water availability and water demand. It is, therefore, important that the state considers those possible impacts at different time scales, and explores options to increase the flexibility and adaptive capacity of its institutional and legal framework, and infrastructure, to address them.

104. More attention needs to be given early on to water quality issues; water volume and quality are inextricably linked. In Ceará, reservoirs have been constructed historically to deal with recurrent droughts and assure adequate water quantity, with little or no water quality management objectives. Likewise, the design of Bank financed projects in the water sector did not include specific water quality related objectives. Yet, increased influxes of pollutants, combined with fluctuations in water volume, have contributed to a degradation of the water quality in key reservoirs throughout the state. As water levels fall particularly during droughts, conditions may reach a highly eutrophic state and water becomes unusable precisely when it is most needed. It is recommended that future interventions in Ceará and similar states in the semi-arid northeast consider water quality improvement objectives and interventions to be adopted among sector agencies (e.g. water supply and sanitation, urban development, agriculture, among others) combined with local participatory strategies at the watershed level.

105. In the context of Ceará, it was the right choice to incorporate environmental (e.g. clearing of reservoir areas) and resettlement actions (e.g. construction of agrovilas for people displaced by the construction of reservoirs) in the work contracts. However, effective compliance with these safeguards requires: (i) intensive training of implementing agencies staff on Bank’s safeguard policies, on the content of environmental management plans and on the equivalency of these to local, state and federal requirements, (ii) a well-trained, specialized professional team for planning and supervising environmental mitigation actions, (iii) training of contractor staff in the requirements of environmental action plans before the start of construction and (iv) an effective communication strategy that shares the benefits of the Project with the local affected population and the importance of complying with environmental requirements with the contractors.

106. Resettlement should provide more than one option for rehabilitation of families (as was the case with irrigated plots in agrovilas) and involve them in the choice of the most suitable alternative. Also, to ensure that agrovilas are sustainable after the end of the Project and the departure of the Implementing Agency, it is important

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that the state establishes clear institutional arrangements, including with the local governments, regarding access to basic social and infrastructure services.

107. Intensive Bank involvement in supervision of resettlement and environmental safeguards is indispensable, as effective Borrower attention to these aspects is often limited, particularly where civil society organizations are scarce or absent in representing or safeguarding the interests of displaced persons and of the environment. While Ceará has made considerable improvements incorporating social and environmental safeguards in the planning of projects, it is important to further strengthen civil society and stimulate its demand for compliance with such safeguards, as a matter of good governance and sustainability of these institutional achievements.

108. Innovation processes like the ones achieved in Ceará’s water sector, require long term vision and political commitment, financial stability and institutional strength. To support a state like Ceará in those long-term processes and for such large combined infrastructure and institutions focused-projects, the Bank needs to invest in a long term vision and take risks, which it has been able to do with this Project, leading to very important development outcomes.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 109. The draft ICR was submitted to the counterparts for comments on December 9, 2012. The Borrower’s implementing agency, SRH presented their comments to the draft report through the letter OF. GS. N°2087/2012 dated December 26, 2012 and received by the Bank on the same date. The full content of the letter is presented in Annex 7.

110. In the letter, the Borrower expressed its satisfaction with the recognition of the significant benefits of the Project and the achievement of main objectives, which has allowed for the development and consolidation of the State water resources sector, considered one of the best implemented in the country. It also stressed in the letter that out of the 23 intermediate indicators, only 7 were not achieved in full; considered by the implementing agency as a demonstration of the high degree of Project success, achieving the main objective of increasing the State’s capacity to deal with water resources scarcity issues through structural measures and actions aimed at strengthening the management system, creating a new culture and consolidating a new model for dealing with the water resources in Ceará.

111. In this sense, the Borrower expressed its disagreement with the overall outcome rating of moderately unsatisfactory. In its point of view, this rating does not reflect Project overall performance. The Borrower’s understand that this rating relates to the fact that four dams were and the pipelines have not been completed yet. In that regard, the Borrower mentions the report from the Bank’s mission carried out from December 10 to 14, 2012, which states that the dams will be fairly completed by end-December 2012, leaving small adjustment works to be carried out in January 2013. Amontada, Antonina do Norte and Ipueiras pipelines are 95% completed and Madalena pipeline is 80% completed, all of them expected for completion in January 2013. Itapipoca pipeline completion has been delayed due to the bankruptcy of the original contractor, which has

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already been replaced and the works have resumed, with completion expected by May 2013. The construction of Ipaumirim dam is paralyzed for judicial reasons.

(b) Cofinanciers. Not Applicable.

(c) Other partners and stakeholders Not Applicable.

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Annex 1. Project Costs and Financing A. Original Project (a) Project Cost by Component (in US$ million equivalent)

(b) Financing

ComponentsAppraisal Estimate

(USD million)Actual/Latest Estimate

(USD million)Percentage of

Appraisal

Management and Institutional Component 19.00 17.73 93.32

Strategic Reservoir Network 20.20 37.72 186.73

Integration of Key River Basins 117.60 441.12 375.10

Restoration of Existing Bulk Water Infrastructure 15.20 2.32 15.26

Micro Watershed Managemen Pilot Project 3.80 2.82 74.21

Groundwater Management 4.00 0.38 9.50

Total Baseline Cost 179.80 502.09 279.25Physical Contingencies 52.40 0.00 0.00Price Contingencies 15.00 0.00 0.00

Total Project Costs 247.20 502.09 203.11Front-end fee PPF 0.00 0.00 0.00Front-end fee IBRD 0.00 1.36 0.00Total Financing Required 247.20 503.45 203.66

(Exchange rate used in Appraisal was US$1.00 = R$1.70. Actual amounts are calculated in an exchange rate of US$1.00 = R$2.02).

Source of Funds Type of Co-financing

Appraisal Estimate

(US$ million)

Actual/Latest Estimate*

(US$million)

Percentage of Appraisal

Borrower 111.20 367.45 330.44IBRD 136.00 136.00 100.00Total 247.20 503.45 203.66*The amount related to Bank financing relates to actual disbursements.

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B. Additional Financing (a) Project Cost by Component (in US$ million equivalent)

(b) Financing

ComponentsAppraisal Estimate

(USD million)

Actual/Latest Estimate

(USD million)


Water Resources Management 11.71 17.88 152.69Hydraulic Infrastructure 195.55 208.46 106.60

Total Baseline Cost 207.26 226.34 109.21Physical Contingencies 0.00 0.00 0.00Price Contingencies 0.00 0.00 0.00

Total Project Costs 207.26 226.34 109.21Front-end fee PPF 0.00 0.00 0.00Front-end fee IBRD 0.00 0.28 0.00

Total Financing Required 207.26 226.62 109.34(Exchange rate used in Appraisal was US$1.00 = R$1.75. Actual amounts are calculated in an exchange rate of US$1.00 = R$2.02).

Source of Funds Type of Co-financing

Appraisal Estimate

(US$ million)

Actual/Latest Estimate*

(US$million)


Borrower 104.26 125.34 120.22IBRD 103.00 101.28 98.33Total 207.26 226.62 109.34*The amount related to Bank financing relates to actual disbursements.

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Annex 2. Outputs by Component 1. The detailed project components and their outputs are described as follows. Component 1: Management and Institutional Component (US$ 25 million, 10 percent of total estimated cost).

2. Description. Even though tremendous progress had been made in the institutional, legal and management frameworks of the state, this component sought to enhance the work by then, refine the systems where needed and continue the implementation of sustainable practices in the management of the resources. The component was divided into the following specific sub-components:

Hydro-meteorological Information System: 3. Inventory and prioritization of the information gathering activities within the state, classification of activities as collector-user potentialities. Identification of areas where information was not being collected and areas of redundancy. Electronic data collection, assimilation, distribution and archiving to be designed to optimize the availability of all natural resources information within the state to all users without compromising the need for real time availability to information originators. Based upon this refined design, system components were to be acquired and installed to provide a comprehensive and accessible data base of natural resources information to both the public and the private sector.

Sustainable Operation and Maintenance of Bulk Water System: 4. Assistance to COGERH in the development of a sustainable and comprehensive Plan of Operation and Maintenance (POM) for the State. Development of sustainable preventative maintenance practices, establishment of depreciation reserves for extraordinary maintenance and equipment replacement, maintenance training programs, and emergency response strategies for the bulk water system.

Dam Safety and Inspection Program: Development of a comprehensive program of inventorying, risk classification, inspection and rehabilitation prioritization for the over 5,000 dams and reservoirs within the State. Basin Committee Organization and Training: 5. Enhancement of the existing program of formation and development of capacity within River Basin Committees to participate in the management of water resources within the river basins of the State.

Water Tariff Evaluation: 6. Continue the program of evaluation of bulk water tariffs and the development of an acceptable strategy of setting tariffs that reflects the real cost of providing the service and also provides a socially viable system of tariffs and cross-subsidies, where necessary, to guarantee water availability to all segments of society and, at the same time, assure the sustainability of the bulk water systems.

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Market-Based Water Transfer Mechanisms: 7. Design and implement, on a pilot basis, a market-based transfer system for water use rights that enhances adjustment of water supplies to meet changing demands reflective of values determined in the market place.

Public Information and Education Program: 8. Design and implement a public information and education program within the State with the objective of educating the general public, the political leaders and the media regarding the value of water resources and the necessity for conserving and maintaining the quality of those resources.

Component 2: Strategic Reservoir Network (US$22.2 million, 9 percent of total estimated cost). 9. Description. Design and construction of key infrastructure critical to the provision of water supplies to rural water-short areas and to reduce the vulnerability of the citizens of the state to cyclical drought in the short to medium term. Delineation of the infrastructure was said to be provided in a hierarchization study of dams included in project files.

Component 3: Integration of Key River Basins (US$166.8 million, 67.5 percent of total estimated cost).

10. Description. Provision of reliable and quality water supply for industrial, municipal and domestic purposes within the Metropolitan Basin of Fortaleza for the short, medium and long term. This included:

(a) a detailed analysis of the inter-basin water resources transfer proposals of the PROGERIRH Plan to evaluate environmental, social, technical and economic feasibility of such proposals and to develop a long-range schedules for implementation of feasible options. The analysis was to include hydrological modeling, supply and demand projections, environmental and social evaluation, analysis of alternatives, sensitivity analysis, and consideration of regional planning goals for both the originating and the receiving river basin.

(b) preparation of final designs and construction of key inter-basin transfer systems found to be of high priority, feasible and necessary, including the development of operation and maintenance plans for these facilities;

(c) construction of priority infrastructure necessary to assure an adequate water supply for industrial, municipal and domestic purposes to the Metropolitan Basin of Fortaleza.

Component 4: Restoration of Existing Bulk Water Infrastructure (US$23.2 million, 9.4 percent of total estimated cost).

11. Description. The state water company COGERH had taken over the operation and maintenance responsibilities of the bulk water supply facilities of the state including the facilities formerly operated and maintained by CAGECE and the Federal Government (DNOCS). These facilities were suffering from a lack of sustainable operation maintenance over several decades. COGERH had inspected and inventoried the condition of these facilities and prioritized the need for restoration. The component continued the

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evaluation process of existing bulk water supply infrastructure and begin implementation of restoration measures for those systems deemed most critical to the assurance of continued supply of bulk water in the short term.

Component 5: Micro Watershed Management Pilot Project – PRODHAM (US$5 million, 2 percent of total estimated cost).

12. Description. Rehabilitation of micro watersheds (fourth-level tributaries) in four pre-defined areas of the State. Conceived as a pilot project, it was to develop methodologies on how to build a functioning approach for local community involvement, implementing technically, socially, environmentally and economically sustainable solutions that help promote the improved management of soil and vegetation in the tributary watersheds by enhancing water conservation, minimizing erosion and maximizing natural water storage mechanisms.

13. This component was developed as a complimentary aspect of the global PROGERIRH. While the global PROGERIRH focused on areas close to the primary water courses in the state, the PRODAHM focused on fourth-level tributaries in micro watersheds. In these rural areas, the population typically is very poor and dependent on water availability during the rainy season. With the onset of the dry season, water scarcity impedes development of economic activities such as irrigation or intensive animal husbandry. In addition, local vegetation along these small tributaries suffers due to its uncontrolled use. The loss of this vegetation cover in turn has a negative impact on soil moisture, wind retention and the micro climate, thus creating a downward spiral of environmental and livelihood degradation.

14. The main objective of this component was the rehabilitation of micro watersheds in four areas of the state of Ceara. Conceived as a pilot project it developed methodologies on how to build up a functioning approach for local community involvement, implementing technically, socially, environmentally and economically sustainable solutions that help promote the improved management of soil and vegetation in the tributary watersheds by enhancing water conservation, minimizing erosion and maximizing natural water storage mechanisms. The ultimate purpose was to improve the livelihood of the inhabitants of these areas increasingly threatened by environmental degradation and recurring droughts.

15. The expected results of the pilot were: (a) a methodology for rehabilitation and prevention of degradation effects on the vegetation; (b) development of simple techniques of soil and water conservation using local human and natural resources; (c) re-establishment and conservation of local biodiversity; and (d) increased inter-seasonal water availability for animal consumption. Depending on the results, the approach might be extended to other areas.

Component 6: Groundwater Management (US$5 million, 2 percent of total estimated cots). 16. The main area of the state of Ceara is situated on chrystalline rock formations with relatively little good-quality groundwater. For this reason the principal water source is surface water which is stored in reservoirs during the rainy season lasting from January

35

through May. In two regions of the state, however, there are significant groundwater resources: the coast and in the Cariri region. This component focused on these areas through two sub-components.

A. Cariri Sub-component: 17. The Cariri region in the Southeast of the State has relatively abundant rainfall and groundwater, which is crucial to the economic and social stability of that region. However, evidence had accumulated that groundwater resources were diminishing. This sub-component was to produce relevant data and analyses regarding the groundwater situation in the Cariri region, especially regarding the Chapada do Araripe highlands and their link to the Cariri plain, and develop and implement an action plan for better groundwater management, involving the local communities, possibly including reforestation, groundwater monitoring, registry of water users, training water managers in the region and educating the public.

B. Coastal and Littoral Zone Sub-component: 18. Groundwater in the coastal zone and the related coastal freshwater lakes are important for the State´s tourism industry, both from a recreational and from a drinking-water viewpoint, as well as for much of the current water supply to Fortaleza. Groundwater resources are vulnerable to pollution from residential and industrial development, to intrusion of salt water and to over-exploitation. The sub-component was to continue analysis and the implementation of recommendations developed under the Ceará Water Pilot Project for the development of a coastal and littoral zone groundwater management plan, to include a program for the identification and preservation of the critical recharge zone to assure the long term sustainability of this valuable resource.

Additional Financing 19. An Additional Financing (AF) for this Project of US$ 103.0 million was approved by the Board on December 17, 2008. While project objectives remained the same, project components were re-organized into two major areas: (a) WRM, including groundwater management, formerly under Component 6, and a new water quality monitoring system, and (b) hydraulic infrastructure, containing the following elements:

Component 1 - Water Resources Management 20. Description. This Component will comprise the following groups of activities:

Institutional Strengthening: 21. Development and strengthening of human resources for the State WRM entities and the public communication system to facilitate the social change for a new water culture.

Water Rights, Licensing and Control System, Bulk Water Tariff Program: 22. Updating and expansion of the technical and information basis for allocating and managing water rights, enforcing water rights and bulk water charges, and re-evaluating the bulk water tariff and tariff collection system.

Water Basins Committees and Water Users Associations:

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23. Supporting the creation of additional water basin committees and water user associations, dissemination of lessons learned and best practices through the watershed pilot (PRODHAM), and development of environmental education programs for bulk water conservation.

Operation and Maintenance of Hydraulic Infrastructure: 24. Preparation of studies for rehabilitation and enhancement of water infrastructure, and implementation of automated O&M for priority infrastructure.

Water Quality Management and Groundwater Management: 25. Implementation of a water quality monitoring system and expansion and strengthening of the groundwater management system.

Component 2 - Hydraulic Infrastructure 26. This revised component represented the bulk of additional funding and included the preparation and implementation of additional water storage and supply facilities that had been analyzed in the preparation of the original PROGERIRH but not included in the project scope earlier due to funding limitations. The component included three groups of activities:

Strategic Reservoirs Network: 27. Six reservoirs (Umari, Gameleira, Trairi, Jenipapeiro, Jatoba and Mamoeiro) were selected following a prioritization methodology developed earlier, that are to be primarily used to provide municipal/domestic water supply to critical rural areas that lacked adequate and reliable treated water, particularly during the periodic droughts.

Water Transfer Axis: 28. The completion of Section III of the Integration Canal initially funded under PROGERIRH was included in the scope of the AF, but was to be entirely financed with counterpart funds. The sub-component also included the water conveyance systems (Madalena, Itapipoca, Fortim, Ipaumirim, Ipueiras and Antonina do Norte pipelines) to distribute water from the above-mentioned six strategic reservoirs, to be funded in part with AF loan funds.

Studies and Engineering Designs to support State infrastructure investment planning. The annex follows the component structure adopted under the Additional Financing, but includes also the components “Restoration of Bulk Water Infrastructure” and “Micro-watershed management”, which were part of the original project scope only.

Water Resources Management: A. Institutional Strengthening

First Phase and Additional Financing (AF)

Institutional Strengthening • SRH, COGERH, SOHIDRA strengthened, with training, office equipment, furniture, field equipment, vehicles, information technology, studies, WRM plans, consultancies, technical assistance, etc.

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• Master course in water management (11 students) • Regional offices of COGERH established • Management Information System for SRH

Environmental protection • Infrastructure for Araripe National Forest • Environmental education and training in Araripe National Forest • Environmental education and infrastructure in three areas of

environmental protection • Monitoring of conditions in estuary and mangrove forests of four

rivers • Monitoring of schistosomiasis in Aracoiaba reservoir and river • Branch office of State Environment Secretariat in Pecém

industrial/port complex. • Environmental inventories for 28 reservoirs

Water Management • Ceará WRM Plan (2005) • aerial photography for 123 reservoirs • Decision Support System for Water Allocation and associated training

Dam Safety • Dam safety rules, criteria and procedures • Dam safety inspections • Dam safety panel

Public Information and Awareness

• Campaign on Rational Water Use • Campaign on water tariffs • Distribution of primers to irrigation users • Radio programs on WRM in selected basins • “Pacto das Águas” (State Water Pact): eight seminars, 225 people, 94

institutions to discuss water resource scenarios for Ceará

B. Water Rights, Licensing and Control System, Bulk Water Tariff Program

First Phase and AF Tariff studies, proposals and decrees

• Studies on ability to pay of water users • Studies on cost of providing bulk water by major systems • Study on cost of bulk water supply to eight major irrigation

schemes • Proposal for water tariff structure. • Decree 27.271 of 2003, modified by Decrees 30.159 of 2010 and

30.629 of 2011. • Inclusion of irrigation and fish/shrimp cultivation in water charging • 380 paying bulk users

Cadastre of bulk water users • Cadastre carried out in eight river basins. • Total of 15,500 users registered by the project16.

Water rights awarded 5,000

Tradable water rights pilot scheme

Not implemented. Instead: Plan to optimize water allocation (for Banabuiú, Orós and Castanhão dams)

C. Water Basins Committees and Water Users Associations

First Phase and AF

16 Another 2284 users were registered under the PROAGUA project

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River basin committees • 12 basin committees created and functioning • Educational and information events, training

Management Commissions17 • 44 formally established • 34 informally operating, still to be formalized • Educational and information events, training

D. Operation and Maintenance of Hydraulic Infrastructure

First Phase and AF Operation and Maintenance Plan O&M Plan for Hydraulic (Bulk Water) Infrastructure drafted and

concluded

Hydro-meteorological infrastructure

• 70 automatic data collection platforms • Water level monitoring in 125 reservoirs • Projects (designs) for telemetric monitoring and control of

hydro-mechanical equipment and conveyance structures

E. Water Quality Management and Groundwater Management

First Phase and AF Groundwater studies and monitoring

• Groundwater unit established in COGERH • Technical chamber and groundwater group established (advisory) • Monitoring and plan for participatory management of groundwater in

Chapada do Apodi • Monitoring of groundwater and management plan for Cariri/Araripe aquifer • Hydro-geological study of groundwater in Fortaleza metropolitan region • Study on qualitative risk re-evaluation of groundwater use in the FMR • Study evaluating residential self-supply of groundwater in the FMR.

Water quality monitoring

Acquisition of quality monitoring equipment

Hydraulic Infrastructure

A. Strategic Reservoirs Network

First Phase Additional Financing Number of new reservoirs 6 dams/reservoirs:

• Aracoiaba • Carmina • Catu Cinzenta • Faé • Malcozinhado • Pesqueiro

5 dams/reservoirs18 • Gameleira • Umari • Jatobá • Jenipapeiro • Mamoeiro

17 These substitue for the earlier water user associations 18 Gameleira, Jatobá e Mamoeiro dams had not yet been completed by mid-December 2012 but completion is expected by end-December 2012. The sixth reservoir planned under the AF, Trairi, was taken out of the Project scope by the Government at implementation start as other alternatives to supply water to the beneficiaries had already been implemented.

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Storage capacity +280.89 million m3 +157.76 million m3

Regulated flow (at 90% dependability)

+1.734 m3/sec 1.35 m3/sec

Population benefiting 230,000 144,600

Resettlement villages 3 villages, with 121 houses and agricultural plots

5 villages, with 140 houses and agricultural plots

Assisted self-resettlement 404 families 87 families

B. Water Transfer Axis

First Phase Additional Financing Integration Canal 1st reach I (54.7 km, 22 m3/sec),

2nd reach (46.1 km, 19 m3/sec) and part of 3rd reach (66.3 km, 19 m3/sec)

Remainder of 3rd reach

Conveyance structures • Second reach of industrial water supply system for thermal power plants CGTF and USCJ

• Spillway to stabilize syphon Nr. 1 of the conveyance canal Sítios Novos, Pecém

• Automation equipment to supply water to the Industrial and Port Complex Pecém

Six conveyance structures (pipelines).19

• Amontada20 • Antonina do Norte • Ipueiras • Itapipoca II • Ipaumirim • Madalena

144,600 people served

C. Restoration of Bulk Water Infrastructure

First Phase only (none under AF)

Rehabilitation works 23 rehabilitation sub-projects for dams, reservoirs and water intake structures

D. Studies and Engineering Designs to support state infrastructure investment planning

19 Ipueiras and Amontada pipelines are expected to be completed by December 2012. Itapipoca pipeline is expected to the completed in May 2013, Madalena and Antonina do Norte in February 2013. Ipaumirim pipeline will be delayed for completion in 2013 due to an ongoing judicial dispute between the contractor and SRH. 20 The originally planned Fortim pipeline would capture water at Trairi dam. Therefore, it was taken out of the Project scope together with Trairi. The inclusion of Amontada pipeline was then agreed with the Bank. The pipeline captures water at Missi dam, constructed under the Bank-financed PROAGUA Project.

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First Phase Additional Financing New dam projects and designs prepared 14 dams, 11 conveyance structures 1 dam

New conveyance pipeline projects and designs prepared

10

Feasibility studies for dams prepared 9 1 dam Watershed Management First Phase and AF Pilot micro-watersheds

• 4 pilot projects/micro watersheds • 17 demonstration units • 53 ha restoration of streamside vegetation and degraded areas • 74 km stone contour bunds, vegetative contour bunds • 130 km terracing • 3,330 sediment contention barriers • 27 underground barriers • 470 cisterns • 95,000 seedlings • 800 producers trained • 79 environmental education events • 42 technical training events • 100 organizational strengthening events • 25% adoption rate of improved practices among trained producers

Pilot results Production and dissemination of material about results of PRODHAM component

• 11 primers • 3 dissertations • 6 books • Website, CDs, DVDs

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Annex 3. Economic and Financial Analysis (including assumptions in the analysis) 1. Conclusion: Internal economic rates of return (IERR) on the three, pre-defined strategic reservoirs described in the PAD were expected to range from 13% to 15%. Analysis shows actual IERRs for these same strategic reservoirs ranging from 7% to 15%. The reasons for the differences between appraisal and the ex-post analysis are explained in Section A below. Of the three strategic reservoirs analyzed, one is economically profitable, exceeding their appraisal estimate, while the others are below appraisal estimate and marginally economically viable. The investments in the Fortaleza Metropolitan Region (FMR), which included investments in the Transbasin Link Castanhão-Fortaleza, the Aracoiaba Reservoir, the Worker’s Canal, and rehabilitation works, shows an IERR of 13%, compared to the appraisal estimate of 16%. The project IERR is 11% compared to the appraisal estimate of 14%.

2. The economic and financial analyses of the Project were conducted at two levels. First, using traditional cost-benefit analysis, detailed economic and financial assessments were undertaken for the main infrastructure components, namely (a) increased and reliable supply to the FMR, and (b) a sample of three completed strategic reservoirs. The evaluated infrastructure components account for 94% of the total project costs estimated at appraisal (excluding the Additional Financing). We have excluded the original financing investments in the ex-post economic analysis because those investments have not yet produced benefits and/or data was not available.

3. The analysis followed the same methodology and cost-benefit calculations done at appraisal in order to compare the projected net benefits with the actual economic and financial returns. Nevertheless, the institutional development component has been pivotal to the achievement of the overall project benefits, however it has not been quantified in this analysis. Therefore, for the Project as a whole, the linkages of the different components, i.e. the investment costs of the above-mentioned investments were considered. These were compared to the benefit streams derived from incremental water supply. 4. The ex post economic analysis followed the same methodology as the appraisal assessment. The cash flows were calculated up to the year 2028 (30 years from appraisal), discounted using a discount rate of 12 percent which is assumed to be a proxy of Brazil's opportunity cost of capital. Benefits were estimated based on the type of use. Three different types of use were included in the quantitative analysis: human water supply, industrial water supply, and irrigation. However, for the sample of projects evaluated, irrigation benefits were not included in the base scenario given that there was no expected area with specific irrigation activities planned. Thus, given that irrigation activities had been undertaken, the approach used was conservative by not including irrigation within the benefit stream.

5. Cost information was provided by Project Unit, as well as O&M costs by COGERH and CAGECE. These costs include capital costs, operation and maintenance costs, rehabilitation, and resettlement. Although the project did not finance water treatment plants, distribution networks for municipal water supply, or irrigation infrastructure, such

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investments were undertaken with own Government funds. We included these additional costs in order to be able to arrive at the real net return to all investments.

A. Analysis of Strategic Reservoirs 6. From Map 1, we observe the location of all reservoirs financed by PROGERIRH, and MAP 2 shows the clear growth in the number of households between 2000 and 2010 with adequate water supply. Table 1 below shows the comparison between the appraisal estimates and the ex-post economic analysis of the 3 strategic reservoirs: Malcozinhado, Carmina, and Catu. The reason for the differences between the appraisal estimates and the ex post analysis are the following:

a. For Catu and Carmina Reservoirs, although the actual volume of water supplied to end user was lower than originally estimated, given the better than estimated reduction in losses throughout the system and the larger than expected population growth, economic benefits were maintained. The big difference leading to a negative NPV, is due to the higher than anticipated costs, both investment and O&M costs. Catu and Carmina had an increase in costs of 42% and 37% with respect to the appraisal estimate.

b. For Malcozinhado overall costs were 17% less than the appraisal estimate. Actual investment costs were higher, but O&M costs were much lower, leading to net savings. Furthermore, given that it was the largest Reservoirs in the sample, this kept the overall costs of these 3 reservoirs at only 11% above the appraisal estimate.

c. In addition, increases in costs related mostly to rises in fuel prices and overall construction costs partially caused by the devaluation of the Real in 1999. Construction costs have also increased as a result of the heating of the construction market in Brazil with the launch of a large infrastructure program by the Federal Government in 2007.

Table 1. Comparative Economic Analysis of Strategic Reservoirs

Strategic Reservoir Appraisal Estimate Actual

Present Value (US$ '000) IERR (%)

(US$ '000) IERR (%) Benefits Costs NPV Benefits Costs NPV

Carmina 2,061 1,578 483 15% 2,165 2,158 (225) 11% Catu 3,225 2,889 336 13% 3,185 4,114 (1,270) 7% Malcozinhado 5,435 4,642 793 14% 5,615 3,872 605 15% Total 10,721 9,109 1,612 14% 10,966 10,144 (890) 11%

B. Analysis of Infrastructure Investments for the Fortaleza Metropolitan Region

(FMR) and overall Project Returns 7. Population in the FMR has grown as estimated in appraisal, but potable water consumption and system efficiencies have been higher than originally expected (see Table 2 below). In particular CAGECE reports a great improvement in the reduction of system losses in the past few years, as well as an increase in water consumed. Although a desegregated ex post analysis by type of water user group was not possible, there has been a clear increase in incomes in the past decade, as well as a proliferation of

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underground water sources, so it has been challenging to quantify the current level of overall benefits from project investments for the FMR. Table 2. Comparative data of appraisal assumptions vs. observed estimates

POTABLE WATER CONSUMPTION (2011)

SYSTEM EFFICIENCY (2011) POPULATION (2011)

Reservoir (Acude) + FMR

Estimated (M3/year)

Actual (M3/year)

Estimated Water

Distribution Losses (%)

Actual Water

Distribution Losses (%)

Estimated Actual

Catu 1,525,554 462,274 25 12 45,368 67,000 Carmina 304,914 186,284 25 10 7,985 9,952 Malconzinhado 1,000,800 972,998 25 11 92,442 84,825 Fortaleza Met Reg. (*) 425,212,502 671,405,760 65 20 3,677,297 3,610,000

Total 428,043,770 673,027,316

3,823,092 3,771,777 (*) The FMR estimates include water to other uses (commercial and irrigation) 8. Overall costs in the FMR infrastructure have been 12% higher than originally estimated at appraisal. Investment costs for the Transbasin Link (Tranches 1 and 2), were higher than expected, but O&M costs have been lower. With respect to the Aracoiaba Reservoir, it shows both higher than estimated investment and O&M costs. Given the lack of disaggregated cost data by item, we are not able to identify the source of the cost-differential, however staff at COGERH and CAGECE attribute the increase to the large and sustained level of international oil prices. But even with the increase in costs, the overall project investments still show a positive NPV with an IERR within the limits of the appraisal sensibility analysis. Table 3. Comparative Economic Analysis of PROGERIRH

Project Investments Appraisal Estimate Actual

Present Value (US$ '000) IERR (%)

(US$ '000) IERR (%) Benefits Costs NPV Benefits Costs NPV

FMR Investments (*) 238,067 179,688 58,379 16% 211,698 201,341 10,358 13% Strat. Reservoirs (**) 10,721 9,109 1,612 14% 10,966 10,144 (890) 11%

Total 248,788

188,797

59,991 14%

222,664

211,484

9,468 11%

(*) Aracoiaba Reservoir, Worker's Canal, Transbasin Link Castanhao-Fortaleza (**) Carmina, Catu, Malcozinhado 9. Benefits for human water supply include increase of service coverage, reduction of intermittent water supplies, water quality improvement and resource savings caused by switching from alternative sources at a higher cost to the consumer to a piped water network at a lower cost per cubic meter. Since all incremental treated water provided through this project was (and is) distributed by CAGECE (Ceará's water and sanitation company), we have used CAGECE's tariffs. With the project, an incremental 2.7 million inhabitants will be served by the water from this Project. In addition, the Project has provide drought security to both current and future inhabitants of the Fortaleza Metropolitan Region, as evidenced by the reduction in the need to request the population

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to save water and eliminating the need of shutting off the water supply for specific periods of time.

10. The tariff used for calculation of the value of this incremental water is based on CAGECE's tariff schedule, with weights applied to different consumer groups. At appraisal tariffs varied between US$ 0.52/m3 and US$ 1.18/m3 for residential, commercial and industrial consumers respectively, and have been increasing steadily. 2010 tariffs were at US$ 0.71/m3, US$ 1.15/m3 and US$ 2.22/m3 for residential, commercial and industrial consumers (lowest category) respectively (see Table 4 below).

Table 4. Tariff schedules CAGECE

2007 2008 2009 2010

US$/M3 min max min max min max min max RESIDENTIAL 0.55 2.92 0.62 3.31 0.59 3.23 0.71 3.91 COMMERCIAL 0.91 2.77 1.01 3.13 0.96 3.02 1.15 3.66 INDUSTRIAL 1.72 2.95 1.93 2.62 1.85 2.53 2.22 3.91

11. Irrigation benefits could be estimated based on the expected incremental irrigated area, its associated water use and incremental crop production. The strategic reservoirs are mainly located in the interior where poverty of the population is greatest and education levels are low; however in recent years there has been an increase in state assistance programs for agriculture and irrigation, so it has been difficult to isolated the impact of a more reliable water source with other public sector farmer supports. No primary data were available to quantify the incremental benefits from irrigation, so the approach used was conservative by not including irrigation in the base case scenarios and irrigation benefits were thus underestimated. Nevertheless, a recent study21 has shown that per hectare profitability due to irrigation (and diversification into value added products) could go from 10% to 35% on average. This not only has increased rural, but probably also has had a positive social impact by reducing migration to Fortaleza in the recurring drought periods, which force people to look for alternative livelihoods and which can cause considerable negative social impacts.

12. Overall current water charges by COGERH are still below actual O&M costs (R$0.003 per m3) for bulk water delivered to CAGECE for municipal use, which is less than at appraisal (R$0.01 per m3); and no charges yet to the agricultural sector. Although the overall charges are not yet sufficient to cover O&M, Ceará is one of the few Brazilian states charging for bulk water. With this project, the institutional reforms have been under way and a new and improved tariff structure has been introduced. Results from the ex-post analysis show that the proposed investments for the Fortaleza Metropolitan Region component were economically viable. However, the financial analysis illustrates that at current prices, consumption and tariff levels, the investment in this, and other components, continue to require capital subsidies from the government since the FIRR only reaches 4%. The results of the strategic reservoirs show low financial rates of return, due to their multipurpose use. The reservoirs are for human and industrial consumption

21 COGERH. “OS PERÍMETROS PÚBLICOS IRRIGADOS DO CEARÁ, OS CUSTOS DE PRODUÇÃO E A COBRANÇA DE ÁGUA DE IRRIGAÇÃO”. May 2008

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plus capacity for irrigation and other uses. Also, COGERH is not yet able to charge for water with a potential irrigation use.

MAP 1 – Strategic Reservoirs Built with PROGERIRH Resources

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2 - Households with adequate water supply (per municipality)

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Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members

Names Title Unit Responsibility/ Specialty

Lending Larry D. Simpson Consultant SASDA Task Team Leader Luiz Gabriel Azevedo Lead Water Resources Specialist LCSEN Water Resources Karin Erika Kemper Sector Manager LCSEN Economist Maria Angelica Sotomayor Araujo Sector Leader LCSSD Economist

Musa Asad Financial Analyst LCSEN Finance

Alexandre Moreira Baltar Water Resources Management Specialist LCSEN Water Resources

Management Paula Pedreira de Freitas de Oliveira Water Resources Specialist LCSEN Water Resources /

Operations Irani Escolano Procurement Specialist LCSPT Procurement Susana Amaral Financial Management Specialist LCSFM Financial Management

George Ledec Lead Ecologist AFTN3 Environemental safeguards

Paul Procee Senior Infrastructure Specialist EASCS Safeguards Daniel R. Gross Consultant ECSS5 Social safeguards

Supervision/ICR Luiz Gabriel Azevedo Lead Water Resources Specialist LCSEN Task Team Leader Musa Asad Financial Analyst LCSEN Task Team Leader

Manuel Contijoch Senior Water Resources Management Specialist LCSEN Task Team Leader

Erwin De Nys Senior Water Resources Management Specialist LCSEN Task Team Leader

Paula Pedreira de Freitas de Oliveira Water Resources Specialist LCSEN

Water Resources / Operations / Co-Task Team Leader

Alexandre Moreira Baltar Water Resources Management Specialist LCSEN Water Resources

Management Juliana Menezes Garrido Pereira Senior Infrastructure Specialist LCSWS Water Resources /

Operations

Lilian Pena Pereira Water & Sanitation Specialist LCSUW Water Resources / Operations

Daniele La Porta Arrobas Water Resources Specialist LCSEN Groundwater / Operations

Maria Isabel Junqueira Braga Senior Environmental Specialist AFTEN Environmental

Safeguards

Gunars H. Platais Senior Environmental Economist LCSEN Environmental Safeguards

Daniel R. Gross Consultant ECSS5 Social safeguards

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Pilar Larreamendy Senior Social Development Specialist EASVS Social safeguards

Soraya Simao Melgaco Consultant LCSEN Social safeguards Susana Amaral Financial Management Specialist LCSFM Financial Management Eduardo Franca De Souza E T Consultant LCSFM Financial Management Irani Escolano Procurement Specialist LCSPT Procurement Luis R. Prada Villalobos Senior Procurement Specialist MNAPR Procurement Etel Patricia Bereslawski Aberboj Senior Procurement Specialist LCSPT Procurement

Manuel Felipe Rego Consultant LCSSD Economist Marcelo Henrique G. Pereira Consultant LCSAR Civil Engineer

Everest Santiago Funes Consultant LCSEN Communications Roy Mann Consultant LCSEN Soil Conservation (b) Staff Time and Cost

Stage of Project Cycle Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including travel and consultant costs)

Lending FY88 3.60 FY89 49.49 FY90 95.80 FY91 4.81 FY92 2.06 FY93 26.02 FY94 125.23 FY95 26.85 FY96 243.80 FY97 94.99 FY98 2.61 FY99 0.00 FY00 38 0.00 FY01 1 0.00 FY02 0.00 FY03 0.00 FY04 0.00 FY05 0.00

Total: 39 675.26 Supervision/ICR

FY88 0.00 FY89 0.00 FY90 0.00 FY91 0.00 FY92 0.00 FY93 0.00

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FY94 0.00 FY95 0.00 FY96 9.73 FY97 40.46 FY98 70.38 FY99 116.06 FY00 12 95.42 FY01 13 68.20 FY02 28 112.42 FY03 27 83.61 FY04 20 125.73 FY05 32 156.61 FY06 37 83.41 FY07 30 0.00 FY08 45 0.00 FY09 15 0.00

Total: 259 962.03

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Annex 5. Beneficiary Survey Results Not Applicable.

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Annex 6. Stakeholder Workshop Report and Results 1. The State Government of Ceará, through its Secretariat of Water Resources, convened a Seminar on evaluation of the actions carried out through the PROGERIRH Project, which was held on March 29 and 30 in Fortaleza, Ceará. While evaluation was the principal objective, the seminar also served to celebrate the successes of the project as a keystone of Ceará’s water resource management policies and programs. 2. The participants included staff of the Secretary of Water Resources and staff of his Secretariat, current and former staff of COGERH and SOHIDRA, concerned scientists of the Federal University of Ceará, the National Water Agency (ANA) and representatives of several river basin committees and reservoir management commissions as principal stakeholder representatives, including the Forum of River Basin Committees in the State. World Bank staff and consultants also attended the seminar. 3. The presentations and lively ensuing discussions covered the following topics:

• Context and significance of PROGERIRH within the history of water resource management in Ceará, with emphasis on the new integrated approach

• Expansion of public participation and awareness-raising on water resource issues among the population

• Inclusion of soil and vegetation in water resource and watershed management • Improved hydrological monitoring in the State as a result of PROGERIRH • Water resource infrastructure planning in Ceará under PROGERIRH • The development of State water resource institutions under PROGERIRH • Challenges and advances concerning expropriation, resettlement, rehabilitation

and environmental management under the project • Challenges and advances concerning dam safety in the State

4. The seminar was successful in highlighting the principal advances under the project in terms of approach, coverage and expansion of capacity in the State. 5. Significant aspects of progress recognized by all present were:

• The integration of soil and watershed management, of environmental impacts and mitigation, of institutions, of stakeholders and productive sectors in water resource policy and management in the State

• The build-up of effective stakeholder participation through river basin committees and reservoir management commissions (which were not originally foreseen), the increase in transparency in water release decisions, and the acceptance of participatory management as an integrated part of water management, not an add-on

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• The effective takeover of water resource management in the State from federal agencies

• Vastly improved information systems and data bases for decision making in water allocations and releases

• Implementation and enforcement of water rights as a means of democratization of access to water and of social equity, and to reduce conflicts

• Demonstration of successful watershed (soil and vegetation) management techniques

• Improved flood and drought alert (early warning) systems • Improved reservoir and canal operation and maintenance rules and procedures • Water quality measurement expanded and improved • Improved cost accounting for bulk water supply • Environmental inventory as part of infrastructure planning • COGERH materially and institutionally strengthened by project, including human

resources • The adaptation of laws and procedures for resettlement to Bank safeguard

standards • The continuity afforded by the Bank loan through changes of state government

6. On the other hand, the following challenges ahead were identified and discussed:

• Quality of water as increasingly binding concern • Integration of state policies with a bearing on water quality, principally urban

sanitation • Collaboration among state institutions that are not under the same Secretariat • Interlocution of RBCs with community, society • Integration with other state policies • Many inhabitants of rural areas not yet served by quality water – challenge is

water supply through smaller systems (40% of rural population?) • Role of RBCs and of reservoir management commissions • Funding of participatory activity in RBCs, RMCs, as part of O&M costs • Lack of institutions to carry on, to mainstream watershed management

improvements with small farmers • Inclusion of local government, academia and extension agencies in promotion of

soil and water conservation • Prolonging the life of reservoirs • Effective management and control of groundwater extraction, in the FMR,

Araripe and Apodí aquifers • Effective implementation of basin plans

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Annex 7. Borrower's Comments on Draft ICR

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Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Not Applicable.

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Annex 9. List of Supporting Documents 1. Project Appraisal Report (PAD), Report No. 19873-BR, November 10, 1999

2. Project Paper (Additional Financing), Report No. 45257-BR, November 18, 2008

3. Programa de Recursos Hídricos do Estado do Ceará e o Projeto Prioritário do

PROGERIRH, November 1998

4. Project Implementation Plan, May 1999

5. Estudos Econômicos: Açudes Estratégicos Eixo Sertão Central – Metropolitanas, April 2000

6. Avaliação Financeira e Econômica – PROGERIRH II, December 2007

7. Final Project Monitoring Report, November 2009 8. Final Project Monitoring Report, January 2012

9. Project Bi-Annual Monitoring Reports

10. Minutes of Bank’s review meetings

11. QAG Assessment Reports

12. Preparation and Supervision Aide Memoires

13. Implementation Status and Results (ISR)

14. Loan and Guarantee Agreements (including amendments)

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Annex 10. Safeguards A. Environment 1. During preparation of the Original Project, a Regional Environmental Assessment was carried out for five river basins, including recommendations for compensatory measures, mitigation of impacts of induced regional development and institutional strengthening, and criteria for selection of sub-projects (reservoirs) under the project. Environmental assessments and management plans were carried out and approved by the Bank for the large hydraulic works before appraisal (1999) and for the approval of the AF (2008). Substantial efforts were dedicated to formulate appropriate resettlement frameworks to comply with Bank’s policy. Bank review and approval were required for any other proposed sub-project with regard to an appropriate resettlement plan, adequate environmental impact assessment and management plan. In order to increase the probability of compliance with Bank’s safeguards, it was decided that works contracts had to include the contractor’s obligation to clear the vegetation within the inundation area, to mark and/or fence the permanent protection on the reservoir margin to safeguard structures and artifacts of cultural, historical, archeological or paleontological significance. In addition, an environmental construction manual was produced to guide supervision and execution of hydraulic works. The supervision of works by private consultant firms was to include contractor’s compliance with environmental safeguards and management plans.

2. The following Bank environmental and social safeguards were triggered by the Project: Environmental Assessment (OP 4.01), Natural Habitats (OP 4.04), Pest Management (OP 4.09), Physical Cultural Resources (OP 4.11), Involuntary Resettlement (OP 4.12) and Dam Safety (OP 4.37).

3. The Project was classified as Environmental Category "A". Besides meeting overall criteria and procedures pertaining to the Bank’s environmental and social safeguards, environmental management in the water resources sector was strengthened and specific measures were carried out:

• Environmental Assessment (OP 4.01) – Besides drafting the Project Global EAs required to secure Bank funding, all interventions were subject to specific environmental assessments in order to comply with Brazilian environmental legislation. Environmental Impact Assessments - EIA / RIMA and their respective public hearings were held for interventions related to dams, Integration and Water Transport Systems. The mitigation measures prescribed in these studies were included in the environmental permits and tender documents regarding civil works.

• Environmental Management Plans (EMP) for PROGERIRH – Phase 1 and 2 were designed with a view to ensuring adequate compliance with the Bank’s environmental and social safeguards, coupled with the strengthening of environmental management within the Secretariat of Water Resources, including activities aimed at: (i) strengthening of protected areas, (ii) assessment and monitoring of estuarine and mangrove areas, (iii) monitoring of water quality, (iv) training and capacity building of environmental Water Resources Secretariat and related agencies, (vi) protection of reservoirs, (vii) studies of environmental inventories of reservoir watersheds, etc..

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An activity worth underscoring was support for monitoring of water quality at existing reservoirs, which generated knowledge on possible threats to water quality stemming from salinization and/or eutrophication. Moreover, Environmental Inventories of Reservoir Basins have enabled a current analysis of nutrient intake at reservoirs and thus laid the foundations for future actions aimed at preserving and/or recovering water quality in reservoirs.

With regard to implementation of civil works, the Environmental Construction Manual was adopted and included in the process of tendering and building works on reservoirs and water transport systems.

There were specific issues with regard to implementation of environmental actions during reservoir construction, including: (i) failure to plan for or implement topographic landmarks and/or fences as protection around strips of preservation areas along reservoirs; (ii) filling of two reservoirs– Aracoiaba and Catu Cinzenta – with only partial deforestation of the reservoir basin; (iii) failure to implement environmental supervision and enforcement procedures at works; (iv) failure to implement Program for Identifying and Recovering the Archeaological, Paleantological, and Cultural Heritage, as planned under the EMP.

In this regard, during preparation for Additional Funding in Phase 2, the aim was to improve on the design and implementation of environmental actions during the implementation of works, with a focus on the following measures:

• Drafting a Socio-environmental Procedures Manual aimed at integrating stages of project design, environmental licensing and construction.

• Program for Protecting reservoirs by recovering degraded areas and fencing off 100-meter strips (Permanent Preservation Areas - APPs)

• Drafting Environmental Management Plans – EMPs specific to each dam. • Development and implementation of programs aimed at Identification and

Recovery of Archaeological, Cultural and Paleontological Heritage, in the case of Dams and Water Transport Systems.

Planned to be drafted during the 1st year of implementation under the Additional Financing, the Socio-Environmental Manual mentioned above, which would lay out the series of environmental measures to be taken vis-à-vis dam construction, has not been drafted or commissioned.

The environmental management plans - EMPs specific to each dam were drafted, including: a) sound deforestation of reservoir basins; b) management and protection of fauna; c) removal/relocation of existing infrastructure in the area of the reservoir basin d) protection and revegetation of Permanent Preservation Areas - APPs along reservoirs and e) recovery of areas degraded by mining and construction, etc.

Implementation of the actions during construction, as mentioned above, would be carried out by the contractors, who were supposed to have staff with an environmental background, and environmental supervision was to be conducted by companies specializing in supervising construction with SRH monitoring.

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With regard to adequate environmental preparation, the construction was carried out differently from what had been originally planned in the EMPs and Operating Manuals. The SRH preferred to adopt another system for environmental supervision of works, both in phase 1 and 2. Thus, the implementation of environmental actions as per the Management Plans specific to each dam were under the responsibility of the construction companies and construction supervision companies (environmental education and program for identifying the cultural heritage), and SRH took charge of the environmental supervision of works, although it does not have adequate technical and logistical resources to do so. The construction and supervision company teams did not have professionals with environmental backgrounds with experience in this type of project. They also failed to adopt environmental planning procedures for works as planned in the PROGERIRH Operating Manual. Despite the efforts of the SRH team, this system did not achieve the expected environmental performance. Situations of inappropriate practices and non-compliance were observed during technical inspections conducted by the Bank team. Here, we should also underscore the lack of environmental capacity among construction companies and SOHIDRA. Upon analysis of Environmental Installation Licenses issued for the Progerirh – Phase 2 works, the following observations were made: (i) two installation licenses were issued (for the Jenipapeiro and Umari dams) by SEMACE with the caveat that they refer to “Regularization”, which might mean that construction began without the appropriate installation license; (ii) Construction of four water transport systems began without their respective installation licenses by SEMACE. This issue was later resolved once the Operation License – LO 265/2012 (10/07/2012) was issued as a joint license for several water systems – integration axes, dams and transport systems that comprise the state-level Water Resources Management system – SIGERH. The inclusion of the water transport systems for Phase 2 of Progerirh in this operating license, on the one hand, legalizes the status of these systems under the environmental legislation. Yet, on the other hand, it comes across as quite strange since the Ipueiras, Antonina do Norte and Itapipoca systems were still being concluded when the license was issued, and the Itapipoca works were stopped due to “abandonment” by the construction company.

• Natural Habitats (OP 4.04) – All of the environmental management programs within the Environmental Management Plans - EMPs under PROGERIRH (Strengthening of Conservation Units; Assessment and Proposal for Monitoring Estuarine and Mangrove Areas; implementation of Strips for Protecting Reservoir Banks – Permanent Protection Areas – APPs, etc.) pertaining to preservation and conservation of natural habitats were implemented. The plan to recover Permanent Preservation Areas (APPs), a 100-meter strip around reservoirs, was implemented in some cases but not in others, since for some dams the APP was not fenced off and areas borrowed were not recovered. In other dams these actions were adequately performed.

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• Pest Management (OP 4.09) – In Phase 2, Additional Funding, the Pesticide Management Manual was drafted with the aim of ensuring adequate procedures be adopted for controlling ants during re-vegetation of APPs along reservoir banks and recovery of degraded lands.

• Physical Cultural Resources (OP 4.11) – During Phase 1, the Program for Identification and Recovery of Archaeological, Paleantological and Cultural Heritage, as planned in the EMP, was not implemented. The reasons provided by the Water Resources Secretariat were the lack of such procedures in the EIA/RIMAs drafted at the time (1998-2001), in the environmental licenses issued by the SEMACE and in the Program Operating Manual, which was compounded by the fact that the Bank Supervision did not hold them accountable for such measures during Project implementation.

During phase 2, the situation changed, since programs aimed at identification and recovery of the archaeological and paleontological heritage were planned in the EMPs, included in the contracts and duly implemented by the supervising companies.

• Dam Safety (OP 4.37) – The interventions related to dam construction (dams) or recovery of existing dams underwent evaluations by the Safety Panel set up specifically for this purpose by the PROGERIRH.

Environmental Safeguards Compliance 4. Safeguards compliance during implementation was mixed. While actions related to conservation units, estuary/mangrove monitoring, water quality monitoring, and watershed environmental inventories were carried out as planned, albeit with delays, problems arose with the performance of contractors in full clearing of some of the reservoir areas, in fencing off protected areas on the reservoir margin, restoration of borrow pits, and preserving physical cultural resources. Inadequate environmental mitigation also occurred because the supervision capacity of the SRH was weak (particularly in the later years), SOHIDRA staff and contractors’ staff were not well trained in environmental aspects, contractors employed no environmental specialists, and consultants contracted to supervise work execution often neglected the environmental aspects in their field checks, leaving this task to SRH. Compliance improved to some degree during the AF phase (particularly with regard to physical cultural resources), but deficiencies remained. Protection of land along the reservoir margins was implemented for some but not all reservoirs. None of the four pipelines under construction under the AF had received the environmental license required for installation in a timely fashion. Subsequent to a Bank mission in April of 2012, and a follow-up mission in May, in which these failures to comply with Brazilian legislation were pointed out to the State Government, measures were taken to expedite compliance. The required licenses were granted.

5. Bank’s dam safety safeguards were properly implemented under the project. A dam safety panel was created and maintained throughout the implementation of both phases of the Project. In fact, the Project has substantially strengthened attention to dam safety in the state as a permanent feature of design, operation and maintenance of hydraulic

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structures, not only because of Bank safeguard requirements. Ceará was already a pioneer in developing dam safety guidelines and considered a reference by other states and the federal government. The Project supported the implementation of the guidelines by requiring and funding an inventory of dams and safety issues, training, instrumentation of dams, periodic inspections by specialists, and reviews of dam designs by the dam safety panel. The panel also made important recommendations to improve the safety guidelines.

6. The environmental planning during project preparation for both Phase 1 and 2 (AF), proved adequate, but its implementation during the different phases of project implementation was found to be non-compliant since it failed to adequately implement environmental actions during construction works.

7. Especially during Phase 2 (AF), the following situation arose: (i) failure to draft and thus implement the Socio-Environmental Procedures Manual; (ii) failure to commission environmental supervision of construction works; and (iii) the lack of a requirement for staff with an environmental background in the construction company; besides the evident lack of environmental training of SOHIDRA. In addition, one of the issues observed was the failure, on some construction sites, to comply with legal requirements regarding workplace safety and health.

8. Despite these non-compliances in some works, the PROGERIRH enabled significant advances with regard to environmental management, as outlined above.

9. Therefore, considering: (i) the progress made under the PROGERIRH – Phases 1 and 2, and the fact that most of the environmental measures were taken; (ii) the non-compliances reported above, especially those related to the Construction stage, in some projects; Project implementation could be classified as “moderately satisfactory” vis-à-vis compliance with the Bank’s environmental safeguards.

Lessons Learned 10. Adequate Environmental Planning is essential but does not ensure that actions will be implemented during the construction phase. In addition to adequate environmental planning, special attention must be paid in the first and second years of Project implementation so as to ensure that the various environmental actions planned and included in the Project EMP and in the Operating Manual are effectively carried from the very onset of the project implementation phase. Moreover, procurement documents for large-size works such as dams must include minimal requirements regarding environmental management.

11. Need for more capacity-building on World Bank environmental safeguards and federal and state laws, especially during the Implementation of Works phase. Ensuring compliance with these safeguards will only be possible when the Project teams, especially in construction and operation phases, are able to identity and mitigate issues pertaining to them. The Project should promote dissemination of knowledge on the Bank safeguards and relevant environmental legislation, for all teams at all levels. Programs aimed at strengthening environmental management should be designed and implemented adequately. Environmental and social actions should be associated with construction works so as to ensure their implementation. In this regard, the institutions in charge of

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carrying out the works must have staff trained in performing and/or supervising associated environmental actions.

12. The Project Management must include an adequately trained and equipped technical environmental team. The technical environmental team in charge of implementing the Project’s environmental actions (implementation and supervision of works) must be comprised of enough qualified professionals to perform the duties, including logistics and equipment needed for their activities. The institutions in charge of carrying out the works and operating them must also have a technical team trained in environmental management of works.

13. The Bank Supervision should pay attention to environmental and social safeguards and be based on independent audits. The Bank team’s supervision of Project implementation should constantly monitor the implementation of programs included in the Environmental Management Plan – Overall EMP, as well as the specific programs laid out in the EMPs for each Work, compliance with environmental requirements under federal and local Brazilian laws and environmental and social safeguards. Whenever possible, in the case of category “A” Projects, supervision should be based on an independent environmental audit, at least prior to the Mid Term Review.

B. Resettlement 14. There were 1394 families to be resettled under the first phase of PROGERIRH (six dams), and 780 families under the AF (five dams). Landholders were compensated for the land lost, and all families were given the opportunity either to resettle themselves to a place of their choice with a resettlement grant, or to be resettled in new settlements (“agrovilas”) with agricultural plots. The latter option was chosen by 261 families.

15. The choices offered can be defined as follows:

• Resettlement in Agrovilas (261 families) – Houses built, with infrastructure (electric power, running water, sewage disposal) and an agricultural plot. This is the preferential option for residents/families who do not own land.

• Resettlement in Remaining Areas (377 families) – Families who chose to be resettled on unaffected areas of the farm; + compensation for the affected area.

• Self-Resettlement (491 families) – Purchase of new homes monitored in accordance with the choices made by the affected families.

• Resettlement in Urban Areas (12 families) – Purchase of homes in urban areas (cities near the original residence). This is the preferential option of families/elderly couples seeking proximity to health services and unable to perform farm work, nearly all of whom rely on social security or income-transfer programs.

• Cash compensation (1,033 families) – The option chosen by the vast majority of land owners.

16. Table 1 describes the options implemented in each phase and the outcome for each dam built. This table shows that there are still 14 cases with pending issues. These outstanding cases involve land owners who chose compensation, most of whom have already had funds deposited as court bonds (80% of the amount), but who are still disputing the assessment of the land’s full value.

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Table 1 – Resettlement Options and Pending Issues by December 2012

Owners Tenants TotalResettled in

Agrovilas

Resettled in Remaining

Areas

Self-Resettlement

Resettled in Urban Area Compensation Total

Aracoiaba Aracoiaba Prepared/Approved 297 297 311 608 66 50 217 275 608Carmina Catunda Prepared/Approved 33 43 22 65 5 14 11 35 65Catu-Cinzenta Aquiraz Prepared/Approved 81 81 24 105 32 73 105Faé Quixelô Prepared/Approved 37 43 48 91 21 32 38 91Malcozinhado Cascavel Prepared/Approved 239 191 74 265 31 53 12 169 265Pesqueiro Capistrano Prepared/Approved 125 135 125 260 50 76 59 75 260

812 790 604 1394 121 192 404 12 665 1394

Gameleira Itapipoca Prepared/Approved 97 96 84 180 35 33 23 89 180

Compensation – 7 cases with funds deposited,4 of them awaiting decisions by a judge fordisbursement. One of the other 3 is disputingthe value (80% has already been disbursed tothe former owner) and the other 2 haveproblems with the documentation.

Umari Madalena Prepared/Approved 118 119 131 250 35 63 25 127 250

Compensation – 3 cases with funds deposited,2 of which are disputing the value. The othercase has an administrative problem (name doesnot match).

Jatobá Ipueiras Prepared/Approved 59 59 28 87 20 23 10 34 87 None

Jenipapeiro Baixio Prepared/Approved 67 67 90 157 30 25 14 88 157 Compensation – 3 cases with funds deposited,all of which are disputing the value.

Mamoeiro Antonina do Norte Prepared/Approved 62 64 42 106 20 41 15 30 106 Compensation – 1 case due to the presence ofa minor in litigation between heirs.

403 405 375 780 140 185 87 0 368 7801215 1195 979 2174 261 377 491 12 1033 2174Total

Pending Issues

None

Dam MunicipalityNumber of Properties Affected

Number of Families Affected, by Status

Resettlement Option Implemented

Resettlement Plan

PROGERIRH (1997-2008)

PROGERIRH AF (2009-2011)Subtotal

Subtotal

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Positive Points 17. The resettlement program implementation brought major social progress and overcame obstacles typical of rural resettlement programs, in which people lose both their homes and livelihoods.

18. Progress was achieved in the following major areas:

a. Improved housing – 261 houses, most of which made of mud walls and no infrastructure, were replaced by masonry houses with infrastructure (electric power, running water and sewage disposal) and an agricultural plot. Preferential option of residents/families who did not own land.

b. Increased assets – When they receive a home with an agricultural plot, families who did not previously own land come to own an asset of significant value given the local and regional context. In addition to gaining an asset, this property boosts peoples’ self-esteem, as they are recognized as full members of the local society.

c. Promotion of collective organization – With the construction of each dam, a Resettlement and Environmental Preservation Support Committee (CARPA, in the Portuguese acronym) is set up with the role of monitoring works involving the dam and other construction activities, such as agrovilas adjacent to the reservoir, as well as PROGERIRH AF-related services, resettlement of the population in the reservoir basin and expropriation of and compensation for land, while also voicing the needs of the civil society affected by the dam construction and following up on - and accounting for - their demands with regard to local social promotion and development. The legal footing for the CARPAs – Ceará State Decree #24,336 (January 9, 1997) – requires that they be comprised of 12 members, three of whom are chosen by the Mayor and City Council [Municipal level] where the dam is being built, three chosen by and representing community organizations active in the municipality, three residents who do not own land in the reservoir basin, and three representing the Water Resource Secretariat (SRH) and its two agencies, COGERH and SOHIDRA. Each standing member has an alternate who replaces that member whenever he/she is absent or otherwise unable to participate, and all members are officially designated by the State Secretary of Water Resources. Their mandate lasts as long as the dam is being built and affected families are being resettled.

d. Local economic growth – Cash compensations help the local economy grow, as families spend to buy other real estate, injecting money into and thus bolstering the local economy. Other positive impacts on the local economy include: (i) rental of housing for temporary resettlement purposes, as needed on a case-by-case basis; and (ii) expansion of the local service sector (restaurants, lodging, fuel stations, etc.).

e. Recognition of an active citizenry – The Program helped the affected population to obtain personal documents and to regularize land titles and documents. This in turn enhanced their self-esteem and feeling of recognition as citizens, in addition to providing them access to official programs such as farm loans.

f. Access to schooling – The vast majority of newly-built agrovilas have elementary schools. The only ones that do not are located near an existing school that will be able to take in students from the agrovila.

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g. Sharing socio-environmental and public-health information – The program called a number of meetings to publicize social-environmental and sanitation-related information prior to the first public works (on removal of plant cover, quality of water, disposal of sewage and garbage, etc.) in order to ensure raising the population’s awareness on these issues. Plant cover removal, for example, drives out wild animals, a risk the population should be aware of for various reasons, including the need to avoid accidents such as snake bites.

Constraints 19. During implementation, the Program dealt with recurring problems, which may be analyzed individually but were interwoven throughout the process. Involuntary resettlement programs in rural areas are always very complex, since they must mitigate the impact of lost homes and the breakdown of livelihoods. This demands countless activities to rehabilitate people’s livelihoods to a standard at least as high as prior to the Project, and hopefully to improve the quality of life of the affected people. The greatest obstacles arising throughout the process, however, were related to the wide diversity of actions required, ranging from engineering to social work and legal issues. Managing and carrying out these activities on schedule while networking with all the stakeholders stood as the greatest challenge faced by the PROGERIRH Resettlement Program.

20. The key constraints in this regard can be grouped into five major aspects listed below. In order to establish a process, the Ceará State Government prepared a Resettlement Framework (Additional Funding) and Resettlement Plans (PRIs) for each of the projects to be carried out, in compliance with OP 4.12. Throughout the implementation of the PRIs, however, recurrent issues nearly always arose, for example:

a. Identification/control and management of all actions and relationships involved in resettlement processes – The surprises that always came up during resettlement processes caused delays and thus aggravated the scale of impacts or diminished the potential for mitigation. The following examples illustrate this:

• Difficulties in Managing Actions – In 2011, the Jenipapeiro dam was filled before any relocation of the power grid that passed through the reservoir basin, and the agrovila’s access to electrical power required reaching an agreement for that relocation. This situation led to two separate burdens: (i) the immediate burden borne by families settled in the agrovila, who were left without power, and thus without water, since their water supply relies on electric pumps; and (ii) the potential burden of electrical power for the city of Umari being cut off. The solution finally came in early 2012 following intense efforts by the Bank missions, meetings and correspondence with the State government.

• Gameleira Agrovila – The population resettled into homes in the Gameleira agrovila in January 2011 only had access to water and electric power supply in December 2012. The handover of agricultural plots (unfinished demarcation process), land titles or even the fencing of the agrovila had not been resolved by December 2012 yet.

Recommendation: Strengthen the early operational planning of resettlement actions by using management tools designed for medium-to-high complexity programs

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involving several different activities, as well as more frequent monitoring of safeguards.

b. Timetable for implementing resettlements vs. timetable for building the dams – Whenever resettlement – in any form, regardless of the option – is not in sync with dam construction, this places a burden on the Program and, even more so, on affected families, although the impact on families was reversible and temporary. Two emblematic cases occurred at different moments in the Program:

• Change in the Resettlement Solution – Faé Dam – In October 2003, the dam was ready to be filled, although 21 families living in the affected area that had opted for resettlement had not been relocated and works on the agrovila had not even begun. The solution was self-resettlement, concluded in 2004 with delivery of land titles.

• Mismatch in Timing of Activities – Pesqueiro Dam – Work on the dam was suspended in October 2003 and the contracts were cancelled, causing major delays in construction. The timing of the social aspects also failed due to a gap between resettlement and construction activities. Part of the families had to be moved into unfinished housing in the agrovila, while the rest remained in the reservoir basin (in the dam’s protection strip),with no infrastructure due to the works performed while families were still living in the basin, including removal of power lines and uprooting of trees, which damaged existing roads and isolated the remaining families. These major disruptions were caused by the lack of integration between construction and resettlement activities. Lastly, while the dam was concluded in March 2007, the agrovila only managed to distribute agricultural plots in January 2008. A provisional solution for the water supply was a desalinization unit for the well, installed in July 2007, until water was finally piped in February 2008. There was a delay in building the 50-unit agrovila due to poor planning of the whole chain of activities, which brought a social burden on the families. Even so, despite the setbacks towards the end of the process, families expressed their satisfaction and considered it to have been positive.

Recommendation: Improve operational planning for the resettlement process, since just drafting the documents (PRI) has not sufficed to ensure adoption of best practices.

c. Networking between the PIU/Secretariat and the Government Structure – The Program also faced constraints when scheduled activities depended on other public agencies such as Legal Affairs and IDACE (the Ceará Agrarian Development Institute). Two examples of these constraints are:

• Change in Methodology for Payment of Compensations – During its September 2008 Mission, the Bank was told that the State Attorney General’s Office (PGE) had changed procedures for paying compensations. It had decided that all compensation payments would be made through court bonds, thus ceasing expropriation through the administrative track, which was considered easier and had been adopted by the Program up until then.

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This decision came at the expense of the affected population since, in order to withdraw the money, the land-holder would have to hire a lawyer, making the process more expensive and lengthy. The fact that many circuit courts do not have resident judges or public defenders also makes the affected population more vulnerable.

As soon as the Bank was told about this change, it contacted the Government to explain its impacts and find solutions for the cases where court bonds had already been deposited. The Government understood the issues raised by the Bank team and resumed the original methodology used for compensation payments under the Program, i.e. administrative expropriations, and only resorted to courts when the parties were unable to settle or ownership was in doubt.

It is worth noting that administrative compensation is allowed by Brazilian law for expropriations. Even so, there are still some cases pending where court bonds were deposited but a settlement was not reached due to constraints the Water Resources Secretariat and Government were not able overcome, such as the absence of a judge at a circuit court, for example.

• Land Tenure in Agrovilas – Land titles have not been issued for all the agrovilas delivered, which means that resettled farmers in these settlements will not be eligible for farm loans.

At a meeting at the Gameleira agrovila in April 2012, for example, settlers asked for information on land titling procedures because they need the title to gain access to rural credit. SRH explained that IDACE, which is in charge of titling, had changed its operational procedures and the SRH has not managed to adopt these new procedures, thus leading to major delays.

Recommendation: (i) All actors involved in the Program must participate effectively from planning to conclusion, since this is a Government-wide program and not just hosted under a single Secretariat. (ii) Since the State Government and the Bank are now negotiating a new Program for the State, it would be timely to include land tenure for agrovila settlers as part of the Program so as to reduce this social liability.

d. Networking within institutions – In some cases, the Program changed the scope of the interventions without, however, ensuring that engineers discussed socio-economic impacts with social and legal staff, as seen in the following example:

• The Mamoeiro dam design was altered when, during the construction process, an access road that would run along its left bank was excluded, since the topography made it too costly.

As a result, several affected families who own land in the remaining areas on that side of the dam lost access to their land since other neighbors would not allow them to pass through their farms.

The Program did not take measures to make up for the loss, either by building the access road or by fully expropriating the affected areas. The loss was therefore not duly compensated, which amounts to non-compliance with OP 4.12 policies.

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Recommendation: Seek to compensate the losses incurred. Promote greater integration among teams through frequent meetings of the entire technical staff.

e. Choice of resettlement areas vs. Sustainability (destination of resettled families) – This may be the most sensitive topic to be discussed in this Resettlement Program and deserves in-depth reflection by experts. While this document cannot exhaust the subject, the issue should be duly analyzed on an impact chart and discussed at length with the affected population as part of future, similar Programs in semi-arid regions.

By following the policy of relocation to sites near the population’s original site, the Program tried to identify resettlement sites with the most favorable soil characteristics and located as close as possible to their place of residence. Even so, some agrovilas and agricultural plots have been placed in areas unsuitable for occupation that do not meet minimal requirements for human settlements or agricultural production.

There are two main reasons for this: (i) the semiarid region has soils unsuitable for farming, (ii) the choice made by the Community.

Even though the scarcity of soils “adequate” for farming makes it hard to identify areas with the best production capacity, the technical team carried out surveys and searches for “high-yield” lands. Yet the population sometimes chose other areas, despite lengthy explanations by the Program team.

From the standpoint of the resettled population, they are pleased with the location and the quality of construction in the agrovilas, since they had moved out of mud houses, with no infrastructure and no land of their own, and now mostly live in larger houses made of masonry, with infrastructure and titles to agricultural plots. At first glance, this is the situation they had desired, but when one assesses the sustainability of families in such environments, the fragility of their choice becomes clear. All the major efforts and investments have not emancipated these families, which remain dependent on income-transfer programs - although they are young - or might ultimately end up migrating.

Currently, the State government can only offer entrepreneurial or capacity-building activities to train people who do not depend on the land they live on in order to help them achieve financial independence. Fortunately, this is not the situation of all the agrovilas built by the Program.

Involuntary Resettlement Safeguard Compliance 21. Under the first phase (six dams), resettlement, particularly the construction of agrovilas, including housing as well as water and electricity supply, was assigned to the construction firms. However, given their lack of experience with such requirements, the construction of agrovilas did not receive the first priority and were substantially delayed. Also, weak supervision and enforcement of contractual clauses by SRH and lack of coordination within the state government (such as on providing electric power connections) contributed to those delays. The emission of new land titles for agrovila lots by the State Land Institute (IDACE) suffered also long delays. In addition, during the last years of the first phase, the Borrower changed the procedures for compensation of expropriated land previously agreed with the Bank, taking away the responsibility from SRH back to the State’s Public Attorney and causing long delays for landholders to

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receive fair compensation. This change was corrected at the strong insistence of the Bank. In the end, however, all resettlement under the first phase was eventually concluded satisfactorily.

22. Difficulties persist, however, with the resettlement under the AF. Resettlement in two completed reservoirs (Umari and Jenipapeiro) had been concluded satisfactorily in 2011 and other two (Jatoba and Mamoeiro) were being satisfactorily finalized in December 2012. The agrovila of the Gameleira reservoir suffered long delays. The families were resettled in January 2011 but only had access to water and energy in December 2012 despite many recommendations and alerts given by the Bank in different supervision missions in 2011 and 2012. Delays were due to financial problems of some contractors and to lack of coordination between SRH and the Electricity Company. The titling of lots had not been done in any of the agrovilas financed by the Project under its two phases due to the difficult coordination between SRH and IDACE for awarding land titles. In addition, by December 2012, the Bank was informed that the houses built for the resettlement in the Umari area were being demolished and rebuilt due to problems with the quality of construction, which should have been identified during implementation of works. Therefore, the resettlement safeguard compliance is being rated as Moderately Unsatisfactory.

Lessons Learned 23. Government Policy vs Sectoral Program – A program as big as PROGERIR, even with its well-defined focus on investments in water resources, will invariably have to deal with social-environmental and other cross-cutting issues. In light of these challenges, the Program must also be as broad as government policies and not just remain a sectoral program. As a government policy, it is hoped that problems involving coordinating with other institutions – which gave rise to so many difficulties during Program implementation – will be minimized or even eliminated. Another expected outcome would be to improve results while requiring less work for the Program staff in handling activities beyond the remit of the SRH, such as business plans and training courses (which, despite intense efforts, were generally not satisfactory).

24. Preparation of Resettlement Plans (PRIs) is not always enough to ensure a good relocation process. PRIs were prepared for every dam built, but this did not ensure suitable resettlement. Resettlement requires adopting specific solutions, monitoring and oversight.

25. Bidding of Works – The terms of the public bidding provided for the dam and agrovila to be built by the same company, in order to ensure improved management of the construction timetable, since earlier projects had run into timing conflicts during construction. The new, single contract brought improvements, although still below what was needed. Experience shows that the tender must clearly express the need to have the houses built, with infrastructure, months before the dam’s spillways are closed and that, when the agrovila and agricultural lots are subcontracted, contractors must prove they have the structure and capacity to do the job, thus avoiding disruptions that were observed during the Program.

26. Closing of floodgates and filling of the reservoir – The service order for these two activities must only be issued after the complete demolition of buildings on expropriated

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land, clearing of the area to be flooded and the complete relocation of residents and of the previous infrastructure (such as power lines, for example).

27. Promotion of Organization – The creation of the CARPA proved to be very effective and this model should be replicated in similar Programs.

28. Environmental Education – Environmental education under the program should be extended to cover environmental and health education, so that the new scope will cover sanitation facilities to be used by resettled residents.

29. The specificity of Agrovila Projects – The Program has shown that agrovilas should not be designed according to a single, readymade model; rather, each situation must be approached in light of its specificities and adjustments must be made accordingly, such as in the layout of sewage piping depending on local soil conditions.

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Map IBRD 39667

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This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominationsand any other information shown onthis map do not imply, on the part ofThe World Bank Group, any judgmenton the legal status of any territory, orany endorsement or acceptance ofsuch boundaries.

CONSTRUCTED RESERVOIRS: ORIGINAL PROJECT

ADDITIONAL FINANCING

CONSTRUCTED PIPELINES: ADDITIONAL FINANCING

INTEGRATION CANALS: ORIGINAL PROJECT FEDERAL GOVERNMENT PAC

HUMID CLIMATIC ZONE

SEMI-ARID CLIMATIC ZONE

AVERAGE ANNUAL RAINFALL (mm.)CITIES AND TOWNSMAIN ROADS

STATE CAPITALMUNICIPIO BOUNDARIESSTATE BOUNDARIES

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IBRD 39667

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