World Bank Documentdocuments.worldbank.org/curated/en/... · Document of The World Bank Report No....

Document of

The World Bank

Report No. 13032-ME

STAFF APPRAISAL REPORT

mEico

SECOND DECENTRALIZATION AND REGIONAL DEVELOPMENT PROJECT

AUGUST 19, 1994

Natural Resources Management and Rural Poverty Operations DivisionCountry Department IILatin America and the Caribbean Regional Office

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

Currency Unit = Mexican New Peso (N$)US$1 = N$3.37N$1 million = US$296,735

(June 1994)

FISCAL YEAR

January 1 - December 31

WEIGHTS AND MEASURES

I meter (m) = 3.28 feet (ft)1 kilometer (km) = 0.62 mile (mi)I hectare (ha) = 10,000 m2 = 2.47 acresI square kilometer (km) = 0.38 square miles (m?) = 100 haI metric ton (m ton) = 2,205 pounds

ABBREVIATIONS AND ACRONYMS

BANOBRAS National Public Works Bank (Banco Nacional de Obras y Servicios)

CDS Social Development Agreement (Convenio de Desarrollo Social)

CNA National Water Cornmission (Comisi6n Nacional del Agua)

CONAPO National Population Council (Consejo Nacional de Poblaci6n)

CONASUPO National Food Supplies Company (Compafi(a Nacional de Substancias Populares)

COPLADE State Planning Commission (Comite para la Plant del Desarrollo)

DRD Decentralization and Regional Development (Descentr, '-aci6n y Desarrollo Regional)

ED School Rehabilitation Program (Escuela Digna)

FONAES National Solidarity Business Fund (Fondos Nacionales de Empresas de Solidaridad)

FMS Municipal Funds Program (Fondos Municipales de Solidaridad)

FRS Indigenous Regional Fund (Fondos Regionales de Solidaridad)

GDP Gross Domestic Product

ICB Intemational Competitive Bidding

IDB Interamerican Development Bank (Banco Interamericano de DesarroUo)

INEGI National Institute of Statistics, Geography and Informationanstituto Nacional de Estadistica, Geografta e lqformdtica)

INI National Indigenous Institute (anstituto Nacional Indigenista)

ITG Interstate Technical Group

LCB Local Competitive Bidding

MES Women in Solidarity (Mujeres en Solidaridad)

MSC Municipal Solidarity Council

MSU Municipal Support Unit

MPWG Municipal Presidents Worling Group

NAFIN National Finance Institution (Nacional Financiera, S. N.C.)

NGO Nongovernmental Organization

O&M Operation and Maintenance

OECD Organization for Economic Cooperation and Development

PIDER Integrated Rural Development Program (Programa Integral para el Desarrollo Rural)

PLANAT National Assistance Plan for Rainfed Areas (Plan Nacional para la AgriculkuraTemporal)

PPE Project Physical Performance Evaluation

PROCAMPO Trade Liberalization and Direct Producer Income Support Program

PRODERITH Program for the Development of Humid Tropica (Programa de DesarroUo RuralIntegral para el Tr6pico Humedo)

SARH Secretariat of Agriculture and Hydraulic Resources (Secretarfa de Agricufrura yRecursos Hidrdulicos)

SHCP Secretariat for Finance and Public Credit (Secretarfa de Hacienda y Credito Pdblico)

SCT Federal Highway Administration (Secretarfa de Comunicaciones y Transportes)

SECOGEF General Secretariat of Comptroller of the Federation (Secretarfa de la ContralorfaGeneral de la Federaci6n)

SEDESOL Secrtariat of Social Development (Secretarfa de DesarroUo Social)

SOLIDARITY National Solidarity Program

SWA State Water Agency

SRA. State Road Agency

TOR Terms of Reference

MEXICO

SECOND DECENTRALIZATION AND REGIONAL DEVELOPMENTPROJECT

TABLE OF CONTENTS

Page No.

LOAN AND PROJECT SUMMARY ......................... i

I. RURAL DEVELOPMENT AND DECENTRALIZATION IN MEXICO .1

A. Poverty in Mexico .B. Decentralization .2C. Regional Equity .4D. Poverty Alleviation and the National Solidarity Program .4

E. RURAL DEVELOPMENT AND DECENTRALIZATION STRATEGY . 7

A. Introduction. 7B. SEDESOL's Strategy for Strengthening Capacity of Rural Municipalities. 7C. SEDESOL's Strategy for Rural Water Supply .9D. SEDESOL's Strategy for Rural Roads Rehabilitation and Maintenance .10E. SEDESOL's Pilot Strategies to Increase Income Earning Potential .11F. Lessons Learned from Past Operations .14

HII. THE PROJECT .16

A. Origin of the Project .16B. Rationale for Bank Involvement .. 16C. Project Objectives .. 17D. Project Description and Components .. 19

1. Overview of Institutional Aspects .192. Municipal Investment and Institutional Development Component .203. Rural Water Supply Component .244. Rural Roads Rehabilitation and Maintenance Component .275. Income-Generating Component .306. SEDESOL Institutional Strengthening and Project Coordination .30

E. Environmental Assessment .. 31F. Poverty Category .. 31

This report is based on the findings of a World Bank appraisal mission which visited Mexico inFebruary-March 1994. The mission was composed of Messrs./Mmes. Andrea Silverman (TakManager), Jean Claude Sallier, Fernando Aguilar, Maria Correia, John Glenn, Victoria Rodriguez,Sergei Soares, and Rudy Van Puymbroeck. Peer reviewers are Messrs. Hans Binswanger, TunCampbell, Jean Delion, and Antonio Pereira. The Division Chief is Michael Baxter and theDepartment Director is Edilberto Segura.

TABLE OF CONTENTS (continued)Page No.

G. Project Costs and Financing ...................................... 321. Costs ........................................... 322. Financing ........................................... 32

H. Project Organization and Management .. 321. Implementing Agencies .322. Procurement .373. Disbursements .404. Accounts and Audits .435. Monitoring of Project Implementation and Bank Supervision .436. Project Physical Performance Evaluations and Mid-term Review .44

I. Project Benefits and Economic Evaluation .. 45J. Participation of Indigenous Groups and Women .. 46K. Project Risks ............................................... 47

IV. AGREEMENTS REACHED AND RECOMMENDATIONS ...................... 47

ANNEES

ANNEX A Socio-oconomic Data for Mexico and eight Project StatesANNEX B Project CostsANNEX C Project Monitoring, Evaluation and ReportingANNEX D SEDESOL Strengthening and Project Coordination ComponentANNEX E Application of Lessons Learned from the first DRD ProjectANNEX Municipal Investment and Strengthening ComponentANNEX 0 Rural Water Supply ComponentANNEX H Rural Roads and Maintenance ComponentANNEX I Income-Generating ComponentANNEX J Supervision PlanANNEX K Estimated Schedule of Bank DisbursementsANNEX L Government Policy LetterANNEX M List of Documents in the Project File

MAPS:

IBRD No. 25680: Mexico - Second Decentralization and Regional Development Project. Project States.IBRD No. 25681: Mexico - State of Chiapas. Second Decentralization and Regional Development

Project. Rural and Urban Municipalities Participating in MunicipalFunds Program

IBRD No. 25682: Mexico - State of GuMr=ero. Socond Decentralization and Regional DevelopmentProject. Rural and Urban Municipalities Participating in MunicipalFunds Program

IBRD No. 25683: Mexico - State of Hidalgo. Second Decentralizaion and Regional DevelopmentProject. Rural and Urban Municipalities Participating in MunicipalFunds Program

IBRD No. 25684: Mexico - State of Michoacan. Second Decentralization and Regional DevelopmentProject. Rural and Urban Municipalities Participating in MunicipalFunds Program

IBRD No. 25685: Mexico - State of Oaxaca. Second Decentralization and Regional DevelopmentProject. Rural and Urban Municipalities Participating in MunicipalFunds Program

IBRD No. 25686: Mexico - State of Puebla. Second Decentralization and Regional Development Project.Rural and Urban Municipalities Participating in Municipal FundsProgram

IBRD No. 25687: Mexico - State of Veracruz. Second Decentralization and Regional DevelopmentProject. Rural and Urban Municipalities Participating in MunicipalFunds Program

IBRD No. 25688: Mexico - State of Zacatecas. Second Decentralization and Regional DevelopmentProject. Rural and Urban Municipalities Participating in MunicipalFunds Program

MEXCO


LOAN AND PROJECT SUMMARY

Borrower: Nacional Financiera, S.N.C. (NAFIN)

Guarantor: United Mexican States

Executing Agencies: Secretarfa de Desarrollo Social (SEDESOL); Municipalities; Water Supply,Rural Roads and Agriculture Agencies of the eight states of Chiapas,Guerrero, Hidalgo, Michoacan, Oaxaca, Puebla, Veracruz, and Zacatecas.

Beneficiaries: Poor communities of the eight project states, including a total population of25.9 million and a primary target of 14.4 million rural population.

Loan Amount: US$500 million equivalent.

Terms: Repayment in 15 years, including a five-year grace period, at the standardvariable rate.

Project Objectives: The overall objective of the project is to increase access of rural poor andindigenous communities to basic social and economic infrastructure (especiallyroads, water supply and schools), and to income-generating activities and thusalleviate poverty. The project would continue efforts initiated under the firstDecentralization and Regional Development (DRD) project to strengthen theparticipation of poor, rural communities in local government investmentplanning and implementation and to strengthen the institutional capacity ofstate and local governments to support rural development efforts. The specificobjectives are to: (a) improve basic infrastructure and support income-generating investments in poor rural areas of the eight states; (b) strengtheninstitutional mechanisms and capacity at the federal and state levels to plan,supervise, monitor, and evaluate rural water supply, rural roads and otherrural development strategies with the participation of municipalities andbeneficiary communities; and (c) strengthen the capacity of rural and semi-rural municipalities to finance, plan, implement, and operate ruralinfrastructure investments, using appropriate technologies and participation ofaffected communities.

Project Components: The project would have five components:

(a) Municipal Investment and Institutional Development (US$737million). This component would finance small-scale communityselected and managed works, for water supply development, ruralroads, school rehabilitation, productive activities, and other smallinfrastructure works of priority to rural communities, throughSEDESOL's Municipal Funds and school rehabilitation (Escuela

-ii -

Digna) programs. The component would also develop the fiscal,administrative and technical capacity of rural and semi-ruralmunicipalities, through studies, technical assistance, training, andsupport for legislative and regulatory reforms at the state level.Individual infrastructure investments in this component would notexceed US$50,000. Communities would be required to provide 20%of total project cost in cash or kind. Approximately 54,000 smallinvestments would be implemented in the eight states under theproject.

(b) Rural Water Supply (US$178 million). This component wouldprovide potable water to small rural localities (between 500 and 5,000inhabitants), by financing investments whose technical complexity andcost make them inappropriate or ineligible for the Municipal Fundsprogram. The component would also improve the capacity of statewater agencies and municipalities to manage water supply investmentand operations and maintenance efficiently and effectively.Subprojects would be selected and contracted by state water agencies,using established investment selection criteria and standard parametersfor engineering design. The average water supply sub-projectinvestment would be approximately US$120,000, with approximately1,300 rural water supply systems to be constructed or rehabilitatedunder the project.

(c) Rural Roads Rehabilitation and Maintenance (US$133 million).This component would finance the rehabilitation and maintenance ofpriority sections of the rural roads network, while developing thecapacity of state road agencies and municipalities to do so efficientlyand effectively. Rehabilitation investmnents would be managed by stateroad agencies, selected based on an established set of criteria, anddesigned according to standard engineering parameters and costing onaverage US$7,000 per kilometer. Municipalities and communitieswould have an active role in implementation, with labor intensiveworks contracted to municipalities through inter-governmentalagreements. A municipal maintenance program to cover roadsrehabilitated would also be financed. Approximately 15,600 km ofrural roads would be improved and included in a municipalmaintenance program under the project.

(d) Income-generating Component (US$12 million). This componentwould provide technical assistance, training, and limited investment todevelop and pilot new strategies to support income-generating projectsin rural areas, by strengthening income-generating activities in theMunicipal Funds program and by supporting the development ofincome-generating programs by state agriculture agencies in one ortwo pilot states.

-4ii -

(e) SEDESOL Institutional Development and Project Coordination(US$35 million). SEDESOL's capacity to manage the project-financed programs would be strengthened. Financing would beprovided for a program of institutional development technicalassistance and training, contracting of technical expertise required forthe supervision and review of each component, and continueddevelopment of the project information and monitoring system.Annual project audits would also be financed.

Benefits: Project investments would result in an improved standard of living forapproximately 10 million individuals living in relatively isolated rural areas,with the improvement of access roads, water supply, educational and otherbasic infrastructure. The rural water supply component investments will resultin raising access to water of rural population in the eight states from 48percent to 63 percent. Of the 50,000 kilometers of earthen, rural roads in theeight states, 29 percent (or 15,600 km) will receive spot improvement andmaintenance, resulting in greater access of approximately 4 million ruraldwellers to social services and economic activities. Approximately 10 millionindividuals are expected to benefit from the estimated 60,000 Municipal Fundsand Escuela Digna investments to be implemented during the project. Moreimportantly, the project will strengthen the capacity of municipal governmentand communities to work together to define and address priority needs in poorrural areas.

ERR: Not applicable, as the project finances small economic and socialinfrastructure in poor rural areas, depending either on community participationmechanisms or subproject eligibility criteria to ensure selection of highpriority and least cost solutions.

Risks: Possible risks arise from: (a) the relatively weak institutions at state andmunicipal levels, sometimes leading to insufficient technical input insubproject selection and design; (b) number of institutions involved in projectexecution leading to overly heavy supervision burden; and (c) the extent towhich general criticisms of Solidarity may reflect on the credibility of theproject. To address these risks, the project limits investment to technicallysimple, but highly economic works (e.g., spot improvement of roads, smallwater supply schemes, etc.) for which simple selection criteria have beendesigned and agreed during project preparation. In addition, targetedprograms of technical assistance have been designed for each projectcomponent to strengthen the state line agencies. To make project supervisioneasier and improve the project management, inter-state technical groups wouldbe formed and would meet quarterly. In addition, the number of sectors to besupported by the Second DRD project has been reduced from ten covered inthe first DRD project, to four, with strict criteria for subproject eligibility.The computerized monitoring system deve!oped during the first DRD projectwould continue to be upgraded by SEDESOL and used to provide timelyanalysis of implementation progress and issues in each state. To maintain thecredibility of the project, the project will use clear and rational sets of

-iv -

subproject selection criteria, and will monitor implementation closely,analyzing for possible biasing of investments based on other than poverty andefficiency criteria.

Poverty Category: PA - Poverty Alleviation; Program of Targeted Interventions. Projectinvestments will be targeted to the poor rural areas of eight of the pooreststates of Mexico. Targeting to the rural poor will be achieved through: (a)the kinds of projects financed (e.g., small, inexpensive projects for watersupply, earthen roads, and school classrooms); (b) implementation bycommunity groups, avoiding the selection of investments not responsive tocommunity priorities; (c) payment of laborers for rural road rehabilitation andmaintenance works, resulting in employment generation for the poor; and (d)distribution of resources by formula to provide greater funding to poor ruralareas. Indigenous communities and women's groups are to be specificallytargeted within the income-generating component.

-V -

Estimated Project Financing by Componenti(US$ Million)

Project Components | Local Foreign Total

I. Municipal Investment & Institutional Dev. 549 149 697II. Rural Water Supply 120 49 168m. Rural Roads Rehabilitation & Maintenance 92 34 125IV. Income-Generating Component 8 3 12V. SEDESOL Inst. Strength. & Project Coord. 27 6 33

Total Baseline Costs 796 240 1036

Price Contingencies 45 14 59

Total Project Costs 841 254 109S

- _Financing Plan 1 Local 1'Foreign_ Total

IBRD 246 .254 S00Federal and State Governments 443 0 443Beneficiaries 152 0 152

Total 841 254 109S

1 Figurs nay not add up due to rounding.

-vi -

Estimated Project Financing by Componentli/2(US$ Million)

SEDESOL | Benefici- Total -% TotalComponent IBRD and State | aries I Base

Governments | j Cost

I. Municipal Inv.fInst. 299 266 133 697 67%

Investment 265 265 133 663

Tech. Assist./Inst. Dev. 33 1 - 34

H. Rural Water Supply 81 78 10 168 16%

Investment 78 78 10 165Institutional Dev. 3 012 - 3

m. Rural Roads 64 61 - 125 12%

Spot Improvement 55 55 - 109

Municipal Maintenance 6 6 - 12

Institutional Dev. 4 0 - 4

IV. Income-generating 8 2 1 12 1%Component

Investment 2 2 1 6

Institutional Dev. 5 0 6V. SEDESOL Strengthen. 21 12 - 33 3%

& Project Coord.

Total Baseline Cost 473 419 144 1036 100%

Price Contingencies 27 24 8 59

Total 500 443 152 1095

Estimated Disbursements (USSmillion):Bank FY I l99 1997 1m22 1 9 1Annual 8012 91 116 147 66Cumulative 80 171 287 434 500

/Fiures may not add up due to rounding.

2/Less than .5 is rounded to 0.

3/lncludes an initial deposit to the Special Account of USS40 million and up to USS40 million in retroactive financing foreligible expenditures incurred after Febnrary 1, 1994.

MEXICO

SECOND DECENTRALIZATION AND REGIONAL DEVELOPMENTPROJECr

I. RURAL DEVELOPMENT AND DECENTRALIZATION IN MEXCO

A. Poverty in Mexico

1.1 As Mexico joins the OECD and gradually moves into the ranks of the industrialized countries,poverty remains a major problem affecting almost half of its population. Mexico's National Statisticsand Geographical Information Institute (INEGI) estimated that in 1992, 44 percent of Mexico's 84million people were living in poverty, with 16 percent living in conditions of extreme poverty.Although the majority of Mexico's population (66%) live in urban areas, extreme poverty continuesto be disproportionately a rural phenomenon, whose impact is greatest on the country's indigenouspeople. In 1992, INEGI estimated that 56 percent of the extreme poor lived in rural areas' and wereengaged in agricultural activities. The eight disadvantaged states, which are the focus of the proposedproject, include 32 percent of Mexico's population, but contain approximately 54 percent of its poorand 69 percent of its extreme poor.2

1.2 Poverty increased dramatically in Mexico with the onset of the 1982 macroeconomic crisis, asper capita GDP and public expenditures declined considerably. Between 1982 and 1988, real percapita GDP dropped by 10 percent from US$4,162 to US$3,723. Federal expenditures dropped by Spercent while rural development expenditures (excluding social sector expenditures) dropped by 38percent between 1983 and 1989. Reflecting the overall decrease in expenditures, targeted povertyalleviation programs developed in the 1970s (including the Bank-supported Integrated RuralDevelopment Program, PIDER, 1975-1988) were severely curtailed. As a result, from 1984 to 1989,INEGI estimates that the total number of poor grew from 30 million to 38 million, while thepopulation living in extreme poverty grew from 11 million to 15 million.

1.3 Since 1989, the overall economy has begun to recover and per capita GDP has risen slightlyto US$3,961 in 1992, although it still remains below its 1982 level. In addition, expenditures onhealth, education and poverty programs have increased sharply and the rate of extreme poverty inMexico has declined almost to its 1984 level. Nevertheless, regional differences remain very strong,with the poverty rate in the poorest states being ten times that of richer states. The greatestdifferences are seen between the states of the center and north which are either industrialized or havelarge expanses of irrigated agriculture and those of the southeast which have little industrialdevelopment and depend on rainfed agriculture. Regional differences are also clearly apparent inilliteracy rates, infant mortality, access to potable water supply, and other basic services (see AnnexA).

1. Based on INEGI analysis of 1992 Household Survey; for the purposes of this survey,rral ares are defined as areas where no locality exceeds 15,000 population. All other usesof the term umi in this report refer to individuals living in localities of 5,000 or lesspopubtion.

2. These figures ae based on World Bank analysis of the 1989 INEGI Household surv.

1.4 Rural poverty has been aggravated by the low level of growth and productivity in theagriculture sector. GDP growth in the sector has been very uneven, averaging 2 percent since 1983,while the productivity of agricultural labor has also remained poor, improving only marginally duringthe last three decades. During the past decade, agricultural profitability has declined with the removalof many input and output subsidies combined with the decline in world prices for many crops. It isnot yet clear what immediate impact the recent ejido land reform will have on rural poverty, as gainsare expected to be seen over the long term and principally in the more productive regions of thecountry. The phased elimination of the guarantee price supports for maize and beans in exchange fordirect income payments to producers (the PROCAMPO program) will extend benefits to poor farmerswho previously did not have a market surplus. Again, because this program was only recentlyinitiated, the extent of its impact on poverty it is not yet clear how much impact it will have on ruralpoverty. Moreover, the elimination of guarantee support prices and the shift to equivalent wvrldmarket prices under NAFTA may possibly have a short-term, negative impact on the sector andreduce the demand for rural labor.

1.5 The Mexican Government under the Salinas administration is addressing the issues of povertyalleviation and development of poor regions using several strategies. During the past five years ithas: (a) begun to reorient agricultural research and services to place higher priority on rainfedagriculture; (b) increased decentralization of investments and services, strengthening the participationof state and municipal government and communities; (c) modified the fbrmula for distributing federalrevenue sharing, making the per capita distribution more equitable and increasing resources going topoorer states; and (d) provided new sources of public investment targeted to poor areas throughregional development programs and the reorientation of social sector investments in health andeducation. The reorientation of public investment in agriculture is being addressed in the AgricultureTechnology Project (Ln. 3465-ME, 1992) and in the recently signed Rainfed Areas DevelopmentProject (Ln. 3778-ME, 1994). The improved poverty targeting of educational and health services isaddressed in the Second Primary Education Project (Ln. 3722-ME, 1994), the Initial EducationProject (Ln. 3518-ME, 1993), and the Basic Health Project (Ln. 3272-ME, 1991). The followingsections summarize Government's poverty alleviation efforts as they relate to increasingdecentralization, improved regional equity in resource transfers, and the use of the National SolidarityProgram ('Solidarity') to carry out poverty alleviation activities across sectors.

B Decentralization

1.6 In spite of being a federated system, national govermnent in Mexico collects and manages thegreatest share of public resources. Currently, the federal government (excluding the Federal District)collects approximately 93 percent of aggregate public sector revenue from taxation and users fees, ofwhich approximately 15 percent is transferred back to the 31 states and municipalities' throughrevenue-sharing. The largest source of state revenue in all states comes from federal revenue-sharng(79%), with only 5 percent coming from taxation, 4 percent from user fees, and 12 percent from allother sources.

1.7 Increasing decentralization and strengthening the authority and capacity of state and localgovernment to manage public finance, establish investment priorities and provide services have been a

3. Municipalities are local jurisdictions which are often a mixture of runal and urban areas;they ae similar to 'districts, or counties' in other countrieL.

central goal of the last two presidential administrations of Miguel de la Madrid and Carlos Salinas.The goal of decentralization has been to increase the efficiency and effectiveness of public services,and to provide greater opportunity for citizen participation. During the past decade theseadministrations have taken several important steps in this direction, including: (a) the constitutionalreform of 1983 increasing the authority and responsibility of locally elected municipal governments;(b) deconcentration of federal agencies; (c) increased use of coordinated investments by federalagencies with state governments; and (d) actual devolution of responsibilities in some sectors to stateagencies and local governments.

1.8 The sweeping constitutional reform of Article 115 in 1983 gave municipalities responsibilityfor providing water supply and sewage, streets, public lighting, sanitation, and slaughterhouses, andfor collecting and retaining property taxes and user fees for such services. In practice, however, mostmunicipalities remain dependent on state government for financial, technical and administrativesupport, and must receive State Congress approval for municipal budgets, establishment of local taxrates and tariffs, and other local laws. State governments continue to collect local property taxes onbehalf of most municipalities. For rural municipalities, property taxes, however, are not a significantsource of revenue, and these municipalities depend on monthly revenue sharing transfers receivedfrom the state for approximately 90 percent of their revenue.

1.9 Some progress in strengthening municipalities has been made, however, in the ten years sincethe 1983 constitutional reforms. For larger, more urbanized municipalities, local initiative combinedwith technical assistance provided by the private sector, the National Public Works Bank(BANOBRAS) and the National Water Commission (CNA) have resulted in better local revenuegeneration through property tax collection and increased cost recovery for municipal services. Forrural municipalities, the principal support has been provided through the municipal programs ofSolidarity as well as efforts of the State Secretaries of Finance, supported in part by the firstDecentralization and Regional Development (DRD) project (Ln. 3310-ME, 1990) (see paras. 2.3 to2.6).

1.10 Since 1984, there have been reductions in the size of the federal bureaucracy and reformsdesigned to increase the role of state and local governments in the allocation of resources within anoverall regulatory framework provided by the federal agencies. First, the input of state and localgovernments in the allocation of federal resources was expanded. The federal government increasedits use of coordinated investmnent programs, investments which are agreed with state government andwhere the state provides a share of the financing. This, when combined with the initiation of theSolidarity federal-state matching grant program at the end of 1989 (see paras. 1.15 to 1.24), meansthat state governments now have a much greater influence regarding and, potentially, accountabilityfor the investments that are made in their states. Second, state and municipal authorities are graduallyreceiving more direct responsibility for and autonomy over public investment and services in certainsectors. In education, the states are assuming the primary responsibility for many functions in thesector, and federal resources are being transferred to the states to cover these expenditures. Forwater supply, local semi-autonomous water companies, established at a municipal level, are nowmanaging systems previously managed by CNA. In the road sector, state road administrations havebeen established to manage the network of secondary roads recently transferred to the states from theFederal Highway Administration (SCr). In addition, authority over rural roads is to be transferredfrom the federal to state governments, although this transfer has been delayed in most states due to adisagreement between the tuo regarding the transfer of federal resources to states for maintenance andrehabilitation.

- 4 -

1.11 The result of this decentralization effort is that state governments now have much moreinfluence, and in some cases direct control, over public investment and services in their states.Municipal govermnents, particularly in the better-off states, are also beginning to assume greaterresponsibility for local services. While these changes do not guarantee improvements in the publicsector, they are an important step toward more responsive and efficient government.

C. Regional Equity

1.12 Prior to 1990, federal revenue sharing was distributed to states based on a fbrmula negotiatedat the time of the tax act of 1980 (Ley de Coordinacion Fiscal), based on their individual taxcollection efforts. The result of this formula was that the poorer states received, on average, one-third the per capita amount received by richer states. To provide greater equity, the Ley deCoordinacidn Fiscal was revised in 1989 in a way that would result in the redistribution of resourcesfrom richer to poorer states. Forty-five percent of the funds would be distributed according to thetotal state population, another 45 percent would be distributed according to the historically determinedformula adjusted each year to reflect changes in state tax collection effort, while the remainingamount would be distributed in an inverse proportion to the state's participation in the other twocomponents of the formula (population and tax collection). The stepwise implementation of thisfDrmula resulted in a 64 percent real increase in federal transfers to the four poorest states (Chiapas,Guerrero, Hidalgo, and Oaxaca) during the period of 1989 to 1992, while the remaining statesreceived an average increase of 20 percent over the same period. The overall effect this reform hasbeen that the ratio of transfers to the 3 richest entities4 as compared to the 6 poorest states has beenreduced from 3:1 in 1989 to 2:1 in 1992. Such differences will be reduced further in the 1994 fiscalyear, when this new formula comes completely into effect.

1.13 Federally financed capital investments in the states are nearly twice that of revenue-sharingfunds, and unlike those funds, are not formula-driven. On a per capita basis, the disparity in federalinvestment received among states is great, with a few states and the Federal District receiving threetimes the average level of investment per capita of the rest of the states combined. This has asignificant effect as 70 percent of all public investmnents in the states are federal.

1.14 In the allocation of both revenue-sharing and federal investment, there is a great need forfurther reforms which would: (a) increase the resources managed diecly by states and municipalitieseither by increasing transfers, or, preferably, reforming the tax assignment structure in order toincrease revenues collected by these levels; and (b) direct greater resources to the poorer states tomeet their greater needs for basic social and economic infrastructure and to compensate for lack of astrong tax base. It is also anticipated that, as Mexico increases the decentralization of the functions ofits central line ministries, related transfers will necessarily become formula-driven, based on ameasure of need for services and local ability to py for them.

D. Poverty Alleviation and the National Solidarity Program

1.15 Mexico has a wide-ranging experience in poverty alleviation efforts. In rural and regionaldevelopment programs, Mexico's experience includes the Bank-assisted PIDER projects (1975-1988),the National Assistance Plan for Rainfed Areas (PLANAT, Ln. 1945-ME, 1980) the Program for the

4. Tle sAab of Nuew Le6n and Baja Califomia and the Federal District.

- 5 -

Development of Humid Tropics (PRODERITH I and II, Lns. 1553-ME and 2658-ME, 1978 and1986, respectively), and now the National Solidarity program, which receives support from the firstDRD project.

1.16 The National Solidarity Program has been the central effort of the current government toreduce poverty and to address the gap in social services that had widened in the 1980s; it was initiatedby President Salinas at the beginning of his administration in December 1988. Solidarity is managedby the Social Development Secretariat (SEDESOL) and funded through a single federal budget line(Ramo 26) which is combined with state funds based on the annual Social Development Agreement(CDS) signed every year by SEDESOL with each state. The CDS establishes the broad framevwrkfor federal-state cooperation, within which budgetary allocations for each Solidarity program andspecific investments are agreed between SEDESOL and the state Planning Committee (COPLADEs)each year.

1.17 Solidarity includes over 30 different sub-programs to target health, education, nutrition,employment, infrastructure, and income-generating projects to the poor. Federal financing forSolidarity, provided as a grant to states and municipalities, has grown from US$500 million in 1989to US$2.2 billion in 1993, with each state government adding from 25 percent to 50 percent ascounterpart finance. For large infrastructure projects, Solidarity funds are mixed with credit providedby national development banks (BANOBRAS and NAFIN), either to municipalities or to producers'organizations.

1.18 What distinguishes Solidarity investments from those financed by the budgets of federal orstate line agencies are the following set of principles and guidelines: (a) community participation inproject selection and implementation through Solidarity Committees; (b) poverty targeting; (c)decentralization and shared responsibility for Solidarity programs with state and municipalgovernments; and (d) sharing of program costs among the federal government, states, municipalities,and beneficiary communities. While these concepts are central to Solidarity, how they are appliedvaries among the different Solidarity programs.

1.19 Although Solidarity covers a broad range of investments, it is not by itself a comprehensivepoverty alleviation program. Rather, the individual Solidarity programs are often designed tocomplement and strengthen normal sector investments. In education, for example, Solidarity hasprovided at least US$600 million in additional financing for the rehabilitation and construction ofeducational facilities in poor communities since 1989. It has also financed a program of small grantsto individual poor students (Nflos en Solidaridad). In health, Solidarity funds have been used torehabilitate or build and equip new health posts, but not to provide medical services. In water supplyand drainage, Solidarity has provided additional financing to responsible line agencies, targeted topoor urban neighborhoods and rural areas.

1.20 Solidarity is also supporting investment in agriculture through a number of distinct programs.It is providing financing for agriculture-related investments identified by the COPLADEs andimplemented by state and federal agencies. Although the total investment is small compared to theinvestment programs managed by the Secretariat of Agriculture and Hydraulic Resources (SARH),Solidarity funds constitute a significant portion of state investment in agriculture in the four DRDproject states. In addition, Solidarity supports investments in income-generating projects by the newNational Solidarity Business Fund, Fondos Naclonales de Empresas de Solfdaridad (FONAES, seeparas. 2.21 - 2.23), the provision of small production credits by municipalities (Fondos de

- 6 -

Solidaridadpara la Producci6n), a special program to provide production credit and grants to smallcoffee producers through the National Indigenous Institute (INI), and revolving credit funds managedby indigenous organizations (Indigenous Regional Funds, FRS).

1.21 The impact of Solidarity on the poor is difficult to measure because it has financed everythingfrom large water supply schemes to individual scholarships for poor elementary school students, andbecause many of its programs have yet to develop an effective monitoring system.5 Nevertheless, itis clear that certain Solidarity programs, especially the Municipal Funds program, financed by thefirst and proposed Second DRD project, are contributing in a number of important ways. TheMunicipal Funds program has successfully increased the amount of financing available forinfrastructure in poor rural communities, doing so by involving those communities and theirmunicipal governments in establishing priorities for investment and ensuring that they areimplemented. Other Solidarity programs focused on rural areas, such as rural water supply, ruralroad rehabilitation, and Escuela Digna, also supported by the tw projects, have provided importantadditional resources to rural areas, increasing the level of public investment significantly.

1.22 As a very highly visible government program, Solidarity has attracted both criticism andpraise. Some of the most frequently cited strengths of Solidarity include: (a) providing a vehicle forgreater citizen participation in government decision-making through the Solidarity Committees andMunicipal Solidarity Councils, especially in programs managed at the municipal level; (b) effectivemobilization of citizens to contribute to the planning and implementation of public works and socialprograms in their own communities; (c) implementing in a cost effective manner a large number ofbadly needed small infrastructure projects in a short period of time; (d) promoting greaterdecentralized control over public investment decision-making by states and municipalities; and (e)providing a mechanism for getting investment to rural areas.

1.23 The criticisms vary by the kind of Solidarity investment. However, some Solidarity programshave been criticized for the following: (a) that some investments may have been selected based onconsiderations other than poverty and need; (b) having very limited community involvement in someprograms and works, especially those implemented by government agencies or contractors; (c)bypassing grassroots organizations by working exclusively with Solidarity Committees established foreach small work; (d) presence of technical problems affecting the quality of implementation; and (e)lack of attention to operation and maintenance (O&M) issues. The experience of the current Bankfinanced first DRD project, which is supporting Solidarity investments in the four poorest states, isreviewed in paras. 2.27 to 2.34 and Annex E.

1.24 The Solidarity Program therefore, should not be seen as a unitary program, but rather as ageneral approach to poverty alleviation and regional development and an umbrella for many differentprograms. Because of that, both the first and proposed second DRD projects are designed to supportonly specific initiatives within Solidarity which best target poor populations and which best advancedecentralization and the strengthening of local institutions.

5. While the se of exftme rural poverty, as measured by INEGI, has decreased from 28percent to 26 percent ftom 1989 to 1992, it is not possible to draw a relationship betwenthis decrease and Solidarity.

-7-

II. RURAL DEVELOPMENT AND DECENTRALIZATIONSTRATEGY

A. Introduction

2.1 Through its management of Solidarity, SEDESOL has undertaken the central role indeveloping national policies and program strategies for rural development, including thedecentralization of investment in rural areas to state and municipal governments and communitygroups. The articulation of these strategies, until recently, have been confined to broad programdocuments,6 the Manual Unico de Solidaridad, and the operational manuals and technical guidelinesfor its individual programs (see references in Annex M). During the implementation of the first DRDproject and the preparation of the follow-up, Second DRD project, SEDESOL has further definedstrategies for improving the targeting and quality of implementation of investment programs and forstrengthening state and local institutions involved in rural development and rural poverty alleviation.SEDESOL's general strategies for supporting poverty alleviation activities of state and localgovernment and communities are presented in the Policy Letter (see Annex L) signed by the Secretaryof SEDESOL. Its more specific strategies relating to the program areas to be supported by theproject (i.e. municipal development, small community investments, rural water supply, rural roads,and income-generating investments) are presented in the draft Project Operational Manual, which wascompleted prior to project negotiations. The contents of this manual are to be finalized as acondition of loan effectiveness (see para. 4.1(a) and 4.2(a)). SEDESOL's strategies for supportingrural development and decentralization are summarized in the four sections below (sections B throughE).

B. SEDESOL's Strategy for Strengthening Capacity of Rural Municipalities

2.2 Rural municipalities suffer from a series of important limitations: (a) nearly completedependence on external resources, mainly revenue-sharing distributed monthly by the stategovernment; (b) requirement that municipal legislation be approved by the State Congress; (c)complete change in elected and nonelected municipal officials every three years, resulting in lack oftechnical capacity and continuity in development activities; (d) lack of services provided by state andfederal agencies, as there are few incentives for civil servants to provide outreach to rural areas; and(e) sufficient resources are not available to support priority public investment in basic services.

2.3 Solidarity is a significant provider of investment funds for rural municipalities. Solidarityprograms managed by municipalities include: Municipal Funds, School Rehabilitation (EscuelaDigna), Production Support Funds (Fondos de Solidaridad para la Producci6n), and Children ofSolidarity (Ninos en Solidaridad). The two latter programs, Fondos de Solidaridad and NMbos enSolidaridad, are transfer programs designed to assist poor producers and poor school children,respectively. Because the project focuses on strengthening local capacity to manage local investmentactivities, especially rural infrastructure, SEDESOL's strategy for these twv areas is not addressedhere.

6. For exmple, La Solidaridad en cl Desarrollo Nacional, La Nueva Relacion entreSociedady Gobierno, SEDESOL, March 1993.

2.4 Municipal Funds and Escuela Digna each provide investment funds that are to be used bymunicipalities in conjunction with community Solidarity Committees. In the case of Escuela Digna,these investments are limited to school rehabilitation. In the case of Municipal Funds, funds can beused to finance a wide range of small subprojects. In both programs, subprojects are manageddirectly by communities, with the communities contributing unskilled labor, local materials, and cash,equivalent to at least 20 percent of the total investment cost. In many rural municipalities, theMunicipal Funds program alone has more than doubled the amount of investment resources availableto the local jurisdictions.

2.5 Together, the Municipal Funds and Escuela Digna programs constitute an important steptoward simplifying and making more responsive the planning and implementation of public investmentin rural communities. Municipalities can use these resources to respond rapidly to communities'requests for water supply, the rehabilitation of a section of rural road, paving of the streets of thetown center, or reconstruction of a dilapidated school building. However, because these investmentsare implemented by the communities themselves, the program is most successful in financing projectsrequiring a minimum of technical input.

2.6 In addition to targeting Solidarity programs to poor municipalities, some state governmentshave modified their formulas or coefficients for distributing federal revenue-sharing to target a greaterproportion of these resources to poor municipalities,' or have initiated their own matching grantprograms to support municipal investment.' lb strengthen the quality of municipal investment,SEDESOL and the state governments are providing technical assistance and training for municipalofficials, through their regional offices' within each state, although the coverage and effectiveness ofthese efforts vary by state. In addition, many states are undertaking other municipal developmentefforts, such as improving property tax collection and financial management systems, and legislativereforms to increase local autonomy. While these reforms may benefit rural municipalities, their effectis greatest on urban areas.

2.7 SEDESOL is committed to working with state governments to strengthen rural municipalitiesand communities through the following actions, which wvould be supported by the proposed project(see paras 3.20 and 3.21):

(a) Improving the reliability and targeting of public funds to poor municipalities bylinking the allocation of Municipal Funds to a distribution formula;

(b) Promoting activity by the states to review and rationalize their formula for distributionof revenue sharing resources to municipalities;

(c) Improving financial management activities by strengthening municipal tax codes andtax collection effort, and basic accounting systems.

7. For example, Hidalgo, Michoacan and Puebla.

8. For eample, Veracruz.

9. Each of the eight prject stats re divided into 10 to 12 reions. Both fdemal and statepersonnel from a range of line and central agencies are located in regional offices.

-9-

(d) Strengthening community participation in municipal investment planning, bypromoting participatory decision-making within the Municipal Funds and EscuelaDigna programs;

(e) Providing municipalities access to technical assistance and training to assist them toplan and implement simple infrastructure works; and

(f) Supporting municipal efforts to make local services more self-financing and cost-effective by improving cost recovery for O&M (especially for water supply) andidentifying ways to reduce energy costs and consumption.

C. SEDESOL's Strategy for Rural Water Supply

2.8 Access to potable water is a major problem in Mexico's rural areas. Although 79 percent ofMexicans have access to potable water, 44 percent in localities under 5,000 do not. Of the 17 millionMexicans without accessible water supply, 72 percent live in localities with under 5,000 inhabitants,and of these 12.3 million individuals, 7.4 million (60%) live in the eight project states. In the eightstates, 35.6 percent of the total population of 25.9 million are without accessible water supply, ofwhich 78 percent live in localities under 5,000 population.

2.9 The tvo principal consequences of inadequate water supply are increased health costs,including the transmission of cholera and other intestinal diseases, and the cost of time spent carryingwater to the household. Health is negatively impacted not only because of poor water quality, butalso because high transport cost reduces the use of water for sanitary purposes. Women are theprincipal transporters of water in rural Mexican societies, frequently spending tuoo t three hours perday bringing the minimum requirement of water to the household. Making potable water suppliesmore accessible, through either a nearby standpipe or in-house plumbing, allows women to devotemore time to economic activities, as well as to attend to other demands.

2.10 While from a legal point of view, water supply is a responsibility of the municipality, manyrural municipalities in these states lack the technical and financial capacity to meet this responsibility.At the same time, federal and state institutions do not have sufficient capacity or incentives to meetthis need because of the great number of small, geographically dispersed, wvrks required.

2.11 Government devotes most of its water supply investment to urban areas, where theestablishment and strengthening of semi-autonomous water companies is a major goal. To resolveproblems of water supply in rural areas, Government relies on the normal state investment programs,supplemented with funding targeted to poor areas by Solidarity. These supplementary programinvestments may occur through state and municipal water agencies or through Municipal Funds,which involve communities in project implementation and operation and maintenance.

2.12 SEDESOL:s strategy for meeting the demand for rural water supply involves working directlywith state water agencies (SWAs) to:

(a) Strengthen the capacity of SWAs to address the needs for water supply in rural areasthrough the establishment of a rural water supply intestate technical group (IM) andof municipal support units (MSUs) (see para. 3.29);

- 10 -

(b) Assist municipalities to achieve full recovery of O&M costs, provide adequate routinemaintenance, and deliver potable water by improving the quality of systems andstrengthening management capacity; and

(c) Increase the impact of investment in rural water supply by improving the selection ofsubprojects, using economic efficiency criteria.

D. SEDESOL's Strategy for Rural Roads Rehabilitation and Maintenance

2.13 Mexico has approximately 210,000 km of roads, including a federal netwurk of 49,000 km,another 61,000 km which were recently transferred from the federal to state governments to create astate netvurk, and 100,000 km of feeder and rural roads for which responsibility is yet to betransferred from the federal government to state and local governments. In addition, there is anetwork of 32,000 km of tracks (brechas) where responsibility is shared by states and localgovernments. The entire network is in poor condition, with about 60 percent of the federal networkand 65 percent of the state highways needing rehabilitation. The rural road system is in even worsecondition, suffering from the greatest neglect and lack of rehabilitation and maintenance activities.The poor condition of these roads limits the access of rural families to social services, as well as toinputs and markets for their economic activities.

2.14 This situation has led Government to articulate a national strategy to revitalize and rebuild thecountry's roads and ensure proper maintenance. The Government's strategy seeks to: (a) focusinvestmnent in the rehabilitation and maintenance of the existing road netwvrk, activities which willbring higher economic returns than new construction; (b) encourage greater decentralization ofresponsibilities to lower levels of government; and (c) support institutional reforms required forimproved road management practices to be implemented and sustained. Both the Bank-financedHighway Rehabilitation and Safety Project (Ln. 3628-ME, 1993), focusing on the federal highwaynetwork, and the MDB-financed Rural Roads Project, focusing on the secondary road netuvrk, alsosupport the achievement of these objectives. Institutional strengthening activities for these new stateagencies is to be partially supported by the MDB-financed project.

2.15 As part of a federal decentralization strategy, responsibility for 61,000 kn of secondary roadswas transferred to the states in 1990. The federal government has also sought to transfer the ruralroad network. In most states, however, responsibility for rural roads has not been accepted by stategovernments, which have complained about their poor condition and the states' lack of resources andadequate institutions to undertake needed rehabilitation and maintenance activities.

2.16 As part of the strengthening of the new state road agencies (SRAs), important institutionaladjustments are necessary, including establishing investment priorities to favor more economicallysound investments in rehabilitation and maintenance rather than new construction, developing roadmaintenance planning and management systems, relying more systematically on the more efficientprivate contractor industry rather than on the state administration for the implementation of works,and creating partnerships with municipal governments, which in the medium term will likely be givenresponsibility for parts of the rural network.

2.17 SEDESOL's strategy for strengthening the rural road network to be supported by theproposed Second DRD project is consistent with and complementary of the strategies being pursued in

- 11 -

the strengthening of the federal highway and state secondary networks, supported by the Bank andIDB-financed projects and includes the following:

(a) Road Rehabilitation. Priority would be given to the rehabilitation of critical sectionsof rural roads over new construction. Appropriate construction technology would beused to rehabilitate Type E and F rural roads (single lane) at minimal cost, therebyserving the maximum rural population with limited investment resources. Designstandards and engineering would be kept simple, and works would be limited toelimination of critical sections (spot improvement), giving priority to the concept ofaccess as opposed to the concept of comfort or speed of transport. However, abalanced rural road strategy would be developed by each state, including planning forconstruction of priority new roads as well as rehabilitation and maintenance.

(b) Planning. Rural roads rehabilitation and maintenance activities need to be based onreliable and updated information about the condition of the road network. Aninformation and monitoring system, and related decision-making criteria, would bedeveloped to help in the definition of priorities and allow technical activities to beplanned. Because almost all roads present a similar, very poor condition, interimplanning will be based on a simple prioritization criteria (density of population perkilometer of road) that gives priority to roads with a low cost per beneficiary, in orderto obtain the maximum use of limited resources.

(c) Municipal Participation. Tl prepare the way for the eventual transfer of maintenanceresponsibilities to municipalities, and to exploit the comparative advantage ofmunicipalities to manage labor intensive works in rural areas, municipalities would becontracted to undertake important aspects, principally drainage works, of the ruralroads rehabilitation and maintenance program.

(d) Boad Management. SRAs would be strengthened in their capacity to manage the roadnetwork, to supervise contracted activities, and to provide technical assistance tomunicipalities. In order to support and manage the institutional strengtheningprogram, emphasis will be given to the development of a rural roads 1TG and MSUsin each SRA (see para. 3.39).

E. SEDESOL's Pilot Strategies to Increase Income-Earning Potential

2.18 Rural areas in the poor states lack economic stimulus, new investments in income-generatingventures, and employment opportunities. This is due not only to the difficulty in identifyingeconomically &asible investments, but also the lack of technical assistance and investment capitalavailable to rural producers and potential entrepreneurs. Problems are exacerbated by poor physicalinfrastructure and poorly developed systems for marketing and distribution. Prior to the recentadjustment and liberalization policies, Government's strategy in rural areas had been to support theproducers of basic grains by providing subsidized inputs, including credit and other agriculturalinputs, and price guarantees. In addition, since the 1970's, Government has provided targetedinvestment money for agriculture in poor rainfed lands, through its regional development programs,

- 12 -

first the PIDER programs and then Solidarity'° With the reduction of general agriculture subsidies,uovernment is placing renewed attention on developing programs that support investment by poorfarmers through Solidarity.

2.19 Solidarity's support for income-generating activities has been provided through five programs:(a) Solidarity grants provided to producer groups by COPLADEs through state or federal agencies;(b) investment supported by FONAES, a program begun at the end of 1991, dedicated to assistingsmall entrepreneurs by providing risk capital;" (c) development of local savings and loanassociations (FONAES' Cajas de Solidaridad) with the recovery of resources granted producers'groups by FONAES; (d) small grants provided to women's groups through Mujeres en Solidaridad(MES); and (e) the Municipal Funds. Each of these programs has encountered difficulties andSEDESOL anticipates that each will undergo some modification based on recent internal evaluationsand possible policy changes in next federal administration, due to take office in December 1994. Forthese reasons, SEDESOL's medium and long term strategy for providing support to income-generating activities for the rural poor is not completely formulated. The experience to date witheach of the five existing Solidarity programs is presented below.

2.20 Solidarity Grants. Grants to producers' groups are currently provided by Solidarity throughthe state SEDESOL offices and the COPLADEs. Evaluations of these investments and of similarinvestments supported under PIDER have pointed to problems of technical and economic feasibility,especially of the medium and large size subprojects (approximately US$50,000 and up), and to thelack of ongoing technical assistance. Problems have also been detected in smaller subprojects, asthese investments often finance specific inputs for individual producers, rather than coherent projects,and therefore have limited long term impact.' These problems can be traced to a lack ofappropriate institutional incentives within SEDESOL and the state agriculture agencies to applytechnical and economic criteria to decision-making and to support investments with needed, ongoingtechnical assistance. Consideration is now being given to undertaking a pilot effort in one or twostates. Such a SEDESOL pilot wvuld test strategies for increasing the effectiveness and targeting ofSolidarity-financed income-generating activities and strengthening the capacity of involved stateagriculture-related institutions.

2.21 FONAES. FONAES currently provides assistance to established groups or associations ofsmall business entrepreneurs and producers, whose proposals do not qualify for adequate financingfrom the commercial credit market. A semi-autonomous agency of SEDESOL, FONAES hasprovided risk capital funds for over 2,000 businesses, principally agriculture-related, throughoutMexico. Once FONAES agrees to an investment, it provides up to 35 percent of the financing as riskcapital, giving it a stake in the success of the investment. This capital is then matched by theproducer group, which must contribute at least 30 percent of its own resources and secure the

10. In addition, in 1994, the Dimect Producer Income Support Pogm (PROCAMPO) wasinitiald which provides tanisb to past producei of basic grains, many of whom arelocated in poor amnfed areas.

11. See Working Paper No. 6 for a more detailed description and critique of FONAES'progams in the project file.

12. See Working Paper No. S in the project file.

- 13 -

remaining portion from external credit sources. FONAES risk capital has also complemented loansprovided by other Solidarity programs such as the FRS, and grants provided by MES, a program thattargets women's groups in marginal areas.

2.22 An evaluation of FONAES' experience and of the financial viability of its risk capitaloperation has not yet been conducted. Field experience leads to the conclusion that a significantnumber of subprojects are successful, and that the quality of FONAES's technical operations hassteadily increased during the two years of its existence. Because FONAES is financed with 100percent federal funds and functions with some autonomy from the COPLADEs, it appears to havegained a measure of independence from the pressures of special interests which have distorteddecision-making in similar investment programs.

2.23 FONAES is currently undertaking an internal evaluation of its portfolio and an assessment ofits risk capital program. At the same time, FONAES is considering expanding its programs toprovide grants for some categories of investments, to be repaid by the beneficiaries to a local Caja deSolidaridad at a zero interest rate. FONAES uvuld use this financing mechanism to expand itscoverage to groups of more marginal producers, especially in heavily indigenous areas.

2.24 Savings and Loan Associations. Solidarity has supported over the past five years theformation and capitalization of savings and loan associations, including: (a) FRS, which arerevolving funds initially capitalized by Solidarity and managed by representatives of local indigenousgroups with the oversight of INI, and (b) formation of local savings and loan associations (Cajas deSolidaridad) from Solidarity production or investment funds recovered by producers' groups fromtheir membership. Both of these efforts are relatively new, with the FRS currently going through anin-depth internal evaluation, financed under the first DRD project. A positive feature of these twoprograms is that they provide direct access to resources by poor producers' groups, and encourage thedevelopment of locally managed institutions. A major weakness of both programs has been the lackof technical assistance to the management of the funds (especially for the FRS), subproject design andimplementation. Overall, however, the experience has been sufficiently positive that Governmentintends to continue providing support to both programs.

2.25 Mujercs en Solidaridad. MES is a relatively small program, managed by SEDESOL's statedelegations, which provides technical assistance and some investment grants to women's groupsinvolved in income-generating activities. While this program has been limited in scope, indicationsare that where it is operating it has been relatively effective in providing assistance to women'sgroups.

2.26 Municipal Funds. In addition to financing social and economic infrastructure such asschools, roads and water supply marks, Municipal Funds also provide support for investments inincome-generating enterprises, including agricultural production activities. Less than 5 percent ofMunicipal Funds have been invested in such subprojects. This is most likely due to the lack oftechnical assistance for identifying and preparing subprojects, as well as the priority given bymunicipalities to investment in such areas as water supply and school buildings, which usually benefita wider group of citizens. Nevertheless, SEDESOL managers are interested in pursuing strategies forincreasing the support given by Municipal Funds to income-generating activities.

- 14 -

F. Lessons Learned from Past Operations

2.27 Mexico has a twenty-year history of support to regional development efforts, many of themsupported by Bank loans (PIDER I, II & III as well as the current DRD project). The preparation ofthe first DRD project took into account lessons learned from PIDER and other regional developmentprojects about the need for greater decentralization and community participation in rural developmentactivities. Building on the PIDER experience, the most important and successful innovations of theDRD project have been that it has: (a) integrated the investment program into normal planningchannels by giving implementation responsibility to state line agencies, the COPLADEs, andmunicipalities; and (b) initiated the Municipal Funds and Escuela Digna programs, creatingopportunities for significant community participation in municipal decision-making andimplementation, and increasing cost-effectiveness and accountability by providing communities directaccess to resources.

2.28 At the same time, a number of implementation problems have continued into the first DRDproject. Those problems are: (a) the spread of investments over too many sectors,"3 with over 70implementing agencies within the federal and four state governments, making project supervision andefforts to improve implementation difficult; (b) insufficient technical capacity of SEDESOL; and (c)lack of tested strategy and procedures for the implementation of the agriculture investmentcomponent, leading to a low level of project financing dedicated to it. (See Annex E, 'Application ofLessons Learned from the First DRD Project.")

2.29 The proposed Second DRD project will address the above issues in that it will: (a) target 67percent of project financing to the successful Municipal Funds and Escuela Digna programs,strengthening them by improving targeting, implementation monitoring, and technical assistance fDrsubproject design; (b) limit other project investments to three rural sectors (water supply, roads andagriculture), which, in the case of water and roads would be based on simple and appropriatetechnology and typical engineering designs; (c) finance approaches to supporting income-generatingactivities in poor regions on a limited, pilot scale only; (d) assign only one implementing agency foreach sector in each state; (e) ensure the selection of priority, rural investments by the application ofclear eligibility criteria based on the first DRD project investment experience; (f) strengthen theproject monitoring system (see Annex C); and (g) use r1Tis for each project component and state-level municipal presidents working groups (MPWGs) as mechanisms for guiding institutionaldevelopment activities and reviewing implementation experience.

2.30 During project preparation, an analysis was conducted of the institutional and technicalproblems encountered in the agriculture component of the first DRD project and Solidarity in general,and other earlier experiences with PIDER." The analysis concluded that many of the agriculturalinvestments failed due to poor investment selection and preparation and to a lack of technicalassistance following the investment. Decisions regarding agricultural investments have been madecentrally, usually at the level of state government, and often wiih little regard for technical or

13. In addition to the Municipal Funds and Escuela Digna programs, sectors receivinginvestment in the first DRD project are rural roads, water supply, dminage, schools,agricultur, environmental protection, electrification, and archaeological sites restormtion.

14. See Working Papers Nos. 5 and 6.

- 15 -

economic feasibility. The proposed component will avoid these problems by financing only a limitedpiloting of new approaches to the agricultural sector under the income-generating component (seeparas. 3.40-3.41).

2.31 The implementation of the Municipal Funds was also evaluated during the first project."Results of this evaluation showed that in a great majority of the cases, poor rural communitiesparticipated actively in investment selection and implementation. Nevertheless, the evaluation alsoshowed that cases exist where community participation has been limited and the process of selectionof investments either not very open or being overly influenced by local and state authorities. Wherethere is willingness on the part of municipal officials to involve communities, the program benefittedfrom participation and gave rural communities a central role.

2.32 The Municipal Funds evaluation and ongoing project supervision have also identifiedweaknesses in the technical quality of some subprojects as well as limitations in the selection ofsubprojects. Choice may become limited by three factors: the availability of required technicalassistance, the tendency to share the limited funds available among many communities, therebylimiting the size of any single subproject, and the limit placed on total allowable cost of individualsubprojects. In addition, while the allocation of funds among municipalities by state governmentsshows a strong bias towards poorer and more rural municipalities, the distribution has not been linkedto objective criteria and in most states there are significant differences in the per capita distribution tomunicipalities with similar degrees of poverty and ruralness. To address this issue, the allocation offunds in the Second DRD project would become formula driven in each state, ensuring bothconsistency and fairness in the targeting of funds to poor areas (see pars. 3.17). Furthermore,requirements of poor rural municipalities for technical assistance would be addressed by allowingthese municipalities to contract for assistance as well as receive assistance from the MSUs beingcreated within state water and road agencies.

2.33 A 1993 study of school construction activity under the Municipal Funds demonstrated thatschools were being constructed by communities at less that one-half the cost of federally contractedschools." Some differences, however, were found in the construction quality of the MunicipalFunds school, a problem that needs to be remedied through increased technical assistance andsupervision. The same study discovered that in the Escuela Digna school rehabilitation program,community participation and quality of these simple works were both very high. SEDESOI:s owninternal review of the Escuela Digna program, however, revealed the importance of limiting programresources going to schools already attended and shifting those resources to schools in rural areaswhose participation in the program has not been as active (see para. 3.18).

2.34 In water supply, the Second DRD project will use an analysis of the experience of the firstDRD project to establish per capita cost eligibility criteria for investments in partial as well ascomplete systems. This refinement of the eligibility criteria will improve cost-effectiveness ofinvestments selected and allow service to be expanded to a greater number of individuals. In the first

15. See J. Fox and J. Anda, *Community Participation in Mexico's Municipal FundsProgram: The Case of Oaxaca. Summary Report of Phase One - December 1993.

16. See Rodrigo Gonzlez Kelz, *Estudio Comparativ sobre al Construccidn,Rehabilibtci6n y Mantenimiento de Escuelas Primarias Rurales,' June 1993..

- 16 -

DRD project, state governments gave priority to financing new road construction over rehabilitationand maintenance, which have been shown to provide higher economic rates of return. In the SecondDRD project, better targeting of resources would be achieved by limiting the component to financingspot improvement (see paras. 3.32 to 3.37) and the initiation of a municipal maintenance program forthose roads rehabilitated under the spot improvement program (see para. 3.38). This approach wouldalso allow use of labor intensive methodologies which would provide both temporary employment inthe spot improvement program as well as long-term, part-time employment in the maintenanceprogram. In both areas, rural water supply and rural roads, ITGs will be established to involve theseagencies in planning component implementation, including institutional development activities.

III. THE PROJECT

A. Origin of the Project

3.1 Government has expressed strong interest in a Second DRD project that would continue andfurther develop the most successful innovations of the first project beyond the closing of that projectin 1995. The primary interest of Government has been continued Bank support for the MunicipalFunds program, currently receiving over 40 percent of the US$350 million loan financing of the firstDRD project, and for specific sectors (rural water supply, rural roads and income-generatingsubprojects) where the Second DRD project would continue progress in implementing new approachesand strengthening state and municipal institutions. Government's continuing interest in Bankfinancing of buffer zone management aspects of the Selva Lacandona protection program in Chiapas isnot addressed in this project, but may be considered in a future natural resource management project.

3.2 In proposing a second DRD project, Government sought not only to consolidate and furtherdevelop the gains made under the first project, but also to expand the area affected by the project.The eight states to be included incorporate 32 percent of Mexico's population, but 52 percent of itsrural population, and 54 percent of its poor. In addition, by focusing on a larger number of states,the project will have a greater opportunity to affect national policy and programs.

B. Rationale for Bank Involvement

3.3 One of the central elements of the Bank's Country Assistance Strategy for Mexico which wasapproved by the Board on June 9, 1994, is to reduce poverty by 'expanding and improving programsattacking poverty' and by 'strengthening the roles and capabilities of state and municipal authoritiesin the delivery of services."' 'he current DRD project has provided an effective model forachieving these objectives. This project demonstrated success in financing small works implementedby local communities (the Municipal Funds and Escuela Digna programs), and provided anopportunity to develop state-level strategies to guide rural investment in water supply, rural roads andagriculture. Given the experience with the first project, financing for Municipal Funds and EscuelaDigna would be continued under the Second DRD project, with a greater emphasis on institutionalstrengthening for rural municipalities and on the provision of technical assistance to strengthensubproject design. In addition, the Second DRD project would seek to institutionalize strategies forimproving rural water supply and rural roads investments developed in the first project, improving

17. Country Assistance Stnraegy of the 'Vbrld Bank Group for the United MUcican States,May 13, 1994, pagp 10, para. 32.

- 17 -

poverty targeting and technical quality of investments, and increasing municipal involvement inimplementation of investments and maintenance of rural water supply systems and rural roads. It willalso attempt to improve the most difficult component, the income-generating component, bysupporting efforts of the COPLADEs and the Municipal Funds program to support investment andtechnical assistance to groups in smaller, better-focused pilot programs, especially in indigenous areasand for women's groups. Continued Bank involvement will therefore help ensure that ruraldevelopment strategies in these key sectors, many of which were forged during the first project, willbe furfther developed and institutionalized.

3.4 In each component and sector, the strategies to be used in the project build directly from theBank's experience in other projects in Mexico as well as experience in other countries and regions.The rehabilitation of critical sections and lengthman system of rural road maintenance were pioneeredin other Bank projects in Africa and Latin America, and are consistent with the Bank's overallstrategy for rural roads. The project guidelines and strategies for the rural water supply componentare consistent with sector policies developed under the Mexico Water Supply and Sanitation Project(Ln. 3271-ME, 1991). The proposed income-generating component emerged directly from the Bank'sdialogue with Government about the changing roles of the federal and state governments in supportingagricultural development and the appropriate use of targeted credit and grant programs and mouldcomplement larger scale activities to be financed under the recently signed Rainfed AreasDevelopment Project, as well as the Agricultumal Technology Project.

C. Project Objectives

3.5 The overall objective of the project is to increase access of rural poor and indigenouscommunities to basic social and economic infrastructure (especially roads, water supply and schools)and to income-generating activities and thus alleviate poverty. The project would strngthenmechanisms for participation of these communities in public decision-making at the local level, andstrengthen the institutional capacity of state and local govrnments to assume greater responsibility forsupporting rural development.. The specific objectives are to: (a) improve basic infrastructur andsupport income-generating investments in poor rural areas of the eight states; (b) strengtheninstitutional mechanisms at the federal and state levels to plan, supervises, monitor, and evauate ruraldevelopment programs co-financed by these governments and beneficiary communities; and (c)strengthen the technical and administrative capacity of state agencies and municipalities to managerural investmnents efficiently and effectively, using appropriate technologies and participation ofaffected communities.

3.6 lIb achieve these objectives, the project mould support Goverrnment's policies to: (a) improvepoverty targeting and reliability of funds transferred to rural municipalities by introducing povertycriteria into the formula for distributinig Municipal Funds; (b) improv services to rural areas bydecentralizing responsibility for rural roads and rural water supply to states and municipalities; and (c)improve the efficiency and effectiveness of public investment through the application of technical andeconomic selection criteria.

3.7 The project would include the four states participating in the first DRD project (Chiapas,Guerrero, Hidalgo, and Oaxaca) and an additional four states (Michoacan, Puebla, Veracruz, andZacatecas) whose selection was based on poverty criteria. Altough significant progress has beenmade in the first DRD project, the original four states continue to be included in the second projectbecause innovations developed during the first project are yet to be fully implemented and

- 18 -

institutionalized. The four new states provide an opportunity to immediately apply lessons learnedfrom the first project, and an opportunity to positively affect a much greater number of the ruralpoor. In addition, by including eight states, with 54 percent of Mexico's poor, the project may havemore opportunity to influence national poverty alleviation policies.

3.8 The project would contain four investment components in addition to a component tostrengthen SEDESOL capacity and to support project coordination activities:

(a) Municipal Investment and Institutional Development (US$737 million). Thiscomponent would finance small-scale community selected and managed works, forwater supply development, rural roads, school rehabilitation, productive activates, andother small infrastructure works of priority to rural communities, throughSEDESOL's Municipal Funds and school rehabilitation (Escuela Digna) programs.The component would also develop the fiscal, administrative and technical capacity ofrural and semi-rural municipalities, through studies, technical assistance, training, andsupport for legislative and regulatory reforms at the state level.

(b) Rural Water Supply (US$178 million). This component would provide potable waterto small rural localities (between 500 and 5,000 inhabitants), by financing investmentswhose technical complexity and cost make them inappropriate or ineligible for theMunicipal Funds program. The component would also improve the capacity of statewater agencies and municipalities to manage water supply investment and operationsand maintenance efficiently and effectively. Subprojects would be selected andcontracted by state water agencies, using established investment selection criteria andstandard parameters for engineering design.

(c) Rural Roads Rehabilitation and Maintenance (US$133 million). This componentmould finance the rehabilitation and maintenance of priority sections of the rural roadnetwork, while developing the capacity of SRAs and municipalities to do so efficientlyand effectively. Investments will be managed by SRAs, selected from an establishedlist of priority roads, and designed according to standard engineering parameters.Investrnents will exceed the level of financing and complexity of those financed underMunicipal Funds, with the average road rehabilitation costing approximatelyUS$7,000 per kilometer. Municipalities and communities would have an active rolein the implementation of road rehabilitation, with labor intensive works contracted tomunicipalities through inter-governmental agreements. A municipal maintenanceprogram to cover roads rehabilitated would also be financed.

(d) Income-Generating Component (US$12 million). This component would providetechnical assistance, training, and limited investment to develop and pilot newstrategies to support income-generating projects in rural areas, by strengtheningincome-generating activities in the Municipal Funds program and by supporting thedevelopment of income-generating programs by state agriculture agencies in one ortwo pilot states.

(e) SEDESOL Institutional Strengthening and Project Coordination (US$35 million).SEDESOL's capacity to manage the project-financed programs would be strengthened.Financing would be provided for a program of institutional development technical

- 19 -

assistance and training, contracting of technical expertise required for the supervisionand review of each component, and continued development of the project informationand monitoring system. Annual project audits would also be financed.

D. Project Description and Components

1. Overview of Institutional Aspects

3.9 The project will support specific components of Solidarity (see description paras. 1.15 to1.24), which accounted for less than 25 percent of the Solidarity expenditures in the eightparticipating states in 1992. The project funds provided through Solidarity are transferred bySEDESOL to specific implementing agencies depending on the investment component. Agencies andgroups receiving project funds include municipalities and community Solidarity Committees(Municipal Funds, Escuela Digna, and aspects of the rural roads and rural water supply programs);the rural road agency and water supply agency in each state (rural water supply and rural roadsprograms); state agriculture agencies, municipalities and producers' organizations (income-generatingcomponent); State Planning and Finance Secretariats, SEDESOL, and municipalities (municipalstrengthening); and SEDESOL (SEDESOL institutional strengthening and project coordination).

3.10 The annual legal agreements between the federal and state governments, known as Conveniosde Desarrollo Social (CDSs) and their Anexos de Ejecuci6n, commit the two levels of government tojointly carry out the Solidarity Program, and specifically the objectives and strategies of the programsto be supported by the project (see para. 1.16). The Anexo de Ejecuci6n for the implementation ofthe project will establish the annual budget ceiling for each state as well as the matching grantfiormula of federal to state funds." This Anexo will also require that programs be implementedconsistent with the administrative and technical requirements agreed to in the Project Loan andGuarantee documents. A separate Anexo de Ejecuci6n is signed by the federal, state and municipalgovernments for the implementation of Municipal Funds program. These three documents create thelegal basis for the participation of states and municipalities in project implementation and requiresthem to follow standard procurement, financial, and auditing practices of the Bank. The model forthe project-specific Anexo de Ejecucion was agreed at negotiations (see para. 4.1(w)).

3.11 It is anticipated that during the four years of the project, approximately 54,000 communitymanaged infrastructure works, 15,600 km of rural roads rehabilitation, and 1,300 water supplysystems will be financed in addition to municipal maintenance programs initiated on the roadsrehabilitated, and a range of institutional development activities. A system has been developed forguiding project implementation, including clear guidelines for each component, the use of simplesubproject eligibility criteria, and an information and monitoring system developed during the firstDRD project to provide updated information on implementation status. The draft Project OperationalManual, presented at negotiations, describes these guidelines, and the Government confirmed that allproject components would be implemented in accordance with the Project Operational Manual (seepara. 4. 1(a)). As a condition of effectiveness, SEDESOL will adopt the final version of the ProjectOperational Manual, agreeable to the Bank (see para. 4.2(a)). The implementation of the projectmonitoring system in SEDESOIs offices in all eight states is a condition of loan effectiveness (seepara. 4.2(b) and Annex C). The guidelines and institutional responsibilities for the identification,

18. In the case of the eight project states, this ratio is 75/25.

- 20 -

selection, appraisal, implementation, and monitoring of investments in each component are detailed inAnnexes F, G, H, and 1.

2. Municipal Investment and Institutional Development Component(US$737 million total cost, including contingencies)

3.12 The municipal investment and institutional development component vuld financeinfrastructure in rural communities, including water supply systems, road rehabilitation, and schools,and develop the capacity of the rural and semi-rural municipalities" and their communities to planand manage local social and economic infrastructure investment. The component consists of threesubcomponents: (a) the Municipal Funds program to invest in the construction or rehabilitation ofsmall infrastructure subprojects by rural communities, with technical assistance provided to assistmunicipalities and communities in related engineering designs; (b) the Escuela Digna program tosupport school rehabilitation activities managed by parents' and teachers' committees; and (c)institutional development actions and related studies, designed to increase financial independence ofmunicipalities, increase managerial capacity, and strengthen participation of rural communities inmunicipal planning and decision-making.

(a) Municipal Funds (US$650 million)

3.13 The Municipal Funds program will finance investments of rural and semi-rural municipalitiesin the eight states (US$660 million), of which up to 10 percent may be used by the municipalities forengineering design assistance. Individual investments could not exceed US$50,000, excluding thevalue of community participation, although it is anticipated that the average investment will be lessthan US$15,000. Subprojects wuld be identified through community assemblies, and selected byspecially formed Municipal Solidarity Councils (MSCs) headed by the Municipal President, but withrepresentation of the municipality's communities. Selected subprojects would then be implemented bycommunity Solidarity Committees based on simple subproject appraisals, including technical designand budgets. Communities would be required to contribute a minimum of 20 percent of subprojectcosts in cash or kind. Although selection of specific investments is broadly discretionary,SEDESOL's guidelines indicate that funds be targeted first to problems of water supply, rural roads,sewage and latrines, electrification, schools, health facilities, and productive works, in areas ofgreatest need. Schools and health facilities would not be financed unless teachers and medicalprofessionals were already assigned to them. Finally, investments in municipal buildings, churchesand cemeteries are excluded.

3.14 Investments under Municipal Funds would be limited by the limitation on subproject cost(US$50,000) and by the capability of the communities and municipalities to undertake technicallycomplex investments. These investments would be complemented by the financing of larger scalerural water supply and rural roads works through these two components.

19. Rurl municipalities are defind as any municipality whose seat of govenmcent(cabecera) has a population of less than 5,000. Semi-rural municipalities are defined asmunicipalities whose cabecera has a population of 5,000 or more, but wher over one-thirdof the population live in localities under 5,000.

- 21 -

3.15 Both the state delegation of SEDESOL and the state government (usually the Secretar(a dePlanificaci6n) are responsible for oversight of the Municipal Funds program, and provide annualorientation sessions for municipal officials and the MSCs, as well as assistance to municipalities in thedevelopment of subprojects.

3.16 During the first DRD project, technical assistance was provided to municipalities forsubproject design from a variety of sources, including state line agencies, regional offices of the stateCOPLADE and SEDESOL delegation, and the private sector, including citizens of the municipalitywho donated their time. In the Second DRD project, the provision of specialized technical assistance,especially for rural water supply and rural roads engineering and income-generating investments,would be strengthened significantly. A plan is to be developed for the financing of this technicalassistance in each state, to be included in the final version of the Project Operational Manual.Strategies for providing this technical assistance include: (a) allowing municipalities and theircommunities to directly contract technical assistance with special funds provided by SEDESOL; (b)providing greater access to municipalities of specialized state or SEDESOL staff, who would be basedin regional offices; and (c) providing access to technical assistance from the MSUs of the SWAs andSRAs. The plan for the provision of technical support to municipalities and communities will befinalized as part of the Project Operational Manual, to be agreed and adopted as a condition of loaneffectiveness (see para. 4.2(a)).

3.17 Municipal Funds program guidelines would also ensure that resources are preferentiallytargeted to rural areas, where the poor are concentrated and where Municipal Funds investments haveshown to be most effective. During negotiations, agreement was reached regarding the MunicipalFunds operational manual, including the limits to be placed on the percentage of resources that amunicipality can devote to its seat of government (cabecera), depending on the size of the cabeceraand the percentage of municipal population residing there (see para. 4.1(c) and Annex F). Theproposed formula of each state for distributing Municipal Funds to its municipalities was receivedduring negotiations for all eight states. The purpose of the formulae is to allow for the allocation offunds based on factors of poverty, population and population distribution in each municipality.Agreement on these formulae would be confirmed by their inclusion in the Project OperationalManual, to be agreed and adopted as a condition of effectiveness (see parm. 4.2(a)).

(b) Escuela Digna (US$51 million)

3.18 The Escuela Digna program would finance the rehabilitation and repair of over 12,000primary and secondary school facilities. The average subproject size would be approximatelyUS$4,000, and investments would be selected by municipal governments, with committees of parentsand teachers responsible for planning and implementation. The project would finance materials andskilled labor used for rehabilitation of school facilities. Approximately 20 percent of the total cost ofindividual investments would be contributed by communities in unskilled labor and local materials.From 1990 to 1993, the Escuela Digna program was financed by the first DRD project in the fourproject states. During that time, 14,000 schools (47% of all schools) received assistance, at a totalcost of USS47 million, or US$3,300 per school. Under the Second DRD project, funding would beprovided for a much smaller percentage of schools in the eight project states (less than 15%), as it isanticipated that much of the demand for school rehabilitation has already been addressed, and becauseworks now carried out under Escuela Digna can be easily included in the Municipal Funds program.Priority would be given under the project to the financing of school rehabilitation in rural

- 22 -

communities, in order to compensate for a bias against such financing noted in the national evaluationof the Escuela Digna program.

3.19 As a requirement of the program, an Escuela Digna Solidarit) Committee (Comitl Escolarde Solidaridad) is established through an open assembly meeting of parents, teachers and schooladministrators of a particular school. The role of the Committee is then to seek funding from themunicipality and to supervise works, administer and watch over resources. Activities that can befinanced through the program include: structural reinforcement, preventive maintenance, correctivemaintenance, repair of bathrooms, and replacement or repair of furniture and equipment. Schoolcommittees, once formed, remain functioning in order to help ensure that the responsible stateagencies provide ongoing maintenance of the school. The operational manual for Escuela Digna,annexed to the draft Project Operational Manual was agreed at negotiations (see para. 4. 1(c)).

(c) Municipal Strengthening (US$36 million)

3.20 The municipal strengthening subcomponent would support institutional development efforts toimprove the implementation of the Municipal Funds and Escuela Digna subcomponents as well asstrengthen rural and semi-rural municipalities through a program of technical assistance, training,provision of basic office and accounting equipment, and legislative reform at the state level. Theobjectives of the subcomponent would be to: (a) strengthen participation of communities in municipalplanning and decision-making; (b) strengthen the administrative and technical capacity of municipalpersonnel; (c) increase the financial capacity of the municipalities by improving financialadministration and planning and increasing revenues; (d) support studies leading to the reform of statelaws and regulations affecting the fiscal and administrative soundness of the municipality; and (e)institute strategies to improve access to expert technical assistance to support municipal andcommunity-managed investment and O&M activities.

3.21 This subcomponent would be managed by SEDESOL and State Planning and FinanceSecretariats, with the active participation of the lTGs for Fiscal Strengthening and for MunicipalFunds, and of the MPWGs established in each state. The summary plan for the municipalstrengthening subcomponent was confirmed at negotiations (see para. 4.1(d)), and a more detailedplan will be agreed and included in the Project Operational Manual. At negotiations it was confirmedthat implementation of this subcomponent would be on the basis of agreed annual plans presented tothe Bank no later than January 31 of each year. Activities to be financed include:

(a) Trainine and Technical Assistance to Strengthen Municipal Investment Planning andPromote Cormnunity Participation (US$3.3 million). Workshops would be developedand conducted for municipal officials and community representatives in the areas ofinvestment planning and community participation. During the project at least at least50 percent of the 1,408 municipalities?' will have attended these workshops. Theproject would finance the technical assistance needed to develop the program (US$.3million), the workshops (US$2 million), and follow-up technical assistance toparticipating municipal officials (US$1 million).

20. This includes all municipalities participating in the Municipal Funds program, that is alUmunicipalities of the eight states ecept for the 25 most urban municipalities (se Annex Ffor identification of these excluded municipalities).

- 23 -

(b) Municipal Officials Exchanee Program (US$.6 million). Municipal officials would begiven an opportunity to participate in two kinds of exchange programs: (a) groupstudy tours in which exemplary municipalities are visited in order to see specificinnovative practices in place; and (b) one-on-one exchanges where municipal officialsare invited to spend up to a week in a municipality of similar size, providingassistance to and learning from the officials within that municipality. Exchangeswould take place within the eight states, within the 31 states of Mexico, and withmunicipalities and municipal associations in other countries.

(c) Studies. Technical Assistance and Training to increase Municipal Revenues (US$3.5million). Analysis of the legislative and administrative frameworks for municipalitieshas been initiated under the first DRD project in the four project states, focusing onidentifying needed reforms to revenue-sharing formulas, and improving municipalcodes and local tax collection efforts. These activities were undertaken by the FiscalStrengthening ITG and would be continued under the Second DRD project, whichwould finance: (a) studies in each state on revenue generation problems of ruralmunicipalities (US$.8 million total); (b) technical assistance support to address theresults of these studies (US$1.2 million); and (c) training of municipal officials (US$1million). Additional activities, to be defined during project implementation with theassistance of the Fiscal Strengthening ITU, would also be financed (US$.5 million).These activities would be implemented with the support of the Fiscal StrengtheningITG and the Secretariats of Finance and Planning in each state.

(d) Development of Municipal Budgetirn and Accounting (US$11.4 million). Municipalbudgeting and accounting would be strengthened by: (a) review of systems andprocedures currently in place in a sample of municipalities in each state (US$.4million); (b) provision of technical assistance to help municipalities instill bestpractices (US$2 million) and related computer and other equipment (US$8 million);and (c) on-the-job and off-site training for municipal officials in budgeting andaccounting practices (US$1 million). Efforts would focus on developing costaccounting for different municipal services, in order to provide better information forestablishing user fees and prioritizing municipal services. These activities would beimplemented with the support of the Fiscal Strengthening 1TG and the Finance andPlanning Secretariats in each state.

(e) Municipal Presidents Workirn Groups (MPWGs) (US$.4 million). Working groupsof rural municipal presidents would be formed in each state. These groups would beorganized by the State Planning Secretariats, with the assistance of SEDESOL. Theworking groups would meet three times per year, to provide a forum for identifyingthe priorities of rural municipal governments for administrative and technicalassistance, review project progress and issues, and make recommendations.Assurances were provided at negotiations that the MPWG would be established andcontinue to function in each state throughout the project (see paras. 4.1(g) and4.1(k)).

(f) Interstate Technical GrouR for Fiscal Strengthening (US$.5 million). This group wasestablished during the first DRD project, and includes representatives of the federalSecretariat of Finance and Public Credit (SHCP), the State Finance Secretaries, and

- 24 -

representatives of the MPWG. It would continue to meet quarterly, to participate inthe planning and implementation of studies, policy refbrm, and technical assistanceand training related to strengthening revenue generation capability, state-municipalfiscal transfers, and financial management of rural municipalities. This group wouldaddress areas such as tax code reform, redefinition of criteria for distribution offederal revenue-sharing, and efforts to increase local tax collection capacity.Assurances would be provided at negotiations that the Fiscal Strengthening ITGwould continue to function throughout the project (see paras. 4.1(g) and 4. 1a)).

(g) Interstate Technical Group for Municipal Funds (US$.4 million). This group wasinitiated during the process of preparation of the Second DRD project, and includesrepresentatives of the state agencies and state SEDESOL Subdelegations responsiblefor the Municipal Funds program, as well as of municipal presidents from theMPWG. The group would meet three times per year, to participate in the planningand implementation of monitoring systems, studies, technical assistance, and trainingrelated to the implementation of the Municipal Funds and Escuela Digna programs.In addition, the project will finance technical assistance, training and studies definedby the group, that would allow it to carry out its mission. Assurances were providedat negotiations that the Municipal Funds Ill would continue to function throughoutthe project (see paras. 4.1(g) and 4.1¢j)).

(h) Other Studies. Technical Assistance and Training Activities (US$2 million). Inaddition to the areas identified in (a) through (h) above, it is anticipated that the lTGsand MPWGs will identify other actions in support of municipal development.

3.22 lechnical Assistance for Subproiect Formulation (US$ 13.9 million). In each project state aprogram would be instituted to provide access to technical assistance to municipalities andcommunities for the formulation of investment subprojects, especially for those subprojects to befinanced by Municipal Funds. The technical assistance would complement and strengthen existingsources of such technical assistance, as well as the financing available as part of each municipality'sallocation of Municipal Funds (see pam. 3.13). The plan for this program is to be confirmed as partof the Project Operational Manual, to be agreed and adopted as a condition of loan effectiveness(see para. 4.2(a)).

3.23 Assurances were given at negotiations that municipal strengthening institutional developmentactivities will be carried out on the basis of agreed annual plans, provided to the Bank no later thanJanuary 31 of each year (see para. 4.1(m)).

3. Rural Water Supply Component(US$178 million total cost, Including contingencies)

3.24 The rural water supply component has as its main objective improved access to potable watersupply by the rural population. That objective would be achieved through the rehabilitation,extension and development of new systems, and strengthening of local and state capacity to ensure thesustainabiity of these systems. Approximately 1,300 communities with populations of 500 to 5,000inhabitants will benefit from expanded rural water supply coverage in the eight states. This meansthat water supply coverage in communities of that size in the eight states will be expanded from 52percent to 67 percent, benefiting approximately 1.9 million people. These works will be

- 25 -

complemented by water supply works carried out by municipalities under the Municipal Fundsprogram (see para. 3.13), principally for localities under 500 population.

3.25 The component consists of two sub-components: (a) rehabilitation and construction of watersupply systems; and (b) institutional strengthening for the SWAs and local water organizations.

(a) Water Supply System Rehabilitation and Construction (US$174 million)

3.26 Investments will be made in the contracting of water supply rehabilitation and newconstruction works and purchase of equipment, such as pumps. In addition, 6 percent of investmentcosts will be used for the contracting of associated engineering designs (US$9 million). Thecomponent would target, with some exceptions, localities from 500 to 5,000 population forconstruction of new systems and the extension and rehabilitation of existing systems by SWAs whichwould contract these works to the private sector. About 25 percent of the number of subprojectswould cost less than US$50,000. In this case, contracts (convenios) with Solidarity Committees maybe used to increase the participation of communities in these works. A limit of 5,000 populationwould be maintained in order to give priority to poor, rural areas. With an overall target of 1,300systems, approximately 40 subprojects would be constructed in each state per year, at an average baseproject cost of US$120,000, and an average cost per beneficiary of US$80.

3.27 During project preparation, a preliminary list of rural water supply requirements wasidentified in each state by the SWA to provide a preliminary basis for future investments. That listwill be extended incrementally during project implementation as the basis for selecting annualinvestments. Annual investments will be selected only if they are under the agreed cost limit percapita. The cost per capita limit for a new water supply system using superficial sources of waterwould be US$200; for new water supply systems using ground water sources the limit wvuld beUS$350 per capita. This condition of eligibility for project financing has been confirmed atnegotiations. Because many of the investments are not for complete systems, the cost per capita limitwill also be calculated for individual system components, including the captation, conduction, storage,and distribution (see Annex G, Table 1). The general guidelines for the implementation of thiscomponent is presented in the draft Project Operational Manual and was confirmed at negotiations(see para. 4.1(c)).

3.28 Systems constructed or rehabilitated would be operated and maintained by the community,through a community water committee, or by the municipal government. Bills of quantities for workswould include a provision for the training of the local water organization in basic O&M. The contentof this contract was agreed at negotiations as part of the draft Project Operational Manual (see para.4.1(f)). A tentative plan for the recovery of O&M costs would be presented in the data sheet for eachsubproject.

(b) Institutional Development for State Water Agencies and Local WaterOrganizations (US$4 million)

3.29 The institutional development subcomponent was confirmed at negotiations (see para. 4.1(d)).It will focus on strengthening state and local water organizations through the following activities:

(a) Development of Tnventory for Rural Water Sumply (US$.4 million). Technicalassistance would be provided that would assist each SWA to initiate, the development

- 26 -

of an inventory of requirements and potential for rural water supply development, andthe condition of existing systems. This inventory would be maintained and used as abasis for investment planning by the SWA. The TOR for this effort were agreed atappraisal, and wi'l be confirmed during negotiations as part of the Project OperationalManual (see Annex G, Attachment II).

(b) Special Studies (US$1.1 million). Studies to be contemplated during the projectwould include, but not be limited to: (a) strategies to improve cost recovery in ruralsystems; (b) alternative sources of energy and energy savings; (c) hydrological studies(ground water); and (d) development of management information systems for stateswater agencies. A summary of the TORs for these studies is provided in Annex G,Attachment II.

(c) Improvement of Technical Capacity of State and Local Water Agencies and MunicipalgL_ff (US$2.0 million). Training programs and technical assistance would be

provided to: (a) upgrade the technical capacity of SWA personnel in areas of basicengineering, O&M, computer applications, economic and environmental analysis ofprojects, and supervision of works; and (b) provide training to municipal and localwater officials in O&M and basic accounting. Financing would also be available forthe purchase of computers, software, and other technical equipment (see Annex G).

(d) Municipal SuDDort Units (US$.3 million). SWAs would establish an MSU to assistrural municipalities to address technical, environmental, administrative, and costrecovery issues. The plan for this unit is described in an annex of the draft ProjectOperational Manual and assurances were provided at negotiations that the unit wouldbe established in each state by no later than June 30, 1995 (see paras. 4.1(g) and4.1(i)). Studies and technical assistance would be contracted to assist MSUs inspecific areas related to O&M. The project would finance computers and officeequipment for MSUs (US$. 1 million) and the costs associated with the MSUs'provision of training to technicians from rural water systems (US$.2 million).Financing for consultants to assist the MSUs in included in the SEDESOLstrengthening and project coordination component (see para. 3.42).

(e) Inter-State Technical Group (US$.2 million). An ITG for Rural Water Supply,composed of representatives of each SWA and the water supply unit in the SEDESOLPCU, was initiated during project preparation. This group would continue to functionduring implementation and, as part of its role in planning project implementation,would be responsible for planning technical training for state rural water supplypersonnel, and would be a forum for interchange and development of appropriatetechnical methods. The project would provide support for the organization andimplementation of the periodic meetings of the ITG. Assurances were provided atnegotiations that the Rural Water Supply IT would continue to function throughoutthe project (see paras. 4.1(g) and 4.1(j)).

- 27 -

4. Rural Roads Rehabilitation and Maintenance Component(US$133 million total cost, including contingencies)

3.30 This component consists of three subcomponents: (a) rural road rehabilitation (US$115

million); (b) routine maintenance program (US$13 million); and (c) institutional strengthening of state

road agencies (US$5 million). The rural road maintenance strategy is built on the premise that the

rural road network in the eight states first must receive rehabilitation of critical sections (spot

improvement) before maintenance activities begin (see paras. 2.16 and 2.17(a)). Subsequent routine

maintenance would consist of simple works regularly performed throughout the year to maintain the

drainage system (ditches, culvert, ford, vegetation) and the running surface (filling potholes and ruts,

maintaining the surface camber). The general guidelines for the implementation of this component

has been presented in the Draft Project Operational Manual and was confirmed at negotiations (see

para. 4.1(c)).

3.31 The rural roads rehabilitation and maintenance component would improve the condition of

approximately 29 percent of the rural road network in the eight states, and would help reduce the

overall deterioration of that network by: (a) supporting a change in state policy priorities and funding

to emphasize rehabilitation and maintenance over new construction; (b) designing and implementing

appropriate technologies for rural road rehabilitation; (c) improving state rural road administrations'

effectiveness in maintaining their rural road network through increased reliance upon contracted

works, rather than force account, and through improved management activities; and (d) developing

the capacity of municipalities to conduct routine maintenance, erosion control and drainage works for

spot improvements through local Solidarity Committees. As a byproduct, the municipal maintenance

program would also provide opportunities for rural unskilled employment. Although it would assist

only eight states, the project is expected to help establish a nationwide institutional and technical

framework for the improved rehabilitation and maintenance of rural roads.

(a) Rural Roads Rehabilitation (US$115 million)

3.32 Rural road rehabilitation investments will be limited to spot improvement of the existing

network, and will be contracted by the SRAs in each of the eight project states in part to the private

sector and in part through agreements (convenios) with Solidarity Committees assisted by the

municipalities. This approach is being piloted during 1994 in four states under the first DRD project.

By identifying and improving only the critical sections of a rural road, access becomes substantially

improved at a low cost, in terms of transport time required and accessibility during the rainy season.

Required spot improvements are principally drainage, erosion control and grading to reconfigure the

road surface, and regravelling where existing support is too low to permit traffic flows.

3.33 The subcomponent will finance spot improvement of 15,600 km of Type E and F non-paved,

single lane rural roads during the four years of the project, at an estimated average base cost of

US$7,000 per km, including a provision of 3 percent for engineering design. Selection of rural roads

for inclusion in the program will be based upon a list of road links, confirmed at negotiations,

placed in priority order using number of beneficiaries per kilometer as a proxy measure for economic

effectiveness (see para. 4. 1(b)). The program would be limited to single lane non-paved roads (Type

E and F), with an allowance of up to 10 percent of the total road length set aside for double lane

rural roads (rype D); the changes in the list agreed at negotiations would be limited to 30 percent of

the list.

- 28 -

3.34 Actual works will be of two types: (a) those works involving heavy machinery, especiallyearthmoving equipment, would be contracted to the local private sector (US$80 million); and (b) thoseworks that are labor intensive, principally drainage and erosion control works, would be carried outdirectly by Solidarity Committees through interested municipalities linked by an agreement with theSRAs (US$35 million). In cases where the municipality is not interested or not capable, works wouldbe fully contracted.

3.35 Contracted works would be handled by local contractors, and would generally be simple andsmall. It is anticipated that the local contracting market is fully capable of implementing thescheduled program of spot improvement. The opening of a regular market fur simple mechanizedrehabilitation works would also assist in strengthening the local construction industry.

3.36 Under the spot improvement program, the fbllowing were included as annexes to the draftProject Operational Manual, confirmed at negotiations: (a) institutional development program for thecomponent, including draft TORs for updating the technical guidelines fur spot improvements and forengineering, and for environmental training; (b) the Spot Improvement Manual; (c) initial list of"candidate roads' of each state and the guidelines fur placing additional roads on the candidate roadslist (see paras. 4.1(b), 4.1(c), and 4.1(d)). During the implementation period, to attend anyunforeseen situations, a maximum increase in 30 percent of the initial list would be allowed. Alimited number of class D rural roads, less than 10 percent of the total number of kilometers, wouldbe eligible for project financing.

3.37 Other conditions related to this component are:

(a) Annual implementation programs would be presented to the Bank based by rankingorder (Beneficiaries/Km), but with consideration given to geographical biddingconstraints and the advantages of forming bidding packages (see para. 3.67)according to a format and timing acceptable to the Bank;

(b) A limit of US$15,000 equivalent per kilometer of rural road would be placed on costof spot improvements; and

(c) Agreement was reached at negotiations that SEDESOL would promote the transfer ofthe rehabilitated federal roads to the state's road inventory for their subsequentmaintenance by the state (see para. 4.1(h)).

(b) Routine Maintenance Program (US$13 million)

3.38 The project would support a labor based strategy to handle routine maintenance activitiesThe project would provide for the routine maintenance of about 12,500 km of rehabilitated ruralroads to be carried out by contracted lengthmen (peon caminero), which number would increase fromabout 1,200 lengthmen during year two of the project to 6,300 during year four. A set of standardannual contracts would be signed between the interested municipalities and the lengthmen, with theassistance of the SRAs. A model of routine maintenance contract was agreed with the Bank and isincluded in the draft Project Operational Manual (see para. 4.1(e)).

- 29 -

(c) Institutional Strengthening of State Road Agencies (US$5 million)

3.39 The outline plan for institutional development and the strategy for establishing the ITG andthe MSUs was confirmed at negotiations and included in the draft Project Operational Manual (seepara. 4.1(d) and Annex H). The action program for strengthening rural road subsector administrationincludes:

(a) Rural Road Network Information and Monitoring System (US$1.7 million).Approximately 66 person-months of technical assistance would be provided by theproject to help develop and start the implementation of a rural road networkinformation and monitoring system. Related training would also be provided for keymanagement and technical staff. The summary TOR for this effort was confirmedduring negotiations (see para. 4.1(d)).

(b) Engineering Guidelines and Design (US$.4 million). Technical assistance (21 person-months) would be provided to further develop the spot improvement guidelines and totrain staff of SRAs in the implementation of the methodology, including theapplication of the environmental assessment checklist. This technical assistance wouldbe linked to that described above for the rural road network information andmonitoring system. During negotiations, the summary TOR for this effort wasconfirmed (see para. 4.1(d)).

(c) Inter-state Technical Group (US$.2 million). The project would create an 1TG,bringing together road agency representatives of the eight states. The 1TG would holdperiodic meetings (at least three times annually) to share experience, developapproaches and methodologies, propose technical and managerial improvementsincluding contract and project management systems, and propose and organize traini;ngactivities common to the eight SRAs. The project would provide support for theorganization and implementation of the periodic meetings of the ITO. Assuranceswere provided at negotiations that the Rural Roads IT would continue to functionthroughout the project (see paras. 4.1(g) and 4.10)).

(d) Municipal Support Unit (US$.2 million). An MSU would be created in each SRA toachieve greater municipal and community participation in the implementation of spotimprovement works and routine maintenance of the rural roads. The MSU would alsohelp the municipalities with their engineering design related to road or street projectsto be financed under Municipal Funds. Assurances were provided at negotiations thatthe MSU for rural roads would be established in each state no later than June 30,1995 (see paras. 4.1(g) and 4.1(i)).

(e) Training Pgraems (US$2.5 million) would be implemented that would focus ontechnical, environmental assessment and managerial skills. They would includeequipment, course support expenses, attendance at seminars and conferences, andstudy visits both in Mexico and abroad. One specific area of focus of the trainingprogram would be to assist the SRAs to develop a strategy and plan for rural roadsconstruction.

- 30 -

5. Income-Generating Component(US$12 million total cost, including contingencies)

3.40 The project will provide support to the development and implementation of the strategiesidentified in paras. 2.18 to 2.26, but would focus principally on: (a) technical assistance, training andinvestment to pilot improved approaches to agriculture investment by state-level agriculture agencies(US$8 million); and (b) technical assistance and training to strengthen the identification anddevelopment of income-generating subprojects within the Municipal Funds program (US$4 million).In both cases, support for these programs would include support to indigenous areas and to women'sgroups.

3.41 SEDESOL's outline plan for this component was presented during negotiations, to be furtherdeveloped and agreed with the Bank as a condition of disbursement for the component (see para.4.3). Once agreed, component guidelines would be incorporated as an annex to the ProjectOperational Manual. Information regarding the general outline of this component is presented inAnnex I.

6. SEDESOL Institutional Strengthening and Project Coordination(US$35 million total cost, including contingencies)

3.42 The objective of this component is to strengthen the capacity of SEDESOL to oversee theSolidarity programs and related institutional development efforts to be financed by the project (seeAnnex D). Project financing will be used to strengthen project coordination in several ways:

(a) PCU and MSU Consulting Services (US$26.3 million). The central and state levelPCUs would contract long term consulting services of approximately 16 experts in thecentral PCU and an average of 7 experts in each state level PCU in key areas oftechnical expertise to assist in the technical supervising of each component. Inaddition, an engineer and community participation specialist would be contracted foreach of the Rural Water Supply and Rural Roads MSU in each state (see Annex D,Attachment I, Table 1).

(b) Technical Assistance. Training and Studies (US$2.7 million). Approximate 3 person-months per year of a senior consultant would be used in each of the five projectcomponents to strengthen SEDESOLs capacity to supervise project implementation(US$1 million). Training would be provided to PCU staff at central and state level inthe use of computer programs for data management and analysis (USS.7 million).Special studies (US$1 million) would be conducted to address topics related to projectimplementation and to the general project objectives. Specifically, a study will becontracted by the PCU, to be completed prior to July 1996, regarding the relativeefficiency and effectiveness of procurement by communities compared to othercontracting methods. Other studies would be defined during the course of projectimplementation (See Annex D, Attachment I, TIble 2.)

(c) Project Physical Performance Evaluations and Mid-Thrm Proiect Review (US$1.3million). Project physical performance evaluations (PPEs) would be conductedannually, beginning in 1996, and focus on assessing the effectiveness and efficiency ofindividual subproject investments of each project component, based on field visits to a

- 31 -

sample of subprojects. The summary TORs for the physical performance evaluationsare to be finalized and agreed, and included in the Project Operational Manual. Inaddition, technical assistance would be required to complete studies for eachcomponent for the mid-term project review, to occur b)y March 1997. The mid-termproject review studies would be completed by no later than December 1996 (seeparas. 3.81-3.82).

(d) Computer Eguipment and Software (US$1.7 million). Computer equipment, softwareand related office equipment would be acquired to increase the capacity of the statelevel PCU and SEDESOL Delegations, and the central PCU, to install and managethe project information and monitoring system.

3.43 In addition, annual project audits would be financed by this component (US$3 million).Assurances were provided at negotiations that the Bank would review the TORs and qualifications ofpersonnel contracted to assist the central and state PCUs and the MSUs (see para. 4.1(v)).

E. Environmental Assessment

3.44 The proposed project supports the rehabilitation and maintenance of existing ruralinfrastructure, including rural roads, water supply and schools. Construction of new infrastructure islimited mainly to small scale water supply systems, small productive enterprises, school buildings,and related infrastructure. The rural roads component would be limited to activities of spotimprovement and maintenance. The project has been rated 'B," as no major environmental issues areforeseen.

3.45 In the rural roads component, no significant direct or indirect negative enviromnental impactare expected from spot improvement and routine maintenance actions. Final engineering designsprepared on the basis of the agreed technical guidelines for the spot improvement program, whichinclude actions to alleviate, reverse, or offset direct environmental impacts, in particular those relatedto erosion and siltation. By their very nature, spot improvements and routine maintenance focus onidentification, diagnosis and elimination of erosion problems. Since the selected roads are existingones and among the oldest in the rural road network, additional indirect negative impacts linked withhuman activities are almost nonexistent. However, the project would support training and seminars ofstate highway officials on environment standards and corresponding technical solutions in order toimprove their skills in assessing the environmental impact of road works. In both the rural watersupply and rural roads components, subproject appraisal procedures include the use of a checklist toidentify environmental issues.

F. Poverty Category

3.46 Program of Targeted Interventions. Project investments will be targeted to the poor ruralareas of eight of the poorest states of Mexico. Targeting will be achieved in several ways: (a) thekinds of projects financed (e.g., small, inexpensive projects for water supply, earthen roads, andschool classrooms); (b) implementation by community groups, with investments managed directly bycommunities; (c) in the rural road rehabilitation and maintenance subprojects, laborers will be paidfor their work, thus resulting in employment generation for the poor; and (d) channeling of directinvestment to rural areas, with no localities above 5,000 population, where the poor in these states areconcentrated. Indigenous communities and womens groups are to be specifically targeted within thepilot income-generating component (see para. 3.90 and Annex I).

- 32 -

G. Project Costs and Financing

1. Costs

3.47 Total project costs, including price contingencies, are estimated at US$1,095 millionequivalent. Baseline costs are estimated at US$1036 million and price contingencies betweennegotiations and project completion are estimated to be US$59 million equivalent. Estimated averageconstruction costs for the water supply rehabilitation and construction program and the rural roadsspot improvement program are based on an analysis of the experience in the first DRD project.Annual price increases were applied to local and foreign costs in all categories at a rate of 2.2percent. Physical contingencies are not included because unlike many other projects, subprojectinvestments are not pre-identified but will consist of a large number of subprojects to be selectedduring the course of implementation up to prescribed category limits. All of project financing, exceptfor the financing of the rural roads maintenance program, is being provided for investment rather thanrecurrent costs. Table 1 below summarizes the estimated costs by component and subcomponent.

2. Financing

3.48 The Bank loan will be repayable over 15 years, including a five-year grace period, and willbear interest at the Bank's standard variable rate. The proposed Bank loan of US$500 million wouldfinance about 46 percent of total costs, including 100 percent of all technical assistance and training(excluding taxes), 90 percent of equipment, 50 percent of all engineering, project coordination, andall investment costs except for investments managed by communities (i.e., Municipal Funds, EscuelaDigna, and some water supply subprojects). In the case of community-managed investments,beneficiaries would contribute 20 percent of subproject costs and the Bank and the Government wouldeach finance 40 percent. In total, benefiting communities are expected to provide US$152 million, 14percent of total project cost, including contributions in both cash and kind (see Tbble 2). The loanwill be made to NAFIN which will sign an agreement with the Government for the transfer of loanproceeds to the executing agency, SEDESOL.

H. Project Organization and Managernent

1. Implementing Agencies

3.49 SEDESOL is responsible for overall project implementation, through its Direccidn General deProgramas de Desarrollo Regional, located in the Subsecretarfa de Desarrollo Regional. Allinvestment programs supported by the project are financed by the National Solidarity Program, withthe federal budget line 26 (ramo 26) providing the federal share of the federal/state matchingSolidarity grant. Although federal funds are combined with state funds (at a ratio of 75/25 in the caseof the eight project states), the federal government (i.e., SEDESOL) must approve the proposedallocation of these funds by the states as well as the decision to finance specific subprojects.

3.50 The use of Solidarity funds are subject to the guidelines and procedures defined in the ManualUnico de Solidaridad. In addition, as a condition of loan effectiveness, SEDESOL will issue theagreed Project Operational Manual, as an annex to the Solidarity manual, establishing additionalguidelines and conditions for each component to be financed by the project (see Annex D for outlineof Project Operational Manual).

- 33 -

Table 1Estimated Project Costs V

(USS million)

Project Components Local Foreign Total

A. Municipal Investment & Institutional Dev.- Investment, Municipal Funds 1' 492 123 615- Investment, Escuela Digna 38 10 48- Technical Assistance/Studies 12 12 23- TrainingMbrking Groups 3 1 3- Purchase of Equipment 4 4 8- Subtotal (base cost) 549 149 697

B. Rural Water Supply- Investment Program 109 47 156- Engineering 8 1 9- Technical Assistance/Studies 1 1 1- TrainingMbrking Groups 2 0 2- Purchase of Equipment 0 0 0- Subtotal (base Cost) 120 49 168

C Rural Roads Rehabilitation & Maintenance- Spot Improvement 74 32 106

- Routine Maintenance 12 0 12- Engineering 3 0 3- Technical Assistance/Studies 1 1 2- TrainingtUbrking Groups 2 0 2- Purchase of Equipment 0 0 1- Subtotal (base cost) 92 34 125

D. Inome-Genrati Invstments- Investments 5 1 6- bohnical Assisance/Studies 2 2 4- Training/Abrking Groups 1 0 1- Purchau of Equipment 0 0 1- Subtotal (base ost) 8 3 12

E SEDESOL Ins. Strength. & Prject Coord.- Coordination Support 22 2 24- Technical Assistancerlhining/Studics 2 2 4- Purchase of Equipment 1 1 2- Audit 3 0 3- Subtotal (base cost) 27 6 33

lbtal Basline Coss 796 240 1036Prioe Contingencies 45 14 59Total Project Costs 841 2S4 1095

Financing Plan LOcal Fbrelp IbXtl(USS million)

IBRD 246 254 500Fedeal and State Governments 443 0 443Beneficiaries 152 0 152

Total 841 234 1095

iFgu ' am add up due lob iumt.

2w' hcfd aq..mu coam (up to 10%)

- 34 -

Table 2Project Financing Plan '

(USS million)

Project Component Total Fed & State Govts. Benefic.Cost IBRD of Mexico Farmeen

A. Municipal Investment & Institutional Dev.

- Investment, Municipal Fundsh' 615 246 246 123- Investment, Escuela Digna 48 19 19 10- Technical Assistanc/Swudies 23 23 0 -

- TainingVbrking Groups 3 3 0- Purchase of Equipment 8 7 1 -

- Subtotal (base Cost) 697 299 266 133

B. Rural Water Supply

- Investment Program 156 73 73 10- Engineering 9 S -

- Technical Assistanmc, Studies 1 1 0 -

- ThiningIWorking Groups 2 2 0 -

- Puehas of Equipment 0 0 0 -

- Subtotal (bue Cost) 168 81 78 10

C Rural Roads Rehabilitation & Maintenanc

-Spot Improvnment 106 53 53 -

- Routine Maintenance 12 6 6 -

- Engineering 3 2 2 -

- Technical Assistanoc/Studies 2 2 0- Tlsining/Wrking Group 2 2 0 -

- Pumhae of Equipmaet 1 1 0 -

-Subtotal (base cost) 125 65 61 0

IL Ineoe-Generatg Inglvestment

- Invmtments 6 2 2 1- Technical AssitancelStudies 4 4 0 -

- Tlriningwbrking Groups 1 1 0- Purchase of Equipment 1 0 0 -

- Subtotal (baecost) 12 a 2 1

L SEDESOL Inst. Strength. & ProJeCt Coord.

- Coozdinaion Support 24 12 12- Tech. Aukisno ining/sufies 4 4 0 -

- Pumhaseof Equipment 2 2 0 -- Audis 3 3 0- Subtol (bae cost) 33 21 12 0

Btaaseline Cogt (US$m) 1036 473 419 144Price Contlngmeas 59 27 24 aITa PROJECT COST (US$m) 1095 50D 443 152

J' ft- . am ad y d b mad".

F bcbdm wiAas eam (up I 101%)

- 35 -

3.51 The role of SEDESOL, in the Solidarity program in general and in the project specifically, isto: (a) establish and disseminate each year the guidelines for the implementation of each Solidarityprogram; (b) together with SHCP and the state governments, establish an overall Solidarity budget foreach state; (c) review and agree with each state on its proposed allocation of Solidarity funds amongthe over 30 Solidarity programs (including those financed by the project); (d) specifically authorizeand then approve the allocation of funds to individual subprojects; (e) supervise the implementation ofSolidarity programs, monitoring compliance with program guidelines as well as assessing quality ofimplementation; and (f) support activities, including technical assistance, studies and training, whichwill strengthen the capacity of local and state entities to implement Solidarity programs, as well as thegeneral capacity of these governments to respond effectively to the needs of their poorest citizens.

3.52 Responsibility for the implementation of the Solidarity program within state governments lieswith the State Planning Secretariats and the COPLADEs, which the Planning Secretary heads. Statesaccept responsibility for Solidarity through the CDS and its Anexos de Ejecuci6n (see para. 3.10).

3.53 SEDESOL Central and State Level Project Coordination Units. Tb carry out its activitieswith regard to the project states and the specific Solidarity programs to be financed by the project,SEDESOL created for the implementation of the first DRD project a specific department (Direcci6nde Programas Especiales) within its normal structure to perform the roles of planning, provision oftechnical guidance, monitoring, and evaluation. Through this department, also called the PCU, theimplementation of project-financed Solidarity programs in the four states received significantly moresupervision attention than the implementation of the same or similar programs in other states, andfinancing of subprojects within these programs was subject to specific eligibility requirements imposedby the project. In addition, the PCU was responsible for working with the state governments tostrengthen the capacity of state agencies and to address general policy and administrative reformissues related to strengthening the fiscal and administrative capability of municipalities.

3.54 The PCU would continue to function in the Second DRD project, becoming responsible forthe eight project states and each of the programs to be financed by the project. To strengthen thePCU, it would be re-organized into four program units, one for each project component, plus anadministrative unit to provide support for procurement, disbursement, monitoring, and informationmanagement. A separate unit would not be established for monitoring and evaluation; rather, giventhe important technical issues involved in each program, each program unit would be responsible formonitoring and reporting in its area. The evaluation function would be the responsibility of the PCUDirector, who would depend on contracted evaluations, including the physical performanceevaluations, the mid-term review of each component, and the project audits (see paras. 3.69 and 3.81to 3.82).

3.55 Th strengthen the coordination and oversight of the project, a small state level PCU would beestablished within the SEDESOL delegations of each project state, whose staffing and functions wouldmirror those of the central PCU. In order to strengthen the capacity of each of these units, theproject would finance a limited number of long term consultants that would add needed engineering,agriculture, municipal development, and information management expertise (see para. 3.42 andAnnex D). 'Me functions and staffing of the central and state level PCUs were confirmed atnegotiations and will be contained in a Supplemental Letter. In addition, assurances were given atnegotiations for the maintenance of these units during the project (see para. 4.1(u)).

- 36 -

3.56 State Government Implementation Roles and Responsibilities. The State Planning Secretariatis the state agency responsible to SEDESOL for the implementation of all investment in the projectcomponents. In the case of the municipal investment and institutional development component, theState Planning Secretariat: (a) decides on the distribution of Municipal Funds to each municipality,based on a formula previously agreed with SEDESOL and the Bank; (b) decides on the distribution ofEscuela Digna funds based on proposals by municipalities; (c) is the first line of responsibility toensure compliance with program guidelines by municipalities and line agencies; (d) together with theState Finance Secretariat, is responsible for the program of institutional development formunicipalities; and (e) together with SEDESOL is responsible for the implementation of the programto provide access to engineering and related technical assistance to municipal governments in supportof their investment programs.

3.57 For the rural water supply and rural roads components, the State Planning Secretariat woulddepend on the relevant state line agencies for component implementation and oversight. Within eachstate water supply and road agency, an MSU would be established (see paras. 3.29(d) and 3.39(d)).These units would assist rural and semi-rural municipalities in the identification, design andimplementation of works to be financed through other programs, including the Municipal Funds. Inthe case of rural roads, the MSU would provide training and technical assistance to municipalities forthe implementation of the labor intensive drainage works within the spot improvement program andfor the initiation of the municipal road maintenance program. For the income-generating component,specific agency roles and responsibilities would be identified in the plan for the component, to beagreed as a condition of disbursemnent of the component (see para. 4.3).

3.58 Municipal Government Implementation Roles and Responsibilities. Municipal governmentsare responsible for the identification, selection, and implementation of the investment programsfinanced by the project as part of the Municipal Funds and Escuela Digna programs. In theseprograms, subprojects are implemented by citizen Solidarity Committees with the municipalityresponsible for advancing funds to these committees, and for then presenting to the COPLADErequired documentation of expenditures and proof of successful subproject completion. In the watersupply and rural roads project components, municipalities may enter into contracts with theresponsible state agencies in order to complete specific works, including labor intensive aspects of theroad rehabilitation program, the road maintenance program, and the implementation of simple watersupply works. The role of the municipality in each of these programs is further described in AnnexesF, G and H.

3.59 Because implementation of the Municipal Funds and Escuela Digna programs is beingundertaken by 1,408 municipalities and their communities in the eight states, considerable resourceswould be devoted by the State Planning Secretariats and SEDESOL to periodic training andorientation of municipal officials, and to monitoring of project implementation. In addition,evaluations of the Municipal Funds have demonstrated the importance of increasing the availability oftechnical assistance to communities and municipalities, especially for the design of their subprojects(see para. 2.32). Regional offices of SEDESOL and the states, already established, would providesome technical support to municipalities, along with the MSUs established in the SWAs and SRAs.In addition, special technical assistance programs would be established in each state to provideincreased access by municipalities to technical assistance (see para. 3.22).

3.60 Citizen Participation. Implementation Roles and Responsibilities. Citizen participation is verystrong in the municipal investment component, where a percentage of project financing is directly

- 37 -

contributed by the benefiting group or community, and where that group or community is responsiblefor managing subproject implementation. This means that the Solidarity Committee purchases neededmaterials, skilled labor and technical assistance; organizes the contribution of the community (oftenprovided through unskilled labor); and supervises project implementation. A Solidarity Committee isestablished for each subproject, with its officers selected in open assembly. In the case of theMunicipal Funds, the presidents of these committees also become citizen members of the MSCs,responsible for establishing program investment priorities and for supervising the implementation ofall subprojects. Citizen committees are also active in the rural water supply component, where awater committee is established for each system and is responsible for ongoing O&M. WhileSolidarity Committees are also established for the rural roads component, there is no expectation thatthese committees contribute to the cost of subprojects, as these rural roads, selected because of theirhigh level of use, are considered a broad public good. In this case the Solidarity Committee fulfillsthe function of ensuring that local communities are aware of the subproject and participate, as needed,in its planning.

3.61 Inter-State Technical Groups and Municipal Presidents Working Groups. Project managementand coordination would be enhanced by the continuation of ITs that were established during projectpreparation. Meetings of the four lTGs groups (for fiscal strengthening, Municipal Funds, ruralwater supply, and rural roads (see paras. 3.21(f), 3.21(g), 3.29(e) and 3.39(c)) would be held at leastthree times per year, with the participation of the Bank resident engineer and Bank supervisionmissions when possible. An MPWG would be established in each state to ensure contact between thesupervision of the project and representatives of the ultimate clients of the investments. The MPWGswere initiated during project preparation, and would be continued during project implementation, withat least two meetings held in each state per year. Representation of the MPWGs would be added tothe Fiscal Strengthening and Municipal Funds ITGs. Description of the structure, role, andresponsibilities of these lTGs and the state level MPWGs were confirmed at negotiations as part ofthe Project Operational Manual, and assurances were provided by Government that these groupswould continue to function during project implementation (see paras. 4 .1(g), 4. 10) and 4.1(1k)).

2. Procurement

3.62 Procurement of small works of under US$50,000, up to an aggregate amount of US$756million, would be done through the direct contracting of local Solidarity Committees within theMunicipal Funds and Escuela Digna programs, and the rural water supply and rural roadscomponents. Although the cost of individual works may not exceed US$50,000, the average sizes ofthe works are expected to be less than US$15,000 in the case of Municipal Funds and less thanUS$3,000 in the case of Escuela Digna. In those two programs combined, approximately 15,000subprojects would be implemented each year by an equal number of community SolidarityCommittees, contracted for the specific work by the municipal government. This procurement modeof contracting implementation to local community committees would allow for: (a) implementation ofworks that would not attract local contractors because of their small size, inaccessible locations, andwide scattering throughout each state's rural areas; (b) poor, rural communities to dircly manageinvestments and to make the required 20 percent contribution to the work through the donation ofunskilled labor and local materials; (c) subproject selection to be limited to those works for which thebeneficiary community is willing to both contribute to and physically supervise; and (d) localcommunities to take an active role in the development process with their municipal government and,through this process, strengthen their ability to work with and influence investment decisions of thatgovernment.

- 38 -

3.63 Procurement for these works would be achieved through their direct contracting to SolidarityCommittees through municipal governments. The municipal government would superviseimplementation and be legally responsible for the works to the state and federal governments. TheSolidarity Committee is an officially recognized entity formed by members of a community to supportthe implementation of a specific investment in their area. The contracting of each work to aSolidarity Committee would be supported by a technical proposal and budget, summarized in theoficio de aprobaci6n, signed by SEDESOL. Once a work has been approved through the oficio, theCommittee would be given an advance payment by the municipality in order to begin implementation.Proof of successful implementation of the work, and justification for reimbursement by the SpecialAccount, however, would be provided by the acta de entrega y recepcion, where the completion ofthe work, and the total budget expended, is certified by the officers of the Solidarity Committee andthe municipality.

3.64 In those cases where Solidarity Committees lack the capacity to make necessary purchases ofmaterials, municipal governments uould make purchases on their behalf. Procurement bymunicipalities for these materials must follow procedures acceptable to the Bank for the procurementof goods under local shopping (for purchases of goods costing US$100,000 or less) or localcompetitive bidding (for purchases exceeding US$100,000).

3.65 In the first DRD project, procurement of works was also done through the local SolidarityCommittees in the Municipal Funds and Escuela Digna programs. Experience of the first project hasbeen reviewed in the annual project audits, an independent study of Municipal Funds in 50municipalities in Oaxaca, and frequent field supervision visits. These reviews have demonstrated thatthe active participation of the beneficiary communities and the Solidarity Committees in thesesubprojects resulted in effective controls being placed on the use of financial resources and theprocess of procurement of materials. Works were consistently carried out for substantially less than ifthey had been contracted, planned physical targets were often exceeded by the Solidarity Committees,and there were few indications of occurrences of misprocurement. In order to understand better theeffectiveness of community implementation and procurement, a specific study of procurementpractices by these community group would be carried out in the first year of project implementation.Assurances were given at negotiations that this study would be completed by December 1995 (seepara. 4.1(n) and 3.69).

3.66 The rural water supply component would involve contracting works and purchase of goods bySWAs. In addition, works contracts under US$50,000 may be contracted by state agencies toSolidarity Committees, through municipal governments, for the implementation of simple works. Inthis case, the same approach to procurement used in the Municipal Funds and Escuela Dignaprograms would be used. The benefiting community would be responsible for subprojectimplementation through the Solidarity Committee, and it would contribute at least 20 percent of thecost of the subproject. The rural roads component would involve contracting works and purchase ofgoods by the SRAs and the direct contracting of municipalities for specific, labor intensiverehabilitation and maintenance works. In the case of the direct contracting of rural roads works only,unskilled community labor would not be considered a community contribution, but would be financedwithin the subproject (see pam. 3.60).

- 39 -

3.67 Procurement fbr civil works costing US$350,000 equivalent or less and for goods costingUS$100,000 or less could be done through local shopping. There would be up to US$126 millionaggregate amount of local shopping for works, and up to US$20 million aggregate amount of localshopping for goods. Procurement for civil works contracts below USS10 million and aboveUS$350,000 and for good costing less than US$350,000 equivalent and more than US$100,000would be done through local competitive bidding (LCB), under procedures acceptable to the Bank.This is expected to account for US$96 million or 9 percent of project costs. It is not anticipated thatthere will be any ICB for goods or works within the project. To encourage competition and ensureinterest by contractors, whenever feasible, contracts for rural road rehabilitation will be grouped intocontract packages expected to cost not less that US$50,000.

3.68 Model contracts and agreements to be used in the direct contracting of Municipal Funds,Escuela Digna, rural water supply, and rural road rehabilitation and maintenance were confirmed atnegotiations (see para. 4.1(e)). Standard bidding documents will be used for local competitivebidding. Consultants will be hired following procedures set forth in the "Guidelines for the Use ofConsultants by the World Bank and by the World Bank as Executing Agency," dated August 1981,using Bank-issued standard form of contract for time-based assignments and other forms agreed bythe Bank for lump sum assignments and individual consultants. All consultant terms of referencewould be subject to Bank prior review. Contracts, short lists, and selection procedures for technicalassistance and training would receive prior review by the Bank when the value of the contract isUS$100,000 or more, for consulting firms or US$50,000 or more for employment of individuals.

3.69 Table 3 shows the procurement procedures for the project. Prior review of procurementdocumentation by the Bank would include the first two LCB contracts for works and for goods ineach state, regardless of size, all LCB contracts for works over US$2 million, and the first directcontract for water supply and for rural roads in each state. Although the level of Bank prior reviewof procurement would be low, it would be compensated for in several ways. Onte, a special study ofprocurement by community-contracting would be carried out during the first year of the project (seeParas. 3.65 and 4.1(n)); two, cost comparisons of similar subprojects would be conducted using theproject infDrmation and monitoring system in order to detect possible procurement problems; three,the project physical performance evaluation would look at procurement issues (see para. 3.81 to3.82); and four, during Bank supervision, random reviews would be conducted of subprojects,including field visits and review of subproject documentation.

- 40 -

Table 3: Procurement Arrangements(US$ millions)

Category LCB Other Total

A. Civil WorksLarger Works 80 80

(40) (40)

Minor Works 756' 756(306) (306)

1262 126(63) (63)

B. Goods 16 202 36(11) (12) (23)

C Consulting Services 97 97l ______________________ ____________ (68) (68)

Ibtal 96 999 1095(51) (449) (500)

'Direct Contacting2 Shopping

N.B. Figues in parenthesis are amounts, including contingencies,ecpected to be financed by the Bank.

3. Disbursements

3.70 The borrower, NAFIN, will establish a special account in U.S. Dollars in the Banco deMexico, with an authorized allocation of US$40 million, equal to about four months' estimatedaverage disbursements that are expected to be paid from the account. The estimated disbursementschedule (see Annex K) is based on the disbursement experience of the first DRD project and doesnot reflect the standard disbursement profile for Bank projects in Mexico. Disbursements from theloan account will be made on a 100 percent, 90 percent or 50 percent basis fbr eligible categories, asdescribed in Table 4. All disbursements that do not have prior procurement review wvuld be madeon the basis of statements of expenditures (SOEs). Use of SOEs for the presentation of wrvrks islimited to contracts of US$2 million or less; presentation of goods is limited to contracts ofUS$350,000 or less; and presentation of consultants' services is limited to contracts with consultiigfirms for less than US$100,000 and with individuals for less than US$50,000. Those contracts thathave prior procurement review would be disbursed against full documentation. The projectcompletion date is December 31, 1998, and the loan closing date is June 30, 1999. Prior to loaneffectiveness, NAFIN would sign an agreement with the Government for the transfer of loan proceedsto the executing agency, SEDESOL.

- 41 -

3.71 Information required for the SOEs would be available in the project data base (see paras.3.75 to 3.77), updated monthly by the state SEDESOL offices based on supportive documentsreceived from the executing agencies. All SOEs wuld be transmitted through NAFIN. Prior tosubmission of any SOEs to NAFIN, however, SEDESOL would submit to the Bank informationregarding the subprojects in the current disbursement request, in a reporting form called the tablerode desembolso. At negotiations assurances were provided that these reports would be submitted bySEDESOL prior to making disbursement requests (see para. 4.1(r)). This procedure was developedand used during the first DRD project, as it: (a) permits SEDESOL and the Bank to rapidly reviewthe eligibility of subprojects prior to including them on a SOE; and (b) creates an accurate data baseof information regarding all subprojects financed through the life of the project. The normal Bankprocedure of reviewing annual plans at the beginning of each fiscal year would be continued, but finalsubproject eligibility decisions would be based on this documentation that would be available prior tothe disbursement request.

3.72 This procedure means that the Bank would receive at the time of the PCU's submission ofrequests for disbursement (the SOEs) to NAFIN, a cumulated account of project implementationproviding information on each subproject of the rural water supply, rural roads, and income-generating components, and the municipal strengthening subcomponent of the municipal investmentand strengthening component, as well as cumulative information of the implementation of theMunicipal Funds and Escuela Digna programs by municipality. For example, in the case of the ruralroads component, the identification numbers of roads included for rehabilitation mould be reviewed toensure that they coincide with those on a pre-determined list of eligible roads and that the cost ofrehabilitation does not exceed US$15,000 per km (see paras. 3.33 and 3.36-3.37). In the case ofMunicipal Funds, only a specific percentage of the total funds given to a municipality would bepermitted to be invested in the municipal cabecera. These and other eligibility requirements could bechecked rapidly through this process, and any subproject not meeting requirements mould not beincluded in the SOE for project reimbursement.

3.73 Retroactive financing will be available up to a maximum of US$40 million (8% of the loanamount) for eligible expenditures occurring after the start of the appraisal mission (February 1, 1994),for institutional development activities and Municipal Funds, which have been agreed by the Bank atappraisal. This will allow SEDESOL and the four states not in;luded in the first DRD project tobegin priority institutional development activities and will provide support for Municipal Funds, anarea of project investment for which guidelines agreed by the Bank have already been established andinstituted in each of the new states.

- 42 -

Table 4Allocation of Loan Amount

Percentage to be financed and Project Component by Disbursement Category

Disbursement Category/ Project Component No. Allocation of Expenditures to beDescription Loan Amount Fmanced

(USS million) (%)

1. For the MunicipalInvestment andInstitutional Development(MIID) Componenta. vorks under direct 1 263.5 50

contractingb. construction materials 1 10 50c. goods (other thn

construction materials) 1 8 90d. technical assistance

and training 1 27 100

2. For thc Rurml VAter Supply(RWS) and Rural RoadsRehabilitation and Maintenanoe(RR) Component:a. wori under direct 2,3 40 SO

contactingb. wvrh other than (a) above 2,3 90 SOc. goods 2,3 2 90d. engineering services 2,3 6.5 50c. technical asuiance and 2,3 8 100

3. For the Income-GencatingComponent:a. w%ork 4 3 50b. goods 4 1 90c. technical asistance and 4 5 100

raining

4. For SEDESOL strengtheningand Project CoordinationComponent.a goods S 2 90b. long-term consuting

services 5 13 50c. technical assince and

training S 5 100d. audits 5 3 100

5. Unallocated N.A. 13 N.A.

1TW for AI Categori 500.0

Component No. 1 - Municipal _vestent and Instutional DevelopmentComponent No. 2 - Rurl Vtr SupplyComponent No. 3 - Rural Roads Rehabiltion and MainteaneComponent No. 4 - Incomo-Genetating ComponentComponent No. 5 - SEDESOL Institutional Strmngthening/Pojct Coordination

- 43 -

4. Accounts and Audits

3.74 SEDESOL and the state level implementing agencies will maintain project identified accounts.A certified copy of the project audit, to be made by independent auditors acceptable to the Bank, andin accordance with the March 1982 Bank documents "Guidelines for Financial Reporting and Auditingof Projects Financed by the World Bank," will be submitted to the Bank not more that nine monthsafter the completion of each fiscal year. The reason for allowing nine months for the submission ofreports rather than six is that because of the decentralized nature of project investments, informationregarding the previous year's expenditures are not completely available until four months after the endof the fiscal year, that is, the end of April. The audit report will include a separate opinion by theauditor on disbursements against certified SOEs. At negotiations, assurances were provided thatproject accounts would be audited using procedures acceptable to the Bank (see paras. 3.43, 4.1()).

5. Monitoring of Project Implementation and Bank Supervision

3.75 The project would use a system for implementation monitoring, including the development ofa data base for capturing key technical, financial and social information for each subproject. The database information system, including its data inputs and outputs, was designed during the first DRDproject and has been partially implemented in the four DRD project states. During 1994, the systemwould be fully installed in the SEDESOL delegations in these four states and expanded to the fournew project states, as a condition of loan effectiveness (see para. 4.2(b)).

3.76 The system for monitoring project implementation is divided into two major steps: (a) reviewof annual plans; and (b) analysis of implementation. Annual plans are developed for each component,including its institutional development activities, and are reviewed by the Bank at the beginning ofeach fiscal year. The institutional development plans would be discussed and agreed each year, andmonitoring would be based on the agreed plan. At negotiations, assurances were provided thatinstitutional development activities for each component would be carried out on the basis of annualplan provided to the Bank for review no later than January 31 of each year and approved by the Bank(see para. 4.1(m)). The investment plans for each component would be treated as indicative plans,with the understanding that detailed monitoring would be done of investments as they are approved bySEDESOL, and final decisions on project eligibility based on information available at disbursement(see parm. 3.71).

3.77 Because of the large number of total subproject investments and the decentralized nature ofimplementation, the analysis of implementation will depend on the functioning of a central data baseof subproject information that is created in each state by the SEDESOL delegations, and consolidatedat the national level. Input to the data base would be made from a standard 'data sheet' (see AnnexC) at the point of subproject authorization, with the information updated at each step of the subprojectapproval process. The data base system is designed so that reports required by SEDESOL's normalapproval procedures (for autorizacidn, aprobacidn and ejecucidn) are automatically created, thusproviding incentives to field staff to use the system.

3.78 Project implementation would be reported on regularly by SEDESOL. At negotiations,agreement was reached on the project implementation indicators and project reporting requirements,to be included in a Supplemental Letter (see para. 4.1(p) and Annex C, Attachments I and II).Assurances were provided at negotiations that: (a) the project information and monitoring systemwould be maintained throughout the project; (b) implementation reports using formats agreed with the

- 44 -

Bank would be presented three times in a year, of project administrative commitments and activitiesby July 31 and January 31, and of actual project execution by June 30 of the following year; (c) asummary of project achievements compared with project implementation indicators would bepresented by June 30 of each year; (d) that a copy of the information available from SEDESOL'scentral project data base would be provided to the Bank on computer diskette at the end of everyquarter; (e) that the PCU would conduct field reviews in each state of the implementation of eachproject component (municipal investment and institutional development, rural water supply, ruralroads, and income-generating activities) and would report on the results of these reviews in the semi-annual and annual reports. In addition to regular, semi-annual reviews, a physical performanceevaluation would be held in 1996, 1997, and 1998 (see para. 4.1(s) and Annex C). A mid-termproject implementation review would occur no later than March, 1997 (see paras. 3.81, 4.1(o),4.1(q), and 4.1(t)).

3.79 In addition to these reports on the status of annual implementation plans, valuable informationregarding the cumulative status of project implementation by municipality and by subproject would beprovided by the disbursement reports (see paras. 3.71-3.72). This cumulative report would allow forthe monitoring of multi-year subprojects which are likely to occur in the rural water supply, ruralroads and income-generating components.

3.80 Monitoring progress would be a key responsibility of both the PCU and the state project unit,which would be responsible for generating and analyzing these implementation reports and feedingback the results to decision-makers at SEDESOL and state agencies. The results would also be usedby the PCU to target its ongoing field reviews of implementation and the mid-term project review.Responsibility for project monitoring would not be given to a specific monitoring and evaluation unit.Rather, the PCU sub-unit responsible for the technical oversight of each component would also beresponsible for ensuring the quality and timeliness of data collection and for producing and analyzingreports. These reports would be presented by project component and would be used during themeetings of the lTGs to help the groups diagnose technical and institutional implementation issues,propose and conduct needed studies; and plan institutional development technical assistance andtraining activities. The PCU would have a minimum of two computer and information specialists tomanage the overall system and to assist the technical specialists in the design and use of themonitoring system. The state project units would also have a minimum of two computer andinformation specialist to carry out similar functions at that level.

6. Project Physical Performance Evaluations and Mid-term Review

3.81 A physical performance evaluation would be conducted annually, beginning in 1996, on asample of subprojects within each executing agency.2' The evaluation would focus primarily on theprocurement procedures followed, the quality and cost of works, goods and services procured, andissues related to the sustainability of the investment. The TOR for the performance evaluation wouldbe agreed with the Government and included in the Project Operational Manual, to be completed andagreed as a condition of loan effectiveness (see para. 4.2(a)).

21. In the cae of Municipal Funds and Escuela Digna, a sample of municipalities would befviewed.

- 45 -

3.82 In addition, a project mid-term review would to analyze the first two years of implementationexperience. Input to the mid-term review would include: (a) the central and state PCUs' ongoingfield reviews of each component, as presented in their six month monitoring reports; (b) reports andanalysis generated from the project information data base; (c) results of the project physicalperformance evaluation; and (c) additional reviews of each component to be contracted by the PCU.The purpose of the mid-term review would be to assist SEDESOL, the participating states, and theBank in identifying project successes and problems to be addressed, and to identify neededmodifications to project procedures for the second half of the project. At negotiations, assuranceswere provided that a review of each component would be contracted and completed no later thanDecember 1996, under TORs agreed with the Bank, and that the mid-term project review would beheld no later than March, 1997 (see para. 4.1(t)).

I. Project Benefits and Economic Evaluation

3.83 The project would benefit poor rural municipalities in Mexico by improving the targeting ofpublic investment to priority needs of the poor in these municipalities for infrastructure and, on apilot basis, to sound income-generating investments. Project municipalities and states would gaincapacity to plan, design, implement and maintain key rural investments primarily benefiting the ruralpoor. The project would also strengthen the participation of rural communities in municipal decision-making, providing them an active role in the selection and implementation of investments.

3.84 Project investments would result in an improved standard of living to approximately 10million individuals living in relatively isolated rural areas, with the improvement of access roads,water supply, educational and other basic infrastructure. The rural water supply componentinvestments will result in raising access to water of rural population in the eight states from 48percent to 63 percent. Of the 50,000 kilometers of earthen, rural roads in the eight states, 29 percent(or 15,600 kIn) will receive rehabilitation (spot improvement) and maintenance, resulting in greateraccess of approximately 4 million rural dwellers to social services and economic activities.

3.85 Municipal Funds. Investments under the Municipal Funds program are limited to smallsubprojects costing no more than US$50,000, but averaging US$15,000, and are selected by rural,usually very poor, communities. These communities manage the implementation of the investmentthrough their Solidarity Committees, and must contribute at least 20 percent of the total cost, oftencontributed as unskilled labor. Any kind of investment may be selected by the community, with theexception of municipal buildings, churches, vehicles, and the financing of recurrent costs.Nevertheless, for the financing of a park, community building or sports facility communities mustcontribute a higher percentage of the cost (i.e., 40%). The experience in the first DRD project hasbeen that communities generally have chosen investments which can be expected to have a very highrate of return, such as water supply, rehabilitation of roads and schools, and electrification. It isanticipated that in the Second DRD project this process of community participation in investmentselection, financing and implementation of small subprojects will continue to result in the completionof valuable infrastructure works of general benefit to the rural poor. The process will be furtherstrengthened by increasing access to technical assistance, strengthening participation, and improvingtargeting of resources to poor communities.

3.86 Rural Water Supply. The benefits expected from the extension of water supply serviceincludes improvements in the health of poor, rural families as well as reduction of the time spent,

- 46 -

especially by women, in transporting water. Th ensure that the most cost-effective investments areselected, investments above a specific cost per beneficiary limit would not be supported by theproject, with different limits established depending on whether the complete system was beingconstructed or only partly rehabilitated (see pars. 3.27). This approach to establishing subprojecteligibility will prevent the targeting of investments to areas where the benefits, as measured in numberof new users served, are relatively low compared to the subproject cost.

3.87 Rural Roads Rehabilitation. The problem of poor road access to a large proportion of therural population has been well documented, as have been the benefits generated by rehabilitation andmaintenance.' Because of its comprehensive geographic coverage, the types of benefits to begenerated by the project wvuld vary in accordance with the specific needs of the communities to beserved. Many of the rural roads are situated in areas of low agricultural productivity with little othereconomic activity, and high underemployment. An analysis conducted for the construction of newrural roads in similar areas in the state of Chiapas in 19853 concluded that road constructioninvestments costing less than US$450 per inhabitant would be economically viable given the increasedaccess to outside employment and health and education facilities, and increased value of production inthe area served. The proposed spot improvement prograrn would have an average cost of only US$27per inhabitant (in 1994 dollars), and would be targeted to those single lane, nonpaved roads with thegreatest surrounding population. Using this the spot improvement method, it is anticipated that smallinvestments will benefit large numbers of the rural poor population, as well as providing a temporarysource of employment to that same population.

J. Participation of Indigenous Groups and Women

3.88 The participation of indigenous communities in the Municipal Funds program in the firstDRD project was reviewed during the preparation of the Second DRD project. The analysisdemonstrated that communities with over 35 percent indigenous population received two to threetimes more funds than communities with lower percentages of indigenous population. However,when the size of community was controlled for, indigenous and non-indigenous communities faredequally well in rural communities with 5,000 or less inhabitants. Thus, rural communities have beensuccessfully targeted by the program, but the presence of indigenous population in those communitieshas not affected (either negatively or positively) the targeting of funds. Since the majority ofindigenous peoples are found in rural communities, the targeting of rural communities has succeededin targeting indigenous peoples.

3.89 A similar analysis of the participation of women in the first DRD project has not beenpossible using existing information. Nevertheless, given the predominant role of women in ruralMexico in the transport of water, it is likely that the benefits of the rural water supply component andthe Municipal Funds investment in water supply went principally to them and would continue to do sounder the Second DRD project. Better road systems would also assist women, as well as men, in

22. See, for example, the Ghana Feeder Roads Rehabilittion and Maintnnco Project (Cr.2517-OH, 1991) where an analysis of the proposed rural sad rehabilitation program yieldeda 44 percent ERR.

23. Mexico Chiapas Rural Roads Project (LD. 2525-ME), Staff Appraisal Report, ReportNo. 5494-ME, Annex 6, 1985.

- 47 -

gaining access to markets, basic education, better service and more and better assistance with theirhealth problems. In addition, wvmen have taken active roles in many of the Solidarity Committees,especially for those involving school construction and rehabilitation, and have been the primarybeneficiaries of the productive-oriented subprojects such as the maize mills.

3.90 Both women's groups and indigenous communities would be included in the pilot income-generating investment component. The completion of plans fbr the income-generating pilot programsis a condition of disbursement for the component (see para. 4.3).

K. Project Risks

3.91 Possible risks arise from: (a) the relatively weak institutions at state and municipal levels,sometimes leading to insufficient technical input in subproject selection and design; (b) number ofinstitutions involved in project execution leading to overly heavy supervision burden; and (c) theextent to which general criticisms of Solidarity may reflect on the credibility of the project. Toaddress these risks, the project limits investment to technically simply, but highly economic works(e.g., spot improvement of roads, small water supply schemes, etc.); for which simple selectioncriteria have been designed and agreed during project preparation, and are being piloted in the firstDRD project. In addition, targeted programs of technical assistance have been designed for eachproject component, to be managed by the line agencies responsible, and agreements are being reachedduring preparation regarding a timetable for their implementation. lb make project supervision easierand improve the management of the project, for each component, ITOs would meet quarterly with thePCU and, when possible, with Bank supervision teams. These meetings would be held by rotation indifferent states, providing an opportunity for in-field reviews and for exchange of experience acrossthe states. By reducing from ten to four the number of sectors inolved in the Second DRD project,and by limiting the number of executing agencies in each state, the complexity of the first DRDproject has been reduced significantly. Another important simplification is the agreement whichwould be reached at appraisal on the specific investment program for rural roads, as well as theeligibility criteria for selecting water supply projects. In addition, the computerized monitoringsystem developed during the first DRD project would continue to be upgraded by SEDESOL and beused to provide timely analysis of implementation progress and issues in each stat. lb maintain thecredibility of the project, the project will use clear and rational sets of subproject selection criteria,and will monitor implementation closely, analyzing for possible biasing of investments based on otherthan poverty and efficiency criteria.

3.92 Steps were taken during project preparation to compensate for the weak planning capability ofthe state water supply and rural road agencies. Rural road rehabilitation works are already ranked bypriority order, and the portfolio of rural water supply investments has been substantially developed.In the road sector, one important risk lies with budgeting allocated to new construction to thedetriment of spot improvement and maintenance. To alleviate this risk, loan funds for the rural roadsand rural water supply components would not be available for financing other kinds of investments.

IV. AGREEMENTS REACHED AND RECOMMENDATIONS

4.1 The following agreements were reached or assurances were given at negotiations:

(a) that all project components and subprojects would be carried out in accordance withthe Project Operational Manual and its annexes (see paras. 3.11 and 3.50);

- 48 -

(b) the initial list of candidate roads to be eligible for inclusion in the rural roadrehabilitation and maintenance program, limiting additional roads to type E and Frural roads, foilowing SCT terminology (roads/tracks), with additions in the initialagreed list limited to 30 percent of the list in terms of kilometers, and a limitednumber of class D rural roads, less than 10 percent of the total kilometers (see paras.3.33 and 3.36);

(c) the operational manuals for Municipal Funds and Escuela Digna, and guidelines forrural water supply and rural roads components, including subproject appraisal andselection criteria and environmental checklists (see paras. 3.17, 3.19, 3.27, and3.30);

(d) the institutional development programs for the rural water supply and rural roadscomponents, including TORs for key studies and the summary institutionaldevelopment plan for the municipal development and institutional strengtheningcomponent (see paras. 3.21, 3.29, 3.39, 3.39(a), and 3.39(b));

(e) model contracts and agreements for direct contracting of community SolidarityCommittees for the implementation of Municipal Funds and Escuela Digna programsand for contracting %orks under the rural water supply and rural roads components(see paras. 3.38 and 3.68);

(f) annex to the rural water supply contracts, requiring contractor to provide training tolocal water committees in system O&M (see para. 3.28);

(g) description of the structure, role and responsibilities of the ITGs, MSUs, and MPWGs(see paras. 3.21(e), 3.21(f), 3.2 1(g), 3.29(d), 3.29(e), 3.39(c), 3.39(d) and 3.61);

(h) that SEDESOL would promote the transfer of the rehabilitated federal roads to thestate's road inventory for their subsequent maintenance by the state (see para.3.37(c));

(i) that the MSUs would be established in the rural roads and water supply agencies ineach state by no later than June 30, 1995 (see paras. 3.29(d) and 3.39(d));

(j) that the four ITGs (for fiscal strengthening, Municipal Funds, rural water supply, andrural roads) would continue to function throughout the project, as described in theProject Operational Manual (see paras. 3.21(f), 3.21(g), 3.29(e), 3.39(c) and 3.61);

(k) that a state-level MPWGs will be formed in each state to provide regular input andreview of project implementation (see paras. 3.21(e) and 3.61);

(1) that project accounts would be audited using procedures acceptable to the Bank (seepara. 3.74);

- 49 -

(in) that institutional development activities fbr each component would carried out on thebasis of annual plans provided to the Bank by January 31 of each year and approvedby the Bank (see paras. 3.23 and 3.76);

(n) that a review of procurement through community-contracting would be conducted byDecember 1995, contracted under terms of reference agreed with the Bank (see para.3.65 and 3.69);

(o) that the central and state level PCUs would conduct field reviews in each state of theimplementation of each project component and would report on the results of thesereviews in the semi-annual and annual reports (see para. 3.78);

(p) the project implementation indicators and project semi-annual and annual reportingrequirements, to be included in a Supplemental Letter (see para. 3.78);

(q) that the project information and monitoring system would be maintained throughoutthe project; implementation reports using formats agreed with the Bank would bepresented three times in a year, of subproject approvals and activities by July 31 andJanuary 31, and a complete report of fiscal year activities by June 30 of the followingyear; and that a copy of the information available from SEDESOL's information andmonitoring system data base would be provided to the Bank on computer diskette atthe end of every quarter (see para. 3.78);

(r) information would be provided the Bank regarding subprojects included indisbursement requests, prior to making that request (tablero de desembolso) (seepara. 3.71);

(s) physical performance evaluation would be conducted in 1996, 1997 and 1998 of asample of subprojects implemented in each component, with the assistance ofconsultants (see paras. 3.42(c), 3.78, and 3.81 to 3.82);

(t) a review of each component would be conducted with the assistance of externalexperts, contracted under terms of reference agreed with the Bank, prior to December1996; and a mid-term project review of project implementation would occur no laterthan March 31, 1997 (see para. 3.78 and 3.81 to 3.82);

(u) staffing and functions of the SEDESOL central and state level PCUs would bemaintained throughout project implementation, as described in a Supplemental Letter(see para. 3.55);

(v) the Bank would review the terms of reference and qualifications of personnelcontracted to assist the central and state level of PCUs (see parm. 3.43); and

(w) the draft agreement (anex de ejecucion) between SEDESOL and the project states forthe implementation of the project (see para. 3.10).

- 50 -

4.2 The following wvuld be conditions of loan effectiveness:

(a) SEDESOL will adopt the final version of the Project Operational Manual withannexes, as agreed by the Bank (with the exception of the technical annex for theincome-generating component which must be available as a condition of disbursementfor that component) (see para. 3. 11); and

(b) SEDESOL will provide evidence that the project information and monitoring system isfunctioning in the SEDESOL delegation of each project state and at the central PCU(see paras. 3.11 and 3.75).

4.3 Condition of Disbursement. As a condition of disbursement under the income-generatingcomponent of the project, the Project Operational Manual annex for the component, including theimplementation plan and related guidelines, terms of reference, and implementation indicators willhave been completed to the satisfaction of the Bank (see para. 3.41 and 3.57).

4.4 Recommendation. With these agreements and conditions, the project would be eligible for aBank loan of US$500 million equivalent with a term of 15 years, including a five-year grace period.

- 51 -ANNEX A

Page 1 of 3

MEXICOSECOND DECENTRALIZATION AND REGIONAL DEVELOPMENT PROJECT

Socio-economic Data for Mexico and Eight Project States

Demographic Information Mexibo Eght State Elght/Mexboo Souro & YearTotal Population 81,249,845 25,917,921 31.90% INEGI 1990 CensusRural Population 27.933.628 14.3889797 51 .51% INEGI 1990 Census

% Rural 34.38% 55.52% INEGI 1990 CeneusIndigenous Population 5,282,347 3,454,974 65.41% INEGI 1990 Ceneus

% Indigenous 6.50% 13.33% INEGI 1990 Censusa. of Municipalities 2,403 1.433 59.83% INEGI 1990 Census

Av. Municipal Population 30,384 1 8,096 INEGI 1990 Censuso. of Rural Municipalities 1,478 1,020 69.01% INEGI 1990 Cenus

Pop in Rural Municipalities 11.636,739 7,482,484 64.30% INEGI 1990 CensusAvg Rural Municipal Population 7,873 7,338 INEGI 1990 Census

otal Pop in localitie:Under 500 9.950.659 5,273,858 53.00% INEGI 1990 Cenue500 - 5,000 17,986.931 9,114,551 50.67% INEGI 1990 Cenus5,001-25,000 8,312,311 3,535,479 42.53% NEGI 1990 Cenus

25,001-50,000 5,075,188 2.087,400 41.13% INEGI 1990 Cenusover 50.000 39.924.656 5.906.633 14.79% INEGI 1990 Cenus

om hIformaion Mexico 6EgM States Eght/Mexico lsouroe & Y-erIncome Inforantion

GDP 333,935 58,166 17.42% Banooffr Key Indioators 1992'GDP per Capita $4.109.99 *2.244.24 Bancomer Key Indicators 1992

Avg. Household IncomeTotal Poverty lextreme +4 moder 18.370.545 9,836,213 53.54% 1989 Household Survey (WB Caolulation)

% below povery line 22.61% 37.95% 1989 Household Survey IWB Caolulation)Extrerm Poverty (total no.) 5,955,599 4.078,698 68.49% 1999 Household Survey IWB Cloulation)

% below extr. povery line 7.33% 15.74% 1989 Household Survey IWB Caloulabtion)Social Information

Population without water 18,699,176 9.226,780 54.28% WNEGI 1990 Census% Pop. w/o water 20.92% 35.60% INEGI 1990 Census

% Illiterate 12.44% 21.35% 54.74% INEGI 1990 CenusFemale % Iliterate 15.04% 25.87% 54.85% INEGI 1990 CenusPrimary Nat Enrollment Ratio 90.31% 95.03% 30.03% INEGI 1990 Cenus

Ho Sector Fiance b hmfcmtion |le1xbo Eght State s EightiMelcxi. Soure Idl figurs ftrm 19921cArha 96 ef T"Oa

Revenue Sharing $113.26 *99.06 24.20% Sect. de Heoiendaatte Own Revenuee n.d. $30.84 Sect. de Fineraes Esteales

motl Fedral Investment *185.05 *147.42 25.41% Inforrm Pr_sidenoial

Programs Normal $158.05 t112.65 22.74% hnformsw PreeidencialSolidarity Investment *27.00 *34.78 41.09% Informs Preidende

atte Expenditures n.d. *11 .86 Sect, de Finanzm EstetdlesRecurrent Expenditures n.d. *40.65 Sect. de Finte_w EstatalesTatal Tra_nsfe n.d. *38.41 Soct. de Fmenz_ Eatetales

Tr_fers to Municipalities n.d. *17.21 Seat. de Fmae_ EstaleoTotal State Investmen n.d. *24.59 Sect. de Fnnzm Estatales

Progrwna Normal n.d. *7.91 Sect. de Fmanzas EatlzesSolidarity Invetmennt n.d. $12.89 Sect. de Fhnan2e Estatales

Note: 1. The fourth column reprments total for the eight states es a percentage of tota for Mxioo.2. Exchange Rate: $NP 3.10 1 US$ 1.003. Rura Muniipalitiee are those where 90% or more of the population live in looelitie under 5,000 people.S*ooffer ooulation of GDP in 1992 in highr then that calculated by the World Bank.-the 1992 national GDP per capita presented hare in higher then that prsnted in pars 1.2 of the SAR.


_ o h hlmmee Mexioxb GUUIU H kiowen Oexacl Puebb Vecwruz zecateee S,n of Eightott fPaputte i1o249.645 3.210.496 2,820,037 1.330.11360 3,548,199 3.019,560 4. 1 2tt,101 6.228.239 1.276N323 25 9817,9217

Poputietn 27.333.629 2.136,906 1,470.964 1.187,405 1,644,235 2.102,218 1,918.574 3.130.410 792 .086 14,388,797% RIfe 34.38% 66.56% 56.13% 62.88% 48.34% 69.62% 4645% 50.39% S206%

PopLiltion 5.282.347 716.012 293.532 3117.3138 193940 1,018,106 503.277 590,386 883 3,454,974% bigenou 7.43% 26.42% 13.40% 19.52% 1.90% 39.12% 14.11% 10.70% 008%

.of h 2,403 1II 75 84 113 570 21 7 207 56 1,433Aw Mll Pepilelon 30.364 26,.23 34,942 22.481 31,400 5,297 19.014 30,088 22.791

o.f d ldh8 nd*dt 1,478 67 39 51 46 517 156 111 33 1.020Pop h Pbfte hautiiptI 11.630.739 1,066,729 563,768 704,915 615.331 1,641,597 1,214,880 1,300.754 383.510 7,482,484Avg .AdLAaunkipdrPpieuhn 7,m73 15,921 14,54 13,22 13.377 3,175 7,788 11,773 11,015 7.336

Ttal Pop b hoe u MNd 500 9,93,0.9 362.233 513,713 42,511 a 44,373 732,710 456,045 1,314,343 302,923 5.273,858600 - .ooo 1 7.396.331 1.174,.52 362,142 744.834 1,099,13.26 1,363.568 1.460.457 1,823.964 489,168 9,114.5515.001.26.000 8,312,311 375,216 3S3,04 234.364 533,018 354,814 683,039 798,047 201.757 3.535,47925.001-50.000 5.075.166 193,583 100.027 216.540 334,827 171,540 194,515 76.0602 107,308 2.087.over 50.000 _ 3,9324.656 501.872 969,636 243,490 1.036.155 390,928 1,332,045 -1,525,023 175,169 5.906.633

_ _ _4wdm CNW Getlao to doear 0eace PLOWS Vw Zecetoce Slni of Eiht

GOP 333.035 6.107 4,744 4,101 7.sse 4,787 10,557 17.345 2,639 58,166 t-nGDP pe capita 4,110 1.902 l.81O 2,172 2,223 1,585 2,559 2,785 2,068Avg. H"oehld kmm,Povr 18,370,546 1.630.351 83s.983 643.744 937,434 1,201,483 1,58.,073 2.444,584 366,560 9,836,213

% beow OVel N 22.61% 56.70% 31.30% 34.09% 26.42% 39.79% 38.44% 39.25% 28.72%Exdei Poverty 5s,s5s,s5 11.1154,494 293,773 M5,710 136,360 693,291 519,476 954,789 40,204 4,078.a98

% beowof. poveybe 7.33% 35.96% 11.21% 15.13% 3.86% 22.96% 12.59% 15.33% 3.15%P pw Hhd 5.13 5.13 5.13 5.14 5.13 6.13 5.13 5.34 4,90PopLlotion wihoeiwo@er 16.931,176 1.353,881 1,142,839 564.346 735.029 1,279,281 1.213.593 2.619.473 318,338 9.226,780

% Pop. W/o weter 20.92% 42.17% 43.61% 29.89% 20.72% 42.37% 29.41% 42.06% 24.94% 35 60%% Merto 12.44% 30.12% 26.87% 20.69% 17.32% 27.54% 19.22% 18.26% 988%Femele % Eiterte 15.04% 37.66% 31.34% 26.19% 19.03% 34.M4% 24.12% 22.40% 10 72%Pt MMy Ennnbnw MRoet 30.31% 74.92% 82.80% 91.12% 84.92% 85.53% 87.57% 96.50% 91.50%

- 53 -

ANNEX APage 3 of 3

MEXICO


State Population 1990 Over 15 Population wl Indigenous Poor ' ExtremeCONAPO Illiteracy w/o water PoorPovertyIndex

1 AGUASCAUENTES 719,659 -0.890 27 7.1% 23 4.2% 31 0.1 % 31 4.6% 29 0.0% 29

2 BAJA CALIFORNIA 1.6609,65 -1.346 30 4.7% 30 19.6% 13 1.3% 23 0.3% 31 0.0% 31

3 BAJA CAUFORNIA SUR 317,764 -0.969 28 5.4% 29 10.2% 26 1.0% 24 0.0% 32 0.0% 32

4 CAMPECHE 536,186 0.477 10 16.4% 10 29.5% 9 19.0% 6 5.0% 28 0.0% 28

C COAHUILADEZARAGOZA 1,972,340 -1.063 29 5.5% 28 7.8% 28 0.2% 29 21.0% 16 3.9% 16

e COUMA 428,610 -0.7S8 23 9.3% 20 e.e% 30 0.4% 27 1.3% 30 0.0% 30

7 CHIAPAS 3.210,496 2.360 1 30.1% 1 42.1% 4 26.4% 4 56.7% 1 36.0% 1

8 CHIHUAHUA 2,441,873 -0.872 26 0.1% 26 12.0% 22 2.9% 17 10.6% 23 1.3% 249 DSTRITOFEDERAL 8,236,744 -1.868 32 4.0% 32 3.3% 32 1.6% 22 6.1% 27 0.9% 2

10 DURANGO 1.349,378 0.012 16 7.0% 24 16.0% 19 1.6% 21 9.4% 26 0.0% 27

11 GUANAJUATO 3,982,693 0.212 13 16.6% 8 16.9% 16 0.3% 28 36.7% 7 12.3% 7

12 GUERRO 2,620,637 1.747 3 26.9% 3 44.0% 1 13.4% 9 31.9% 10 11.2% 813 HIDALGO 1.86,366 1.170 4 20.7% 4 29.9% 7 19.6% 6 34.1% 8 16.1% c

14 JAUSCO 5.302,66 -0.766 24 s.9% 22 13.6% 21 0.6% 26 17.0% 18 5.8% 1315 MEXICO 9,816,795 -0.604 21 9.0% 21 14.7% 20 3.7% 12 12.6% 22 3.6% 1816 MICHOACAN 3.648.130 0.363 12 17.3% 7 20.9% 12 3.6% 13 26.4% 13 3.9% 1717 MORELOS 1,196,069 40.467 20 12.0% 15 11.4% 23 1.9% 19 16.8% 20 2.0% 22

18 NAYARIT 824,643 -0.134 17 11.3% 16 16.1% 1s 3.4% 16 9.9% 24 1.3% 2519 NUEVO LEON 3,008,736 -1.377 31 4.7% 31 6.7% 29 0.2% 30 12.6% 21 3.6% 19

20 OAXACA 3,01.5600 2.066 2 27.5% 2 42.2% 3 30.1% 2 30.9% 4 23.0% 2

21 PUEBLA 4.126,101 0.831 S 19.2% S 20.2% 10 14.1% 7 38.4% 6 12.6%22 OUEWETARO 1,061,236 0.161 14 16.4% 11 16.4% 17 2.3% 16 24.1% 14 6.0% 12

23 CKNTANA RO 4s3,277 -0.191 19 12.3% 14 10.5% 24 32.2% 3 17.2% 17 1.6% 2324 OAN LIS POTOS 2,003,187 0.749 7 15.0% 12 33.6% 6 11.9% 9 49.4% 2 19.7% 326 SINALOA 2,204,064 -0.141 16 9.9% 19 19.5% 14 1.6% 20 16.6% 19 2.4% 21

26 SONORA 1.,23,06 -0.860 25 6.6% 27 9.6% 27 3.0% 16 9.6% 26 3.9% 127 TASASCO 1,501,744 0.517 9 12.7% 13 43.8% 2 3.7% 11 27.0% 12 7.3% 11

28 TAMAULIPAS 2.249,581 -0.600 22 6.0% 25 19.7% 16 0.4% 26 23.2% 15 5.5% 1

29 TLAXCALA 7S1,277 -0.036 16 11.1% 17 6.7% 26 3.4% 14 34.0% 9 9.3% 1

30 VERACRiJZ 6.228,239 1.130 6 163% a 41.9% s 10.7% 10 39.3% 6 15% 4

31 YUCATAN 1,.32,940 0.400 11 16.% 9 29.4% 9 44.2% 1 46.6% 3 10.8% 9

32 ZACATECAS 1.276,323 o.5S a 9.9% 1S 24.7% 11 0.1% 32 25.7% 11 3.2%

o NACIONAL 81,249,645 0.000 12.4% 20.9% 7.5% 22.6% 7.3%

Eight States Popubon 1990 Over 15 lUtwwy PopulSon w/ hdig nous Poor ExtremeCONAPO wlo water PeorPovwrty

.___ ._ _ Index

7 CHIAPAS 3.210,49S 1 30.1% 1 42.1% 4 264% 4 56.7% 1 36.0% 1

12 GUERRO 2,620,S37 1.747 3 26.9% 3 44.0% 1 13.4% 9 31.0% 10 11.2% 6

13 HIOALGO 1.86,366 1.170 4 20.7% 4 2s9s% 7 19.6% 5 34.1% 6 16.1% S

1S LICHOACAN 3.4,19n 0.363 12 17.3% 7 20.9% 12 3.6% 13 26.4% 13 3.9% 1720 OAXACA 3.019,600 2.0o5 2 27.5% 2 42.2% 3 39.1% 2 39.8% 4 23.0% 2

21 PUEBLA 4,126,101 0831 6 19.2% 5 29.2% 10 14.1% 7 38.4% 6 12.6%

30 VERACRUZ 6.229,239 1.130 5 18.3% 6 41.9% 5 10.7% 10 39.3% 5 1.% 4

32 ZACATECAS 1276323 0.566 6 9.% 16 24.7% 11 0.1% 32 29.7% 11 3.2% 20

EIOHT TATES 25,917,921 21.5% 35.6% 15.9% 38.0% 15.7%

Ei!ht Stat I PopwlFon Over 15 Illitera Pop war Indlniou Poo ExtrmoPbaeou w/o watW Pool

*based on World Bank ndlysis of 1989 INEGI Family Houshold Survoy

- 54 -

ANNEX B

ME:XICO Par ifl

Second Decentralization and Regional Development ProjectProject Components by Year

Base Cost (US$million)*

Project Component 1995 1996 1997 1998 Total

A. Municipal Investment & Inst. Dev.

Investment program Municipal funds (inc. eng.) 154 154 154 154 615Investment program Escuela digna 12 12 12 12 48Technical assistance /studies 2 7 7 7 23Training/ Working groups 0 1 1 1 3Purchase of equipment 4 4 8Subtotal (base Cost) 168 178 178 174 697

B. Rural Water supply

Investment program 23 39 62 31 156Engineering 1 2 4 2 9Technical assistance /studies 0 0 0 0 1Training/ Working groups 0 1 0 0 2Purchase of equipment 0 0 0Subtotal (base Cost) 25 42 67 34 168

C . Rural Roads Rehab. & Maintenance

Spot Improvement 16 27 42 21 106Routine maintenance 1 4 7 12Engineering 0 1 1 1 3Technical assistance /studies 0 0 0 0 2Training/ Working groups 0 1 1 1 2Purchase of equipment 0 0 0 1Subtotal (base Cost) 17 30 48 30 125

D. Income Generating Investments

Investment program 1 2 2 2 6Technical assistance /studies 0 1 1 1 4Training 0 0 0 0 1Purchase of equipment 0 0 0 0 1Subtotal (base Cost) 1 3 4 4 12

E. Sedesol Inst. Strength. & Project Coord.

Coordination support 6 6 6 6 24Tech. Assist., Studies, Train. & Mid-teorm Eval. 1 1 1 1 4Purchase of equipment 1 2Audit 1 1 2 3Subtotal (base Cost) 7 8 7 7 33

Total BASELINE COST 219 260 304 248 1036Price contingencies 5 12 21 23 59

Total PROJECT COST (USSm) 224 272 325 271 1095

- 55 -

ANNEX CPage 1 ot 15

MEXCO


Project Monitoring, Evaluation and Reporting

1. Implementation of the Second DRD project is driven by the demands fromrural communities for basic infrastructure (social and economic), which are filteredthrough a process of selection based on established criteria, and, in the case of theMunicipal Funds and Escuela Digna programs, through community decision-makcing.Because of this, it is not possible to completely foresee the pattern of projectinvestment. Therefore, the establishment of an effective project monitoring systemis especially important to analyze the characteristics and evolution of the investmentprogram as well as to review the quality of its implementation.

2. This annex provides a brief overview of the project monitoring system,summarized in Table 1 below. The Estimated Implementation Indicators' andsample formats for data collection and project progress reporting are shown inAttachments I and II.

3. The objectives of the project monitoring system are to:

(a) provide basic information regarding the progress of the project in itsdifferent stages (e.g., authorization and approval of activities,procurement and implementation, and disbursement) by componentand by state (and, where necessary, by municipality and locality);

(b) ensure that project activities are consistent with the objectives,targeting and selection criteria of the project, identifying anyinconsistencies, and defining corrective actions; and

(c) measure the quality of project implementation, identifying problemsand defining corrective actions.

4. The monitoring system is based on: (a) information and reports availablefrom the project data base; (b) ongoing, in-field monitoring and supervisionactivities of the PCU; (c) annual project physical performance evaluations; (d)audits; and (e) mid-term evaluation and other special studies.

Information System

5. The information system is built on a data base containing physical, financialand procurement information for each subproject financed. The data base isconstructed upon three modules: (a) basic data sheets (cedulas) providing financial,technical and social information for each subproject; (b) information regarding the

1. No implementation indicators are identified for the Productive Component. Theidentification of these indicators will be completed and agreed as part of the condition ofdisbursement for the component.

- 56 -ANNEX C

Page 2 of 15

authorization and approval of subprojects (oficios de aurorizaci6n y aprobaci4n); and(c) information regarding procurement and disbursement. Included in these modulesare information regarding the identification of the subproject, its targets, andphysical and financial characteristics. Because there will likely be over 15,000subprojects per year, this system is essential to provide a basis for analyzing projectimplementation.

Monitoring Activities or the PCU

6. The PCU is responsible for: (a) supervising (together with the SEDESOLDelegations) the application of federal guidelines in the planning and implementationof each project component in the states; (b) reviewing the implementation of projectactivities to identify problems and successes, as a basis fof taking actions to addressthe former and encourage the latter; (c) oversight and coordination of theimplementation of the institutional development programs of each projectcomponent; and (d) reporting on project progress to the management of SEDESOLand to the Bank.

7. To carry out these responsibilities, SEDESOL must:

(a) conduct reviews to ensure that the administrative, technical andfinancial guidelines are followed (for example, approval ofMunicipal Funds, Escuela Digna, water supply, rural roads andproductive subprojects by the SEDESOL delegations should beconsistent with eligibility criteria);

(b) maintain an up-to-date and accurate project data base (see para. 5above), fed by data inputs of the state SEDESOL delegations andstate governments;

(c) analyze project implementation, using information from the database, and reviews in the project states (including regular fieldsupervision of each component);

(d) contract mid-term evaluations of project components and specialstudies;

(e) review progress of institutional development activities of eachcomponent and achievement of institutional development goals;

(f) based the results of the quantitative and qualitative analysesdescribed in (c), (d), and (e), plus the results of annual physicalperformance evaluations and project audits, identify problems;formulate and undertake or promote actions to resolve them; and

(g) report on project implementation on a quarterly, semi-annual, andannual basis.

Reporting on Project Progress

8. There are two kinds of project reporting to be received by the Bank. One isa disbursement report (tablero de desembolso), which is presented to the Bank for its

- 57 -

ANNEX CPage 3 of 15

"no objection" prior to any submission of SOEs to the special account forreimbursement. In the cases of Municipal Funds and Escuela Digna, the tableroprovides a listing of municipalities, and for the water supply, rural roads andincome-generating components it provides information on individual subprojects,with sufficient detail to judge the eligibility of the subprojects financed, as well as toprovide other indicators of project performance.

9. In addition to the disbursement reports, the other regularly scheduled projectreports include: f

(a) Ouarterlv Updating of Project Implementation Information. Everyquarter, the PCU will provide the Bank a copy of its data base forthat year, including those data fields relating to subprojectimplementation (authorization, approval and disbursement), and basicsubproject information (the cedula).

(b) Semi-Annual Project Progress Reports. Every six months (on July31 and January 31) the PCU will produce a project progress report,using standard formats regarding approved activities attached forMunicipal FundslEscuela Digna, rural water supply and rural roads(see Attachment II to this annex for example of formats). Inaddition, the PCU will, as a part of this report, forward copies ofthe supervision reports produced by the PCUs in each stateDelegation and by the central PCU.

(c) Annual Report. By June 30 of each year, SEDESOL will provide anannual report of project implementation, based on informationregarding implemented activities in the previous fiscal year. Thisreport will:

(i) use the same formats as the semi-annual reports but reflectachieved activities;

(ii) will provide information regarding the accomplishment of theproject implementation indicators and the specificaccomplishments of the institutional development programwithin each component;

(iii) provide an analysis of indicators related to the MunicipalFunds (including the measurable rules for distribution ofresources, and the sharing of resources between themunicipal cabeceras and the outlying communities); and

(iv) provide other analyses and recommendations as may bereasonably requested by the Bank and agreed with the PCUon each of the components.

Proiect Physical Performance Evaluation

10. The objective of the Physical Performance Evaluation (PPE) is to evaluatethe success of infrastructure investments financed, by the project, includingsubprojects financed through Municipal Funds/Escuela Digna, and the rural water

- 58 -ANNEX C

Page 4 of 15

supply, rural roads and income-generating components, in terms of the achievementof specific subproject objectives, and the quality, efficiency, and sustainability of theinvestment. The study would examine: (a) whether the subproject functions asdesigned (e.g. a water supply project provides water to the number of beneficiariesintended); (b) the level of the quality of construction of the subproject (e.g., whetherit is very good, adequate, or weak) and its affect on sustainability; (c) the efficiencyof the agreed procurement procedure of small works through the direct contractingof Solidarity Committees through Municipal Funds/Escuela Digna and convenios forrural water supply and rural roads (spot improvement/peon caminero); and (d)statistical analysis of the other procedures (local competitive bidding) used in theprocurement of water supply and rural roads works.

11. Role of SEDESOL, the Bank, and consultants in the study:

(a) Role of SEDESOL: (i) prepare a terms of reference and detailedmethodology for the conduct of the study; (ii) establish the sample tobe reviewed in the first PPE (to be undertaken in 1996 based on the1994-95 project implementation experience); (iii) supply counterpartsto the hired consultants to implement the methodology in each state;(iv) to aggregate the results and present the diagnosis and genericrecommendations; and (v) to follow-up on the incorporation of therecommendations in the implementation of the project, and to revisethe methodology, as needed for its application in 1997 and 1998.

(b) Role of Consultants: Consultants would be contracted to implementthe agreed methodology, with their SEDESOL counterparts.

(c) ole of the Bank: The role of the Bank will be to: (i) review,make suggestions, and agree to (provide a "no objection") thedetailed terms of reference (including methodology and plan ofaction) for the PPE; and (ii) present comments and suggestionsrelated to the findings and recommendations of the PPE.

12. TIming of the PPE. The first PPE would be conducted during 1996,regarding subprojects implemented in 1994-95. The PPE would be significantelement of the mid-term review. In addition, the mid-term review would addressother questions regarding other objectives of the project, including municipalstrengthening, institutional development (TA/training/studies) and communityparticipation.

13. PPEs would also be conducted in 1997 and 1998 (for the 1996 and 1997exercises respectively), but would focus primarily on the second objective above,regarding physical performance, and other issues identified during the first PPE.Terms of reference for the 1997 and 1998 PPEs would be agreed by no later thanDecember 31 of the prior year.

14. Development of the Terms of Reference. SEDESOL and the Bank wouldbegin immediately to develop the TOR (including an outline of the methodology andplan of action) for the PPE. The agreed TOR would then be included as an annexin the Project Operational Manual, which is to be finalized by October or November1994.

- 59 - ANNEX C

Page 5 of 1S

Procurement Study of Community Contracting

15. A study will be conducted by December 1995 regarding the advantages anddisadvantages of community participation in procurement in the Municipal Fundsand Escuela Digna programs.

Table 1

Summary of Project Monitoring andReporting

Nature of Report liming

1. Data input at state level by subproject Ongoing, updated duringusing data sheets. authorization, approval and

completion of each subproject.

2. Copy of Information and Monitoring Ouarterly, at the end of March,System data base provided to Bank. June, September and December

of each year.

3. Project Progress Report submitted to Semi-annually at end of June andBank. December.

4. Annual Report of Project execution. Annually, at end of April offollowing year.

5. Physical Performance Evaluation. Annually, completed by no laterthan 12/31 of following year.

6. Summary of Subproject Periodically, prior to eachImplementation. (Tablero de disbursement application.Desembolso)

- 60 - ANNEX C

Page 6 of 15Attachment I

Mexico Second Decentralization and Regional Development ProjectEstimated Project Implementation Indicators

ComponentProgram/Objtiwvs Indicators Unit 1995 1996 1997 199 TotalMUNICIPAL INVEST.AND INST.DEV.

1. Municipal Funds No. of Subprojects U 10,000 10,000 10,000 10,000 40,000Total investment millions 165 165 165 165 660

lnvestment per rural capita U 11.5 11.5 11.5 11.5

2. Escuela Digna No. of Subprtoecta U 5,000 5,000 5,000 5,000 20,000Total invesment millions 21.25 21.25 21.25 21.25 85

3. ITGMunicipal Funds/ED Number of Meetings U 3 3 3 3 12

4. rroFi ouStrengthmning Number of Meetinp U 4 4 4 4 16

5. MPWG No. Mtgs Chiaps U 3 3 3 3 12No. Mtp Gurmo U 3 3 3 3 12No. Mtg Hidalgo U 3 3 3 3 12

No. Mtp M Dhoea U 3 3 3 3 12No. Mtp xac U 3 3 3 3 12No. Mtp Puebla U 3 3 3 3 12

No. MtVs Vea= U 3 3 3 3 12No. Mtp Zaeoa U 3 3 3 3 12

6. Incng Mun. Review of Existig Sytems No. Stat. 2 4 2 SReveme Tech. Assistanoe No. State 2 4 2 8

Truiing courm No. Sta 4 6 6 16

7. Dev. of Mun. AMet Review of Existing Systems No. State 2 4 2 Sand Budgeting Tech. Asist. nd Equip. No. State. 2 4 2 8

Trauiing coues No. Stae 4 6 6 16

g. Tining in InVest Training courme U 10 25 35 30 100Plaing Wnd Comm. Trainee U 150 375 525 450 1,500Participati Number of Mun. Pasticipatng U 50 125 175 150 SW0

9. Municipal Officiac Study Tours U 2 8 S 5 23Exchig Progrm One on One Exchange U 5 10 20 15 50

Exchange Workshops U 8 a 8 24Number Paticipants U 25 210 220 185 640

Number of Mun. Participtzng U 10 40 50 50 IS0

10. Mostring No. visits to Sttes/field U 8 a 8 32by PCU/Cete No. ubproject visited U 24 24 24 24 96MunFunds/ED No. monnoring reports U 2 2 2 2 8

- 61 -ANNEX C

Page 7 ot 15Attachment I

Mexico Second Decentralization and Regional Development Project

Estimated Project Implementation Indicators

ComponentPrgramlObjecves Indicatotn Unit 1995 1996 1997 199I TotalWATER SUPPLYCOMPONENT

1. Investrment No. of Systemt U 190 320 520 270 1,300

(mcI engieering) No. of Beneficisries U 280 000 480,000 760,000 380,000 1.900.000Total Invetunent (base) USS millios 23 39 62 31 155

2.Technical Assistunc Design of Inventory/Studies Demsnd Analysis U I I

Application of Inventory No. Slat" 4 4 SStrategic Studies U 1 2 1 4

3. Training trainees state agpnci. trai.days 700 1,000 1,300 1,096 4,096trainees municipali. trai.dsys 3,000 4,500 4,500 12,000

4. Municipal Support Status report by PCU wat reprts I I I 1 4Unit supply unit

5.raG No. of maeting U 3 3 3 3 12

6. Monitoring No. visits to Statalfield U S a a S 32by PCU/Center No. subprojects visited U 24 24 24 24 96

No. monitoring reports U 2 2 2 2 a

7. Monitoing by No. ubprojecta vuited U 10 10 10 10 40

PCUISta of Wat No. manitoring report U 2 2 2 2 S

Supply (each ate)

RURAL ROADSCOMPONENT

1. Spot Improvemet Gradint KM 2,300 3.900 6.300 3,100 15,600No beneficiaries million 1.4 1.2 0.7 0.7 4

No of Roads U 230 390 630 310 1560

2. Routino Maince ength mintained Km 2,300 6,200 12,500 21,000No of muint. convenio U 1.150 3.100 6.250 10,500

3. Istiut. Developmnt

Spot Improvewt updated guidelin U I I(Technical As wssa) State with ytem No 1 4 3 a

lormatcon Syam DatA ban U I 1(TechnicAl Assistance) Sta' inform.systam No 3 3 2 a

road inventoris KIC 600 600 400 1,600

Training traines state genc.i trei.dys 1,000 3,000 4,000 2,900 10,900trains municipali. ttjdays 2,000 4,000 2,000 S,000

4. Municipal Support Status report by PCU rral eportei I I I 1 4Unit road. unit

5.rrG No. of meeting U 3 3 3 3 12

6. Monitoring No. visits to Stata/field U I S a S 32by PCUICeute No. ubprojecta visited U 24 24 24 24 96

No. monitoring reporus U 2 2 2 2 a

7. Monitoring by No. ubproject visited U 6 6 6 6 24

PCU/Stste of Rural No. monitoring rmport U 2 2 2 2 a

Roads (each state)

-62- ANNE C

PROYECTO DE DESCENTRAUZACION Y DESARROLLO REGIONAL 11 Page 8 of 15Componentm de Fondos Municipoles Attaclhment II

Mod-lo del Inlorme Sm.-stirl /Anual(me=as aprobadas)

AAo P,IO s3moSIr. Acumul*Co anu*i

SUSPROGRAMA _

CA loo G.o'-0o NidodgO FAlcrscA O&.8. Puso.b V ... n z Zaeoolci Twoat

- 7 7 77- wcaclor' -. 0.t:-y SJ

NUrAtro dJe *umno atendrdos

NCo-,mO de ALTAAs

AJ' SEq1O2aJ1' XUDe' *m

Num rtlo Cuberta 1CfS

kwo dei (N-l

nmwo de submromsem*Om'rS de o tioobin

inmvws d wm dodNs iacd

kwIdl EWU I N

Lf0ad do 1l (IrnDbev.n meal

.... .. . ..

NmaWO do WAIo'e _

AmOl de kw" 4#?0O

| Venoto do mJasLnpi de Wmmde _4mtocW .MOll

CasioW atos reddelirail J

| 0 a -e eokii _s tb lw .w

kwmb WW IS

| Setarm - l l l~~- - T -

gtht..t~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.... ...LI

l MO de o a i

1^- mm ISOI

"WW e ftopee

PROYECTO DE DESCENTRALZACION Y DESARROLLO REGIONAL NComponent. de Escueb Dina

Modelo del hom Semutrd / Anual

coeecu~~~o imNPa Ouwsm ld-Ou MiNhosin Osama PuHebl Vwwuzi Zacatecas Total

N?mmo de sula.udN?&mwo de duami

Arsam cubluyas m2hwm&n IN-

PROYECTO DE DESCENTRLZACION Y DESARROLLO REGIONAL nConnwits de Cafinos Rural.

Model. del hlrornw Semet/Anual

Af bm amaml Acumuato ai_ _

cm" _um _ =SI W_ _ OMM _U wm w cenra Tot

L dot II _

deH@ ..

poyca

Diws on,b de capemmritasdi os otmi J

Costs total llspl, _CHO.ICota total do bt_ do s

Costa total dNo S)

Nano otdde peone , . .oLonttud totW (KwOCOeStO TotA INCI

TOTAo de CbpIov etc

Costo total IN$SI. 3

Nanode subptoy*ctos Dfas-hombo de eowsdoitm

sttCasio total cwaehdnCosta total de s*o d utoCosto totWdqipoo _ 6_Ci _ C.O

cosTo TOTAL AROBADO tNl _ .. .-.TOTALEJECDO (NS1

PROYECTO DE DESCENTRALIZACION Y DESARROLLO REGIONAL 11Component. do Agtua PotablModel. del hnfonnw SemetMr /Anual

AUp. Pdmu Acumujado wal

Cblapi O_emu Hidal Mlchoein Osmb Puua Vasen Zacatecas Contf a Totad

Nbr_eo de subpooeatee nuwve _pire_ da_NMbe de bwwte l.io de pbostee nuwvueW&nweo total de subproyectu aprbdoNDn_e totWl de bmnfiddwfeCaste de ptalecl6n de sthpeeyece nue_e INtlCoat. total

.wubed. P4,1

COSTOS DIE SUPOVICIS NUM VOs .40

2. CWdOn.

t4. PA* d6

S. Desinfed6 oS. Ditbbb ... n

Coat. total INtl ....... -._

NWifnao de expodntes | .pCasio total INtlOlw

;

Dies- ombuo d epchadeospuobadol

Caste total dc( bcinN w$1cd

Casio total swobl de oqd ioe de cemputeCosta totl spob de de eqipo t6cnie k

COSTO TOTAL A WM D (1SITOTAL IWEllIOO INS)t

- 66 -

ANNEX C

PROYECTO DE DESCENTRALIZACION Y DESARROLLO REGIONAL 11 Page 12 of 15Components de Aguc Potable Attachmet Il

Model de Data Sheet

I7. Ina,madcdn HisAcw

Nombre do Ia localided Clave I I Estedo

Municipio Clave Clove Estado

Habitontes segun *I censo de 1990 Nuimoro de Ia obr I

2. SIftrlnAcl udde Senrdio a A ekrA Fu - -emble

ripo so sitema Grovedad Q Bombec Q 4 Mixto z

No tene servicio Q Intreestructurn incomplete Introestructurs en Me s *tado Q Operocidn inadecueds QCalided del egua Buena C Regular Q Mdol QCapxaci6n IS/N) Q Superficial Q Gxlerfo o pozo somero Pazo protundo Q

Cauda Ilpsl Potencis total del equipo do bombeo IHPI

Conduccion IS/NI Q Longrud (ml Ditmetro dominante (pulgedas)

RsguLaidn IS/N) Q Superficial o subterrino Q Elevedo a Capecidad total Im3)

Desintccutin CS/NI QD.arubucidn IS/NI Longtud (m) Didmetro dominente (pulgedeal

Tomex IS/N) Q Pdblicas Domitciados Q Numero

-~~~ -'v~ . M% B - . 5 5g-, ¾ f; n.a.t..nAj; :Q ., C

rapo de obra Obr Nueva Q Amplisdn Q RefbiblltociWn QTip. -s saernov: Gavded Q anmbeo . lAxto QNOmero de b.ndelcanos dfioctas de lo abne

3.1 Caracta t do ekrs Nmew oel

Cptaidn IS/N) Q Supfcial El Gabfa a paz. sarmro Q PCz. prohtndo flCaudW al f_p___ Potena totl dWl equpo de bamboo (IM

Conducci6n (S/N) Q LngWud 'm) D_mtr daminonte puulgal_ _ _

Reguleci6n (S/N) Q Superficial o oubtorrinea o l Movdo Q Cepecidad total Im31

oeirocddln (sm} [3

Distrlbucidn ISIN) 3 Langitud (ml DIdmetr domnte puiga des)

Tom" IS/NI fl Pbica 3 Domhdlon QlmeNnwo3.2 Ceateeftdcs d of e

CeptidclOn IS/NI Superficial fl WG a pomf nro Pmo protdo

Cnl losl ftoc total We qpa de bomibc IPfb

Conduccidn (S/NI fl Longitud gm) 111illDmevo dominnts (pulgodeol

Reguiciln (SIN) 3 Supeifol a oubtwtneao Q svedo Q Capacidad total Im31

Delnteccidn (S/NI QDuvbucdn IS/NI l Lonogitud tml Didmevo demrnrnte apudalpd

Tomac IS/NI Q Pu3blcea Q Dom.leas [3 NoC _

Cotoaa eualec de apocllo y menmaenta INS) m nt Terift mwdla mnnal INI/taoml,

Obre nurvo a omplsclidn eObllzcwdn Tota

Conduccidn

ftegfs o6n

Dntnd _ _ _

Tona

TOW?cmoul_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Teud _______________________ ________________________ _______________________~~~~~~

67 - ANNEX C

Page 13 of 15Attachment H

PROYECTO DE DESCENTRALIZACION Y DESARROLLO REGIONAL IIComponente de Caminos Rurales

Modelo de Data Sheet para Eliminacidn de Puntos Criticos

Estado Clave Regi6n Clave

Municipio Clave Dependenca ejecutora

NOmero de c6digo del camino

Nombre del camino

Longitud CKil6metrosl

NOmero de beneficia rio

Densidad (HubTtantes/Kmi,

Tipo -D- Q Tipo -E- Tipo f Q Federal Estatal Q Ot°o

...

Cantddad Costao*n N$linr luye el IVA)

Terracerles (Km de reafinamiento) L I

Drenaje Im3 de concrato y albaluilerfa)

Revestimiento Im3 de grave)

Puentes Im3 de conareto y albaHrailedal

Eutudios de ingenierla (Krn) _

Tatal

N$tKm

Numero de bernficiarios de ia obre g 5m real. x densidad

Numero de a obre ! I

- 68 -

ANNEX CPage 14 of 15

Attachment II

PROYECTO DE DESCENTRALIZACION Y DESARROLLO REGIONAL 11

Subcomponente de Fortalecimiento lnstitucionalModelo de Data Sheet pasa Capa:itaci6n

Estado Cbve

Fondos Municipales 5 Agus Potable Carrinos Ruralas i Provs. Productivos 5 Coordinsci6n

.......:... . S~~~~~~~~~~~A.*.....,..............: ~ ... . .. *. . .... . 7

Contnitante: 1. Agencis estatdl 2. SOdesol Central 3. Delegaci6n Sedesol 5 4. Munridpio 5

Capaciatdor 5. Agends Estatul 0 6. Instituci6n Publics 5 7. Ins0tucidn o personas privadas 5

Capacitado: 8. Agencis Estrtal 9. Municipio 10. Sedesol 5Forms: 11. En el sitio del capacitado (oficins o campoi 5 12. Organizado Iseminano. curso formal. atc .

TemaCal: 13. Ingeniea b"iica 0 14. Medio ambiento 15. Estadistica 516. SirtmasAntormitica 5 17. Oparscdn 18. Mantanirrnento 5IO. Adrnkitrsdn 020. Otro

Nrnmro de capacttadons Duradn Wds) 21. Total dis-capecdtador FM

NCirn ro de c owduos Durscd6n (dies) 22. Total divs-cpadt do ||||||jjj

Costoz an NS (lniuye iVA)

Conoept

Honorwics

Vidticou _______________ ______________

Matun al*s (oseapcficewl __________________________

Dscripci6n de mratdals:

Numero de is oba |

- 69 -ANNEX C

Page 15 of 15Attachment II

PROYECTO DE DESCENTRALIZACION Y DESARROLLO REGIONAL 11Subcomponente de Fortalecimiento Institucional

Modelo de Data Sheet para Adquisici6n de Equipo

Estado Clave -

Componente Fondos Municipales g Proyectos Productivos Coordinaci6n E

Caminos Rurales Agua Potable

C .. & ~ ~ ~ ~ ~ ~ ~ ~ ~ CCC~~~~~~'~~~'.... ...

~~~ ~~~ 'C~~~~~~~*'' C-.' *~~~~~~~~~~~.. . ;......... ..

Tipo de *quipo Equipo de c6mputo Q Equipo tdcnico Otro

Agenci quo recibe: Sodoeol Ejecutor estatal Municipio ]

Objetivo: Area administriva 5 Area ticnica 5Descripci6n:

Concepto Unidad CandUdad Costo total (N$)

Computedoras Equipo

Impresoras Equipo

Otros petrfkricos Lote

Software Paquete

iTotdl

Nutmero de Ia obra

- 70 -

ANNEX DPage I of 9

MEXCO


SEDESOL Strengthening and Project Coordination Component

1. The Direcci6n de Programas Especiales, within the Direcci6n General de Programas deDesarrollo Regional, Subsecretarla de Desarrollo Regional, SEDESOL, is the PCU for the first DRDproject and will continue in that role for the Second DRD project. The PCU currently consists ofover 50 professional and technical staff responsible for all phases of project supervision. However,most of these staff are responsible for general administrative functions, with only a few providingspecialized technical expertise. The experience of the first project demonstrated the need tostrengthen the technical supervision of each project component by SEDESOL, at the state and federallevels, so that implementation problems could be identified and the resolution sought through eitherinternal institutional strengthening of involved agencies or the contracting of technical assistance forsubproject design and other work. In the Second DRD project, the capacity of SEDESOL, andspecifically the PCU, would be strengthened in the following ways:

(a) Restructuring of the PCU, so that it would be more efficiently organized alongprogrammatic lines;

(b) Long term consultants would be hired by the central and state level PCUs tostrengthen its expertise in critical areas such as engineering, municipal development,participation, and information management (see Attachment I, Table 1);

(c) Istitutional strengthening program of technical assistance, studies, training andequipment that would strengthen the capacity of the central and state PCUs (seeAttachment I, Table 2);

(d) Contracting of mid-term project reviews to outside experts, providing SEDESOLand the PCU with an external perspective on the progress of project implementation(see Attachment I, Table 2); and

(e) Contracting of annual project financial and performance audits (see Attachment I,Table 2).

Restructuring of the central PCU

2. In order to strengthen the central PCU, its structure would be modified, organizing it intofour technical units responsible for each of the four project components, rather than the currentorganization by function (i.e., planning, monitoring, disbursement, and evaluation). In addition,there would be an administrative support unit, responsible for procurement review and assistance,managing the disbursement process, and providing technical support to the PCU and the state-levelPCUs for the development and maintenance of the information management system.

- 71 -

ANNEX DPage 2 of 9

Consulting Services contracted to Strengthen the PCUs and MSUs

3. To strengthen the staffing of the central PCU, in order to meet the demands of the project,new technical positions would be created and filled by the contracting of experienced professionals inthe areas of engineering (rural road and water supply), agriculture, municipal development,information management, and community participation. See Attachment I, Table 1 for a list ofexperts required and related project budget. TORs, including candidate selection criteria, would bedeveloped for each position. These TORs and the qualifications of selected candidates would bereviewed and agreed to by the Bank.

4. At the state level, project coordination activities will be undertaken by a small PCU reportingto the SEDESOL state representative (delegado). This state level PCU would consist of a generalcivil engineer, rural road engineer (for Municipal FundslEscuela Digna), water supply engineer,participation or public administration specialist, and two information specialists. In the pilot states forthe productive component, an agriculturalist will also be included in the state PCU. In addition, toassist in the strengthening of the MSUs for rural roads and water supply in each state, and ensurecoordination between these programs and the project, an engineers and community participationspecialist will be contracted for each of these units. (See Attachment I, Table 1)

PCU Functions

5. TMe PCU is responsible for overseeing the implementation of the project, including theSolidarity investment programs and institutional development activities supported by the project in theeight project states (Municipal Solidarity Funds, Escuela Digna, Municipal Strengthening,Rehabilitation and Maintenance of Rural Roads, Rural Water Supply, and Productive Investments).The PCU has three key responsibilities: (a) to establish and promote project guidelines(normatividad) for each component; (b) provide leadership in support of the development ofinstitutional capacity of the involved state agencies and municipalities; (c) oversee and monitor theimplementation of each phase of the cycle of project investment.

(a) Establish and Promote Component Guidelines

6. The guidelines for project implementation are included in the Project Operational Manual,which is annexed to the Manual Unico de Operaci6n de Solidaridad (see Attachment II, outline of theProject Operational Manual). These guidelines address technical, community participation,administrative, procurement, and financial requirements of each component. The PCU, working withand through the SEDESOL state delegations, is responsible for the dissemination of projectguidelines, for reviewing implementation and ensuring adherence to guidelines, initiatingmodifications in the guidelines based on an analysis of implementation experience, and conductingregular meetings and workshops with representatives of municipalities and state governments,including the Interstate Technical Groups for Municipal Funds, Municipal Strengthening, Rural WaterSupply, and Rural Roads.

(b) Leadership in Supporting Institutional Development Goils

7. The achievement of the principle objective of the project, the development of institutionalcapacity at state and local levels in the eight project states, requires strong leadership by the PCU.

- 72 -

ANNEX DPage 3 of 9

Because of that, each of the four technical units would be responsible not only for the developmentand modification of project guidelines (see 'a' above), but also for supervising of the projectinvestment program ("c' below), and working with state and local institutions to plan, implement, andmonitor institutional development activities. The institutional development objectives and activitiesare described in each of the technical annexes for each of the four project components (Annexes F, G,H, and I). The PCU would present annual plans for the institutional development activities for eachcomponent no later than January 31 of each year, and would report on progress through the semi-annual and annual reports.

(c) Supervision of Project Implementation

8. The implementation process differs slightly by component, and is presented in the relevantannex (Annexes F, G, H, and I). The operational role of the PCU and the SEDESOL statedelegations is as follows:

(a) Planning. The state SEDESOL office and the federal PCU receive and must approveproposals for the expenditure of resources for specific subprojects, or, in the cases ofMunicipal Funds and Escuela Digna, for specific municipalities. Both organizationsreview state proposals to ensure that eligibility criteria and technical standards aremet. These proposals must be within an overall budget ceiling established for eachstate for total Solidarity expenditures and for total project-related (eligible)expenditures within that amount.

(b) Implementation and Performance Monitoring. The state government agencies andmunicipalities are responsible for implementation of agreed subprojects. The role ofSEDESOL, including the PCU, is to ensure that component guidelines are followedand that adequate technical assistance and training, and other institutional activities areprogrammed and carried out by the states. SEDESOL takes an active role inreviewing the status of implementation based both on reports from the state agenciescoming from the project information system, as well as spot field reviews of eachcomponent. For some of the institutional development activities, involving technicalassistance, studies or training that encompass more than one state, the PCU may playa direct implementation role. For more details on the monitoring and reportingfunctions of the PCU, see Annex C.

(c) Evaluation and Audits. The PCU is also in-charge of ensuring that the results of thephysical performance evaluations and project audits are used effectively by theprograms and by the states to improve both design and execution. In addition, thePCU would conduct a mid-term evaluation of progress, with the assistance of outsideexperts, for each of the four components.

Technical Assistance, Studies, Training and Equipment

9. To strengthen the capacity of the members of the central and state level PCUs, a program ofshort term technical assistance, training in computer and other technical skills, and purchase ofequipment for the information and monitoring system is planned. The nature of this program willdepend in part on the skills of the long term consultants hired to assist the PCU, and the completion

- 73 -

ANNEX DPage 4 of 9

of the plan to upgrade state and central computer systems for the project information and monitoringsystem. In addition, the PCU will be responsible for the identification and conduct of studiesregarding issues of rural and municipal development, community participation, decentralization andpoverty alleviation, not including in the program of studies for the individual project components.The first study identified is concerning community-contracted procurement, to be completed by theend of 1995.

- 74 -Annex D

Page 5 of 9Mexico Second Decentralization and Regional Development Project Attachment I

Project CoordinationTable 1. Long Term Consulting Services to be Contracted at Federal and State Levels (US$)

(por persona)Costo Anual - USS Costo Costo

Numero de lsueldo mas USS Total TotalUnidad Disciplina Personas 15,000 viaje/viat) Anuul Proyecto

Personal - UCP Central

Fortalecimiento Exp. Participacion Social 1 63,000 63,000 252,000Municipal Esp. Anal. Municipal 1 43,000 43,000 172,000IFMS, Esc. Dig Esp. Ing. Civil 1 43,000 43,000 172,000y Fort. Mun.) Ing. en Informatica 2 43,000 86,000 344,000

Ague Ing. doPotable y Ague Potable 1 63,000 63,000 252,000Caminos Ing. deRurales Caminos 1 63,000 63,000 252,000

Ings. Ague 2 43,000 8s,000 344,000Ings. Caminos 2 43,000 86,000 344,000Esp. Participacion Social 1 43,000 43,000 172,000

Proyectoa Ing. Agronomo 1 63,000 63,000 252,000Productivos Econ. Agricultura 1 43,000 43,000 172,000

Administracion Esp. Informatica 2 43,000 86,000 344,000de Informatica

TOTAL-Contro 16 768.000 3.072,000

EN LA UCP EN LOS ESTADOS:

Coord. deProyecto Administrador 8 63,000 504,000 2,016,000

Fondos Mun. Ing. Civil 16 43,000 688,000 2,752,000(y E.D/Fort. Esp. ParticipacionMunicipall Social 8 43,000 344,000 1,376,000

Ague Pot. y Ing.- Ague 8 43,000 344,000 1,3i6,000Caminos Rural. Ing.- Caminos 8 43,000 344,000 1,376,000

Proy. Product. Ing.- Agronomo 3 43,000 129,000 516,000

Administracion Ing. lnformatica 16 43,000 88,000 2,752,000Financieraelnfor. Admin. Financiera 8 43,000 344,000 1,376.000

EN LAS UNIDADES DEAPOYO MUNICIPAL

AguePotable y Ing.- Ague 16 43,000 688,000 2,752,000

Esp.-Participacion 8 43,000 344,000 1,376,000Caminos Ing.- Cwminos 116 43,000 688,000 2,752,000

Esp.-Participecion 8 43,000 344,000 1,376,000

TOTAL - Estadoa 123 5.449.000 21,796,000

TOTAL - CENTRO Y LOS ESTADOS 139 6,217,000 24,868,000

TOTAL CON CONTICIENCIAS 6,571,058 26,284,233

- 75 -ANNEX D

Page 6 of 9Attachment I


SEDESOL Strengthening and Project Coordination Component

Table 2. Technica Assistance, Training, Equipment, Studies, and Audit

TotalCost

Area Unit Quantity US$

1. Evaluatons

Annual Physical PerformanceEvaluation study 3 975,000

Mid-term Project Review study 1 325,000

Subtotd (Evaluations) 1,300,000

2. Technioa Assiatanoa &Traring

TA for ech Component- Municipal lnvestment &

Strengthening persor-month 12 180,000- Rural Water Supply person-month 12 180,000- Rural Roads person-month 12 180.000- Income-gnrating Comp. peron-month 12 180,000- Project information and

monitoring system peron-month 12 180,000

Training for PCUa (State and Central)- Data base management and

use of analytical tools- in Central PCU courses 12 120.000- in state PCUa courses 24 240,000- Training in word procssing coursao 10 100,000-Technial Study Tours tripe 4 100,000

Studies- Community procurement

study study 1 200,000- Other studies study 7 1,000,000

SUBTOTAL iTA ,Training and Studlial 2U660,000

3. Equipment

- Computer Iota 9 1,575,000- Software Iots 9 45.000

SUBTOTAL lEquipment) 1.620.000

4 Annual ProeactAudkt audits 4 3,000.000

SUBTOTAL 3.000.000

TOTAL 8,580,000

GRAND TOTAL with oontingnaies 9.068.831

- 76 -

ANNEX DPage 7 of 9

Attachnent II

MEXCOSECOND DECENTRALIZATION AND REGIONAL DEVELOPMENT

PROJECT

PROJECT OPERATIONAL MANUALTABLE OF CONTENTS

1. Manual de Operacidn del Proyecto de Descentralizacion y Desarrollo Regional II (PDDR II).

I. Presentacion General del Proyecto

II. Resumen de los Componentes del Proyecto

m. Ciclo de Inversidn

IV. Sistema de Monitoreo y Evaluaci6n

V. Auditorfa del Proyecto

VI. Estructura, Funciones y Actividades de Coordinacidn del Proyecto

2. Anexos

I. Anexos Generales

A. Matriz de Implementacion Institucional del Proyecto

B. Manual de Informatica y Monitoreo

C. Tablero de Desembolso por Componente

D. Manual de Licitaciones, Desembolsos y Auditorla

H. Anexos Sobre Fondos Municipales (Municipal Investnent and InstfrtonalDevelopment Component)

A. Reglas para la Distribuci6n de Recursos de Fondos Municipales (FMS) a losMunicipios de cada Estado

B. Cedulas de Informacion por Obra (Data Sheets) para FMS y Escuela Digna

C. Gufa para la elaboraci6n de expedientes Tecnicos para FMS

D. Manuales de Autoconstruccidn

E. FMS: Manual de Operacion

- 77 -

ANNEX DPage 8 of 9

Attachment II

F. FMS: Gufa Operativa para Presidentes Municipales

G. Escuela Digna: Manual de Operacion

H. Escuela Digna: Gufa Operativa para Presidentes Municipales

I. Estrategia de los Grupos Interestatales (Grupo de Finanzas Municipales yGrupo de FMS y ED) y Grupos Estatales de Presidentes Municipales

J. Plan de Apoyo para el Desarrollo Institucional

IH. Anexos sobre Agua Potable en Zonas Rurales

A. Gufa para la elaboraci6n de Proyectos de Agua Potable en localidades Ruralescon poblacion entre 500 a 5000 habitantes

B. Criterios de elegibilidad de Sistemas de Agua Potable para financiamiento

C. Modelo de Convenio para la realizaci6n de obras por la Comunidad

D. Estrategia de Participacidn de las Comunidades en el Seguimiento, Operacidny Mantenimiento de los Sistemas de Agua Potable

E. Programa General de Desarrollo Institucional (Capacitacidn, AsistenciaT'cnica, Equipo y Estudios)

F. Estrategia Estatal de Apoyo Municipal para Agua Potable en Zonas Rurales(Unidad de Apoyo Municipal)

G. Estrategia de Grupo Interestatal de Agua Potabie

IV. Anexos Sobre Rehabilitacion y Mantenimiento de Caminos Rurales

A. Listado Priorizado de Caminos Rurales

B. Lineamientos para la Selecci6n y Criterios de Elegibilidad de Caminos Ruralespara la rehabilitaci6n y mantenimiento

C. Gufa Tecnica para la Elirninaci6n de Puntos Crfticos

D. Modelo de Convenio para la realizaci6n de Obras por la Comunidad

E. Estrategia de Participacidn de las Comunidades en el Seguimiento de lasObras

- 78 -

ANNEX DPage 9 of 9

Attachment II

F. Gufa Operativa para el Programa de Mantenimiento Rutinario de CaminosRurales (Pe6n Caminero), incluye Modelo de Contrato

G. Programa de Desarrollo Institucional (Capacitacidn, Asistencia Tecnica,Equipo y Estudios)

H. Terminos de Referencia para: (i) Sistema de Informacidn y Monitoreo paraCaminos Rurales; (ii) Apoyo Tecnico en Proyectos de Ingenierfa Eliminacionde Puntos Crfticos y para la actualizacion de la metodologfa

I. Estrategia Estatal de Apoyo Municipal para la Rehabilitacidn de PuntosCrfticos y Mantenimiento de Caminos Rurales (Unidad de Apoyo Municipal)

J. Estrategia del Grupo Interestatal de Caminos Rurales

V. Anexos sobre el Componente de Actividades Productivas (Income-GeneratlngConnent)

- 79 - ANNEX EPage 1 of 5

MEXICO


Application of Lessons Learned from theFirst Decentralization and Regional Development Project

1. The ongoing experience of the first DRD project has been examined in thefollowing ways: (a) annual project audits which reviewed physical as well asfinancial implementation; (b) independent evaluation of Municipal Funds in 50municipalities of Oaxaca; (c) SEDESOL's internal evaluation of Municipal Funds inthe four states; (d) SEDESOL's annual project implementation reports; and (e) fieldsupervision by the Bank, especially of the water supply, rural roads, environmentalprotection, and Municipal Funds programs. Among the positive conclusions that canbe drawn from the information available thus far are:

(a) decentralization of fiscal resources to rural communities through theMunicipal Funds program results in cost effective works, and, withinthe limits of the funding and technical expertise available, selectionof investments is reflective of community priorities;

(b) the introduction of eligibility criteria for rural roads, water supplyand electrification works selected at the state level has eliminated asignificant number of uneconomic investments, and has introduced aconcept of planning and prioritization to those agencies; and

(c) the availability of timely information about the execution of thesedecentralized programs has allowed the federal government torespond by taking corrective actions or modifying programguidelines, as appropriate.

2. Among the most significant criticisms of the first project are:

(a) the spread of investments over too many sectors and institutions,diluting the impact of institutional development efforts and makingproject monitoring and supervision difficult;

(b) lack of institutional incentives and capability to provide technicalguidance and review by SEDESOL and state agencies;

(c) lack of strategy and procedures for the implementation of theproductive component, leading to a low level of project financingdedicated to it;

(d) need for greater technical support to communities and municipalitiesfor the implementation of Municipal Funds investments; and

- 80 -ANNEX E

Page 2 of 5

(e) need to further improve and to institutionalize mechanisms fortargeting funds to areas of greatest need and potential effect.

3. The design of the Second DRD project has incorporated lessons derivedfrom the first project in that it will: (a) simplify and improve the operationality ofthe project in spite of the increased number of states; (b) focus more strongly onrural areas to better attend the poor; (c) increase the economic efficiency ofinvestments selected; (d) improve project monitoring; and (e) further decentralizeproject implementation to improve efficiency, provide greater opportunity forparticipation of project beneficiaries and strengthening of local and state institutions.With this purpose, modifications have been made in the structure of the overallproject and its individual components, the mechanisms of project implementation andmonitoring, and the role and technical capacity of SEDESOL to oversee projectimplementation.

Limiting Project Scope

4. Areas of project investment have been reduced from ten to four to focus on:(a) rural municipal development through the Municipal Funds and Escuela Dignaprograms; (b) rural water supply; (c) rural roads; and (d) income-generatinginvestment, undertaken on a pilot basis. This simplification should allow bothSEDESOL and Bank supervision to focus with greater effectiveness on a morelimited number of implementation issues.

5. In addition, given the decentralization objective of the project, implementingagencies for all components, except the productive component, have been limited tostate agencies. Twenty-four state agencies (one each for Municipal FundslEscuelaDigna, rural water supply and rural roads in each of eight states) would be operatingunder the Second DRD project instead of the approximately seventy (state andfederal) in the four states of the first DRD project.

6. Further simplification would result from a strong emphasis on the successfulMunicipal Funds component, to receive about 59% of the new loan instead of 159%estimated at the time of appraisal of the first DRD project.

Targeting of Component Financing and Activities

7. The design of each component has been modified to reduce the scope ofactions to better focus on key rural development needs. In addition, each componenthas been tailored to implement simple technologies that can be easily carried out bycommunity groups and by small contractors, and would include a specificinstitutional strengthening program. The strengthening actions would be principallyof a technical nature addressing priority problems that can be partially resolvedthrough training and targeted technical assistance (see Annex J).

8. The Municipal Funds program evolved significantly during theimplementation of the first DRD project, resulting in increased communityparticipation in decision-making and management of investments. Beginning withthe Second DRD project, the distribution of funds among municipalities would bebased on measurable criteria linked to level of poverty, and 25 large urban

- 81 -ANNEX E

Page 3 of 5

municipalities would be excluded from project financing. In addition, the rules ofdistribution of Municipal Funds between urban municipal capitals (cabeceras) andsurrounding rural localities have been redefined during the first project to betterchannel financing to rural areas.

9. The water supply component of the first project has been redesigned torespond to an analysis of the needs of rural areas instead on relying only on ademand driven system that included medium cities. The component would focus onwater supply system construction and rehabilitation in localities within a 500-5,000range of population. Localities under 500 population would also receive assistancewith water supply, but through the Municipal Funds component. Eligibility criteriaof the water component would favor the use of lower cost, appropriate designs andtechnologies and maximize the coverage of the component. Improving the quality ofwater supply systems would be addressed through: (a) contracting engineeringworks; (b) establishing and providing training for state level MSUs; and (c)strengthening ongoing field reviews of completed works (see Annex G).

10. The rural roads component would eliminate financing of new constructionsto focus on rehabilitation and routine maintenance on the low end of the rural roadsnetwork (single lane roads) used by the poorest people. The component would focuson spot improvements because they are easier to be planned, designed, implementedand also because they are significantly more cost effective than full reconstruction(see Annex H).

11. The income-generating component would not be wide open (as in the firstproject) but would be limited to strengthening income-generating investments underMunicipal Funds and to supporting a pilot program in one or two states. (see Annexn.

Implementation Mechanisms

12. The mechanisms and procedures of implementation have been redesigned tospeed up and simplify the process of investment selection and implementation.

13. For the municipal investment and institutional development component thecomplex selection grid design for the first project is no longer in use. Instead,investment selection is guided by: (a) a general set of criteria for prioritizingpotential investments; (b) financial incentives to promote selection of investments forwhat government considers basic needs, for example, water supply systems (80%financing) instead of parks and community centers (60% financing); and (c) a limiton the amount of financing which can be used for street paving.

14. Preliminary work has been done in the water supply and rural roadscomponents to make implementation easier. In water supply, investment evaluationshave been prepared in order to help in the design of the annual action plans. Inural roads, each road link candidate for rehabilitation has been identified and

ranked. Simple eligibility criteria have been established to avoid lengthy selectionprocess, tricky economic analysis, or too strong political bias.

- 82 -ANNEX E

Page 4 of 5

15. Technical models and typical documentation have been designed to speed upthe engineering and the procurement process for the Municipal Funds, rural watersupply and rural roads components. A Project Operational Manual that details allthe steps to be carried out by the different executing agencies has been established.

16. Two new communication structures have been established to strengthenproject implementation: (a) ITGs (for roads, water supply, Municipal Funds, andfiscal strengthening); and (b) MSUs within the water supply and rural roads stateagencies to assist the municipalities. These new structures would sensitize the statesto their common decentralization issues, and allow them to jointly prepare adiagnosis of their situation and develop technical recommendations for training andtechnical assistance.

Improvement of the Project Monitoring Mechanisms

17. During the implementation of the first project, the PCU ceased to depend ona rigid centralized information system and established a more flexible monitoringsystem using a data base system. The information system is based on three modules(technical, financial and procurement/disbursement) which are being installed atdecentralized (state) and centralized (national) levels at a minimum informationcollecting cost. Since the project is made up of thousands of small subprojects, itwould be useless and costly to try to monitor the implementation of each subproject.Therefore, the monitoring system has been designed to focus at the project level (seeAnnex C).

18. Reimbursement by the project special account would happen when thesubprojects are fully implemented (with some exceptions for large contracts). Thiswould dramatically reduce the number of SOEs. The Bank's no objection noticewould be given only once, at the time of presentation of draft SOEs. The Bank's noobjection would be based on the analysis of data supplied by the three modules ofthe information system.

19. The procurement rules would be the usual ones relating to local shoppingand local and international competitive bidding, with the exceptions of allowing: (a)direct purchasing for investments in the Municipal Funds component; and (b) the useof special contracts (convenios) where financing would be based on theimplementation of agreed outputs for subprojects under US$50,000 carried out underthe full responsibility of community groups.

20. A project physical performance evaluation would be conducted annuallybeginning in 1996. The evaluation would use sampling techniques to ensure anadequate sampling of various subprojects types and sizes and implementing agencies.The sampling would be representative of the structure of the project and of theexecuting agencies.

Strengthening of SEDESOL

21. SEDESOL is a young institution with little technical background. In theimplementation of the first project, SEDESOL was supposed to be assisted by thefederal normative institutions. In fact these federal institutions are not structured to

- 83 -ANNEX E

Page 5 of 5

fulfill responsibilities aimed to help the decentralization process. Therefore,SEDESOL needs to build greater capability to conduct technical supervision.

22. The organization of SEDESOL's central PCU in Mexico would berestructured and provided with greater technical expertise. This PCU would consistof four sectorial units: Municipal Funds, Rural Water Supply, Rural Roads, andIncome-Generating Investments. Each unit would consist of a team of specialists intheir respective areas of activity. Administrative units would support the technicalunits for procurement and disbursement, as well as information management issues(see Annex D).

23. At the state level, the SEDESOL delegation would be strengthened by thecreation of a small PCU, staffed in part with contracted technical specialists, thatwould ensure that the functions of project coordination and supervision are carriedout.

Bank Supervision

24. Supervision, monitoring and understanding of such complex social projectsrequires significant field presence by the Bank. Supervision of the first DRD projectdepended on the presence of a resident engineer in Mexico. Such a field presencewas invaluable for the success of the first DRD project and will be continued toassure the continued improvement and success of project implementation under thesecond project.

- 84 -ANNEX F

Page 1 of 12

MEXICO


Municipal Investment and Institutional Development Component

I. Background

1. Although municipalities are constitutionally responsible for delivery of arange of local services, many are neither financially nor technically capable ofproviding them. This problem is greatest in rural municipalities in the pooreststates, where local services are usually limited to the operation of water supplysystems and minor repairs and improvements to local infrastructure and where mostlocal investment is financed and implemented by state or federal agencies.Experience has shown that these externally managed investments often lackresponsiveness to the priority needs of local communities, and suffer from poorquality of implementation and lack of follow-up maintenance or repair.

2. In addition to lacking resources and technical capability, many municipalgovernments have little experience with citizen participation, especially of its poorestcitizens, and those that live outside the cabecera. While in the last five years lawshave been passed to increase the representation of minority interests on themunicipal councils, and opposition parties have gained representation in a number ofmunicipalities, a significant amount of the rural population have little influence onlocal decision-making. The January 1994 uprising in Chiapas, including theinvasion and trashing of four municipal headquarters and demands made by therebels for electoral reform at local, as well as national, levels, is one reflection ofthe historically-based problems with local government.

3. Within the eight project states, there is a great deal of diversity in both thestructure and representativeness of municipal governments, reflective of a federalsystem where sovereign state governments establish many of the rules governingmunicipal life. Oaxaca is the least typical of the eight states, with 570municipalities, of which 517 are completely rural' and extremely small, with anaverage population of 3,200. Chiapas and Michoacan, by comparison, have similartotal state populations, but have only Il l and 113 municipalities respectively.

4. Oaxaca also has a long tradition of community representation, with localcommunities selecting their own local municipal administrators (agentesmunicipales). In the other seven states, this position is often appointed by themayor, and the agentes may or may not represent the interests of their communities.Because Mexican municipalities work on a 'strong mayor' model, and municipalcouncils are selected through party slate, at-large elections, these agentes become animportant link between the rural community and local government. Therefore, it is

1. A rual municipality is defined as a municipality whose cabecera has less than 5,000inhabitants.

- 85 -ANNEX F

Page 2 of 12

important that a number of states, including Hidalgo and Veracruz, are movingtoward a system of local selection of these agentes.

II. Municipal Investment and Strengthening Program

5. The Municipal Investment and Strengthening component is designed toaddress each of the three main issues identified above which affect performance ofrural municipalities, that is, financial resources, technical capacity, and communitvparticipation. The component will: (a) provide investment capiral tomunicipalities, through the Municipal Funds and Escuela Digna programs; (b)finance technical assistance and training; and (c) foster citizen participation throughcitizen involvement in resource allocation decisions in the Municipal SolidarityCouncils and in the implementation of selected investments through the SolidarityCommittees.

6. The component consists of three subcomponents: (a) Municipal Funds; (b)Escuela Digna (school rehabilitation); and (c) municipal strengthening.

A. Municipal Funds Subcomponent

7. The Municipal Funds program was initiated in 1990, as part of the NationalSolidarity Program and currently is being implemented in all 31 of Mexico's states.The two principal objectives of the Municipal Funds Program are to: (a) transferresources to and strengthen municipal governments of the country, so that works ofwide social benefit can be executed; and (b) strengthen community participation andinvolvement in decision-making, considering that the municipality is thegovernmental structure with greatest contact with communities.2 Guidelines for theimplementation of the Municipal Funds are established in the Municipal FundsOperational Manual and Technical Guidelines, annexed to the Manual Unico deSolidaridad.

8. Since their initiation, Municipal Funds have been targeted to rural areas, dueto the high incidence of rural poverty and to the fact that the program is better suitedto rural areas. In general, rural areas require less complex infrastructure, haveactive community organizations (e.g., the ejidos), and an absence of localgovernment presence which provides greater opportunity for communityparticipation. Experience has shown that Municipal Funds investments are less wellsuited to urban or peri-urban areas where infrastructure needs often demand greaterlevels of funding and technical input and planning than usually occurs within theMunicipal Funds program.

9. The Municipal Funds program provides annual allocations of grant funds tomunicipal governments, for investment in projects identified and implemented bytheir communities. The maximum size allowed for any single project is currentlyset at US$50,000; nevertheless, the average size of a Municipal Funds investment inthe project states has been less than US$14,000. As is generally the case forSolidarity programs, Municipal Funds involve a federal-state matching grant ofeither 75125 for the poorest states (including the eight project states) and 50/50 for

2. Fondos Municipales de Solidaridad, Proyccio de Descentralizacidn y DesarrolloRegional, Chiapas, Guerrero, Hidalgo y Oaraca, Guia Tt'cnica, 1993, SEDESOL, p. 10.

- 86 -ANNEX F

Page 3 of 12

wealthier states. In addition, communities are expected to match the funds receivedfor a specific investment, by contributing a minimum of 20% of the total costthemselves. In some cases (e.g., Guerrero and Hidalgo), muni.ipal governments arerequired to contribute a portion of the state's matching share.

10. For the eight states, the amount of per rural capita Municipal Funds receivedin 1992 ranged from 6 dollars per capita to 10 dollars per capita. A typical ruralcommunity of 3,000 people of Oaxaca received an annual allocation ofapproximately USS20,000, and a typical rural community of Chiapas of 15,000people received an annual allocation of approximately US$100,000. See attachedTable 1 for an indication of the level of funding of Municipal Funds in the eightstates through the end of 1992.

11. During the implementation of Municipal Funds within the first DRD project,a number of innovations were developed, many of which have already beengeneralized to the national program. These innovations include limitation ofexpenditures in municipal cabeceras, depending on the relative rural or urban natureof the municipality;' emphasis on implementation of subprojects by SolidarityCommittees (rather than municipal administrations); and emphasis given to theconstitution and role of a specially formed Municipal Solidarity Council (MSC),with representation of rural communities, to plan and supervise the use of theseinvestment funds. In addition, the requirement for community contribution wasraised from 20% to 40% for a range of projects including public parks, sportsfields, and community buildings.

12. Annual Allocation of Municipal Funds Resources. Solidarity funds, likemost public investment funds in Mexico, are committed on an annual basis. A totalSolidarity allocation is made each year for each state, based on a combination ofhistorical precedent and a process of negotiations between federal and stategovernments. Within the total Solidarity commitment, state governments haverelative freedom to allocate funds among the over 30 different Solidarity programs,including Municipal Funds. In practice, the eight states have consistently increasedin real terms the amount of money going to Municipal Funds (see Table 1). Inaddition, as the implementation of Solidarity progresses, governors may request there-allocation of unspent Solidarity funds from one category to another. Staterequests in mid-year to add funds to the Municipal Funds program have beencommon, when implementation in another program category has been slower thanexpected

13. Formula and Procedures for Distribution of Funds to Municinalities. Thestate governments have decided each year the distribution of Municipal Funds tomunicipalities. While the methods of establishing this distribution have differedgreatly, in general they tended to follow the guidelines of SEDESOL to target

3. Municipalities have been divided into three groups: Group A which includes allmunicipalities which are 100% rural (no locality over 5,000); Group BI which includessemi-rural municipalities where the cabecera is over 5,000, but where at least one-third ofthe population lives outside the cabecera; and Group B2 which includes highly urbanmunicipalities in which the cabecera is over 5,000 and at least two-thirds the population ofthe municipality live in the cabecera. Expenditures in the cabeceras of Group A are limitedto 50%, in Group Bl to 25%, and Group B2 to 409%. In addition, 25 of the largest B2municipalities have been excluded from participation in the program.

- 87 -ANNEX F

Page 4 of 12

municipalities in greatest need. Beginning in 1995, however, each of the eightproject states will use a formula for distribution that has been proposed by them andagreed by SEDESOL and the Bank. It is expected that these formulas will addresssome of the current inequalities among municipalities, continue to ensure that greaterweight is given to poor, rural municipalities, and provide for greater transparency indecision-making. The allocation of funds to municipalities is authorized by the stateand SEDESOL in the "oficio de aurorizacidn," which is signed by bothorganizations.

14. Selection of Investments. Once municipal governments have been notified oftheir allocation, they present to the state government and SEDESOL a list ofproposed subprojects for the year, the total budget of which may not exceed fundsallocated. These subprojects are selected in a multi-phase process, which includes:(a) comrnunity assemblies in which projects of interest to that community areidentified and prioritized; (b) meetings of the MSC, in which the proposals of allcommunities are discussed and priorities for financing established; (c) thepreparation of technical proposals for subprojects selected; and (d) submission of theconsolidated municipal proposal to the state government and SEDESOL for reviewand approval.

15. Municipalities are given a significant amount of freedom in defining theirinvestment program. Nevertheless, program guidelines indicate that priority shouldbe given to: (a) water supply, rural roads, sewage and latrines, electrification,rehabilitation of health centers, educational infrastructure, and productive works; (b)projects with the largest number of beneficiaries and lowest cost per beneficiary; and(c) projects in communities with the greatest levels of poverty. Investment inchurches, municipal buildings, and cemeteries are not permitted. The proposedallocation of funds for specific subprojects within municipalities is approvedby SEDESOL through the 'oficlo de aprobaci6n." It is at this point that the stategovernment and SEDESOL can review compliance of municipalities to therestrictions on expenditures in the cabecera (see para. 11).

16. Investment Implementation. All investments financed in municipalities bythe Municipal Funds must be completed within the calendar/fiscal year approved,that is, prior to December 31. In past years, delays in the process of allocatingfunds, selecting subprojects, developing technical designs, and receiving state andfederal approvals for individual subprojects reduces the actual implementation timeavailable to less than six months. This problem is being partially addressed in 1994by the inclusion of Municipal Funds in the special federal budget which is allocatedin January, and called the acuerdo de secas.

17. With the approval of subprojects by SEDESOL and the state, MunicipalPresidents are given one-half of their approved budget to deposit into a specialaccount. Implementation of subprojects is generally by the Solidarity Committeewith money advanced by the municipality based on the approved subproject budget.In some cases, the Solidarity Committee is given materials purchased by themunicipality in accordance with the agreed technical proposal. In relatively rarecases, subprojects are contracted by the municipal government (e.g., the installationof a well) or implemented directly by municipal government employees. In allcases, the budget for the subproject is used only for purchase of goods, services orskilled labor, and not for the payment of local salaries or unskilled communitylabor. Based on the Oaxaca Municipal Funds evaluation study, it is estimated that

- 88 -ANNEX F

Page 5 of 12

approximately 80 percent of the projects in Oaxaca have been implemented bySolidarity Committees which have received the actual funds, with most of theremaining projects implemented by the Committees with materials purchased by themunicipal government.

18. Disbursement. Recognition of the expenditures for Municipal Fundssubprojects by the Bank is done on the basis of the Acta de Recepcidn, a one pagedocument signed by the Solidarity Committee and municipality, which describes thesubproject, indicates the total expenditures, and testifies that the subproject has beensatisfactorily completed. For internal government of Mexico purposes, theMunicipal Presidents must present to state government receipts collected from theSolidarity Committee to justify expenditures for each subproject. Based on thesereceipts, additional funds may be advanced to the municipality to complete thesubproject or to initiate new ones.

19. Strengthening Subproject Technical Ouality. The technical quality ofsubprojects implemented by communities through the Municipal Funds program hasvaried depending on the type of subproject. Structures such as school buildings,street paving, community houses, basketball courts, and concrete bridges havetended to be well built. Where local construction skills have been insufficient,municipalities have sought, and often received, assistance of a civil engineer for thetechnical design work for these kinds of subprojects. More difficulty has occurred,however, with water supply systems, where the assistance of a civil engineer is oftennot sufficient for the design of even simple distribution systems. Finally, theabsence of productive subprojects might be blamed in part for the lack of technicalassistance in identifying and promoting income generating activities.

20. During the first DRD project, technical assistance was provided tomunicipalities for subproject design from a variety of sources,' including state lineagencies, regional offices of the state COPLADE and SEDESOL delegation, and theprivate sector, including citizens of the municipality who donated their time. Forthe second project, a plan for financing and contracting technical assistance inengineering (especially for rural water supply and rural roads) has been developedby SEDESOL, and will be piloted in several states during the first year. Inaddition, municipalities will have access to specialized state or SEDESOL staff, whowould be based in regional offices, as well as access to technical assistance from theMSUs of the state rural water and rural roads agencies.

B. Escuela Digna Subcomponent

21. The Escuela Digna program was initiated in the same year as the MunicipalFunds program, and through the end of 1992, had provided financing for over33,000 subprojects for the rehabilitation and equipping of existing schoolinfrastructure in poor neighborhoods and rural areas in the eight states of the SecondDRD project. A 1993 review conducted of the government's school constructionand rehabilitation program pointed to the Escuela Digna program as succeeding incarrying out high quality repairs and rehabilitation at a minimum cost. The programhas provided a vehicle for organizing parents to become involved in their children'sschool, thereby creating an opportunity to use this organization to encourage otherkinds of parental involvement (see study of Mexico primary school construction andrehabilitation programs referenced in Annex M).

- 89 - ANNEX F

Page 6 of 12

22. The guidelines for the implementation of the Escuela Digna program arevery similar to those of the Municipal Funds programs. The main differences are:(a) funds are allocated by state government based on request by municipalities; (b)use of funds is strictly limited to school rehabilitation and equipment; and (c)Escuela Digna Solidarity committees do not participate in the Municipal SolidarityCouncil. In addition, program guidelines allow for the financing of consolidatedpurchases of school equipment by state level authorities. The project, however, willonly finance those subprojects implemented by the local level Solidarity Committee.Based on past experience, it is anticipated that the average subproject cost will beless than US$4,000. No subprojects would be financed above the limit ofUS$50,000, which is the limit also set for Municipal Funds subprojects. Themonitoring system and procedures for evaluation for Escuela Digna will be the sameas that for Municipal Funds (see paras. 35 to 36). Guidelines for theimplementation of the Escuela Digna program are established in the Escuela DignaOperational Manual and Technical Guidelines, annexed to the Manual Unico deSolidaridad. See attached Table 1 for an indication of the level of funding ofEscuela Digna in the eight states through 1993.

C. Municipal Strengthening Subcomponent

23. The elements of the municipal strengthening subcomponent are presented inparas. 3.19 - 3.21 of the SAR and summarized in Table 2. It is estimated that over4,000 municipal officials and community representatives would receive training inover 340 training events, study tours and exchanges with other municipalities. Inaddition, over 385 person-months of technical assistance would be provided in theareas of revenue generation, municipal budgeting and financial management, andinvestment and O&M planning. As part of the effort to improve municipalbudgeting and financial management, the project will also finance simple accountingequipment, including microcomputers for rural and semi-rural municipalities. Thisprogram would complement sector specific institutional development effortsconducted under the other project components, especially in the area of rural watersupply and rural roads (see Annexes G and H).

1. State Level Municipal Presidents Working Groups (MPWGs)

24. Objectives. One of the greatest challenges of the project is to ensure thatplans for institutional development activities and project investment are notestablished unilaterally by the state and federal authorities, but that the ultimateclients of the project have a voice in its implementation. The objective of MPWGsin each state is to provide a forum for substantive participation of municipalpresidents in the ongoing analysis of issues and priorities of rural municipalities andin reviewing and strengthening the implementation of the project.

25. Strategy. Building from the workshops held of municipal presidents duringproject preparation, SEDESOL and the state Planning and Finance Secretariatswould initiate the MPWGs (one in each state). Ten to 15 municipal presidentsmight participate, with representation of each region of each state, and withparticipation r6tating each year, along with representatives of key projectimplementing agencies. Assistance in group facilitation would be provided tostrengthen the initiation and development of the MPWGs, ensuring that theyeffectively work on an agenda to contribute to achieving project objectives. Since

- 90 - ANNEX FPage 7 of 12

the use of these groups is totally new, it is anticipated that the development of thegroup will take time and that the experience will differ among states.

26. Agenda. The agenda for the first meeting should focus on: (a) objectives ofthe MPWG; (b) review of the project and its components; and (c) specific discussionof the municipal strengthening subcomponent and work plan for 1995. In followingmeetings, emphasis should also be placed on more in-depth presentation anddiscussion of the other subcomponents/components (Municipal Funds, EscuelaDigna, rural water supply, rural roads, and the pilot income-generating component).Minutes from the meetings, to be held two times a year, would be distributed to theMunicipal Presidents from all municipalities participating in the project. The projectwould support the activities of the MPWG in each state by financing expenditures ofthree meetings per year per state, each estimated to cost US$4,000 (Table 2).

2. Fiscal Strengthening ITG

27. Objectives. The problems of rural municipalities in the eight project statesare very similar: they lack resources in order to provide basic services; they aredependent on monthly state revenue-sharing for about 90 percent of their budget;they often do poorly in recovering the costs of operations and maintenance from userfees; and they do very little analysis of their actual expenditures or planning forinvestments. The purpose of the Fiscal Strengthening 1TG is to provide a forum forrepresentatives of the eight state governments (principally Secy. of Finance) and theMPWG to: (a) discuss and review institutional strengthening activities of each state;and (b) identify areas of common concern and assist the SEDESOL PCU (centraland state levels) in planning to address them through studies, technical assistance andtraining.

28. Strategy. This group was formed during the first DRD project, with theSecretaries of Finance of the four project states meeting quarterly to discussstrategies for strengthening the fiscal and administrative capacity of municipalities,and reviewing each state's experience in carrying out municipal strengtheningactivities and related legislative and bureaucratic reforms. In the Second DRI)project, the group would be enlarged to include representatives of municipalpresidents from the state level MPWG.

29. Agenda. The agenda for the first meeting should focus on: (a) review ofthe objectives of the project and specifically of the municipal strengtheningsubcomponent; (b) sharing of plans for municipal strengthening in each state; and (c)identification of common areas of concern that might be addressed through centrallycoordinated activities, to be managed by the PCU. Subsequent meetings shouldfocus on specific issues for which states would share experience and identifypriorities to address in the technical assistance and training program. The agendamight include, for example, rationalization and redefinition of criteria fordistribution of federal revenue-sharing, efforts to increase revenue generation inrural municipalities, and approaches to improving accounting and financialmanagement in rural municipalities. The project would support the activities of theITG by financing expenditures of meetings and workshops estimated to costUS$500,000 for about 16 meetings and workshop of two days duration (Table 2).

- 91 - ANNEX FPage 8 of 12

3. Municipal Funds ITG

30. Objectives. The successful implementation of the Municipal Fundsprograms requires a constant program of orientation and training for municipalofficials and Solidarity Committee members, the provision of engineering and othertechnical assistance for subproject design, and a well-functioning data collection andmonitoring system. These efforts are being carried out in each state by theSEDESOL delegation and the state Planning and Finance Secretariats. The purposeof this group is to insure that these efforts are not carried out in isolation of oneanother, and that issues of common concern are identified and addressed through acoordinated program of studies, technical assistance, and training.

31. Strategy. The ITG for Municipal Funds was initiated during projectpreparation to address problems involved in the refinement of the monitoring systemand the installation of the system and related procedures in each state. The groupwould be expanded under the second project to include representation of MunicipalPresidents as well as representatives of the state agencies and state SEDESOLsubdelegations responsible for the Municipal Funds program, and its focus would beenlarged to include a wider array of issues. The group would meet three times peryear.

32. Agenda. The agenda for the first meetings of the group would focus on: (a)clarifying the objectives of the group and of the larger project; (b) reviewing theimplnementation of the monitoring system and identifying further refinementsnecessary; and (c) conducting a comparative analysis of implementation of MunicipalFunds in the eight states using that information. In subsequent meetings, and basedon the assessments made, the ITG would begin to participate in the identification ofimproved guidelines and procedures, studies, technical, and training to strengthenimplementation of the two programs. The project would support the activities ofthis 1TG by financing expenditures of meetings estimated to cost US$400,000 forabout 12 meetings of two days duration (Table 2).

II. Organizational Arrangements and Project Monitoring

33 Organizational Arrangements. Within the SEDESOL PCU, a municipalstrengthening sub-unit would be established and maintained. The sub-unit wouldinclude the following professionals: a specialist in municipal development, a civilengineer, a specialist in social participation, and two information specialistsresponsible for the upkeep of the data base and analysis of information. This sub-unit would be responsible for: (a) supervising the component, ensuring thatguidelines are followed and proposing modifications as necessary; (b) managing theinformation data base and conducting analysis of implementation; (c) managing theinstitutional development activities, including the contracting of technical assistance,studies, training, and purchase of equipment; and (d) supporting the development ofthe ITGs and MPWGs. In addition, within the PCU of the state delegations ofSEDESOL, there will be a social participation specialist and a civil engineercontracted with project financing to assist in the review and supervision of thecomponent.

34. At the state level, the component would be supervised by SEDESOL, butdirectly managed by the state Planning and Finance Secretariats. In addition, theFiscal Strengthening and Municipal Funds ITGs, and the MPWGs established in

- 92 - ANNEX F

Page 9 of 12

each state would support the planning, coordination, implementation, and review ofthe component (see above paras. 24 to 32).

35. Project Monitoring. Monitoring of the implementation of Municipal Fundsand programs will occur in two ways: (a) the maintenance and use of a data basecontaining key technical, financial and social information about each subproject; and(b) field supervision of implementation conducted by the central and state levelPCUs (see Annex C). Some of the specific areas for which ongoing guantitativanalysis of implementation will be conducted include: (a) expenditures per capita bytype of municipality and adherence by states to the agreed distribution formulas; (b)adherence by municipalities to limitations put on expenditures in the cabeceras, bytype of municipality (A, BI or B2); (c) extent of investment in indigenous vs. non-indigenous communities; and (d) cost per beneficiary or other physical measurementunit of given kinds of subprojects. The formats for the monitoring reports and theagreed implementation targets and indicators are presented in Annex C.

36. The field supervision of the component would complement and follow-up oninformation provided by the data base as well as issues identified in the annualphysical performance evaluations. Field supervision would focus on qualitativeanalysis of implementation, including such issues as: (a) extent to whichcommunities participate in the definition of priority subprojects and allocation offunds; (b) community participation in subproject implementation; (c) quality andpotential impact of works concluded; and (d) strengths and weaknesses in supportprovided by SEDESOL, state agencies, and contracted technical assistance. Toanalyze the efficiency of community-managed procurement under these twoprograms, a special study would be funded by the project, to be completed bySeptember 1995. As with the other components, a mid-term evaluation ofimplementation would be contracted and completed by December 1996.

TABLE 1

MUNICIPAL FUND AND ESCUEILA DIGNA INVESTMENT BY STATE(Federal Investment Only)

Year Chiapas Guerrero Hidalgo Michoacan O_aaca Puebla Veracruz Zacatecas Total1990 MF 21,995 65,573 20,220 0 56,215 64,084 0 19,208 247,295

ED 10,350 8,314 6,313 14,570 12,372 13,861 19,555 7,292 92,6271991 MF 25,645 58,992 19,408 0 54,480 54,414 0 50,590 263,528

ED 18,639 12,062 7,702 22,854 11,999 31,633 15,590 8,755 129,2331992 MF 53,402 58,455 19,303 0 51,405 63,130 68,043 31,802 345,540

ED 13,796 10,775 18,605 38,925 9,903 9,570 12,030 6,458 120,0621993 MF* 60,739 67,711 32,942 48,328 72,246 104,781 117,700 10,700 515,146

ED* 15,222 6,598 31,444 nd 9,841 21,880 4,381 4,183 93,548

Only preliminary figures are available for 1993

Note: All figures are in constant 1992 millions of pesos.

MF = Municipal Funds ProgramED = Escuela Digna Program

iie:

- 94 -ANNEX F

ATTACHMVIENT IPage 11 of 12

MUNICIPAL INVESTMENT AND STRENGTHENING COMPONENTMUNICIPAL STRENGTHENING SUBCOMPONENT

TABLE 2(US$)

Number Number Number Number Total Estimated TotalArea Action person studies/ training of Unit Base Price Project

months packaees programs mtgs. Cost Cost Conting. Cost

Revenue Study of revenue gen.Generation issues in each state - 8 100,000 800,000 45,560 845,560

Technical assistancefor each state 75 15.000 1,125,000 64,069 1.189.069

Training of municipal - 35 25.000 875,000 49,831 924,831officials

Other support (to be - 500,000 500,000 28,475 528,475

defined)

Sublotal 3.300.000 216.150 3,516,150

Municipal Review of systems inBudgedng and use /rurdl municipalities 1 : 400,000 400,000 22,780 422,780Accounting

Technical assistance 120 - 15,000 1.800.000 102,510 1,902.510to municipalities

Equipment (computers, - 1.000 7,500 7,500.000 427.125 7.927,125other accounting supplies)

Training of Municipal - 20 50,000 1,000.000 56.950 1.056,950Offidcs

Subtotal__ 10,700,000 700,850 11.400,850

Strengthaning Technical a*sistance to 20 15,000 300,000 17,085 317,085Participation/ design program for ruralMunicipal municipalitiesInvestmentand O&M Workshops for 190S 10,000 1,900,000 108,205 2,008,205Panning municipel officials and

community leaders

Technical assistance to 60 15 000 900,000 51,255 951.255municipalities

_Subtotal 3.100,000 203,050 3,303,050

- 95 -ANNEX F

ATTACHMENT IPage 12 of 12

Number Number Number Total Estimated Total

Area Action person Number training of Unit Base Price Projectmonths studies programs meetings Cost Cost Contina. Cost

Municipal Study tours within Mexico 20 10,000 200,000 11,390 211,390Officials (avg. 10 municipal officialsExchange per tour)Program

One-on-One exchange SO 1,000 50.000 2,848 52,848

program

Exchange Workshops 24 7,000 168,000 9,568 177,568

Ithree in each state)

Study tours abroad 3 50,000 150,000 8.543 158,543(16 municipal officials pertour)

Subtotal 569.000 37.204 605.204

Interstate Quarterly meetings of 16 30,000 480,000 27.336 507,336Technical State Finance SecretariesGroup - Contaduria Mayor (stateFiscal congress), and reps, ofStrengthening municipalities (ITG -

Finance)

Interstate Meetings of 12 30,000 360,000 20.502 380,502

Technical State Planning Sec.Group - SEDESOL and reps. ofMun. Funds municipalities (ITG -

Mun. Funds)

Presidents Mun. Pres. Wkirg Group - 96 4,000 384.000 21,869 405,869

State,level Meetings in each stateWorking Grps (3 per year)

=_______ =Subtotal 1.224.000 80 172 1 304,172

Other TA and Studies 130 15,000 1,950.000 111 053 2061,053

Subtotal 1.950.000 127 725 2,077,725

TOTAL 20.842.000 1,186,952 22,028.952

of which for TA 7,775.000 442.786 8.217,788of which for Training 5,567,000 317,041 5,884.041

of which for Equipment 7.500.000 427.125 7,327,125

- 96 -ANNEX G

Page 1 of 14

MEXICO


Rural Water Supply Component

I. General Situation of the Project States

1. Although, according to the 1990 INEGI census, the eight project statesrepresent 32 percent of Mexico's population, they include 53 percent of the nationalpopulation that live in localities under 500 inhabitants, 51 percent of the populationthat lives in localities between 500 and 5,000 inhabitants, and 54 percent of thosehouseholds which lack access to water supply. When taken together, 36 percent ofthe population of the eight states lack access to water, with the worst states beingChiapas, Guerrero, Oaxaca, and Veracruz, with over 42 percent in each of thesestates without water supply. Of the 9.2 million people in the eight states withoutwater, approximately 78 percent live in localities of 5,000 population or under.

H. Rural Water Supply Objectives and Strategy

2. The rural water supply component has, as its main objective, improvedaccess to potable water supply by the rural population. That objective would beachieved through the rehabilitation, extension and development of new systems, andstrengthening of local and state capacity to ensure the sustainabiity of these systems.Approximately 1,300 communities with populations of 500 to 5,000 inhabitants willbenefit from expanded rural water supply coverage in the eight states. Coveragewill be expanded from 52 percent to 67 percent, and benefit approximately 1.9million people. These works will be complemented by water supply works carriedout by municipalities under the Municipal Funds program, principally for localitiesunder 500 population. The component consists of two sub-components: (a)rehabilitation and construction of water supply systems; and (b) institutionalstrengthening for the SWAs and local water organizations. (See Annex C of theSAR for annual targets of the component.)

m. Characteristics and Institutional Capacity of the State Water SupplyAgencies

3. The SWAs of the eight states were created within the last 3 to 10 years assemi-autonomous entities, and have the legal authority to construct, operate,maintain, and administer water supply systems. However, the SWAs are principallyinvolved in contracting works and conducting emergency repairs, and as a rule donot become involved in the daily operation or routine maintenance of systems. Thewater supply systems of the largest municipalities are usually totally independent ofthe state agencies, although these municipalities and their local water companiessometimes contract for technical assistance from the SWAs. In rural areas, onceworks contracted by the SWA have been completed and turned over to thecommunities (or local water commission), the SWA does not return until there is anew request for assistance from the community. These agencies do not have the

ANNEX GPage 2 of 14

human resources, materials or organization to support routine preventivemaintenance or even larger corrective actions for rural water supply installations.

4. As some of the SWAs have only been in operation a few years, many haveonly limited technical capacity. They are organized in different ways, although allhave a basic structure formed around the areas of construction, operations (exceptChiapas), maintenance, planning, technical, administration, and finances. The eightSWAs have a pyramid organizational structure, typical of institutions dedicated toconstruction activities, instead of an agency dedicated to sector plAnning and theprovision of technical assistance. In addition, most of SWAs' work to date has beenin the contracting and financial control of civil works; they have engaged little inphysical monitoring and quality control of the works carried out.

5. On average, the SWAs have eight employees for every 100,000 inhabitantsreceiving water services, with 17 percent of the personnel engineers, 35 percentother professionals, and the rest lower level personnel. The agencies tend to haveyoung staff, as 80 percent of the personnel are less than 40 years old and 55 percentare less than 30. The average salary and benefits of agency staff is US$5,121 peryear, while the average volume of contracting per worker is US$49,392 per year.The average number of vehicles per staff member is .23 and the age of the vehiclesare between 4 and 9 years old. All of the agencies, except Zacatecas, have aninformation management capability.

6. The SWAs have shown little capacity to formulate investment programs orprepare a portfolio of projects that will allow for short or medium range planning.Their capacity to undertake projects and to adequately supervise works is weak,especially when dealing with small works where the elaboration of the project designand the supervision of the work almost always falls directly on the personnel of thestate agency. SWA personnel have an overload of administrative work, even atlower levels in the hierarchy.

7. The proposed level of project investment of an annual average of 40subprojects per state and an annual average investment of US$4.8 million per statemay appear low, but could represent a significant workload, given that theseagencies generally manage a small number of large works, and the project willinvolve the implementation of a large number of smaller projects, dispersed throughthe state, in areas of difficult access. The average level of proposed annualinvestment per state is almost equal to 40 percent of the current budget of theSWAs.

IV. Environmental Considerations

8. The negative environmental impact of water supply works for localitiesbetween 500 and 5,000 inhabitants is minimal, given that the water flows required tosupply these populations do not easily provoke substantial changes in the supplysource and the small works do not greatly affect the terrain. The problem ofcontamination due to the discharge of waste water is minimal due to the limitedamounts of water used, its primarily domestic use, and the rural setting. Theconstruction of sewage systems is not considered within the project. Nevertheless,within the technical guidelines for subproject design is included the necessity toidentify and diagnose the effect on the water source, and the effect of discharges onthe local population and surrounding environment as established by a checklist

- 98 -ANNEX G

Page 3 of 14

included in the Project Operational Manual. Where necessary, the project canfinance latrines and septic tanks as an integral part of the water supply system.Consideration was not given to financing drainage works, as these works may resultin the concentration of waste water, leading to greater environmental hazards.

V. The Rural Water Supply Component

Planning

9. During the preparation of the project, data sheets for over 1,800 separateworks were received regarding service demand, relating to a potential beneficiarypopulation of 2.6 million inhabitants, and requiring an estimated investment ofUS$235 million. The preceding implies a cost per beneficiary of US$90 and a costper work of almost US$130,000. With an investment considered for water supplyinfrastructure, including engineering, of US$168 million (base cost), it is estimatedthat 1,300 works of new construction, extension and rehabilitation can beimplemented to benefit 1.9 million rural inhabitants.

10. The proposed level of investment is sufficient to address over 70 percent ofthe population in the presented portfolio of projects. Nevertheless, the portfoliodeveloped thus far only represents 45 percent of the population without water in theeight states. With the project investment, the level of water supply coverage incommunities between 500 and 5,000 population in the eight states will increase byapproximately 17 percent in four years (from the current 52% coverage to 68%coverage). This increase, however, implies a real increase of only 8 to 10 percent,considering a population growth rate of 2.5 percent per year.

Engineering

11. Within the investment (US$168 million), the contracting of engineeringstudies would also be financed, which would require an amount no larger than 5.5percent of the total investment (US$9 million). The experience with the fist DRDproject demonstrates that a variety of guidelines and formats are used for theelaboration of feasibility studies and technical designs (expedientes tecnicos); forthis reason, during the preparation of the second project, a "Guide for theElaboration of Expedientes Tecnicos' was written, and will be included as an annexto the Project Operational Manual.

E:igibility Criteria

12. The eligibility criteria for rural water supply works is based on an analysisof information regarding works constructed in 1992 in the four states under the firstproject (approximately 100 works), and information regarding current demand (asample of 613 works). The approach for determining eligibility criteria was to use aLorenz curve to allow for up to 80 percent of the demand to be addressed within thecost per beneficiary limits placed on four kinds of works: (a) complete systems withwater captation from superficial sources; (b) complete systems with water captationfrom subterranean sources; (c) partial systems; and (d) partial systems withsubterranean captation. See Attachment I, Table 1, for a summary of the eligibilitycriteria developed based on this analysis.

- 99 -

ANNEX GPage 4 of 14

13. In the case of complete systems with superficial captation, the limit willcontinue to be UTSS200/person, consistent with the first DRD project and withMexico's Second Water Supply and Sanitation Project. In the case of completesystems with subterranean captation, the allowable cost would be increased toUS$350/person so that small communities which must depend on ground waterwould not be automatically excluded from the project. In the case of partial works,the indicators of eligibility in Attachment I, Table 1, are given in US$/person foreach subcomponent, which implies that for works with more than onesubcomponent, the corresponding values are summed to integrate the limit for thespecific work. In all cases, the benefited population refers to the total population ofthe locality, according to the INEGI 1990 census, given that these criteria weredeveloped using this base.

14. Applying the eligibility criteria with the sample of 534 proposed subprojectsof superficial captation, 42 percent of the sample of subprojects in localities of 500to 750 inhabitants can be attended, 86 percent of the subprojects in the range of 751to 1,250, and 96 percent of subprojects in the ranges of 1,251 to 5,000. Theseeligibility criteria are acceptable, taking into account that: (a) the portfolio ofdemand (the sample) presented by the eight states is not complete and will beexpanded during project implementation; and (b) project financing can attend nomore than 51 percent of the number of subprojects already presented. Nevertheless,with the updating of information provided through the project data sheets (cedulas deinformacion), the eligibility criteria can be reviewed and revised if necessary.

Institutional Development Program

15. The objective of the institutional development program for the rural watersupply component is to strengthen the SWAs and rural and semi-rural municipalities,especially in planning, engineering design, information systems, and maintenance ofrural water systems. This includes improving the technical level of professionals inthe state agencies and developing the technical capacity at the municipal level (inoperations and maintenance).

16. These objectives would be achieved through four types of actions: (a) atechnical assistance program; (b) a program for professional development andtechnology upgrading; (c) creation of a Rural Water Supply ITG composed of theheads of each SWA; and (d) formation of an MSU in each SWA. A summary ofthese actions and related project costs are presented in Attachment I, Table 2.

1. Technical Assistance Program

17. Technical assistance would be contracted to: (a) develop the methodologyfor carrying out an inventory of existing hydraulic infrastructure and analyzing thedemand for water supply services and piloting its application; and (b) carrying outother strategic studies. A summary of the TORs for the inventory and demandanalysis is attached (Attachment II, paras. 1-5). Its base cost is estimated to beUS$360,000, requiring a total of 54 person-months. The study should be contractedas soon as possible and the pilot completed in four of the eight states by the end ofthe second year of the project, and in all eight states by the end of the third year.The other strategic studies will use the results of this first study as input. Thereforethey are planned to begin in the second year of the project. These studies wouldcover (but not be limited to): (a) cost recovery, (b) alternate sources of energy and

- 100 -

ANNEX GPage 5 of 14

energy savings, (c) geo-hydrological studies of ground water availability, and (d)development of a management information system for the SWA. The estimated totalbase cost of these studies is US$1,050,000. (See Attachment II, paras. 6-7 forgreater detail.)

2. Program for Professional Development and Upgrading of Technology

18. The professional and technology development program have three basicaspects: (a) the training of technical personnel of SWAs; (b) the training of thoseresponsible for water supply systems in the municipalities; and (c) the acquisition oftechnical equipment and computers for SWAs. The description of each of theseareas is below:

(a) Training of Technical Personnel in the SWAs

19. Background and Objectives. There are some common skill deficiencies inthe SWAs in areas important for the implementation of their functions. These areprincipally in computerized methods for calculating distribution networks, in the useof computer programs in general, in the concepts of project evaluation, and in theapplication of guidelines for O&M of water systems. The purpose of the trainingprogram is to address these three areas.

20. Program Description. The training program has been divided into five areas(see Attachment I, Table 3): (a) basic engineering and environmental assessment;(b) O&M; (c) computer programming and operations; (d) basic economics; and (e)supervision of works. Each areas includes several modules, as described below.

(a) Basic Engineering and Environmental Assessment: rural watersystems, hydraulics of pipes (tuberia), design of distributionnetworks, assessment and mitigation of environmental impact,analysis of costs, budgeting of works, development of technicaldesigns, basic geo-hydrology, design of pumps, and measurement.

(b) Operations and Maintenance: operational manuals, operations costs,maintenance manuals, maintenance costs, basic accounting.

(c) Computer Programming and Operations: computer operatingsystems, computer-assisted design (CAD), design of closeddistribution networks, spreadsheets, information systems,management of data bases.

(d) Basic Economic: concepts of statistics, economics, and projectevaluation.

(e) Supervision of Works: supervision of contractors, conduct of fieldreviews of completed works and works in progress.

21. Characteristics and Goals. As can be seen in Table 3, each training modulehas a different duration (from 16 to 40 hours), depending on the complexity of thetheme. The total program will include 22 courses given a total of 92 times (4 timeseach), for a total length of training time of 69 days and 4,096 trainee-days. Thetotal base cost of the program would be US$676,000.

- 101 -

ANNEX GPage 6 of 14

(b) Training of Municipal Personnel

22. Those responsible for the O&M of municipal water supply systems usuallydo rudimentary work, such as turn on and off pumping equipment, charge andcollect water fees, and repair equipment or send it to be repaired. Nevertheless,they do not maintain a record or control of operations or finance of the systems.Because of this, it is important that the SWAs train the responsible technicians andadministrators of the municipal water supply unit, through the imparting oftheoretical and practical courses in the areas of O&M, environmental issues, and inbasic accounting. The courses will be given by the technicians of the municipalsupport unit. The base cost is estimated to be approximately US$900,000 for thetraining of technicians of 500 municipalities (500 persons trained, 12,000 person-days of training).

(c) Technology Upgrading

23. Investment will also be made in equipment for the SWAs, including fieldequipment (such as measuring devices, maintenance equipment and others) and otherequipment and software specialized for design work and hydraulic calculations(graphics plotter, digitalizer, computer assisted design system, programs for theanalysis of networks, etc.). The base cost of this equipment and software isestimated to be on average US$20,000 per state agency, for a total base cost ofUS$160,000.

3. Water Supply Interstate Technical Group

24. The SWAs have only a few years of being in operation and therefore havehad little opportunity for contact with other similar agencies. The PCU has not hada forum for disseminating information or for following up on the project supportedwater supply activities in the states. Because of this, it has been necessary toestablish an ITG for water supply.

25. Objectives. The objectives of the ITG are: (a) develop the capacity todialogue and interchange experiences and information among state water agencies,providing support to them in the process of strengthening their technical andinstitutional capacity; and (b) provide an instrument for communication and feedbackamong the SWAs and SEDESOL.

26. Strategy. The strategy to establish and organize the Rural Water SupplyITG will be flexible and informal in its first stage, with the structure of the groupgradually becoming formalized. The initial role of SEDESOL central within thegroup is that of promoter, working with the states so that each state identifies itshigh level management and technical team and, specifically, its representative to the1TG. In the second stage, the ITG should become more autonomous, with its ownagreed procedures and working mechanisms.

27. During its first year, the focus of the ITG will primarily be on theinterchange of experience among agencies and on discussions related to project start-up. The ITG will meet four times per year, in a different state each time. Inaddition to addressing organizational issues, the first ITG meeting should focus on:(a) procedures (eligibility, contracting, disbursement) of the project; (b) contracting

- 102 -

ANNEX GPage 7 of 14

of the methodological study for the inventory of existing infrastructure and analysisof unmet demand; (c) technical assistance to be provided to municipalities; and (d)definition of the common training program. With four meetings annually, with 18participants and two days per meeting, the total base cost of the group's functioningwould be US$162,000.

4. Municipal Support Units

28. The SWAs support municipalities through many different units or areas oftheir organization. To make this support more effective, it is necessary to bringabout a more organized and strengthened form of assistance.

29. Obiectives. The MSU in each state, whether formally or informallystructured, would have the following objectives: (a) assist municipalities toelaborate expedientes tecnicos; (b) provide technical assistance and supervisionnecessary in the execution of contracted works; and (c) organize and implement aprogram of technical assistance to municipalities for O&M activities.

30. Stategy. The MSU would be attached to the technical or maintenancedepartment of the SWA, with responsibilities for: (a) establishing technicalguidelines for the project water supply component and for water supply investmentsunder the Municipal Funds program; (b) carrying out operational actions to supportthe implementation of water supply works. The MSUs would work closely with theregional units of the SWAs. They would be headed by an experienced engineer,supported by three to five engineers, depending on the number of municipalities andnumber of works to be carried out, and by a social scientist and a secretary. Projectfinancing for one senior engineer and one social scientist participation specialistwould be provided fbr each MSU, through the SEDESOL strengthening and projectcoordination component (see Annex D).

31. The MSUs would be formed in June 1995, so that in the second part of 1995they would be able to carry out the activities mentioned above. Project support forthese units would include computer equipment (two computers with software perstate, for a total base cost of approximately US$32,000), and office equipment(US$40,000, base cost).

32. The administration, operation and maintenance of municipal water supplysystems is managed by a technician working at the cabecera and local watercommittees in each community. In most cases, the technicians and citizenscommittees have very little, if any, training to carry out these responsibilities.

33. Practical courses would therefore be given by the MSU staff to theseindividuals, with a projected 250 courses of two-day duration given during the lifeof the project. These courses would consist of orientation in physical maintenanceprocedures as well as operational controls of water supply systems. These courseswould be conducted in the field, with costs incurred principally for travel relatedexpenses. Total estimated base cost for the 1,100 person days of training isUS$196,000.

- 103 -

ANNEX GPage 8 of 14

Attachlnent 1


RURAL WATER SUPPLY COMPONENT

Table 1. Eligibility Criteria

Ob~ss _ampls ..

Captaci6n superficial Captaci6n subtearrnea

200 350

iSubcomponentCaptaci6n superficial Captaci6n subtenranea

1. CaptacOdn 15 1052. Conduccfdn 87 873. ReulWacA6 29 294. Dewinfecddn 12 125. Distribucidn 57 57

Sum. 200 290

* La suma de los valores de los subcomponentes on obras parciales noes igual que el 1Umite establecido para las obras completas, ya quo seconsidero el caso especial de Zacatecas.

- 104 -ANNEX G

Page 9 of 14Attachment 1

MEXICOSECOND DECENTRALIZATION AND REGIONAL DEVELOPMENT

PROJECTTable 2. Institutional Development Program


1 ~~~~~~CostoConcepto | Unidad Cantidad total

1. Asesorf Tcnics

(i) Inventario de infreestructura mes-hombre 54 360,000y an6lisis de la demande

(ii) Estudios estrat6gicos

(ii.a) Recuperaci6n de Costos mes-hombre 15 100,000

(ii.b) Alternativas Energ6ticas mes-hombre 20 130,000

(ii.c) Estudios geohidrol6gicos mes-hombre 54 360,000

(ii.d) Sistema de lnformaci6nGerencial me-hombre 40 260,000

Subtotal I _ 1.210,000

2. Capadted6n y DesroUo TenlgoA -

(i) Capacitaci6n a profesionales dfas 4,096 676,000

(lil Capacitacion a municipios d(as 12,000 900,000

(iii) Desarrollo tecnol6gico

Perif6ricos especializedos, Lot 8 160,000software y equipo de trabejo

Subtotal _ 1,736,000

3. Grupo Interetstal de Ague Potable

Reuniones de 18 personas Reuni6n 16 130,000(16 reuniones de dos d(as)Varios Lote 4 32,000

Subtota_ 162,000

4. Uniddes de Apoyo Municipal

Computadoras Equipo 16 32,000Equipo de oficina Lote 1 40,000Entrenamiento t6cnicos municip. dias 1,100 196,000

Subtotal 268,000

Total (US*) 3,376,000Total gUS$ 3,400.000

MEXICOSECOND DECENTRALIZATION AND REGIONAL DEVELOPMENT

PROJECTTabe 3. Profeessonal Trankig Progmm


Ton. Perognd No. de Dunmon Totol VlAboo Violes Costo Honorario TOTALc-pooibtdo aU * v, C pea-do copodo. copooltodog ,1mjoo Copocltodo,r Us$

1. Ing.nlefaflnrnpoo Abl tk i

Shotemoo njrj do A.P. 10 4 2 128 8.980 64 16,000 2,000 26H960Hidr4ulica do tubed.. 16 4 6 320 22i400 64 16,000 6000 43.400DieoAc do rodeo 16 4 6 320 22,400 84 18,000 6.000 43,400Analels AmblentMl 18 4 2 128 8,980 64 16,000 2,000 268960Presupuestcio6n le 4 2 128 8.980 64 16.000 2.000 26,960Eboboracln do exp. t6cnicoo 16 4 1 64 4.480 64 16,000 1,000 21,480Qooh*droogla biics 18 4 S 320 22 400 64 18H000 5.000 43.4 00DioeAo de bomb.. 16 4 3 192 13,440 64 16.000 3,000 32.440Mmcromodlcldn 16 4 2 128 8,980 64 16,000 2,000 2H,960

144 38 27 1,728 120,980 676 144,000 27,000 291,960

2. Oprmcl6n y MamtonAminto

Manunle de opol6n 8 4 1 32 2.240 32 8,000 1,000 11,240 0Costoc do oporecion 8 4 2 84 4.480 32 8,000 2,000 14,480 LuManuaoe do martoirrlento 6 4 1 32 2.240 32 8.000 1,000 11.240Costoo do mantorglmldnto 8 4 2 64 4.480 32 8.000 2,000 14,460Contcbl4dod belso 8 4 2 64 4,480 32 8,000 2.000 14,480

S. h,fomrlan 40 20 a 266 17,920 180 40,000 8,000 65,920

Shtomo operotivoDisoAo computwLt do ICADI 18 4 6 320 22.400 84 16.000 6.000 43.400DiosAo do redo 18 4 S 320 22,400 64 18,000 6,000 43,400Holes do cMoulo 16 4 S 320 22.400 64 18.000 65000 43,400Slatemmo do informocion l6 4 2 128 8,980 64 18,000 2.000 26.960Baseo do dato. 16 4 S 320 22,400 64 16,000 6,000 43,400

4. Eoonenia so 20 22 1,408 98,.00 320 80,000 22,000 200,660

Concopto. do *et.d'tlca 1l 4 5 320 22,400 64 16.000 5,000 43,400Economlo b6mica 18 4 3 192 13.440 04 16,000 3,000 32.440Evalusci6n 16 4 2 128 8,980 64 16,000 2,000 2689(00

46 12 10 640 44,800 192 48,000 10,000 102,800

S. Supsftoldn d obm 8 4 2 64 4.4S0 32 8,000 2,000 14.480

TOTAL 320 92 1 4,091 286,720 1,280 320,000 a9,ooo 676,720

- ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~

- 106 -

ANNEX GPage 11 of 14Attachment II

MEXICO


Rural Water Supply ComponentSummary Terms of Reference for Technical Assistance

I. Methodology and Piloting of Inventory ofHydraulic Infrastructure and Analysis of Demand

1. Backgund. The lack of attention to rural communities by the wateragencies, in comparison to the attention given urban areas, is due to the short timeof operation of the state agencies and to the lack of planning for the sector. Whilethese rural systems do not commonly require large or complicated engineeringsolutions, the lack of Inowledge of the current condition of infrastructure, theunsatisfied demands and the resources needed to resolve the problems preventsystematic planning needed to bring about the works required to address the needs ofthese rural communities.

2. Objectives. The objectives of the study are to: (a) establish themethodology (strategy, field procedures, formats, organization and analysis ofinformation, etc.) to inventory the existing hydraulic infrastructure; and (b) toanalyze the unmet demand for water supply in rural communities.

3. Achievements. The consultant will be responsible for: (a) defining thestrategy and methodology for carrying out the inventory of existing hydraulicinfrastructure and analysis of unmet demand; (b) designing the formats for theinformation gathering in the field; (c) establishing the number and selecting thelocalities to be included in the sample in order to pilot the methodology and have itbe representative of the total; (d) implementing the methodology in the selectedlocalities; (e) designing the processing of the information; and (f) sharing the resultsobtained with the eight SWAs.

4. Products. The study will provide:

(a) A procedural manual for inventorying water supply infrastructure,which includes processing in the field and in the office, formats forgathering information, and procedures for analyzing information andderiving recommendations from the study;

(b) The computer system for storing (data base) and processing(programs) the information of the inventory, with its operationalmranual;

(c) The procedural manual for procuring information about the unmetdemand for water supply, including the process of identification ofdemand, the field and office methodology, the formats for gatheringinformation, the procedures for analyzing information for evaluation

- 107 -ANNEX G


of potential works (at the level of pre-feasibility) and for derivingrecommendations; and

(d) The computer system for conducting an economic analysis of thedemands, with its operational manual.

5. The cost of the technical assistance for conducting this study isapproximately US$360,000, considering the application of the mefhodology in 50localities for the inventory and 50 localities for the study of unmet demand, whichimplies a need for a total of 54 person-months. The technical assistance providerswill also be responsible for transferring the methodology to individuals responsiblefor planning and operations in the water agencies in the eight states.

II. Other Strategic Studies

6. The themes and structure of the terms of reference of these strategic studiesare defined below:

(a) Cost Recovery

Background. The majority of rural localities between 500 and 5,000do not know the costs of O&M and do not have the economicresources to cover these necessities, resulting in water supplyinfrastructure which is partially or totally inoperative. The SWAsalso do not have a precise understanding of costs of O&M and donot have a method for determining how cost recovery should occurin these localities.

Objective. This study will: (a) analyze and define the proceduresto categorize, from a technical and economic point of view, ruralwater supply systems; (b) evaluate the cost of O&M in typicalsystems; and (c) develop a methodology and recommendations forcost recovery.

Achievements. The consultant will have the followingresponsibilities: (a) define the criteria for categorizing water supplysystems, taking into account the technical, geographical an socio-economic conditions existing in the eight project states; (b) define asample of localities to undertake field investigations; (c) gather andorganize field information; (d) evaluate and establish O&M costs;and (e) propose a methodology for cost recovery.

(b) Alternate Sources of Energy and Energy Saving

Baclkround. Possibly 75 percent of the operational costs of ruralwater supply systems with subterranean sources are due to the costof electricity, which often represents a very high cost for people ofscarce resources and one of the reasons for the lack of operation ofthese systems. On the other hand, there exist localities where accessto electricity, and even to diesel or gasoline fuels is difficult and/orthere is an extremely high cost associated with them. In addition, it

- 108 -ANNEX G


is anticipated that the pumping equipment of these kinds of localitiesmay be inadequate and consume more energy than is required.

Obiectives. This study will: (a) determine the feasibility ofintroducing alternate energy (wind and solar) for water pumping; and(b) analyze a sample of pumping equipment to develop technical andeconomic recommendations about them.

Achievements. The consultant will be responsible for the following:(a) in accordance with the technical requirements of wind and solarsystems and the geographical conditions, clarify the areas within theeight states where it is feasible to apply these energy alternatives; (b)determine the investment and O&M costs by capacity level of theequipment; (c) evaluate the feasibility of alternative energies; (d)define a sample of localities in each project state to analyze thecharacteristics of existing pumps; (e) gather and analyze field data onthe characteristics of pumps; and (f) make recommendationsregarding the above.

(c) Geohydrological Studies

Backgound. The state of Zacatecas, for its arid characteristic,makes extensive use of subterranean water sources, both in foragricultural production and for the provision of water to thepopulace. For this reason, numerous geo-hydrological studies havebeen conducted in production areas or areas of high populationintensity. These studies are also needed in some areas populated byrural communities.

Objectives. The objectives of the study are to: (a) analyze the geo-hydrological potential in areas of rural populations (in a number oflocalities); and (b) develop general recommendations for the furtherpotential use of these studies.

Achievements. The scope of this study will be defined after thecompletion of the inventory of existing infrastructure and analysis ofdemand.

(d) Management Information System

Backgrroun. The SWAs are not able to fully adopt the managementrole which correspond to their new functions, involving less directparticipation in the construction and operation of water supplysystems. These agencies do not have the information necessary tomonitor their own activities, in terms of basic administration (suchas cash flow, stock inventory, financial status, etc.) and technicalsupervision (progress of internal and external studies, maintenanceactivities in rural localities).

Objectives. The objectives of the study are to: (a) determine thebasic management indicators relevant to water supply agencies, in

- 109 -ANNE G


accordance with their primary functions; and (b) develop ancomputerized information system to allow managers to follow-up theactivities of the agency.

Achievements. The consultant will be responsible for the following:(a) analyze the decrees creating the eight SWAs to define theprincipal activities of each one; (b) determine the basic indicatorsthat allow the relevant activities of the agency to be monitored; (c)develop the information system (software); and (d) train technicaland management personnel in the use of the system.

7. The estimated base costs of these strategic studies are: (a) strategies of costrecovery, 15 person-months, approximately US$100,000; (b) analysis of alternateenergies for water pumping, 20 person-months, approximately US$130,000; (c) geo-hydrological studies, 54 person-months, approximately US$360,000; and (d)management information systems, 40 person-months, approximately US$260,000.

- 110 -

ANNEX HPage 1 of 16

MEXICO


Rural Roads Rehabilitation and Maintenance Component

I. Background

A. The Road Network

1. Network Length and Classification. The road network of the eight stateshas a total length of approximately 91,800 km; of which 51,700 km are federal,29,500 km fall under states' jurisdiction, and 10,600 have no legal status. The ruralroad network excluding the tracks (7,300 km) is 56,800 km of which about 34,240(60%) are federal, 17,300 km (30%) are under state jurisdiction and 5,260 (10%)have no status (Table 1). The rural road network is in very poor condition becauseit has suffered the greatest neglect and lack of rehabilitation and maintenanceactivities. This suggest that stronger emphasis needs to be placed upon therehabilitation and maintenance of the rural road network.

B. Rehabilitation and Maintenance Strategy

2. The rehabilitation strategy would focus on type E (single lane, unpaved)rural roads with some exception for type D (alimentadora) roads. The criteria forprioritizing would be the density of population per km of road, taking into account aband 5 km wide on either side of the road. Roads need to be rehabilitated atminimal cost if the maximum rural population is to be served with limitedinvestment resources. Therefore, works would be limited to elimination of criticalsections (spot improvement). To obtain long term benefits, spot improvementswould be followed by an effective road maintenance organization that would carryout routine maintenance actions based on contracted peones camuneros working parttime under the authority of the municipality and with the supervision of the SRAs.The federal rural roads rehabilitated under the project would be transferred tostates's authorities to further the process of decentralization of the rural roadnetwork. Annual targets of the component are identified in SAR Annex C.

C. SRAs, Organization, Management and Personnel

3. The organization of the SRAs is very different from state to state. Thestates are in the process of consolidating their own road agencies created in the lateeighties and early nineties. Due to the predominantly engineering background oftheir staff and the traditional political priority given to new construction, the SRAsare structured to carry out new construction by force account. The eight SRAs have2,700 employees, of which 269 (10%) are engineers working either at headquarterswhere they carry out essentially administrative functions or in field offices (averageof eight field offices per state) where they are in charge of construction andmaintenance activities. Staff's average age is young: 37 years. Only a fraction ofthe personnel is unionized with security of employment; the professional groupsuffers periodic turnovers. Existing efficiency ratios are quite low; as an average

- 111. -ANNEX H

Page 2 ot 16

for the eight states, there is one engineer for 143 km of road. The trarsfer of thewhole federal rural road network to the state network would increase this ratio to astill reasonable 240 km/engineer. The current annual average budget expenditure isUS$32,000/staff, and the average salary cost is US$5,000/staff year.

4. In assessing the capabilities of the SRAs to effectively prepare plans, executeor supervise rehabilitation and maintenance activities, a number of common featuresor deficiencies have been identified:

(a) SRAs do not have any training programs to increase and updateprofessional staffs technical capability and knowledge to the levelrequired for an efficient management of rehabilitation andmaintenance programs and activities. Most staff experience isrelated to new construction activities, rather than to roadrehabilitation and maintenance.

(b) Planning and prioritization of road construction or maintenanceprogram are made on an ad-hoc and short term basis, relying uponsubjective and qualitative assessment. Proper road conditionsurveys, using standardized and objective procedures are not carriedout at any network level. A simple network information system forrational planning purposes is urgently needed which would comprisea data base on road inventory.

(c) No decision-support system exists to process and analyze the data inorder to define current or forecast future needs in accordance withappropriate criteria. Provision must be made to strengthen thecapacity of the SRAs in implementing simple but effectivemethodologies for identifying well justified projects and for definingpriorities under budgetary constraints.

5. The aforementioned deficiencies and issues need to be addressed. Thetechnical assistance and training programs have been designed for this purpose.

I. The Rural Roads Rehabilitation and Maintenance Program

6. The rural roads component consists of three subcomponents: (a) rural roadsrehabilitation (spot improvement); (b) routine maintenance (peon caminero); and (c)institutional development.

A. Rural Roads Rehabilitation Program

7. Planning. The SRAs prepared a listing of about 1,921 most important ruralroad links totalling 22,583 km. The road links were ranked by region and bydecreasing density ratio (beneficiarieslkm). The Lorentz curve based on the densityratio shows a distribution such that to 10 percent, 30 percent and 70 percent of thenetwork (in kIm) correspond to 30 percent, 60 percent and 90 percent, respectively,of the beneficiaries. The funds available for the spot improvement subcomponentwill attend about 70 percent (in km) of the identified demand, correspondingtherefore to about 90 percent of the identified population. However, the spotimprovement program estimated to approximately 15,600 km will attend only 30percent of the existing rural network in the eight states that totals 53,000 kan (Table 2).

- 112 -

ANNEX HPage 3 of 16

8. Programming/budgeting of the annual spot improvement program would bebased on the following approach: (a) within each state, the distribution of fundswould be proportional to the rural population of each region; (b) within each regiona tentative annual work program (POA) would be derived from the ratio ofpopulation per km which would be the prioritization parameter; (c) reviewing theconsistency of the POA would be carried out considering bidding constraints andsome limited special aspects linked to productive areas; and (d) the final programwould be defined after implementation of the road inventory of the critical sectionsand the cost evaluation of the works in order to fit the budgetary constraints.

9. Engineering would be based on the agreed preliminary guidelines for spotimprovement. The guidelines concentrate on eliminating drainage problems andintends to reduce formal design activities to reflect the reduced cost of appropriateconstruction technology. Rural road engineering would become basically a fieldevaluation activity to avoid having engineering cost reach an unacceptable proportionof total cost. Engineering would be carried out by force account and by contract; inthis last case cost is estimated not to be higher than 3 percent of works. Thetechnical TORs for engineering would be the technical guidelines for spotimprovement. A data sheet (cedulas) agreed during preparation presenting thesynthesis of the engineering data would be prepared by state SEDESOL delegationsfor each work. The SEDESOL delegation would analyze the physical and financialindicators derived from the data sheets and would review the eligibility criteriabefore commitment (aprobaci6n) of the funds for the spot improvement program.

10. Bidding Plan. The SRAs would prepare annually a bidding plan toimplement the spot improvement program. The bidding plan would aim to share theimplementation of works between Solidarity Committees and the local constructionindustry. The MSU would be in charge of the preparation of the convenios betweenthe SRA and the Solidarity Committees/municipalities and of the technical assistanceand supervision of labor intensive works carried out by the committees. Agreedmodels of convenios are included in the Project Operational Manual. It is tentativelyestimated that about 30 convenios would be implemented annually in each state,totalling about 950 convenios and US$34 million during the life of the project.Mechanized works would be carried out by the local contracting industry. It isestimated that about 8 contracts (one per region) would be signed annually in eachstate, totalling about 260 contracts and US$82.2 million. The average contractwould be about US$315,000.

11. Targets, Costs, Indicators. The spot improvement program would improvethe condition of about 15,600 km of rural road for a base cost of US$109 millionincluding US$3.1 million for engineering. The average cost per km has beenestimated to US$7,000 broken down into 20 percent for earthworks (elimination oflandslides, erosions, grading), 44 percent for drainage works, 10 percent forbridges, 23 percent for spot regraveling and 3 percent for engineering. The directbeneficiaries would be the population living in the direct area of influence of theroads, estimated to be about 4 million. The pace of implementation has beenestimated in a conservative manner to consider the startina and learning difficulties.The annual progress has been tentatively estimated to 15 percent, 25 percent, 40percent and 20 percent per year over the 4-year period (Table 2). Since the costshave been estimated in a conservative manner, final targets may be higher thanexpected; therefore it has been agreed that the initial list of candidates roads couldbe increased by 30 percent in kilometers.

- 113 -

ANNEX HPage 4 of 16

12. Eligibility. The conditions of eligibility for Bank financing of the spotimprovement program are summarized as follows: (a) must be unpaved type E(single lane) rural roads or type F (tracks) with exception that up to 10 percent inkm of unpaved type D rural roads (double lane) would be eligible; (b) selected roadsmust belong to the listing presented by the states and named listing of 'candidateroads," with a maximum increase of 30 percent in length of this listing allowed forunforeseen situations; and (c) with a maximum average cost of spot improvementwould limited to the equivalent of US$15,000/km (average cost means: cQst ofrehabilitation / length of grading of the considered road link).

B. Routine Maintenance Program

13. Organization of Routine Maintenance. The existing condition of ruralroads is such that they have deteriorated so much that they are beyond the point oforganized maintenance. Spot improvement of critical sections is compulsory beforestarting routine maintenance. The project would finance routine maintenancecontracted to individuals by municipalities under the supervision of the SRAs for theroads rehabilitated under the spot improvement program. The MSUs will prepare anaction plan to: (a) discuss and agree with the municipalities on the principle ofcontractingpeones camineros financed by the project; (b) determine workingsections whose lengths will be a function of the routine maintenance difficulties (it isestimated that an average length would be about 2 Ikm on a half time basis, or 4 kmon a full time basis); (c) make sure that the density or distribution of population issuch that the commuting distance would be feasible and no longer than about onehour walking distance; (d) assign a promoter of the SRA to be responsible for themanagement of the routine maintenance; (e) prepare the purchase and delivery of thetools; (f) contract and train the peon caminero; and (g) supervise and provide timelypayment of the peon by the municipality. The responsibilities and function of theSRAs to handle the routine maintenance program are presented in the operationalmanual.

14. Cost and Targets. The cost of employment of a peon caminero has beententatively estimated to about US$2,000 per year to carry out routine maintenanceon a section of 4 km on a full time basis, corresponding to a cost per km ofUS$5001km/year C(able 3). When purchase of hand tools and hauling of somegravel material are considered, the routine maintenance cost would be close toUS$600/km/year. Routine maintenance would start at the beginning of year 2 onthe road links rehabilitated during year 1. The final targets are estimated to 21,100km of routine maintenance carried out on a 12,500 kan long rural road network overa three year period for a total cost of US$13 million. The amount of distributedsalaries would be about US$10.2 million to be shared between 10,550 contracts.

C. Institutional Development Program

1. The Technical Assistance Program

15. Introduction. Technical assistance is to be provided under the proposedproject, to strengthen the capacities of the SRA, and in particular their maintenancedivisions, in establishing more adequate engineering and planning structures. Theemphasis is to be placed upon (a) developing engineering expertise in evaluation,diagnosis and recommendations for spot improvement works and (b) upondeveloping an information and monitoring system of the rural road network. Draft

- 114 -ANNEX H

Page 5 of 16

developing an information and monitoring system of the rural road network. DraftTORs for these activities can be found in Working Paper No. 4, Rural RoadsRehabilitation and Maintenance.

16. Outline of Terms of Reference. The consultants' responsibilities are to

(a) Update the guidelines for spot improvement and supply technicalassistance to approximately 60 field engineers and 120,technicians ofthe SRAs over an eight-month period. The guidelines wouldinclude: (i) a detailed methodology for identifying critical sections,to carry out road inventory, to fill inventory sheets; (ii) amethodology to diagnose the causes of degradation; (iii) a simplifiedmethod to quantify the volumes of works; (iv) simplifiedspecifications for works; (v) model of bill of quantities, procedure ofmeasurement to remunerate the contractors; (vi) set of typicaldrawings; and (vii) revision of the technical aspects of thebidding/contracting documentation. The technical assistance wouldbe delivered on-the-job on sections of rural roads, using theguidelines with the objective of establishing a specific spotimprovement file.

(b) Design over a 32-month period an information and monitoringsystem for the maintenance of the rural road network of the eightstates and to start its implementation on a sample of about 160 roadstotaling about 1,600 km (20 roads and 200 km per state), and todeliver technical assistance to the SRAs to use the system in order toimplement it on the whole network later on. The technical assistancewould be delivered to the 60 engineers and 120 techniciansmentioned in (i) above and to about 24 data base technicians (3 perstate).

17. The products of the consultancy would be:

(a) A revised manual for spot improvement;

(b) A set of eight spot improvement files in line with the revisedguidelines carried out by the eight SRAs assisted by the consultants;

(c) A simple catalogue of degradations of rural roads with thecorresponding methodology to use the catalogue; the methodologywould present the inspection methods, the measurement methods, thecriteria to record the extent and severity of the degradations and thedecision grid to correct the degradations. Bridges would beexcluded from the catalogue;

(d) A working methodology to carry out the road condition survey (toassess the general condition and to identify the sections that woulddeserve detailed inspection) and the detailed visual inspection;

(e) A set of eight files corresponding to the implementation of themethodology in the eight states of 200 km of road condition surveyon about 20 roads;

- 1 15 -ANNEX H

Page 6 ot 16

(fj A set of eight files corresponding to the implementation of themethodology in the eight state of the detailed visulI inspectioncorresponding to the output of (e);

(g) Establishment of a data base to be installed in the eight states tostore and process the data. Typical formats extracted from the database would be filled using the information collected under (e) and (f)using the decision grid mentioned in (a); and 4

(h) A plan of action to have the involved states to continue the roadinventory on their rural road network, to feed the data base and toderive a tentative maintenance plan.

18. At each stage of the technical assistance, the consultants will train theircounterparts: the 60 district engineers, the 120 road inspectors and the 24 data basespecialists. The consultants would install eight computers and peripherals andrelated software corresponding to the data base. They would also install 16 videoequipment systems if video technique is to be used for road inventory and 16 globalpositioning systems to locate villages, bridges, gravel pits, water supply sources etc.The total amount of technical assistance is estimated to about 87 person-months towork over a 40 month period (Table 4).

2. The Training Program

19. Introduction. All SRAs present almost the same deficiencies in their abilityto effectively prepare, plan and implement a comprehensive program of roadmaintenance and rehabilitation. For the most part, and in view of the emphasisplaced so far upon network expansion and upgrading, their expertise covers mainlynew road construction and paving, and little attention has been paid to planning andimplementation of road maintenance programs. In addition, few opportunities havebeen made available to staff for training, and because of rather low budgets, manyyoung engineers have never had a chance to use their skill. This demands that somein-service training initiative be undertaken in order to upgrade their professionalskills.

20. Objectives. The major objectives of the training program are to:

(a) Strengthen the performance capabilities of the SRAs' professionalpersonnel, particularly in the planning of their rural roadmaintenance management, placing major emphasis upon: (i)adequate network condition monitoring; (ii) design of appropriatestandards, best suited to the states' specificities; and (iii) effectiveplanning, budgeting and prioritizing procedures, using modernapproaches and models. The next step for a future project would beto focus on the efficient implementation of maintenance activities,involving a suitable mix of force-account and private sectorparticipation. In order to avoid to overload the absorptive capacityof the staff, the training on the implementation aspects of roadmaintenance would be limited to a minimum.

(b) Motivate personnel and create opportunities for career developmentthrough enhanced professional skill and abilities.

- 116 -ANNEX H

Page 7 ot 16

(c) Complement the actions and services otherwise provided by thetechnical assistance program whose duration is shorter, thus enablingthe SRAs to reduce their dependency upon external consultancy, intheir performance of their essential functions of planning andmonitoring.

21. Description of the Training Program. Four subject areas have beenselected in which training is required: (a) basic engineering, including'administration and management; (b) road maintenance including computer andinformation systems; (c) environmental analysis and mitigation of impact; and (d)basic economics including notion of statistics and feasibility. Each training subjectcomprise between two and six modules which cover the essential parts of the topicconcerned, as listed below.

Area I - Engineering and Management: (1) traffic engineering, (2)pavement design, (3) hydrology and hydraulics, (4) design ofspecifications, of contracts, (5) notion of control and supervision.

Area II - Maintenance: (1) concept of system, model and simulation, (2)concept of data bank, use of computer for word and data processing,(3) concept of monitoring, (4) concept of geographic informationsystem, (5) review of maintenance systems, (6) analyticalaccounting.

Area mII - Environment: (1) legal and theoretical aspects on transport andenvironment, (2) review of general specifications for road works,internalizing the enviromment as a variable, (3) specific courses onerosion control.

Area IV - Economics: (1) basic statistics, (2) basic economics, (3) conceptof feasibility, (4) basics of transport economics, (5) concept ofevaluation, and (6) strategy for construction of rural road network.

22. Characteristics and Targets. Each module has been scheduled to have a 16to 40 hours duration, depending on subject complexity, and the average number oftrainees per course will range between 8 and 32, this being a function of the type ofprofile to be addressed and the number of candidates having this profile. To ensureadequate coordination of the action plan and achieve cost effectiveness, the eightstates through the ITG and SEDESOL will be responsible for planning, preparing,organizing, and monitoring the training program. Altogether, the training targetsexpressed in terms of trainees-days, will be about 4,200 for about 368 staff. Thetotal estimated cost would be about US$790,000 corresponding toUS$25,000/state/year with a cost of US$2,150 per trainee (Table 4).

23. Municipal Training. The technical capability of the municipalities wouldbe developed through an on-the-job training carried out by the technicians of theMSU. The training would be carried out during the preparation and theimplementation of spot improvement program and the routine maintenance program.In addition to the field training, two-day seminars twice a year (before and after thespot improvement works) would be carried out by groups of about 15 municipalforemen representing 15 municipalities. It is estimated that the technicalrepresentatives of about 500 municipalities would get training on road works twice a

- 117 -

ANNEX HPage 8 of 16

year. The courses would focus on concrete aspects related with the organization andlogistics of works, estimation of volumes of materials, and some specificationaspects related to quality. The total estimated cost would be about USS600,000corresponding to US$300/municipality/year (Table 4).

3. Interstate Technical Group (ITG)

24. Objectives. The SRAs are young institutions with no contacts with otherstates. Therefore the Rural Roads ITG would: (a). help to exchange informationbetween the road agencies to help them to make decision and to better address theirinstitutional and technical issues; and (b) become an instrument of communicationand feedback between the SRAs and SEDESOL.

25. Strategy. The strategy to establish and organize the ITG would be in a firststage flexible and informal, to later on progressively become structured to becomemore effective. The initial leading role of SEDESOL would aim to get thedesignation of the heads of the SRAs as representative of their states. In a secondphase SEDESOL would suggest the Group to develop a stronger organization,including agreed procedures and working mechanisms that would be establishedwithin one year.

26. Agenda. It is likely that the ITG will not generate outputs during its firstyear of life. The teams would meet in principle four times a year in different hoststates and would have a fluid relationship. In addition to its own internalorganization the first agenda of the ITG would focus on: (a) project procedures:eligibility, procurement, disbursement, monitoring; (b) organization to receive thetechnical assistance for establishing the road information system; and (c)organization of the support to the municipalities (spot improvement, peon caminero,training program). The project would support the activities of the ITG through thefinancing of the expenditures of the meetings, estimated to cost about US$162,000for 16 meetings of two days duration (Table 4).

4. Municipal Support Units (MSUs)

27. Objectives. The MSUs to be established within each SRA under theresponsibility of the maintenance division chief would assist the municipalities toparticipate in the implementation of the rural road component and, in particular, in:(a) the spot improvement drainage works when carried out by SolidarityCommittees; and (b) maintenance works carried out by peones camineros. TheMSU would also assist whenever possible the municipality to improve theirengineering design (expediente tecnicos) related to the Municipal Funds program incivil works matters such as street paving, small bridge construction, fordconstruction, and track and rural road rehabilitation and to better organize their civilworks activities by delivering a training program for responsible municipal staff.

28. Strategy. The SRAs are poorly prepared to assist municipalities; therefore,SEDESOL and the state govermments would carry out a sensibilization campaign toestablish MSUs on a formal or informal basis. The MSU would be headed by anexperienced civil engineer assisted by about five technicians (promotores) a socialscientist, and a secretary. Field office staff would be instructed to work in closecoordination with the MSU.

- 118 -ANNEX H

Page 9 of 16

29. Agenda. The MSU would actively participate in the organization of the spotimprovement program during year 1 of the project and prepare the organization andlogistics for the routine maintenance program to be started year 2 of the project.The MSU would prepare and deliver the training program of the personnel of themunicipalities. The MSU would also be a key recipient of the contracted technicalassistance program. The project would finance about US$127,000 to procure officeequipment and about 740 person-days of training activities to be carried out by theMSU (Table 4).

III. Organizational Arrangements, Project Indicators and Targets

30. Organizational Arrangements. Within the PCU, an appropriately staffedrural roads sub-unit would be established and maintained. This sub-unit would beheaded by a qualified senior Highway Engineer experienced with at least 10 years ofexperience in operational responsibilities in road and network management. Thesenior Engineer would be assisted by two road engineers with substantial fieldexperience (at least 5 years) in road maintenance and construction with somecomputer skill. The central rural road sub-unit would be responsible for: (a) thenormative aspects of the road component; (b) the assistance and animation of theITG, and for the assistance to the MSUs; (c) the contracting and supervision of thetechnical assistance, studies, training programs, seminars; and (d) operationalaspects: review of the POA, review of the data sheets to compare states' proposalsand to present global analysis and recommendations, monitoring and reporting of therural roads component, including review of the tableros de desembolso and theoperation of the central data base for roads.

31. The states' SEDESOL delegations will nominate one senior highwayengineer with substantial experience (at least 5 years) in road managementresponsible for all the aspects of the rural roads component in each state. Thisengineer will: (a) review the state POA, the eligibility criteria, and will fill-in thedata sheets of approved subprojects; (b) operate and maintain its road data base; (c)follow up and monitor the implementation of the rural roads component includingthe establishment of the documentation for the SOEs; and (d) liaise with the SRAand the municipalities to facilitate the actions of the MSUs.

32. Implementation Arrangements. The detailed organizational responsibilitiesand arrangements for the implementation of the rural roads component are detailedin the Project Operational Manual and summarized by Table 5 that lists the key stepsof the implementation schedule of the rural road program.

33. Indicators and Targets. SEDESOL will monitor the implementation of therural road component using: (a) the rural road data base that would supplycommitment and physical data at the time of commitrnent (aprobacion) andcontracting and disbursement data at the time of presentation of the SOE's (tablerode desembolso); (b) the auditing process; and (c) the supervision process. The ruralroads component implementation and monitoring indicators are presented -in Table 6and in Annex C.

- 119 -

ANNEX HPage 10 of 16

MEXICO

SECOND DECENTRALIZATION AND REGIONAL DEVELOPMENT

RURAL ROADS COMPONENT

Table 1: Road Network of the eight States

Lcngth (Km)Function PAVED GRAVEL EARTH TRACK TOTAL

A .FEDERAL

Tnmk Primary 15,918 357 49 0 16,324Feeder Secondary 539 0 0 0 539Rural SCT Terciary 516 24,771 217 0 25,504Rural Other Terciary 92 8,763 488 0 9,343

Sub Total 17,065 33,891 754 0 51,710

B. STATE

Trunk Primay 1,496 748 27 0 2,271Feeder Seconday 7,766 3,005 334 0 11,105Rural Terciary 10 11,648 2,305 2,203 16,166

Sub Total 9,272 15,401 2,666 2,203 29,542

C. OTHERS

Tnmk Primay 0 0 0 0 0Feeder Secondary 25 196 2 0 223Rural Terciary 5 612 4,647 5,100 10,364

Sub Tota 30 808 4,649 5,100 10,57

TOTAL 26,367 50,100 8,069 7,303 91,839

Source: SEDESOLJStateDate : Marh 1994

- 120 -ANNEX H

Page 11 of 16

MEXICO

SECOND DECENTRALIZATION AND REGIONAL DEVELOPMENT


Table 2: Spot Improvement Program

Identified Demand tentative *Spot Improvement program

State Existing Totj3** esinted

Network 3 No length No eatimated No length No base costKm of Road Km of benef. cost US$ m of Road Km of benef. USS m

Chiapas 11,346 312 3,580 1,216,440 25,060,000 204 2,336 1,021,810 16.35Guerrcro 5,522 301 3,857 685,288 26,999,000 122 1,557 445,437 10.90Hidalgo 4,510 138 2,300 311,376 16,100,000 75 1,246 242,873 8.72Michoacan 3,883 390 2,331 604,672 16,317,000 287 1,713 483,738 11.99O uxA 6,156 144 2,014 441,466 14,098,000 167 2,336 370,831 16.35Puebla 4,058 154 1,593 420,671 11,151,000 196 2,024 420,671 14.17

Veracuz 10,805 415 4,880 2,176,000 34,160,000 291 3,426 1,980,160 23.98Zacatecas 6,600 120 2,436 315,335 17,052,000 46 934 201,814 6.54

Total S2,330 1,974 22,991 6,171,248 160,937,000 1336 15,571 5,167,335 109.00

3 totbl exiwtng gravel and erth nual roads (federal+dsta+other) excluding paved rural roads and trcks

tol estimated cost of spot improvement3 melected by priority rankdng order, funding proportional to the rual population.

lgnlementaion SchedLde

No RevisedeKm USS m Benefic. No Benef

199S 2,336 16.35 1,920,000 1,440,0001996 3,893 27.25 1,607,000 1,205,2501997 6,229 43.60 962,000 721,5001998 3,114 21.80 880,575 660,431

Tota 15,571 109.00 5,167,335 4,027,181

* a 25% redction coefficient has been applied to the number of beneficiaries to considerthat planning would be made at Regional level.

Source: Mission EstmtDate: March 1994

- 121 -ANNEX H

Page 12 of 16

MEXICO



Table 3: Routine Maintenance Progran

Typical Routine Maintenance CostYear Spot Total half time (for 4 km per year)

Improv. Rouine Base contiaca Cost Life Annual %Program Maint. Cost peon Category Cost period Cost of

Km Km USS caninero USS Yeas USS total cost

l995 2,336 Tools 90 1 90 3.611996 3,893 2,336 1,401,429 1,168 Gravel" 400 1 400 16.061997 6,306 6,229 3,737,143 3,114 Labour 2000 1 2,000 80.321998 3,114 12,535 7,521,000 6,268

danua cost 4 Km a year 2,490 100.00Totl 15,649 21,099 12,659,571 10,550 annual cost: 1 Km/Year: 623

Note: rounded 12,000,000of which: rounded to USS/Kmlyear. 600goods 457,575civi worksb 2,033,66C * Sine works would be carried out on a haillabour 10,168,330 -m basis each peon woud be conwactedhied peona: 6,268 to cary out 2 Km for USS1,000

gravel mnaials for patching 4 Km

Source :Miasion EstimateDate : Februazy 1994

- 122 -

ANNEX HPage 13 of 16

EXCO


Rural Roads Component

Table 4: Institutional Development Program

Totalcost

I. Consulting services Unit Quantity US$

A. Spot Improvement Study Staff month 21 315,000

B. Inform/Monit. system Staff month 66 1,140,000camera video Unit 8 10,400Computers/periphericalUsoftware Unit 8 80,000Global positioning systems Unit 16 24,000

Subtotal 1,569,400II. Interstate Working Group

meetings of 18 persons meetings 16 130,000(16 meetings, 2 days each)miscelaneous lots 4 32,000

Subtotal 162,000mI. State Units (muncipal support)

computers/software unit 16 32,000office equipment lots 1 40,000municipal technicians (trainers) days 740 55,000

Subtotal 127,000IV. Training (costs associated to trainee)

A. Spot Improvement (field training)60 district engineers days 1800 126,000120 road inspectors days 3600 252,000

B. Infor.lMonit. system24 data bank specialists days 1080 75,600

C. Training Municipal Agents500 municipal works directors days 8000 600,000

D. Courses for Professionals370 High level stafffees of trainers for 84 coures staffdays 230 60,000cost for about 370 trainees affdays 4200 660,000miscellaneous lots 1 70,000

Subtotal 1,843,600

Total Services (US$ equivalent) 3,702,000Total Services (US$ equivalent) rounded 3,700,000

- 123 -ANNEX H

Page 14 of 16

MEXICO



Table 5: Organizational Arrangements

STEPS WHO DOES WHAT HOW WHEN

I State prepare Expedientes based on ranked JulyHighway agency 50% of Tecnicos priority, using environ-

mental checklist

2 State proposes POA based on budget AugustHighway agency presents expectations

3 Coplade reviews POA based on ste Septemberpriorities

4 State Sedesol analyses POA baed on agraed Septemberauthorizes norms and budget

5 StaSte carly out Expedientes based on agreed OctoberHighway agency 100% Tecnicos guidelines November

6 Coplade reviews proposals based on stae Decemberregutions

7 State Sedesol approves proposals basd on agreed Decembernorms and budget January

agre8 Sedesol Central acknowledge. proposals based on agreed December

aggregates norms and budgd January

9 World Bank revises data sheets Decembergives the no monit. indica. loan agreemet Januaryobjection to program

10 State completes bidding agreed guidelines JanuaryHighway agency update. plan of

action

- 124 -ANNEX H

Page 15 of 16

MEXCO



Table 5: Organizational Arrangements

STEPS WHO DOES WHAT HOW WHEN

bids,11 State analyses contracts agreed models Febnaury

Highway agency awards convenioscontracts

12 Coplade updates budgets internal procedureregisters commitments on data bank Febmary

comments13 State Sedesol updates commitments on data bank Febnuary

registers

comments14 Sadesol Central update commitments on data bank Febnuary

registersagregates

15 state supervises contracts field districts March toHighway agency assists municipal. July

16 State Sedesol gathers preliminary Feb- DecSedesol Central checks SOE'S data bank

17 World Bank checks eligibility data bank Feb- Deccompares monit indic.

18 Sedesol Central ends NAFIN eligib. SOE's Feb- Dec

19 NAFIN registers Disburs. agreed norms Feb- Decchecks Applicationprocess

20 World Bank registers Application intenal les Feb- Decchecks elig. categ.etcprocess disbursementinforms NAFIN

- 125 -ANNEX H

Page 16 of 16

MEXICO



Table 6: Implementation Monitoring Indicators

Program/Objectives Indicators Unit 1995 1996 1997 199f Total

1. Spot Improvmet Grading KM 2,300 3,900 6,300 3,100 15,600No beneficiaries million 1.4 1.2 0.7 0.7 4

No of Roads U 230 390 630 310 1560

2. Rouwe Maintenance length maintained Km 2,300 6,200 12,500 21,000No of maint. convenio U 1,150 3,100 6,250 10,500

3. 1usiwt. Devdopnt

Spot Imvement updatd guddinem U 1 1(Technical Amistane) State. with lydem No 1 4 3 8

Information System Dat ban U 1 1(Tecnical A _itano) State' inform.uyudem No 3 3 2 8

road inventoe Km 600 600 400 1,600

Training taine. state agenci. tmi.days 1,000 3,000 4,000 2,900 10,900ainee muincipai. trai.days 2,000 4,000 2,000 8,000

4. rr No. of meetinp U 4 4 4 4 16

5M.onitwing No visit to Statefield U 8 8 8 8 32by PCU/Cener No subprojecs viitd U 24 24 24 24 96

No. monitoring reports U 2 2 2 2 8

6. MSU Active Putiomng in U 8 8 8 8each state

- 126 - ANNEXI

Page 1 of 2

MEXICO


Income-Generating Component

I. Background

1. The investment component of the first DRD project allocated resources forsubprojects in agriculture, forestry and agroindustry as a strategy for alleviatingpoverty in the four poorest states. The project financed productive activities througha matching grant mechanism between federal and state sources and contributionsfrom beneficiaries. There were a number of problems encountered during theimplementation of the productive subcomponent. Productive subprojects wereadministered by a range of national and state organizations, many of which did notdemonstrate the institutional capacity to identify, appraise, implement, or monitorand evaluate these activities. The number of organizations involved, combined witha lack of appropriate institutional capacity and incentives, led to discrete investmentswithout an integrated project approach and little or no financial analysis or follow-upand monitoring during implementation. Moreover, implementing agencies generallyutilized a top-down approach, with limited involvement of producers. As a result ofthese deficiencies, income-generating investments have accounted thus far for onlyfive percent of the disbursements of the first DRD project, compared with theoriginal allocation of 30 percent.

2. Despite the disappointing performance in the first DRD project, a small,pilot income-generating component in the Second DRD is justifiable based on theopportunity to learn from the lessons of the first project, and the pressing need foreconomic stimulus and credit alternatives in rural areas, a need made all the moreacute by the agriculture sector adjustments that have taken place as a consequence ofNAFTA.

3. Currently, several strategies are being developed and piloted within theSolidarity program to respond to rural investment demands in ways that avoid theproblems of past programs. These strategies include: (a) investment risk capitalprovided producer groups with viable proposals through FONAES; (b) establishmentof producer-managed savings and loan associations (cajs de Solidaridad, managedby FONAES, and the FRS of INI); (c) investments in small income-generatingprojects through Municipal Funds; and (d) innovative approaches by state agricultureand rural development agencies, often involving producers' associations and othernongovernmental organizations (NGOs). Each of these efforts, however, are beingreviewed in light of the upcoming transition in the federal administration, and it isunclear which strategies will continue to receive support under what conditions inthe new administration. For that reason, the definition of the project's income-generating component will not be finalized until early 1996.

- 127 -ANNEX I

Page 2 of 2

II. Income-Generating Component

4. The income-generating component would finance the development andimplementation of pilot income-generating investment strategies under the NationalSolidarity Program. The objectives of the component are: (a) to increaseproductive potential and generate income in poor rural areas by supportingfinancially viable projects developed by producer groups; and (b) to develop thecapacity of producer organizations to plan and manage productive investments andrelated technical assistance.

5. As it is now conceptualized, the component would consist of twosubcomponents: (a) technical assistance, training and investment to pilot improvedapproaches to agriculture investment by state-level agencies, especially in partnershipwith local producers' organizations; and (b) technical assistance and training tostrengthen the identification and development of income generating subprojects bycommunities and municipalities within the Municipal Funds program. In addition,limited technical assistance support may be provided to other Solidarity efforts,including FONAES (see Working Paper No. 6) and the FRS.

1. State-level Agencies (US$8 million)

6. The project would support a pilot initiative in one or two participating statesto improve the capacity of state-level agriculture agencies to assist producers' groupsin developing and implementing viable income-generating subprojects. Thissubcomponent would require considerable changes from the first DRD when theprogramming of investments was left open-ended. Support to state agencies wouldfocus on developing their capacity to: (a) identify priority regions and mechanismsfor targeting resources to poor farmers, and especially to indigenous and women'sgroups; (b) develop linkages with local producers' groups who would be active inthe identification and preparation of subprojects and would be responsible for theprocurement of project-financed technical assistance and investment; and (c) moreadequately identify, appraise, and monitor and evaluate the implementation ofincome-generating subprojects. Regular supervision of this subcomponent wouldallow executing agencies and the Bank to identify weaknesses and positive learningexperiences which can later be applied to other states.

2. Municipal Funds Program (US$4 ndllion)

7. The income-generating component would also support technical assistance tocommunity groups to plan and implement subprojects financed under the MunicipalFunds subcomponent. In the first DRD Project, most of the demand for MunicipalFunds generated by communities focused on social infrastructure as opposed toincome-generating initiatives. This was due in part to lack of technical assistance toassist community groups in identifying viable productive activities. Nevertheless,the use of the Municipal Funds as an alternate mechanism for financing productiveelements is worth further developing because of the potential they have to encouragelocal initiative and decentralize decision making. The project would financetechnical assistance and training to enhance project planning capacity at themunicipal and local levels and to provide adequate follow-up and technical inputsduring implementation.

- 128 -ANNEX J

Page 1 of 2

MIEXICO

Second Decentralization and Reaional Development Project

Supervision Plan

1. The frequency of Bank missions will be guided by the progress and special requirements ofproject implementation. This Second DRD project will require less review and assistance than thefirst DRD project. Nevetheless, because the project involves more than 24 state agencies and over1,400 municipalities in 8 different states, most of whom have little knowledge of Bank procedures, itcalls for more intensive review and assistance than is usually the case. In addition, each projectcomponent, including institutional development and investments in Municipal FundslEscuela Digna,rural water supply, rural roads rehabilitation and maintenance, and income-generating subprojects,will require very different expertise in supervision activities.

2. Bank supervision would include the assistance of field supervision by a water supply engineerlocated in the Mexico Resident Representative's office, who, in addition to supervising the rural watersupply component, would be responsible for: (a) reviewing subproject eligibility and procurement;(b) processing of computerized data bank of subprojects; (c) problem resolution and liaison with TaskManager in headquarters. As shown in the attached table, Bank missions are expected after a ProjectLaunch Workshop to supervise the project about three times per year until the mid-term review, andtwo times per year thereafter. It is estimated that about 306 staff weeks will be required for projectsupervision for the duration of the project, with approximately 70 staff weeks required per year. Thiswould be even higher if not for synergies gained by combining some supervision work of the firstDRD project with the Second DRD project.

.~~~~~ *........ ________~~~~~~~~~~~~~~~~~~~~~~........

11/94 Project Launch mission, including launch Mun. Dev. Spec./Soc. Sci. 12workshop for each component,' review of Water Supply Engineerterms of reference for financial and Rural Road Engineerperformance audits Procurement Officer

Disbursement OfficerAudit Specialist

02195 Supervision Mission: field visit of 3 states - Mun. Dev. Spec.lSoc. Sci. 12review progress, issues, targets indicators - Rural Road EngineerSpecial emphasis on (i) TA aspects for MF, Water Supply Engineerand hiring of TA for Rural Road and Water AgriculturalistSupply, (ii) on functioning of the monitoringsystem, and (iii) pilot income-generatingcomponent

1. Pilot income-generating component to be addressed more fully in 2195 mission.

- 129 -

ANNEX JPage 2 of 2

Approx. Dtest Key Actibities Expected SidU in 0putRequirement tf

06/95 Supervision Mission - focus on progress with Mun. Dev. Spec.lSoc. Sci. 12monitoring system, procurement engagement Rural Road Engineerof Consultants and progress on commitments Water Supply Engiheerof works. Review of the income-generating Agriculturalistcomponent - field visit of 3 states

10195 Supervision Mission review of financial Mun. Dev. Spec./Soc. Sci. 9progress, achievements of TA for MF and Rural Road Engineersectoral components- field visit of 2 states Water Supply Engineer

02/96 First Annual Project Review. Review overall Mun. Dev. Spec.lSoc. Sci. 12progress, issues and achievements of the Rural Road Engineer1995 program. Update of operational manual Water Supply Engineerand indicators. Focus on TA to Agriculturalistmunicipalities, on studies and on the 1996

l ____________ program. Visit of 3 states

09/96 Supervision Mission - Visit of 3 states Mun. Dev. Spec./Soc. Sci. 9Rural Road EngineerWater Supply Engineer

3/97 Mid-Term Project Review and compliance Mun. Dev. Spec./Soc. Sci. 15with loan covenants - progress on Rural Road Engineerinstitutional and investment programs, Water Supply Engineerupdating of the opeational manual, review of Agriculturalistthe audit findings and 1997 program - visit of Audit Specialist3 state

9/97 Supervision Mission Mun. Dov. Spec./Soc. Sci. 12visit to the 4 tes Rural Road Enginoer

Water Supply EngineerAgriculturlist

3/98 & 9/99 2 Supervision Missions Mun. Dev. Spec./Soc. Sci. 21visits to the 8 states Rural Road Engineer

Water Supply Engineerl_____________ Agriculturalist

l FY99 Loan Closing/ICR Mun. Dev. Spec.lSoc. Sci. 15Water Supply EngineerOperation Assistant

SUBTOTAL 129

Long-term consultant in field office Water Supply Engineer 1294 yea x 40 - 160 - (31) - 129

Headquarters activities Mun. Dev. Spec./Soc. Sci. 48Task Manager 12 w x 4 - 48

1994-1999 TOTAL SUPERVISION REQUIREMENT 306

Note: Average 70 sw/year for 4 components- 17.5 SW per component per year

- 130 -

ANNEX K

MEXICO


Estimated Schedule of Bank Disbursements *

(US$ million)

Bank Fiscal Semester Disbursed Cumulative Disbursement LoanYear Ending during Balance

Semester Amount % of Total

5001995 June 95 80** 80 16 420

1996 December 95 43 123 25 377June 96 48 171 34 329

1997 December 96 58 229 46 271June 97 58 287 57 213

1998 December 97 71 358 72 142June 98 76 434 87 66

1999 December 98 46 480 96 20June 99 20 500 100 0

* Disbursement schedule has been estimated based on experience with the first DRDproject.

** Includes initial deposit in the special account of US$40 million.

- 131 -

ANNEX LPage 1 of 6

MEXICO

SECOND DECENTRALIZATION AND REGIONAL DEVELOPMENT PROJECTGovernment Policy Letter

(Translation of Spanish Original)

SECRETARIAT FOR FINANCE AND PUBLIC CREDITGENERAL DIRECTORATE OF PUBLIC CREDIT

Mexico, D.F., April 15, 1994

Lewis T. PrestonPresidentThe World Bank

Since the beginning of the present Administration, the MexicanGovernment has been developing a vigorous policy addressing extreme poverty, apolicy which is implemented primarily through the National Solidarity Program.

Through this Program, a notable change has been made in the strategiesand dynamics in the fight against poverty previously followed in the country.

The growth of Solidarity has occurred in the context of the profoundtransformations that have taken place in Mexico, to provide responses to the newcircumstances of national development; these changes have implied among otheractions, the withdrawal of the State from non-priority areas in order to strengthen itsfunctions in other areas which have become high priority as part of its new rolewithin the development of the country.

Social policy has become a fundamental concern and has achieved thefirst order of priority as part of the new functions of the State. In this redefinition ofthe functions of the State, the social dimension of State activities has become apriority.

In this context, public expenditure has been transformed profoundly. Itsmost outstanding changes have been the notable reduction of the weight of debtservice and the increase in the proportion of social expenditures within totalexpenditures. For the first time in the history of the country, social expenditurescurrently have reached 10% of the GDP through these changes.

- 132 -

ANNEX LPage 2 of 6

In addition to this quantitative change, one must add the distinctiveelement in the new sociai policy in Mexico: social participation has acquired a centralrole in the national strategy, especially in actions taken to fight extreme poverty.

This new element of social participation substantially modifies thestrategies of previous efforts to fight poverty and guarantees the irreversibility of theprocess, which is of great importance in making policy implementation more efficient.

The National Solidarity Program is the principal instrument of the newsocial policy of the State and represents the combined efforts of the State and thesociety to pay explicit attention to the needs of the less favored (poor) population ofthe country.

At the core of Solidarity's strategy is social participation developedwithin the framework of the renewed relation between the State and its populace. Thisparticipation plays a key role in the process of transforming living conditions. In thisway, the population does not receive passively institutional action by the State, but isinstead an active agent that participates in the decisions related to improving its livingconditions. This is Solidarity's distinguishing element and its principal social asset.

In this strategic framework, the population, organized in SolidarityCommittees, identifies and defines its priority needs, contributes to selecting the bestalternatives to address these needs and participates in implementing projects andactions, supervises and controls their completion and operates and maintainsconstructed infrastructure.

This social participation is developed with a respect for thecommunities' natural forms of organizing, encouraging the development of democraticorganizational processes directed by the populace itself.

Decentralization is another important strategic element of Solidarity. Ineffect, the definition of the specific programs and actions, their implementation,control and monitoring are decentralized towards the states and to a great extent, themunicipalities-which is very significant since it allows municipalities to assumeparticipating in managing important and transcendental programs throughout thenation-for the first time in the history of the country.

Before Solidarity, the country's municipalities in effect assumed eithera modest role or in many cases almost no role in managing and implementingprograms to address the basic needs of the population. In the best of cases, the roleof a great majority of the municipalities was limited to being merely the purveyors ofrequests of the population for assistance from the federal or state agencies for socialinfrastructure and other works.

- 133 -ANNEX L

Page 3 or 6

In the current Administration, decentralizing functions and resources tothe municipalities through Solidarity has permitted reactivating municipal governmentin two fundamental ways:

* The municipality has been recognized and valued by its communities asan entity capable of addressing its most urgent needs. This is to say,that one sees a strengthened relationship between municipalgovernments and their communities which fosters the process of socialparticipation within the activities of municipal governments across thecountry; and

* The operational requirements of the programs and functions transferredto municipalities have obligated the municipalities to activate theirtechnical, administrative, accounting and other capacities--an effort thathas received support from the Federal and State Governments.

Solidarity is thus a national strategy which joins the forces of the Stateand the Society, makes social participation its fundamental strategic element and usesdecentralization as the basic element to orient its development and implementation.

In the National Solidarity Program, decentralization is not limited togovernmental entities but includes the decentralization of functions to organizedcommunities as its central objective.

Decentralization within Solidarity has as its ultimate objective socialorganizations, which should be transferred through a dynamic and irreversible processthe fundamental functions in supporting transforming welfare conditions.

Solidarity has advanced significantly in this respect. It is for this reasonthat one can speak of the presence of irreversible processes that are beingconsolidated and that constitute a solid and important base for continuing the efforts inthe country's fight against poverty.

The Mexican Government will maintain the vigor of its social policyand its particular approach in addressing poverty, while enriching this approach withthe lessons of experience and always considering the primary importance of societalopinion and consensus in defining the achievements, contents and implementationmechanisms.

In the future, there will be a need to develop further the processes ofsocial participation and decentralization generated within the framework of Solidaritysince this program does not consist of a limited strategy but of an intense social andinstitutional dynamic with an immense potential in contributing to transform thewelfare conditions of the country's poorest populations.

- 134 -

ANNEX LPage 4 of 6

The experience of the last two years has shown that transferring thebasic role to communities in the process of improving their living conditions,constitutes the best guarantee to success and the efficiency of the policies andprograms that are being undertaken.

In the society there exists an enormous potential for transformation thatSolidarity has reactivated and that will be realized with even greater power in thefuture through an accelerated process transferring even greater functions tocommunities and the populace at large, within the policies and strategies directed tofight the most severe poverty.

Decentralization will require a greater activism so that the states and,above all, the municipalities acquire a more important role in the policies that addressextreme poverty and, in general, in development strategy.

A greater process of decentralization will assume, therefore, a basicpremise of institutional action accompanied by a process of restructuring which wouldcontribute to the efficiency of programs and actions developed to support the nationallevel efforts to elevate the living conditions of the population lacking the most basicneeds.

Within this framework of future governmental action related toalleviating extreme poverty, the following are relevant actions which the MexicanGovernment will undertake:

(a) Consolidate a significant proportion of Social Expenditures within the overallstructure of the public expenditures, so that it maintains at least the averagelevel that it has had in recent years as a first order of measuring theinstitutionalization of extreme poverty alleviation policy.

Regarding the above, the programs of poverty alleviation will be maintained atthe least at their current levels, in real terms.

(b) Make the planning of poverty-related expenditures more efficient byguaranteeing a more efficient targeting of expenditure to the regions andgroups with the greatest need.

(c) Foster the decentralization of social policy, especially of poverty alleviationpolicy, to the states, and, above all, to the municipalities, as the most viableapproach to fostering social participation and the efficient instrumentation ofthese strategies.

With respect to the above, it is anticipated that the municipalities will manageat least 25 percent of the resources asociated with poverty programs.

-135 -ANNEX L

Page 5 of 6

(d) Rearrange the operations of the programs and actions that implement thepoverty alleviation policy, with the aim of achieving their objectives moreefficiently.

Regarding the above, progress will be made in limiting the role of the FederalGovernment to that of policy formulation and oversight, with the remainingfunctions falling upon the states, municipalities and communities.

(e) Implement actions that contribute to strengthening and valuing municipalgovernment, to levels higher than that achieved presently. The following areincluded within these actions:

1- Consolidate and even increase the current levels of the municipalities'participation in implementing poverty alleviation policy.

2- Define and implement a strategy of strengthening the municipalgovernments' institutional capacity (technical, administrative, etc...) so thatthey can assume efficiently an increasing amount of the functions, programsand responsibilities that the Federal and State Governments are transferring tothem.

3- Review the municipalities' financial situation and define strategies offinancial strengthening that permit them to undertake a greater role in thepromoting development within their own jurisdictions.

4- Promote, within a framework that respects the State Governments'sovereignty, the review of formulae for distributing revenue-sharing to themunicipalities.

5- Review structural factors (judicial, regulatory, etc...) that affect themunicipalities' participation in the development process and promote actionsthat help modify these factors in order to support reactivating municipalgovernment.

(f) Develop strategies so that the organized population can assume a growing and* more efficient participation in the processes related to defining, implementing

and monitoring the policies, programs and actions aimed at serving theneediest groups, as well as maintaining and operating completed infrastructure.

- 136 -

ANNEX LPage 6 of 6

The preceding actions, among others, will contribute to theinstitutionalization of a policy against extreme poverty, a process which has hadimportant advances in the present Federal Administration, and its formalization as astate policy.

Sincerely,Sufragio Efectivo, No Reelecci6nThe SecretaryCarlos Rojas Gutierrez(Secretariat of Social Development)

- 137 -ANNEX MPage 1 of 1

AEXICO

SECOND DECENTRALIZATION AND REGIONAL DEVELOPM\ENT PROJECT

List of Documents in the Project File

1. Selected Bank Reports and Studies

World Bank Report No. 8786-ME. Staff Appraisal Report Mexico Decentralizationand Regional Development Project for the Disadvantaged States. Loan 3310-ME.March 4, 1991.

World Bank Project Completion Report for Integrated Rural Development Project -PIDER m. Loan 2043-ME. June 14, 1990.

World Bank Report TWU 11. Rural Road Maintenance and Improvement: BestPractice. Chris Hoban, John Riverson, and Albert Weckerle. March 1994

2. Selected Reports and Studies Related to the Project

Draft Project Operational Manual, dated July 19, 1994.

Community Participation in Mexico's Municipal Funds Program: The Case ofOaxaca.' Summary Report of Phase One - December 1993. Jonathan Fox (MIT)and Josefina Aranda (UABJO).

Estudio Comparativo sobre la Construcci6n, Rehabilitaci6n y Mantenimiento deEscuelas Primarias Rurales, Programa para Abatir el Rezago Educativo, RodrigoGonzalez Kelz, consultant, Consejo Nacional de Fomento Educativo (CONAFE) andWorld Bank, June 1993, Mexico.

3 . Project Implementation Files

Working Paper No. 1: Inter-governmental Relations in Mexico: Focus on the EightProject States

Working Paper No. 2: Analysis of Inter-governmental Fiscal Relations in Mexico:Focus on the Eight Project States

Working Paper No. 3: Municipal Government in MexicoWorking Paper No. 4: Rural Roads Rehabilitation and MaintenanceWorking Paper No. 5: Agriculture and Small Farmer Production: The Case of

PRONASOL in OaxacaWorking Paper No. 6: Rural Water Supply Component (in Spanish)

| .- . UNITED STATES OF AMERICAA-

SONORA

I ! CHIHUAHUA

-. i/ " \.

-v + - . > 8 ! s ......... z zCOAHUILA j

Zf- I NUEVO -> t 5 LEONs DURANGO .

SINALOA~ ,' *.

II SINALOA t (I; .! p 'U Ai ~ TAMAULIPAS

'-_,/Zoojcas q

t /~ . , SAN LUIS' -

NAYARIT . AACI 4 15POTOSIJ ~~~~O5b\.. ~~~~~~YUCATAN,

MEXICO N I YUCATANA

SECOND DECENTRALIZATION AND JALIsco ., A .s t rePotuc9KJ D NTA UINTANAMEXI flY ~~~~~~CAM PECHFREGIONAL DEVELOPMENT PROJECT

PROJECT STATES TABASCO

Chilponcingo® . -\ BELIZEPROJECT STATES > oxoco® 7 ® Tuolo Gu,t,eiezj

* STATE CAPITALS' ( J L.

6 NATIONAL CAPITAL GUATEMALA .-- - STATE BOUNDARIES . ( HONDURAS-*- INTERNATIONAl BOUNDARIES 0 100 200 300

*Stote Capitals are shown in project states only. SALVADORo>~~~~~~~~~~~~~~~~~~~~~~~~~~~f~ t h eoo ronifx.o nd og ., doEM ,n,o o~

s r, Fi, i,, ri p. imp. r N wIM 8 NICARAGUArq~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~o oci oo xl .o~rr arjch hoodoir

0,

.!~~~~~~~~AAC --- .----- _

VERACRUZ C.MEXICO

STATE OF CHIAPASSECOND DECENTRALIZATION ANDREGIONAL DEVELOPMENT PROJECT

5-< ~~~~'it 1ill Flores )8-t $

y+j~~~~~~. GUATEMAlA

RURAL AND URBAN MUNICIPALITIES

\ J ~)~ oir 7,k PARTICIPATING IN MUNICIPAL FUNDS PROGRAM 0 20 A OG

.3 . jCOMPLETELY RURAL MUNICIPALITIES (TYPE A( KIF .

iF1 PARTIALLY RURAL MUNICIPALITIES (AT LEAST _____________________________

\L±Z.J ) 1/3 RURAL- TYPE 81)

PACIFIC ' 2URBAN MUNICIPALITIES (LESS THAN 1/3 RURAL- - . NITFn IAIF .)[ AMEPI APACIFIC Li TYPE B2)

LARGE URBAN MUNICIPALITIES (EXCLUDED FROM

OCEAN F PROJECT FINANCED MUNICIPAL FUNDS)

* STATE CAPITAL

o SELECTED CITIES

MUNICIPAL BOUNDARIES i.

c . bo.,,A-, ld . -d Olw r - - STATE BOUNDARIES

_ rAs - .refs-chOas ~-- INTERNATIONAL BOUNDARIES

Fl SA(IV~AL.

MICHOACAN / M-XIC

¢ I l l | w _MORELOS o

STATE OF GUERRERO °ce8-- 'V 'SECOND DECENTRALIZATION AND & elleopvotas8eis8 I>¢ l$vvr8REGIONAL DEVELOPMENT PROJECT so;sGsr-enornmnl;lll;lmflsosern

RURAL AND URBAN MUNICIPAtlITIESPARTICIPATING IN MUNICIPAL FUNDS PROGRAM: UNTD.llSr)AMPA

_ COMPLETELY RURAL MUNICIPAtlITIES (TYPE A(

PARTIALLY RURAL MUNICIPALITIES IAT LEAST _"N_ 1/3 RURAL -TYPEBl1 )

W LARGE URBAN MUNICIPALITIES (EXCLUDED FROM )' ir PROJECT FINANCED MUNICIPAL FUNDSI ;S

*3 STATE CAPITAL ,'

> ~~~o SELECTED CITIES 0 30 60. 90 120 KILOMETERS t.)

I I ~~~~~oI

C ________ MUNICIPALBOUNDARIES {.la ' ^ +ruM

_ S STATE BOUNDARIES rsA /

SECND ECETRAIZAIONAN

MEXICO

SAN LUIS STATE OF HIDALGOI POTOSI SECOND DECENTRALIZATION AND

W-L REGIONAL DEVELOPMENT PROJECT

-~~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~UA A*4 U-AT MIUL lt II ' 2

PART IC PAT ING IN MUIJIC( I IA R O U PGRAM

COMPLFTELY RIJRAI MtJtYll lPAlilif (TYPE A)QUER-ETAROI PARTIALIY RURAL MUNICII AllIl C (AT IEAST

QUERETARO. - 'IRULIPElLII;]^r . Z uRELIU AN MlJNICIPALITlFS (LrP5 THATI I 'R RURAL

. LACRGE UBAN LT, AL TIA CI UPYB LU DMED FROML:I PROMECT ELNANC El I ,!L(PAL FUPLUS)

, - ®t: t 4 A i z STATF CAPITAt

0 SELE C TFDF CU TE S

; I. Q t +'~ 8 ?! _ -MUNICIPAI BOLILJADPlIS

: -s- - STATE BOILNDARIFS

> +Niii>a; ^ _ e! ~~~~~~~PUEBLA4

0 2! A 60

cA. ~~~~~~~~~~~~~~ ungo EL!'~~~~~~~~~~~~~~~~~~~~~~ II T I UI'

; _ .. UNITFA 'UAITFC 1MIR AFI

MEXICO \ -

-- Gt 4 - X , #œ ofA4 m

PACiIPC OCHIAAG*i TLAXCALA ^ PIIDALGOf

A,, o do p0 . TY. W.d Rook

_ -- v Ely

I A,-, 0. 69a ftft, d ;I_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ El~~~~~~~~~~~~~~~~~~~~~~~~AF-1

MEXICO

STATE OF MICHOACANSECOND DECENTRALIZATION AND

RURAL AND URBAN MIJNICIPAWIEISREGIONAL DEVELOPMENT PROJECT RURA_____ AN__INUM A U,pO,REGIONAL DEVELOPMENT PROJECT ~~~~~~~~~~~~~~~~~~~~PARTICIPATING IN MUNICIPAL IUNDS PPOGRAM

COMPLEIFLY RURAL MUNICIIALITIFS (TYPF A)

. : PARTIALLY RURAL MUNICIPAIITIFS (AT LFAST)7 -1/3 RURAL TYPF BI)

GUANAJUATO .URBAN MUNICIPALITIES itFSS T\IAN 1/3 RURAL

JALISCO _1tiiod ! -LA;RGE URBAN MUNICIPAIIII S (EXCLLJDPFD FROM

PROJECTFINANCED NUNI( lAl FtIND)

@1 STATE CAPITAL

MUNICIPAL BOUNDARIES

____STATE BOUNDARIES

OCEAN Lozoro Cordenos ~~ ~ T /

l h. is, n~, 0d oy d # ordu .&,, a I r8 0S ^~~t,X s4. .... i MU 40 nAs -N sn,nzr

0 BO0 SALVADO

.. . .. MEXICO

STATE OF OAXACAPUEBLA ' SECOND DECENTRALIZATION AND

REGIONAL DEVELOPMENT PROJECTRURAL AND LJPBArl MU? 4 IPALII LS

_ _ ..... w + ; .,,, ,_ _, _Loma Bonito PARTICIPATING IN MUNI IPAL ElH rITD PROGRAM

i_ UR tX -4 ' ' t z f O > COMPLETELY RUPAt MIT41(CIALITIFS, (TYPE A)

PARTIALLY RURAL MULI' IL'ALIIFS (AT LEASTVIERACRUJZ'E 1/3 RURAL tYPFBI)

URBAN MUNICIPALITIFS lEfSS TILAN 1/3 RURALTYPE B2)

PROJECT FLNANCED ' J AICIPAL FUNDS)

0~~~~~~~~~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEECE CITIESCFC CEN,

$ J LARGE URBAN ~~~~MUNICIPALBONA IES SECUDDFO

STATE BOUNDARIES

GUERRERO/

> K~~~~~~~~~~~~~~IjOFTt .;- I

9; -,, - - U.ITED STALES or AICA

_~~~~~A s o d -_120AVDO

0L ~~~80 10PACIFIC OCEAN

Gnxq., ~~~~~~~~~~~~~~~~~~~~~~~~r t4rv AA?TMALA~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~,tFAL.,donrnwvo, o/~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~4

MEXICO

STATE OF PUEBLA 'I SECOND DECENTRALIZATION AND

REGIONAL DEVELOPMENT PROJECT > GULF OFRURA. AND URBAN MUN CIPALITIES PROGAM MEXICOPARTICIPAT NG IN MUNICIPAL fUNDS PROGRAM,

COMPLETELY RURAL MUNICIPALITIES )TYPE A) j

PARTIALLY RURAL MUNICIPAL TIES (AT LEAST1, 3 RURAL TYPE BI

Cifl URBAN MUNICIPALITIES (LESS THAN 1/3 RURAL /TYPE 32) [cote

_ LARGE URBAN MUNICIPALITIES (EXCLUDED FROMPROJECT FINANCED MUNICIPAL FUNDS)

@ STATE CAPITAL HIDALGO H

o SELECTED CITIES

MUNICIPAL BOUNDARIES

STATE BOUNDARIES ,-

, < _ ... _ * - <,, <r, ; ..-...... VERACRUZ

MEXICO TLAXCALA _

. . ~~~- .; PUE. -:a!mC, t

MORELOS -

.~~~~~~~~~~~~~~~~~~~~~~~~~ .%-'..'. C

GUERRERO -OAXACA

o0 20 40o 60 C<f f--

KlLCMEtCRS S -

Il- d-o ,d -y .0 .6-/F _

AUGUST I "A

IBRD 25687

TAMAULIPAS MEXICO

* >^ X > STATE OF VERACRUZa SECOND DECENTRALIZATION AND

SAN LUIS Pa.. REGIONAL DEVELOPMENT PROJECTPOTOSI

RURAL AND URBAN MUNICIPALITIESPARTICIPATING IN MUNICIPAL FUNDS PROGRAM

COMPLETELY RURAL MUNICIPALITIES (TYPE A)

PARTIALLY RURAL MUNICIPALITIES (AT LEASTIP, > JF3s 1{4B _ J1/3 RURAL TYPE Bi)

HIDAlGO V URBAN MUNICIPALITIES (LESS THAN 1/3 RURAL-TYPE B2)

, . ; .rs 1 LARGE URBAN MUNICIPALITIES IEXCLUDED FROMPROJECT FINANCED MUNICIPAL FUNDS)

STATE CAPiTAL

o SELECTED CITIES

___; j MUNICIPAL BOUNDARIES

ii-.$ -i STATE BOUNDARIES

w~~~~~~ 'o b.'I e Ttyrtt

PUEBLA *4

Cazcoac

.4m S ~~~~4

TABASCOOAXACA LOSC

LkVM ~> !ETE OF cNC

CHIAPAS

0 50 ]OD ISO

~~~~~~~~~~~~~~~~- . . ., 1 - -oI< #..WM8&

List},.;v<~~~~~~~~~~~~~~~~~~~~~ W.... A. t-

-w1~~~~~~~~~~5 -- ' '

AU-GUST 199A

WDNL LJUOOO

e - - ~~~~~~~~~~~~~~r> /91 <Xs ~~COAHUIA

MEXICO / / 1

STATE OF ZACATECAS 'SECOND DECENTRALIZATION ANDREGIONAL DEVELOPMENT PROJECT

DURANGO

~~~~~~~SAN|

LUIS

s. JALISCO AGUASCALIENTES

., ,. ,-+ k < . ,> - . il _ rb. bohnd-ra color,.

! 05---; * 2 p 0 15 30 45 60 doW,oi

_e^/~~~~~~~~~~~~~~~~~~~~~~~~~~~~~mm . 0.s 'v. Ak gijdo11,,

-ILOMETERS coy tiory. or cOy

RURAL AND URBAN MUNICIPALITIES tk S O AM, CAPARTICIPATING IN MUNICIPAL FUNDS PROGRAM:

COMPLETELY RURAL MUNICIPALITIES (TYPE A)

PARTIALLY RURAL MUNICIPALITIES (AT LEAST STATE CAPITAL1/3 RURAL -TYPE 81) S SELECTED CITIES sS of f _

z URBAN MUNICIPALITIES (LESS THAN 1/3 RURAL - MUNICIPAL BOUNDARIESTYPE 82) ~ ~ ~ ~ ~ - -STATE BOUNDARIES

z LARGE URBAN MUNICIPALITIES (EXCLUDED FROMPROJECT FINANCED MUNICIPAL FUNDS)

AUGUST 199A

World Bank Documentdocuments.worldbank.org/curated/en/... · Document of The World Bank Report No....

Documents

Transcript of World Bank Documentdocuments.worldbank.org/curated/en/... · Document of The World Bank Report No....