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Implementation Completion Report (ICR) Review - Bahia Municipal Development & Mangement

1. Project Data:   
ES Date Posted:
Project Name:
Bahia Municipal Development & Mangement
Project Costs(US $M)
 222  145.94
Loan/Credit (US $M)
 99.92  100
Sector, Major Sect.:
Sub-national government administration, General transportation sector, General water/sanitation/flood protection sector,
Law and justice and public administration; Transportation; Water sanitation and flood protection
Cofinancing (US $M)
 122.08  45.94
L/C Number:
Board Approval (FY)
Partners involved
Closing Date
03/30/2002 09/30/2004
Prepared by: Reviewed by: Group Manager: Group:  
Mark David Emmert
Fernando Manibog Alain A. Barbu OEDSG

2. Project Objectives and Components:

a. Objectives
The project objectives were to:

(a) improve the living conditions of the urban poor, through: (i) development of detailed, reliable systems for
mapping of urban poverty in the state to guide state and local investment strategies; and (ii) a poverty-targeted
program of urban upgrading in critically poor urban areas;
(b) increase municipal public sector efficiency and sustainability of financing for key municipal services;
(c) support privatization and concessioning of service delivery;
(d) increase cost recovery of municipal investments; and
(e) strengthen municipal financial management capacity, especially for effective expenditure control and capital

b. Components
The original components included the following:
COMPONENT 1. The Municipal Reform and Institutional Development component (appraisal: US$18.1 million; actual: US$16.3 million).This component supported:
(a) the preparation of diagnoses and, when necessary, recommendations for: (i) the privatization of enterprises
controlled by municipalities or concessioning of municipal services; and (ii) the strengthening of the
management, institutional and financial capabilities of municipalities.
(b) the carrying out of projects consisting of one or more of the following activities: (i) privatization of enterprises
controlled by municipalities or concessioning of municipal services; and (ii) restructuring of municipalities’
enterprises, through downsizing of staff and other administrative reforms, to facilitate privatization or
concessioning of municipal services.
(c) the carrying out of projects consisting of one or more of the following activities: strengthening, through the
provision of consultant services for technical assistance, staff training, and acquisition of equipment (including
hardware and software), of the management, institutional and financial capabilities of municipalities, including,
among others, the upgrading of property tax cadastres, improvement of procedures, policies, and physical
infrastructure for billing and collection of property and other taxes and tariffs, improvement of procurement
procedures, and preparation of updating of master plans, codes, and technical standards for construction work.
COMPONENT 2. Strengthening of the State Regional Development Company (CAR) and Poverty Study (appraisal: US$1.9 million; actual: US$7.13 million). This component supported:
(a) the strengthening of the technical and administrative capabilities of CAR, through the provision of technical
assistance and staff training, and acquisition of related equipment (including hardware and software); and
(b) the carrying out of a study to evaluate the impact of the Project on the improvement of the living conditions of
the urban poor in the Borrower’s territory, such study to include a poverty mapping.
COMPONENT 3. Urban Infrastructure (appraisal: US$186.5 million; actual: US$85.51 million). This component supported the carrying out of projects consisting of one or more of the following activities:
(a) installation and/or expansion of water treatment and production systems, water supply networks and domestic
water supply connections, and operational and commercial improvements such as installation of water meters,
water leak detection and rehabilitation of related equipment;
(b) installation and/or expansion of sewerage treatment systems, networks and domestic connections;
(c) acquisition of equipment for solid waste collection and final disposal, and construction of landfills;
(d) street paving, macro and micro-drainage, and flood and erosion control works, and channeling of creeks;
(e) other activities complementary to those under paragraphs (a) to (d) above, such as street lighting,
urbanization, construction of sidewalks and planting of trees and shrubbery;
(f) construction of municipal markets and slaughterhouses; and
(g) construction or expansion of air, road and water transport passenger shelters, and tourism bureaus.
COMPONENT 4. Urban Upgrading (appraisal: US$15.5 million; actual: US$37 million). This component supported the carrying out of projects consisting of one or more of the activities referred to in Part C (a) through (e) of the Project in locations where the average monthly household income is three minimum salaries or less.

Three of the five original components underwent minor revisions, which aimed to address some exogenous factors, including new fiscal restrictions and technical challenges. The revisions consisted of the following:
COMPONENT 1. The following subcomponent was added: (d) the training of staff in participating municipalities.
COMPONENT 2. CONDER, the State’s Urban Development Company, and SEPLAN, the State Secretariat of Planning, were included as beneficiaries for the purposes of strengthening of the technical and administrative capabilities. Subcomponent (b) was dropped and replaced with the following: (b) the strengthening of CAR’s capacity through the carrying out of: (i) different analysis, assessments and performance evaluations of project implementation; and (ii) project dissemination campaigns.
COMPONENT 3. The Infrastructure Subprojects, such subprojects, up to a limit of US$26 million, could be financed through Grants, instead of subloans. In such case, the beneficiaries were required to contribute with a minimum amount of 15 percent of the total cost of the subproject, excluding the “Faz Cidadão Program” subprojects for which no contribution was required. In addition, while the description of this component remained the same, changes in arrangements for carrying it out were introduced in order to allow DESENBAHIA, the State Development Agency, to make loans to the beneficiaries for the financing of infrastructure subprojects in substitution for subloans that were no longer practical as a result of the Fiscal Responsibility Law of March 2000.

c. Comments on Project Cost, Financing and Dates
The Bank loan was fully disbursed by closing on January 28, 2005. The loan closing date was extended twice. Because of an unforeseen fiscal reform in 2000, different levels of government were prohibited from lending and, as a result, it became impractical for the State Government to lend to municipalities for urban infrastructure subprojects, as originally planned. In response to the unexpected financial constraints following the reform law, two financial changes ensued. First, the Bank increased its financing share to about 68 percent of total project costs. Second, the State Government decided to finance the majority of infrastructure subprojects through grants (appraisal: US$0; actual: US$60.89 million) to municipalities, rather than through subloans (appraisal: US$186.5 million; actual: US$24.62 million).

3. Achievement of Relevant Objectives:

One of the five objectives was not achieved.
1. Objective (a): Improve the living conditions of the urban poor [. . .] Partially achieved. Poor urban residents in
Bahia experienced improved living conditions as a result of the project. Improvements included, among other
things, the paving of streets as well as the provision of drainage, water supply and sanitation. The revised
components, however, eliminated the mapping of urban poverty, thereby removing the State’s ability to gauge the
extent to which the needs of the urban poor were being addressed by the project and to make mid-term
adjustments. Poverty mapping would have also represented an important instrument in ensuring that
investments are appropriately targeted and have the desired impact.
2. Objective (b): Increase municipal public sector efficiency and sustainability of financing for key municipal
services. Fully achieved. Three state agencies were strengthened under the project. CAR was able to expand its
information technology capacity and build the technical skills of its staff. CONDER acquired furniture and
equipment needed for the management of data, and obtained maps for the development of reference materials
for urban areas across the state. SEPLAN was able to modernize its management systems and to assess the
economic impact economic impact of the establishment of an auto assembly plant.
3. Objective (c): Support privatization and concessioning of service delivery. Not achieved. The emphasis on the
privatization of enterprises controlled by municipalities or concessioning of municipal services was never
realized. Municipalities showed no interest in privatizing and concessioning, and the local officials did not
address these issues again. The project objective was never revised to reflect this lack of initiative.
4. Objective (d): Increase cost recovery of municipal investments. Partially achieved. The ICR does not specify the
government entity (state vs. municipal) that was to achieve cost recovery of municipal investments, nor does the
ICR adequately describe the extent of the recovery in clear terms. Nevertheless, one survey sample indicated that
the majority of municipalities showed a sustained increase in the collection of property taxes and taxes on
services between 1996 and 2000.
5. Objective (e): Strengthen municipal financial management capacity, especially for effective expenditure control
and capital budgeting. Fully achieved. Highly satisfactory results were achieved, including, among other things,
upgrading of property tax cadastres, improvement of procedures, policies, and physical infrastructure for billing
and collection of property and other taxes and tariffs.

4. Significant Outcomes/Impacts:

1. About 3.8 million people (about 43% of Bahia’s urban population in 2000) benefited from investments,
including, among other things, investments in community facilities like public markets, public squares and
2. A higher number of urban improvements were achieved relative to the original target number (original/actual):
municipalities undergoing institutional strengthening (131/133); municipalities with basic sanitation projects
financed by grants (71/141); low-income areas experiencing upgrading (22/88); state agencies benefiting from
institutional strengthening (2/3).
3. Increased efficiency in financial management and tax administration was introduced at the municipal level, thus
reducing municipal dependence on fiscal transfers from the state and federal governments.
4. Two surveys found that several beneficiary municipalities experienced (a) a reduction of dust and respiratory
diseases as a result of street paving; (b) a reduction in the incidence of water-born diseases and in the presence
of insects and foul odors as a result of investments in drainage, water supply and sanitation; and (c) a more
pleasant living environment in general.

5. Significant Shortcomings (include non-compliance with safeguard features):

1. Monitoring and Evaluation: At the conception of the project, there were no specific targets for project outputs.
Three years after Board approval, in late 2000, the Bank and the Borrower did agree to adopt a set of indicators to
monitor outcomes and outputs. Nevertheless, the project lacked a clear, consistent M&E framework to make both
ex-ante and ex-post assessments of the overall impact. Reporting of outcomes appeared infrequently and
seemed inconsistent, providing only anecdotal evidence of increased tax collection rates, improved health
conditions and access to water and sanitation services.
2. Financing Changes: The State Government financed most of the infrastructure subprojects on a grant basis in the
amount of US$60.89 million. Yet cost recovery of municipal investments is a project objective. This
major shift to grant (instead of subloan) financing also seems to contradict the second project objective, which is
to increase the sustainability of financing for key municipal services. The ICR does not adequately address the
issue of municipal cost recovery.
3. Staff Turnover and Contracting Restrictions: Several changes in administration at the municipal, state and
national level led to a substantial turnover of municipal officials and technical staff. Consequently, the flow of
project implementation experienced significant delays, as new teams had to be brought up to speed, and
encouraged to buy into the institutional development program. In addition, election laws prohibited contracting
three months prior to election day, which stalled the contracting process.
4. Weak Institutional and Technical Capacity: State and municipal staff lacked the institutional and technical
capacity to follow Bank procurement guidelines and to supervise the infrastructure works, which contributed to
delays in project implementation.

6. Ratings:ICROED ReviewReason for Disagreement/Comments
SatisfactorySatisfactoryThe outcome was satisfactory overall, based on the project's high relevance, substantial efficiency and substantial efficacy. However, one of the five objectives (i.e., privatization) was not achieved, as municipal support was never mobilized.
Institutional Dev.:
LikelyLikelySustainability is likely overall, although the evidence is not clear at the municipal level.
Bank Performance:
Borrower Perf.:
Quality of ICR:

7. Lessons of Broad Applicablity:

1. Execution of urban development projects should always devote time at the beginning to nurturing and
supporting institutional development activities as a means of consolidating municipal management instruments.
2. Strong project ownership and commitment to project objectives were key elements in achieving a successful
implementation of the project.
3. Building local capacity (e.g., training staff and transferring technical knowledge) were essential in ensuring that
the state and municipal government acquired the necessary skills to carry out institutional reforms.

8. Audit Recommended?  Yes

          Why?  An assessment would examine in greater detail the financial aspects of the beneficiary municipalities, measuring in quantifiable terms the cost recovery of municipal investments. In addition, the assessment would seek to understand why privatization was not embraced by the municipalities. Finally, an assessment would provide a valuable input into upcoming OED work on the urban environment.

9. Comments on Quality of ICR:

The quality of the ICR is rated satisfactory overall. However, the report could have been improved by including an indication whether the project complied with the loan covenants. In addition, the ICR could have elaborated on the importance of a fiscal reform law on project financing, and, consequently, on the decision to change the financing mechanism of many of the subprojects (from subloans to grants). Also financial tables are incomplete, as they do not clearly indicate who bore the responsibility of paying back the municipal grants and the subloans.

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