Mexico - Water, Women and Development Project

Document of The World Bank FOR OFFMCIAL USE ONLY Report No. P-5053-ME MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO USt20 MILLION TO THE UNITED MEXICAN STATES FOR A WATER, WOMEN AND DEVELOPMENT PROJECT MAY 24, 1989 This document has a restricted distribution and may be used by recipients only in the performnce of their official duties. Its contents may not otherwise be disclosed without World Bank authorzation.  ENY IVALIENTS Currency Unit - Peso (Hex$) US$1.00 * 2382 Mex$ (as of 411/89)* *The exchange rate against the US dollar is currently sliding at a rate of Mex$l per day. FISCAL YEAR January 1 - December 31 UNITS OF WEIGHTS AND MEASURES Metric British/US Eguivalent 1 meter (m) - 3.28 feet (ft) 1 kilometer (km) - 0.62 mile (mi) 1 kilogram (kg) 2.20 pounds (lb) 1 metric ton (m ton) G 2,250 pounds 1 liter (1) - 0.26 gallons (gal) ABBREVIATIONS BANOBRAS - National Development Bank for Public Works CPP - Average Cost of Loanable Funds FI - Financial Intermediaries GIRA G General Interest Rate Agreement OEF = Overseas Education Fund PAHO = Panamerican Health Organization PIDER Integrated Rural Development Program SEDUE X Secretariat of Urban Development and Ecology SSA - Secretariat of Health SWA - State Water Agency  FOR OFFICIAL USE ONLY MEXICO WATER, WOMEN AND DEVELOPMENT PROJECT LOAN AND PROJECT SUMMARY Borrower: National Development Bank for Public Works (Banco Nacional de Obras y Servicios Publicos, S.N.C. - BANOBRAS) Guarantor: United Mexican States Beneficiaries: State Water Companies and financial a intermediaries in the State of Queretaro, Michoacan and Hidalgo. On-lending Terms: BANOBRAS would on-lend US$17 million equivalent of the loan funds to the State Water Companies (SWA) for water and sanitation services and to the local financial intermediaries (Fl), which would provide credit for investments in fixed assets and working capital for productive activities to individuals or associations (i.e. cooperatives, from low-income comunities. BANOBRAS's on-lending rate to SWAs and the FIs on-lending rate to their borrowers would be not lower than the levels agreed under GIRA. The FIs would charge up to 4.5 points for their services. The subloans to the SWAs would have the same grace and repayment periods as the Bank loan; loans to FIs and subloans by the FIs would carry grace periods of up to three years and repayment period of up to 12 years. The Federal Government will bear the interest and foreign exchange risks. Amount: US$20 million equivalent Terms: Repayable in 17 years, including a five-year grace period, at the Bank's standard variable interest rate Financing Plan: Government USS 6.5 million IBRD US$20.0 million Beneficiaries USS 2.0 million TOTAL US$28.5 million This document has a restricted distribution and may be used by recipients only in the performance of their official duties Its contents may not otherwise be disclosed without World Bank authorization.  - 2 - Economic Rate of Return: Overall economic return from the project has been estimated at about 262, based on a sample of representative communities. Staff Appraisal Report: May 24, 1989 Map: IBRD 21504  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE UNITED MEXICAN STATES FOR A WATER, WOMEN AND DEVELOPMENT PROJECT 1. The following report on a proposed loan to Banco Nacional de Obrau y Servicios Publicos, S.N.C. (BANOBRAS) for US$20.0 million equivalent is submitted for approval. The proposed loan, which would be guaranteed by the Government of Mexico, would be repayable over 17 years, including 5 years of grace, at the Bank's variable interest rate and charges. BANOBRAS would be the borrower and coordinating executing agency. The Government would bear the foreign exchange and interest rate risks. 2. Background: During the 1960s and 1970s, Mexico made important gains in the areas of social sector development and poverty alleviation. However, the economic crisis that started in 1982 slowed down progress in the areas of poverty alleviation and social sector development and since 1983, wage-earners, mainly urban poor, have lost about 202 of their share in GDP. Unskilled workers have suffered a larger drop in employment than skilled workers. In rural areas, where income levels are the lowest, there is evidence that substantial deterioration in absolute terms occurred. To alleviate the rising cost of adjustment and to help eradicate poverty, the Administration that took office in December 1988 is committed to redesign and expand ongoing social investments in the public sector. In focussing its strategy on alleviating conditions of extreme poverty and increasing the well-being and productivity of the poorest segments of the population, the Mexican Government is showing a growing awareness of the role of women. 3. Several reasons exist for this new emphasis on women. First, the Government is responding to a greater world awareness of the equity issues relating to the role of women. Second, there is evidence that women make up the majority of the Mexico's poor. Also, rapid population growth has prompted increased interest in the relationship between birth rates and such inter-related factors as women's education, contribution to family income and participation in the decision-making process at home. As a result of male emigration to more attractive employment areas in Mexico City or the United States, an increasing number of households within the lowest income groups are headed by women. These women, limited by their education and their household and maternal responsibilities, often lack training, mobility and flexibility to compete with men for new jobs. They tend to be concentrated in low productivity jobs that require relatively little training. Low skills, low productivity, and low wages reinforce each other to keep women at the bottom of the economic scale. 4. Many efforts to improve women's status have been hampered by a failure to recognize that they place competing demands on women's time and energy. Such is the case of programs designed to generate female employment without considering the limited amount of time and energy that women can devote to the labor market after completing their domestic  chores, which in many areas of rural Mexico include a substantial amount of time devoted to fetching water. In addition to the health implications of inadequate water supplies, the depletion of women's energy and time from carrying out water related household activities reduces their capacity for other responsibilities. Thus, increased level of water services, for instance through yard-taps, would not only improve well being but would also set the stage for improving productivity of women. 5. Mexico has set ambitious goals for extending the coverage of water supply and sanitation services to its inhabitants. In 1980, about 70? of the population had access to a piped system and 491 had access to a sewerage system. This ranked Mexico's water sector bq the sixth most developed in Latin America. However, the level of coverage has not increased since 1980. Because of financial constraints, the need exists to concentrate on low-cost technologies and staged approaches to the provision of water and sanitation services. This will facilitate the implementation of affordable cost-recovery schemes. On the institutional front, the Government is committed to foster improvements in efficiency, which requires strengthening State Water Agencies (SWAs) by encouraging small municipalities to delegate the operation and maintenance of their systems to the SWAs and developing SWA's capabilities for planning, design and maintenance. 6. To address the most pressing issues affecting the well being of the poorest member of the society, the Government launched the Programa Nacional de Solidaridad (PRONASOL). PRONASOL, which is under the responsibility of a Committee headed by the President, has the objective of ensuring that those projects effectively targeted to the poor will have first priority in the allocation of budgetary resources. Priority is given to community participation projects aiming at providing water and sanitation as well as increasing income and improving health conditions. In the water sector, more specifically, Government's efforts in expanding water and sanitation services to the poor will be based on a policy that would reduce reliance on budgetary appropriations by promoting an increase in the self-financing of the SWAs. The Government of Mexico and of the states of Queretaro, Michoacan and Hidalgo have agreed to a project which would apply this strateg7 in a comprehensive manner, bringing controlled amounts of water to yard taps, and training women in income-generating activities as well as providing health education to the communities. 7. Rationale for Bank Involvement: The thrust of the Bank's lending strategy for Mexico is to assist the Government in stabilizing and restructuring the economy to obtain sustained growth, and to alleviate the cost posed by the adjustment process on the poorest segments of the population. To implement this strategy, the Bank would participate in two new projects in the water sector during the next two yearss (a) the proposed project, and (b) a water and sanitation sector loan. The proposed project will allow the Bank to target its benefits to groups that have hitherto not been directly assisted by Bank lending, but which have high priority needs. The project also provides an efficient instrument for strengthening the capabilities of the SWAs involved, to adequately operate and maintain the systems. As a pilot scheme the project would provide a model which, if successful, can be replicated in other areas of the country and make an important contribution towards improving the living conditions of the low-income population in Mexico. The Bank is the development  -3- institution best equipped to provide the needed multisectoral approach essential for this project and it can draw on the experience from working on four previous water and several rural development loans, as well as several sector studies since 1974. The main lessons learned from these projects point to the importance of self-sufficient water agencies. community support, adequate designs that reflect local needs and willingness to pay, recognizing the value of infrastructure in relieving constraints to productive activities and ensuring tha early establishment of an effective monitoring and evaluation system to focus project management on project impact. These lessons have been incorporated in the design of the proposed project. 8. Proiect Obiectives: The main objective of this project is to improve the living standard of low-income population in Mexico by: (a) providing water, sanitation and health education both to free women's labor for more productive activities, and to reduce ccmmunity morbidity; (b) promoting income-generating activities, primarily for women. and providing them with the necessary training and credit to carry them out; and (c) assisting the state Governments to strengthen the SWAs ability to design, build, operate and maintain water and sanitation systems in low-income areas. 9. Project Description: The proposed project was d signed based on the recognition of the Importance of community participation in defining and addressing their needs. It would include three major components. These are: (a) Water and Sanitation Services (71.8Z of total cost), which comprises a line of credit for: (i) installation of community water supply and sanitation systems in about 200 communities in rural and peri-urban areas in the participating states; (ii) maintenance of water systems, including procurement of equipment; and (iii) technical assistance and training to strengthen the SWA8 and to implement a health education program; (b) Income-Generating Activities (18.9S of total cost), which includess (i) lines of credit to finance the investment and working capital needed by low-income beneficiaries to start productive activities; and (ii) technical assistance and training to the agency in charge of the promotion of productive activities at the community level; and (c) Proiect Preparation in other states (9.3S of total cost), which would operate as a project preparation facility and would finance: (i) identification of water-cum-productive projects; and (ii) preparation of subprojects in other states as well as priority works. Technological standards for the water and sanitation component would be tailored to the population's income. For example, sanitation services would include construction of latrines for the poorest segment of the population and low-cost sewerage system for a population with higher ability to pay. 10. The total project cost is estimated at US$28.5 million equivalent with a foreign exchange component of US$13.0 million (46Z). A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and of disbursemint, and the disbursement schedule are shown in Schedule B. Retroactive financing of US$1.5 million would be granted for expenditures incurred after January 15, 1989, the date of project appraisal. A timetable of key project processing events and the status of Bank Group operations in Mexico are given in Schedule C and D respectively. The Staff Appraisal Report No. 7726-ME dated May 24, 1989, is also attached.  - 4 - ll. Implementation Arrangements: The borrower and implementing agency would be BANOBRAS, which would be responsible for overall project coordination. BANOBRAS would enter into onlending agreements with the SWAs and with the financial intermediary (FI) in each state. Both SWAs and FIs in the participating states have previous experience in implementing Bank projects. The focal point of project implementation at the state level would be the State Planning Secretariat, which would coordinate all project related activities in the state. STWAs would be responsible for the design, construction, operation and maintenance of the new water supply and sanitation systems. Financing for the income-generating componerst would be channelled through parastatal financial intermediaries. The promotion of productive activities, which includes provision of training to the beneficiaries, would be carried out by FIs in Michoacan and Hidalgo and by a state government agency, IDEAS, in Queretaro. The health education component of the project would be implemented by state delegations of the Secretariat of Health. 12. Actions agreedlto be agreed upon: During negotiations assurances were obtained on the following,: (a) From the Federal Government: it shall assign an appropriate budget for CY1990 for the Secretariat of Health to design the Health Education Program, and shall cause its regional delegations to implement these programs in a timely manner; (b) From BANOBRAS to: (i) carry out the monitoring and evaluation program, including an in-depth mid-term review, maintain a qualified staff, carry out the selection of the communities to be benefitted following agreed criteria; and (ii) cause each State Planning Secretariat to: (a) coordinate project activities at state level; (b) carry out the Annual Uotk Plan at state level in a manner satisfactory to the Bank and annually update it and review it with the Bank; and (c) carry out the preparation of new projects in other states; (iii) cause each SWA to: (a) each year prepare and submit for approval by the Secretariat of Planning in its state the annual State Water Plan, which should subsequently be sent to the Bank for its comm6nts; (b) maintain in the communities benefitted under the project a tariff level covering at least their operating and maintenance costs, plus the debt service on the investment loan; (iv) cause each Fl to approve and supervise productive activity subloans on the basis of the agreed criteria; and (v) cause each Promotion agency to carry out promotion at community level with the assistance of consultants and maintain the necessary level of extension workers. For Effectiveness the following condition must be met: BANOBRAS finalizes a financial agreement with the Guarantor and subloan agreements with the SWAs and FIs of at least one of the three participating states, under terms and conoitions satisfactory to the Bank. For Disbursement in Each State each promotion agency and each SWA should furnish to the Bank satisfactory signed contracts for its technical assistance programs. 13. Benefits: The proposed project is just'fied on the basis of the benefits accruing to low-income sectors of the population in the form of: (i) improved water and sanitation services for about 200,000 people; and (ii) the expected increase in income for about 5,000 households from productive activities. A very high participation of women in these activities is expected because project promotion and training for feasibility studies would be initiated through water committees in the communities, in which women &re heavilg represented. In addition, the  strengthening of SWAs is expected to result in savings to the economy due to the rationalization of water sector investments, adoption of low-cost technologies, and improvements in operational efficiency. Indirectly, the impact of the project will go beyond the quantifiable benefits because ofs (a) the health effects of improved water and sanitation; and (b) the experience gairtd during project implementation, which may allow subsequent replication on a larger scale. 14. Risks2 The project is not likely to face technical risks. There are, however, commercial and credit ris'xs involved with the income- generating component. To minimize these !isks, the project includes a substantial element of technical assistance to develop Fl's project evaluation capabilities and their ability to mobilize the communities and ensure their commitment to the successful implementation of the selected activities. In addition, subloan limits and prior evaluation/approval processea are designed to reduce these risks. An assessment of these risks confirms that the project would remain economically viable even in the case of 50Z of the activities failing after two years of their implementation. Financial risks, related to the creditworthiness of low-income beneficiaries and their ability to pay for water services, will be addressed through high frequency collection schemes. Another risk relates to the coordination of the implementing agencies. This risk has been minimized by involving and ensuring strong commitment of the agencies since the early stage of project preparation. 15. .ecommendations I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Dir'. 'tors approve the proposed loan. Barber B. Conable President Attachments Washington, D.C. May 24, 1989  -6- Schedule A MEXICO UATER. WOMEN AND DEVELOPMENT PROJECT ESTIMATED COSTS AND FINANCING PLAN Estimated Project Costs Local Forelmn Total ----------US$ milio----------- Water and Sanitation 7.8 7.8 15.6 Income-Generating Activities 2.43 1.6 4.0 Monitoring aud Evaluation 0.3 0.2 0.5 Project Replication 1.4 0.6 2.0 Base Cost (April 1989 prices) 11.9 10.2 22.1 Physical Contingencies 1.2 1.0 2.2 Price Contingencies 2.4 1.8 4. Total Project Cost 15.5 13.0 28.5 Financina Plant LoCal Foreimn ol Bank 7.0 13.0 20.0 Federal and State Contribution 6.5 - 6.5 Beneficiaries 2.0 i- Total 15.S 13.0 28.5  -7- Schedule B Page 1 of 2 MEXICO WATER. WOMEN AND DEVELOPMENT PROJECT PROCUREMENT METHOD AND DISBURSEMENTS Procurement Method a/ (US$ million) Proiect Element ICB LCB Other Total 1. Civil works - 4.5 2.5 bl 10.0 3.0 c/ (2.4) (2.6) (5.0) 2. Equipment/Materials 4.4 6.0 1.6 bl 12.0 (3.5) (4.4) (0.8) (8.7) 3. Technical assistance, _ - 2.5 2.5 training, and (2.5) (2.5) consulting services 4. Line of Credit - - 4.0 d4 (3.8) (3.8) 4.4 10.5 13.6 28.5 (3.5) (6.8) (9.7) (20.0) a/ Figures in parenthesis are the amount financed by the Bank. bl Contracts costing less than US$25,000 to be procured through quotations from at least three suppliers and contractors. c/ Force account by SWAs to be used in some cases where works are small and scattered or in remote locations. d/ Undertaken by the beneficiaries in accordance with established commercial practices.  Schedule B Page 2 of 2 MEXICO WATER, WOMEN AND DEVELOPMENT PROJECT PROCUREMENT METHOD AND DISBURSEMENTS Disbursement Categories Amount of the Loan Allocated (Expressed in Z of Expendixure Category Dollars Ecuivalent to be Financed (1) Civil works equipment, 9,000,000 50 and materials to install and maintain water supply and sanitation systems (2) Line of credit 4,500,000 95 of amounts disbursed by Financial Inter- mediaries for investment subloans (3) Equipment and materials 2,000,000 100 of foreign expenditures and 40 of local expenditures (4) Technical assistance, 2,500,000 100 training and consultant aervices (5) Unallocated 2,000,000 TOTAL 20,000,000 Estimated Disbursements: Bank Fiscat Year 1990 l 1 '991 1992 1993 1994 1995 ------------------------US$ million-------------------- Annual 1.8 2.6 3.8 4.3 4.4 3.1 Cumulative 1.8 4.4 8.2 12.5 16.9 20.0 1/ Retroactive financing ot US$1.5 million to be provided for all project expenditures incurred after January 15, 1989  -9- Schedule C MEXICO WATER. WOMEN AND DEVELOPMENT PROJECT TIMETABLE OF KEY PROJECT PROCESSING EVENTS ta) Time taken to prepare: Nine months (b) Prepared by: Government with IBRD, PAHO and consultant assistance (c) First IBRD Mission: April 1988 ,d) Appraisal Mission Departure January 1989 (e) Date c,f Negotiations May 1989 (f) Planned Date of Effectiveness: August 1989 (g) List of PCR and PPARs: Integrated Rural Development Project - PIDER III (PCR Loan 2043-ME)  - 10 - Schedule D Page l of 2 STATUS Of SANK CROUP OPERATIONS IN MEXICO 1/ A. Statement of Bank Loans (As of March 81, 1989) (USS miliIon) ------------------------------------------------------------__---------------__-------------- Fiscal Amount less Undis- Loan No. Year Borrower Purpose Cnnce lations bursed ------------------------------------------------------------__---------------__-------------- TS loans fully disbursed 5,462.00 1706-S 1979 NAFIN irrigation 81.80 15.14 l1s5-5 1980 NAFIN Irrigation 64.40 16.16 1990 1981 BANO0RAS Urban Development II 144.16 10.01 2043 1982 NAFIN Integrated Rural Dev. 176.00 8.07 2142 1982 NAFIN Capital Goode Industry 152.80 0.40 2154 1982 NAFIN Pollution Control 18.09 4.40 2262 1983 NAFIN Agricultural Marketing 116.00 12.21 2281 1983 BANO0RAS Th rd Water Supply 100.80 80.84 2326 1983 NAFIN Third Sm/M.d Industry 175.00 1.84 2331 1983 8ANCOMEXT Export Development 380.00 4.22 2428 1984 BANOBRAS Highways 200.00 85.00 2450 1984 BANPESCA Porte F8.30 89.22 2526 1985 NAFIN Chiapas Agric. Dcv. S8.00 42.68 2546 1985 NAFIN Sm/Med Scale Mining II 105.00 09.12 2659 1985 NAFIN Vocational Education 81.00 28.90 2576 1986 BANO0RAS Railways V 800.00 167.84 2612 19s8 BANOBRAS Low Income Housing I 150.00 28.07 2658 1986 NAFIN Proderith II 88.80 71.23 2665 1986 BPNOBRAS Earthquake Rehab 400.00 88.5s 2686 1986 BANOBRAS Municipal Strengthening 40.00 36.62 2689 1986 BANO9RAS Solid Waste Pilot 25.00 19.56 2745 1987 BANCOMEXT Trade Policy Loan I 500.00 10.59 2746 1987 NAFIN Industrial Recovery 150.00 5.s8 2747 1987 NAFIN Technology Developmnt 48.00 84.67 2777 1987 BANCOMEXT Export Development II 250.00 88.16 2824 1987 BANOBRAS Urban Transport 126.00 101.12 2837 1987 NAFIN Agricultural Credit 400.00 51.55 2858 8/ 1987 NAFIN So/Med Industries IV 100.00 100.00 2859 1987 NAFIN Agricultural Extension 20.00 16.95 2876 1987 BANOBRAS Highway Maintenance 185.00 125.00 2876 1988 NAFIN Manpower Training 80.00 68.68 2916 1988 NAFIN Steel Sector Restruct. 400.00 a42.88 2918 1988 NAFIN Agricultural Sector Loan 800.00 201.99 2919 8/ 1988 NAFIN Fertilizer Sector Loan 265.00 265.00 2048 8/ 1988 BANO0RAS Ports Rehabilitation S0.00 0.00 2947 3/ 1988 BANO0RAS Houalng Finance 300.00 800.00 Total 11,459.65 of which has ben repaid 8,112.85 Total now outstanding s,846.80 Amount sold 92.84 Of which has been repaid: 92.84 0.00 Total now held by Bank 2/ 8,846.80 Total undisbursed 2,449.18 _____________________ 1/ The status of the projects listed In Part A Is In a sparate report on all Bank/IDA financed projects In execution, which is updated twice yearly and circulated to the Executive Directore on Ipril 30 and October 81. 2/ Priwr to exchange adjustment. 3/ Not yet effective. Disk:Statement of Bank Group Operations F1 l-:lXC-89:Al... .M90 EBArevalo:LA2CO  - 11 - Schedule D Page 2 of 2 MEXICO B. Statement of IFC Investments As March 81, 1969 (US Ml II Ion) Fical -----Originxl Approvl