Mexico - Water, Women and Development Project

Document of The World Bank FOR OFFICIAL USE ONLY i Report No. 10819 PROJECT COMPLETION MEMORANDUM MRXICO WATER, WOMEN AND DEVELOPMENT PROJECT (LOAN 3101-ME) JUNE 30, 1992 MICROFICHE COPY Report No. 10819-ME Type: (PCR) BUKY, J / X31684 / T9077/ OE1D3 Infrastructure and Energy Operations Division Country Department II Latin America and Caribbean Region 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.  THE WORLD BANK FOR OFFICLA USE ONLY Washington. D.C. 20.433 U.S.A. Offce of Director-teneral Operations Evaluation June 30, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Memorandum on Mexico Water. Women and DeveloRment Proiect (Loan 3101-ME) Attached, for information, is a copy of a report entitled "Project Completion Memorandum on Mexico - Water, Women and Development Project (Loan 3101-ME)" prepared by the Latin America and the Caribbean Regional Office. Further evaluation of this project by the Operations Evaluation Department has not been made. Attachment 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.  FOR OFFICIAL USE ONLY PROJECT COMPLETION MEMORANDUM MEXICO WATER, WOMEN AND DEVELOPMENT PROJECT (LOAN 3101-ME) TABLE OF CONTENTS Page No. Preface ................................ ............................. Basic Data Sheet ........................... ii PROJECT COMPLETION MEMORANDUM Background ........ .............................. 1 Project Concept .................................................. Project Objectives ............................................... 2 Project Description .............................................. 2 Rationale for Loan Cancellation .................................. 3 Conclusions ...................................................... 5 Attachment 1 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.  PROJECT COMPLETION MEMORANDUM MEXlCO WATER, WOMEN AND DEVELOPMENT PROJECT (LOAN 3101-ME) PREFACE This is the Project Completion Memorandum for the Water, Women and Development Project, which the Bank supported with Loan 3101-ME (US$20 million). The effectiveness date was December 27, 1991. Subsequent to Loan approval the newly elected Mexican Government implemented a poverty alleviation program that made Loan funds unattractive for the beneficiary states. The Borrower and the Bank considered several alternatives to reformulate the project according to the new policies. To that effect, the Effectiveness date was extended eleven times. However, in the end, the reformulation efforts led to the conclusion that because of the considerable revisions necessary to adapt the project to Mexico's new policy framework, it was more efficient to terminate the loan and identify a possible new operation. On April 15, 1991, -tLe Borrower requested that the loan be canceled. Thereafter, the Effectiveness Date of April 26, 1991 was allowed to elapse and all obligations of the parties were terminated. In accordance with the revised procedures for project performance audit reporting, this Project Completion Memorandum was read by the Operations Evaluation Department (OED), but the project was not audited by OED staff.  PROJECT COMPLETION MEMORANDUM MEXICO WATER, WOMEN AND DEVELOPMENT PROJECT (LOAN 3101-ME) BASIC DATA SHEET Date Proiect Timetable Actual Identification 03/07/1988 (Executive Project Summary) Appraisal Mission 01/30/1989 Negotiations 05/15/1989 Board Approval 06/22/1989 Loan Signature 09/25/1989 Loan Closing 04/26/1991 Mission Data and Staff Input Stage of No. of Weeks in Specialization Proiect Cycle Month/Year Persons the Field Represented a/ Identification 04/88 2 2 A/C Preparation 06/88 2 1 B/C Pre-appraisal 09/88 3 2 A/B/C Appraisal 1/89 4 3 A/B/C/C Supervision 10/88 3 2 A/D/D Supervision 09/90 2 1 A/B Supervision 11/90 1 1 B/ Supervision 03/91 2 1 A/B a/ Key to specialization: A: Sanitary Engineer B: Economist C: Training, Institutional Development D: Microenterprises FY88 FY99 FY90 FY91 Total Staff Weeks 25.1 83.0 16.8 6.6 131.5  - iii - (c) Estimated Economic Rate of Return 26% (d) Original Proiect Cost Estiwate US$ 28.5 million TABLE I - PROJECT COST a/ PROJECT COMPONENTS LOCAL FOREIGN TOTAL % F.E. LOCAL FOREIGN TOTAL (by State) ------USS thousands-- --------MEXS mlIlion------ Quereta ro Water k Sanitation 2422 2422 4943 0.50 5768 5768 11538 Tech. Assist. SWA 113 340 453 0.7S 270 809 1079 Income-Cen. Activit. 799 533 1332 0.40 B 1903 1269 3172 Monitor.& Evaluation 68 8s 132 0.50 7 157 314 Subtotal 3400 3380 8760 8098 8003 18101 Hidalgo Water X Sanitation 2391 2391 4782 0.50 6898 5896 11391 Tech. Assist. SWA 208 88 295 0.30 491 210 701 Income-Cen. Activit. 8s6 443 1109 0.40 1584 1056 2840 Monitor.& Evaluation 99 99 198 0.50 238 238 472 Subtotal 3361 3022 8383 8007 7198 1S205 Michoacan Water & Sanitation' 2388 2386 4771 0.50 5883 6883 11365 Tech. Assist. SWA 331 142 473 0.30 789 338 1127 Income-Gen. Act;vit. 889 593 1482 0.40 2117 1412 3s29 Uonitor.h Evaluation 99 99 198 0.60 238 238 472 _- -- -- -- -- -- -- -- - __- -- -- -- -- - -- - - -- -- -- -- -- ---- Subtotal 3705 3219 6924 8825 7668 16493 Project Replication 1435 815 2060 0.30 3418 1485 4883 Total Base Cost 11901 10216 22117 0.48 28348 24334 62682 Physical Contingen. 1190 1022 2212 0.46 2835 2433 5288 Price Contingencies 2388 1785 4150 0.43 s63s 4251 9888 Total Cost 15457 13022 28479 0.46 38818 31019 37t38 al Exchange rate used: USS1.0 = 2,382 MEXS (4/1/89).  PROJECT COMPLETION MEMORANDUM MEXICO WATER, WOMEN AND DEVELOPMENT PROJECT (LOAN 3101-ME) 1. This memorandum is in lieu of a Project Completion Report for the Mexico Water, Women and Development Project and is based on a desk review of project files and related documents and reports. Background 2. On Jane 22, 1989, the Bank approved a loan in the amount of US$20.0 million for the financing of water and sanitation services, and productive activities in the pilot states of Queretaro, Hidalgo and Michoacan. Subsequent to Loan approval the newly elected Mexican Government implemented a poverty alleviation program that made Loan funds unattractive for the beneficiary states. The Borrower and the Bank considered several alternatives to reformulate the project according to the new policies. To that effect, the original Effectiveness Date of December 27, 1989 was extended eleven times. However, in the end, the reformulation efforts led to the conclusion that because of the considerable revisions necessary to adapt the project to Mex'.co's new policy framework, it was more efficient to terminate the loan ax.d identify a possible new operation. On April 15, 1991, the Borrower requested that the loan be canceled. Thereafter, the Effectiveness Date of April 26, 1991 was allowed to elapse and all obligations of the parties were terminated. Proiect Concept 3. The Water, Women and Development Project was the Bank's first operation that would combine funding for water supply an.d eanitation facilities, and support for productive activities with a special focus on women. The link between the water and income-generating components was expected to be a crucial element of the project, as it would increase the possibility of success, especially since the main beneficiaries were to be low-income women. A project focusing only on income-generating activities was thought to have limited impact because the time and energy required by women to fetch water would constrain them from taking advantage of training and credit opportunities and the income-generating activities emerging from them. Likewise, a project focusing only on community water and sanitation needs would not be affordable to many households because the beneficiaries would be unable to pay for the services on a sustainable basis without a scheme for increasing their income through productive activities. 4. Integrated in the conceptual design of the proposed project was the recognition of the importance of community participation in defining and addressing their needs, as well as the principle that the community itself is the primary decision maker, organizer and investor in the project. This approach, by encouraging self-help and promoting increased community responsibilities was to support the Government's strategy to change the generalized perception that improvements in living standards would only be achieved through increased public sector involvement.  -2- 5. In this context, the project envisaged an important contribution towards the implementation of cost-recovery policies. Until then, the Government strategy had been to consider investments in the water sector targeted to low-incoiv groups as direct transfers. In the Government's policy framework of subsidy reductions, it was agreed during negotiations that the State Water Agencies (SWA's) participating under the project would recover 100% of the operating costs and 70% of the investment costs through the water rates. Proiect Obiectives 6. The main objective of the project was to improve the living standard of low-income population grouDs, especially women, by: (i) providing water and sanitation and impreving the target population's health and sanitation knowledge and hal'its; (ii) promoting income-generating activities, primprily for women who would be freed from the chore of fetching water by improved water supply services and providing them with the necessary training and credit to carry out such activities; and (iii) assisting the state Governments of Michoacan, Queretaro and Hidalgo to strengthen the SWAs abilities to design, build, operate and maintain water systems in low-income areas. Proiect Description 7. The project included three major components related to: (a) provision of water supply and sanitation (71.8% of total cost); (b) creation of income-generating activities (18.9% of total cost); and (c) initial steps to extend project replication to other states (9.3% of total cost). a) Water and Sanitation Services comprised: (i) a line of credit of US$ 12.0 million through BANOBRAS (the National Bank for Public Works), the borrower, to the SWAs agencies to finance the installation of new water supply and sanitation services in a total of about 200 low-income communities in rural and peri-urban areas; (ii) maintenance of existing water systems (including procurement of maintenance equipment); (iii) technical assistance to strengthen the SWAs in the areas of organizational and operating performance, information systems, and design and construction using low-cost technologies and to train staff in community mobilization techniques; and (iv) development of a health education program to improve health and sanitation knowledge and habits; b) Income-Generating Activities included: (i) a line of credit of US$5.0 million through BANOBRAS to financial intermediaries to support the investment and working capital needed by  3 beneficiaries to start productive activities. These activities were expected to involve micro-enterprises under some form of cooperative ownership. Financing of tools and raw materials to carry out piecemeal work for in-bond industries was also included; and (ii) technical assistance to the agencies in charge of promotion at the community level for project implementationY This technical assistance would consist of: (a) training of trainers within the promotion agencies in education techniques encouraging community participation in the decision making process, targeted mainly to women and project evaluation; (b) developing the beneficiaries' entrepreneurial skills and their ability to make decisions, thereby gaining the confidence and experience needed to adjust to different economic environments; and (c) train4ng the participants in the skills to carry out the new activities; and c) Proiect Preparation in Other States was to operate as a project preparation facility and included technical assistance to other states for: (i) identifying water-cum-productive activities projects; (ii) preparing subprojects in other states that would be eligible for future financing. Rationale for Loan Cancellation 8. During project preparation, the newly elected Government of President Salinas launched the National Solidarity Program (PRONASOL) to finance projects targeted to the poorest members of society. It was only after Loan Approval, however, that the scope and modus operandi of PRONASOL began to take shape. PRONASOL is managed by the Secretariat of Planning and Budgeting (SPP) which was supposed to be involved in the implementation of the Bank project only in a limited way. To address gender-specific poverty issues, the new Government developed a "Women in Solidarity Program" within PRONASOL, which provided assistance for productive activities. The PRONASOL funds, including those under the "Women in Solidarity" Program are provided on a grant basis. Thus, the PRONASOL funds were much more attractive than j/ The financial agencies were local parastatals witn experience in handling credit lines for micro-enterprises. Specifically, they were: FOMICH in Michoacan, Impulsora Hidalguense in Hidalgo, and FIMINSSE in Queretaro. .g The promotion and technical field work for the implementation of the income-generating component, was also to be carried out by FOMICH in Michoacan and by Impulsora Hidalguense in Hidalgo. In Queretaro, the outreach and field work was to be carried out by IDEAS, a state government agency responsible for carrying various social action programs throughout the State. / In true fact, the money is supposed to be returned to a community fund. However, there are no clear rules as to how or when this should take place. Since these decisions are mostly left to the recipient of the funds, the (continued...)  -4- the less concessional loan funds that were to be provided under the Water, Women and Development Project. As a result, all the states originally proposed to participate in the project were unwilling to enter into subsidiary agreements with BANOBRAS to use Bank funds. Signature of such agreements by at least one of the participating states was a condition of Loan Effectiveness. 9. During the period since loan approval, the Bank has been working very closely with the Mexican Government on several other projects to support its efforts to alleviate the impact of economic stabilization measures on the poor. Two new loans, the Water and Sanitation Sector Project (Loan 3271-ME, approved by the Board of Executive Directors on November 8, 1990) and the Decentralization and Regional Development Project (Loan 3310-ME, March 26, 1991), directly or indirectly, support the PRONASOL scheme. These pove-rty- oriented projects are being funded by a mix of resources (i.e., credit, Federal and State grants and internal cash generation of local water utilities) that varies according to the degree of poverty in the municipality. In total, the requirements of cost-recovery of investments for these new projects are significantly less stringent than those applicable under the Water, Women and Development Project. 10. On November 7, 1990, the Borrower requested the Bank to reformulate the Water, Women and Development Project, so as to align it with the scheme under the other projects. Subsequently, two Bank missions visited Mexico to discuss possible ways of reformulating the Project in accordance with the general policy framework that had been developed in the context of the two FY91 projects. The final Mexican reformulation proposal was received by the Bank on March 20, 1991. It followed the general objectives of the original projects, but with the following major modifications: (a) Loan funds, would directly support budgetary allocations for PRONASOL through SPP. Originally, BANOBRAS was to on-lend loan funds to the three pilot states, which, in turn were to on-lend the funds to the SWAs. In the reformulated project SPP would replace Banobras as the Borrower; (b) Water tariffs in the project areas would cover only operation and maintenance costs; the requirement that water rates cover also 70% of the SWAs'water -ad sanitation investment cost was to be eliminated. This modification was in line with sector policy agreed under the Water and Sanitation Sector (Loan 3271-ME) which calls for federal and state grants for investments in the poorer areas of the population; (c) Substitute all three pilot states with other states where the Women in Solidarity Program was being successfully carried out; and .... continued) system does not offer any incentives for repayment. Thus, the funds can be considered as grant money.  -5- (d) With regard to the credit line to finance private sector income- generating activities, the Borrower proposed to implement the full cost-7ecovery condition only for exceptional cases and instead provide grants to beneficiaries. The Bank, on the other hand sought to maintain the coat recovery features as far as possible to ensure that requests for credit reflected a sound analysis of costs and benefits and also further the replicability of the operation for a larger target group. 11. Except for the cost recovery proposal described in (d) above, most of these modifications could have been accepted. However, it became evident to both the Borrower and the Bank during the process of reviewing possible alternative solutions thai tne implementation of the reformulation would require an effort comparable to that of developing and appraising a new operation, especially the appraisal of a complete new set of pilot states and finar.^ial intermediation arrangements. Reformulating the existing project would have had the additional disadvantage that maintenance of the original outdated project framework would limit significantly the possibility of considering other alternative approaches in addressing gender specific issues. Thus, the Borrower, by letter dated April 15, 1991, requested the cancellation of the loan. At the same time, the Borrower expressed the interest of the Nexican Government in a new Women in Development oriented operation with Bank financial and technical assistance. Conclusions 12. A major shift in Government policies towards the provision of assistance to the poor took place after the loan was approved. Since under a possible reformulation of the existing project all the participating states, executing agency and key policies would have had to change, the decision to consider a new operation rather than attempt to restructure the existing operation was prudent and reasonable. 13. The project was well designed and took a comprehensive approach to attack the vicious cycle of women's lack of productivity because of the time spent in household chores, lack of basic services and health. This approach, was coupled with the concept of meaningful community participation in identifying and seeking solutions for the community problems. The Project was to rely on groups of trained extension workers to act as facilitators in the mobilization of low income women to participate in the process of planning and executing projects to upgrade their basic infrastructure, and identifying and implementing productive activities. While the Water, Women and Development project did not become effective, its conceptual underpinnings were fully accepted by the new Government and f jpted for the ongoing Women in Solidarity programs. In this context, it may be argued that the Bank played a valuable role and acted as a catalyzer of the actions that followed. 14. Probably the most important policy issue involved with the proposed reformulation of the Project deals with cost recovery. The "Women in Solidarity" Program provides quasi-grant funds for simple income-generating activities requiring limited investments. The Water, Women and Development project included a credit line for more ambitious activities requiring higher  -6- levels of capital expenditures. In general, the Bank's position was that grant money did not provide the necessary incer.tives for a successful implementation and desirable cost recovery of the program, particularly for income generating activities. In contrast, the Government believes that grant money is more effective for reaching final beneficiaries, especially the poorest segment of the population, and stimulating income-generating activities, for which the use of credit lines is considerably less attractive (see Annex). This difference, however, may ultimately have been surmountable. In fact, the pilot character of the project provided a vehicle for testing the sustainability of alternative schemes for supporting income-generating activities and this approach, which was being explored under the project reformulation efforts, might be considered in the context of a new loan operation. 15. With hindsight, a substantial amount of staff resources both on the pe-rt of the Mexican authoriticzs and the Bank could have been saved by terminating the loan at an earlier stage. However, the extended period during which the extensions to the effectiveness date were being considered was one of active dialogue between the Government and the Bank on the policy framework for the water sector and poverty alleviation. There were sufficient reasons to believe that, ouce the final policy framework for both the Water Sector and Sanitation and the Regional Development Projects were agreed upon, the Water, Women and Development Project could be successfully realigned to complement, within its gender-specific objectives, the efforts of the other two operations. Although this expectation was not unreasonable, the Government and the Bank, in the end, agreed to take the more efficient route of trying to give a fresh look at the issues of Women in Development in Mexico. t  -7- COMMENTS FROM THE BROE UNOFFICIAL TRANSLATION ANNEX UNITED STATES OF MEXICO TREASURY AND PUBLIC CREDIT SECRETARIAT GENERAL DIRECTORATE FOR THE ENTICEMENT OF EXTERNAL RESOURCES INTERNATIONAL FINANCIAL ORGANIZATIONS DIRECTORATE Agricultural Sector Projects Assistant Secretariat Memo No. 393.III.3.-262 Mexico, D.F., June 12, 1991 Mr. Ismael Diaz Aguilera Manager, International Financial Organizations BANOBRAS Insurgentes Norte 423, Piso 9 Mexico, D.F Dear Sir: Reference is made to Loan 3101-ME, Water, Women and Development Project, financed by the World Bank, as well as to your communication dated June 5, 1991. In this respect, it is the opinion of this 3ecretariat, that in the findings of the Report (paragraph 14) it is necessary to clarify that the position of the Mexican Government has been to focus its attention --within the Women in Solidarity Program-- to the population groups, particularly those with the greatest needs, through the promotion of programs geared toward poverty alleviation and justice. In this sense, the scheme used by Women in Solidarity, has proven its feasibility through awards of seed money, reinvesting the partial recovery of these resources within the same community making possible the consolidation of the projects or the initiation of others as decided by thcse involved. However, the Water, Women and Development Project included a credit line for profitable productive projects that made such resources less attractive and feasible to the target population, whose recovery expectations were almost non-existent.  -8- I would appreciate your forwarding these comments to the Bank, so that they be incorporated in the final version of the above-mentioned document. I remain sincerely yours, EFFECTIVE VOTE. NO REELECTION (for) the Undersecretary for International Financial Matters, Consultants' Coordinator (signed) ANTONIO CERVERA SANDOVAL