Haiti - Urban Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 421lb-HA STAFF APPRAISAL REPORT HAITI URBAN DEVELOPMENT PROJECT March 2, 1983 Projects Department Latin America and the Caribbean Regional Office 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.  CURRENCY EQUIVALENTS Currency unit = Gourde (Gdes.) Gdes. 1.00 = US$0.20 Gdes. 5.00 = US$1.00 Gdes 1 million = US$200,000 WEIGHTS AND MEASURES Metric British/US Equivalents 1 meter (m.) = 3.281 feet (ft:.) 1 cubic meter (i3) - 35.32 cubic feet (ft3) 1 kg. = 2.206 pounds (lb.) I ton (t); metric; 1,000 kg) 1.100 short tcns (sh. ton) Glossary oif Abbreviations BDL Housing Bank CAMEP = Metropolitan Water Authority DATPE Land Use Management and Environmental Protection Agency DTPTC Department of Public Works, Transportation and Communication EDH National Electrical Utility EPPLS Public Social Eousing Promotion Company GOH Government of F[aiti IDB Inter-American Development Bank ILO International Labor Organization KfW German Reconstruction Loan Corporation MPW Ministry of Public Works ONL National Housing Office PIU Project Implementation Unit PPF Project Preparation Facility PAHO Pan American Health Organization SAGMAP Metropolitan Market Management Agency ~SCUD Special Commission for Urban Development SNEP = National Water Authority SPU Urban Planning Service UNCDF = United Nations Capital Development Fund UNDP = United Nations Development Program UNESCO = United Nations Scientific and Cultural Organization UNICEF United Nations Children's Fund USAID = United States Agency for International Development FISCAL YEAR October 1st - September 30th  FOR OFFICIAL USE ONLY HAITI STAFF APPRAISAL REPORT URBAN DEVELOPMENT PROJECT Table of Contents Page No. I. THE CONTEXT ............................................... 1 Urban Developments and Trends ............................ 1 Urban Poverty . ........................................... 1 Urban Policy and Institutions ............................ 3 Activities of Other Lenders in Urban Development ......... 5 IDA Involvement in Urban Development in Haiti .... ........ 5 Project Composition and Rationale ........................ 5 II. THE INSTITUTIONAL FRAMEWORK ............................... 7 The Creation of SAGMAP .................................... 7 Institutional Development and Technical Assistance for the EPPLS ...................................................... 9 III. THE CDB MARKET UPGRADING AND SITES AND SERVICES COMPONENTS. 11 The Croix-des-Bossales Market Component .................... 11 The Sites and Services Component .......................... 13 IV. PROJECT COST ESTIMATES AND FINANCING PLAN ................... 15 Estimated Costs ............................................ 15 Project Financing .......................................... 15 V. PROJECT IMPLEMENTATION ............................ 18 Sites and Services ......................................... 18 CDB Market ................................................. 18 Inter-Institutional Agreements ............................. 19 This report is based on the findings of an appraisal mission that visited Haiti in June/July 1982. The mission was made up of R. Chavez (chief of mission), P. Midgley, M. Plessis-Fraissard, LCPUR; R. Samayoa, J. Ladd, CONS; A. Frangois and G. Yabrudy assisted in the production of the report. 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.  - ii- Table of Contents Page No. Procurement ........................ ........................ 20 Disbursements ......................., 21 Accounts and Auditing ...................... 22 VI. FINANCIAL ANALYSIS, COST RECO'VERY AND AFFORDABILIi'Y .... .... 23 SAGIMAP .... 23 EPPLS .... ................................................. 23 Cost Recovery ....................................., , . 24 Affordability .................................... I 25 Eligibility .................................... ,, 26 VII. PROJECT JUSTIFICATION .................................... 27 General Benefits .................................... 27 Economic Costs and Benefits ................................. 27 Poverty Impact .................................... 28 Environmental Impact ....................................... 30 Project Risks ............ . 30 VIII. RECOMMENDATIONS ............................................ 30 IX. ANNEXES ANNEX 1. Project File ANNEX 2. Detailed Cost Tables ANNEX 3. Key Indicators ANNEX 4. SAGMAP Organizational Chart and Operational Procedures ANNEX 5. EPPLS Organizationa:L Chart ANNEX 6. CDB Market Upgrading Detailed Description ANNEX 7. Sites and Services Detailed Description ANNEX 8. Technical Assistance to the EPPLS Maps & Plans IBRD 16756 Metropolitan Port-au-Prince, Project Locations IBRD 16757 Plan of the CDB market IBRD 16758 Plan of Cap-Haitien Sites and Services IBRD 16759 Plan of Les Cayes Sites and Services IBRD 16760 Plan of Linthau II Sites and Services  HAITI URBAN DEVELOPMENT PROJECT STAFF APPRAISAL REPORT I. THE CONTEXT Urban Developments and Trends 1.01 While Haiti is one of the least urbanized countries in the West- ern hemisphere, its urban growth has been both rapid and heavily concen- trated in the capital, Port-au-Prince. Over the past decade, the popula- tion of the urban areas has grown at 4.1% p.a. compared to a rural growth rate of 1.1% and a national average of 1.8% p.a.--up from 1.6% p.a. for the 1950-1971 period. And although the urban population is estimated at a comparatively modest 26% of the total population of 5.3 million in 1982, its share is growing; in 1971 it was only 20.3%. 1.02 Of the nation's approximately 1.4 million urban inhabitants, the Port-au-Prince metropolitan area accounts for about 900,000. Port-au- Prince is some 12 times greater in size than Cap-Haitien, the next largest city--and the predominance of the capital is still increasing with annual growth rates of 5 to 6%, compared to about 3% p.a. for other cities (see Table 1 below). This growth reflects the centralization of government ser- vices and expenditures, as well as the concentration of economic activi- ties. Thus, some 40% of GDP (85% of total industrial output, 60% of com- merce, 70% of housing and real estate, and 70% of government services and administration) is generated within the boundaries of the metropolitan area. While manufacturing makes less of a contribution to the economy than elsewhere in Latin America (17.8% of GDP in 1981) 92% of all modern sector manufacturing employment is concentrated in Port-au-Prince. About half of all Government-supported development and recurrent expenditures for FY 75-76, the latest available estimates, directly or indirectly benefited the capital region. Urban Poverty 1.03 With an estimated GNP per capita of US$270 in 1981, Haiti is the poorest country in the Western Hemisphere. The situation of the poor re- flects the extremely uneven distribution of income: the top 0.8% of the population controlled 44% of all income in 1976, and it was estimated that while 74% of the population had an income below the absolute poverty threshold, about 4,000 families had annual incomes exceeding US$90,000. More than 60% of the Haitian population in 1976 lived in relative poverty, i.e., at or below an income level equal to one-third of average per capita income. In terms of actual income, United Nations Children's Fund (UNICEF) estimated in 1980 that 70% of the households of Port-au-Prince had average incomes of US$70 equivalent per month or less; in other cities the level was even lower.  -2- TABLE 1. Estimated Urban Population a/ Growth Rate p.a. Population % of Total % of Total % Urban Pop. Natlh Pop. Port-au-Prince 5.6 884,996 64.6 16.8 Cap-Haitien 3.0 64,236 4.7 1.2 Gonaives 3.0 43,142 3.2 0.8 Les Cayes 3.0 29,991 2.2 0.6 Other urban areas b/ 3.0 346,924 25.5 6.6 Total urban pop. 4.1 1,369,289 100.0 26.0 Total rural pop. 1.1 3,899,532 - 74.0 Total nat. pop. 1.8 5,268,821 - 100.0 a/ All estimates on the dimensions of urban development, above and in this table, are based on the results of the 1971 census and the update pro- vided by the 1977-IBRD urban sector survey. Other estimates vary rather widely. b/ Other urban areas include the remaining four departmental capitals and 18 other towns. 1.04 Shelter and Urban Services in Port-au-Prince. Some two-thirds of the population of Port-au-Prince live in sordid, overcrowded slums which generally lack water, sewerage and electricity. About 13% of all dwelling units are made of scrap materials, 19% of wattle and straw, and another 32% of wood. More than three-quarters of the homes in the city are not con- nected to the water supply system. Some residential densities exceed 1,600 persons per ha., and nearly half the population resides in neighborhoods where densities exceed 800 persons per ha. About 61% of all dwellings offer less than 3 m2 per inhabitant. There is no waterborne sewerage sys- tem, and most of the population use! pit latrines. 1.05 In the context of the urban system of Port-au-Prince, the Croix- des-Bossales (CDB) market is the single most important element affecting the lives of the largest concentraition of urban poor in the country. It extends over a mud plain between the new port and the old downtown area, spilling over into adjacent streets. The market area includes a retail market with some 14,000 merchants, storage facilities, a major inter-urban truck and bus terminal, and a wholesale market through -which more than two- thirds of the food and manufactured goods for domestic use in Port-au- Prince are commercialized. Although it caters to all the economic groups of the population, directly or through the hotels and restaurants, the  -3- market is of particular importance to the poorest segment of the metropoli- tan population, 72% of whom live within walking distance. Besides provid- ing the food, fuel, clothing and building materials that the urban poor consume, the market is the single largest source of employment and commer- cial and social interaction and the most serious source of disease and con- tamination for the hundreds of families living nearby, and indirectly for the whole metropolitan area. 1.06 Shelter and Urban Services in Secondary Cities. Conditions in other cities are exemplified by those in Cap-Haitien and Les Cayes. In Cap-Haitien, 39% of dwellings in the La Fossette slum are of wattle and straw construction, 42% of wood and scrap material, and 19% of cement. Density is about 1,500 persons per ha. and more recent dwellings have been built up the sides of the surrounding foothills aggravating an already severe erosion and drainage problem. Seventy-two percent of all dwellings have no running water, 58% have no electricity, and 43% have no sanitary facilities. Pit latrines are shared by many families and are poorly maintained. In the low-income neighborhoods of Les Cayes, 31% of all dwel- :Lings are wattle and straw, while 67% are made of more durable materials. Densities are much lower here at about 305 persons per ha. Fifty-four per- cent of all low-income residents of Les Cayes use polluted well or river water; another 35% buy water from vendors. One-third have no latrines, and 87% have no electricity. Stagnant water poses a major sanitation problem. Urban Policy and Institutions 1.07 Urban Strategy. During the past three years, the government has undertaken considerable efforts to define an urban strategy and to create the institutional framework for its implementation. Apart from restructur- ing the National Housing Office (ONL), in 1982, a comprehensive law was adopted, establishing the basis for administrative decentralization and the creation of regional commissions and institutions for planning and develop- ment. The Government is committed to supporting the growth of secondary cities, while increasing the share of agriculture in development expendi- tures at the same time. This strategy faces serious resource constraints. Efficient decentralization of nonagricultural employment, particularly in manufacturing, would require levels of investment in infrastructure and social services not attainable at this time. Also, deficits in employment, housing, and urban services in Port-au-Prince will continue to require prompt attention. 1.08 Urban Planning. Primary responsibility for urban planning func- tions rests with the Urban Planning Division (SPU) of the Ministry of Public Works, Transport, and Communications (DTPTC), while the Division of Regional Planning and Environmental Protection (DATPE) of the Ministry of Planning, has general urban development advisory functions. SPU also pre- pares urban projects, controls their implementation, and establishes norms for land use, urban infrastructure, commercial, industrial and residential construction. In addition, the Special Committee for Urban Development (SCUD), which was established to monitor the preparation of the proposed IDA-supported project and which includes the directors of SPU, DATPE and ONL, has worked for increased coordination and a sharper government focus on urban problems and their solutions.  -4- 1.09 Housing. In 1966, the N,ational Housing Office (ONL) was created as a semi-autonomous agency attached to the Ministry of Social Affairs. It was transformed in 1982 to the Public Social Housing; Promotion Company (EPPLS). ONL's mandate was to build, maintain and manage housing projects for all income groups, but in practice, the office maintained and managed housing projects planned, built and financed by other agencies. Through the years, it has been a weak institution but recent reorganization under- taken in preparation for the proposed project has resulted in improve- ments. In addition to ONL, a Housing Bank (BDL) has been recently estab- lished but is not yet operational. It is under-capitalized and its tasks have not yet been well defined, particularly regarding low-income housing. USAID has taken an interest in BDL and is presently evaluating the possibi- lity of providing financial assistance for building new homes for middle- income families in Port-au-Prince. 1.10 Environmental Management and Water Supply. The interreLated issues of erosion, drainage, solid and liquid waste removal directly and indirectly involve a number of public agencies. Erosion control in both rural and urban areas is the responsibility of the Soil Conservation Office of the Ministry of Agriculture. Construction and maintenance of urban drainage systems, streets and bridges, is assigned to the municipal engi- neering office of the DTPTC, which, to the extent that significant amounts of waste accumulate in the drainage system, is also involved in solid waste removal. The efficiency of the environmental services provided by ihese agencies is hampered by the use of inappropriate equipment and materials. In Port-au-Prince, the Metropolitan Water Company (CAMEP), is responsible for the water supply system. CAMEP's management is weak and its financial resources are inadequate. It is thus unable to carry out effective main- tenance and repair work or to undertake systematic planning. In provincial cities, responsibilities for water supply have been given to the recently created National Water Service, SNE]P (National Water Authority), which is currently implementing an IDA-assisted water supply project in ten provin- cial cities. 1.11 Municipal Government. Municipal governments, including those of the four municipalities that make up the metropolitan area of Port-au- Prince, are under tutelage from the central Government. Their responsibi- lities are restricted to the administration of a few urban services, such as collection and disposal of garbage. Their staffs are insufficient and inadequately trained. Their financial positions are precarious; more than half of their revenues come from taxes earmarked for the municipalities and collected by the Ministry of Finance, such as the property tax and the license tax on enterprises. The remainder consists essentially of grants from the central Government. In real terms, revenues from local taxes have been falling in recent years and tax collections are inefficient. The results ate inadequate urban services and lack of infrastructure. Central Government control may not be desirable in the municipalities of the secondary cities, and their administrative capacity should therefore be in- creased. In contrast, however, Government management of the Port-au-Prince metropolitan area might prove more efficient, if properly developed, because of the number of municipalities and levels of authority involvel.  -5- Activities of Other Lenders in Urban Development 1.12 Involvement in the urban sector is a relatively new undertaking for most donor agencies. The United Nations Development Program (UNDP) and the United Nations Capital Development Fund (UNCDF) jointly financed the St. Martin upgrading and Drouillard sites and services projects in Port-au- Prince in 1978. The EPPLS, with consultant support, is now completing the St. Martin upgrading project, and the Drouillard sites and services project is well under way. KfW, the German Reconstruction Loan Corporation has supported the preparation of a master plan for upgrading Cite Simone in ]?ort-au-Prince and will support a sites and services project there as well and may also support an upgrading project in Cap-Haitien. As noted in para. 1.10, the National Water Service (SNEP) is currently implementing a water supply project for 10 secondary cities with assistance from IDA and UNCDF totaling US$6.6 million. In 1979, the IDB approved a US$48.5 million loan to help further the improvement of the Port-au-Prince storm drainage system. Finally, UNICEF is now identifying a project to provide improved sanitation, health and nutrition education, job training, and the formation of small-scale manufacturing cooperatives to benefit women and children in the low-income neighborhoods of Port-au-Prince. IDA Involvement in Urban Development in Haiti 1.13 IDA's approach to the urban sector is based on the findings of the urban sector survey conducted in 1977. It concluded that in view of Limited resources for development, policies of spatial decentralization should be approached cautiously, progressively and selectively. In the short and the medium term, the major priority should be employment creation and the provision of urban services in Port-au-Prince. At the same time, however, institutional capacity and basic infrastructure should be developed in selected provincial cities. A first urban project should be conceived within the framework of the following general objectives: (a) to alleviate the poverty of the urban masses--i.e., generate the greatest possible impact on the urban poor--a corrective measure; (b) to strengthen or develop policies and institutions to deal with the urban problems of the future--a prescriptive measure; and, (c) to support current government policies and lending activities of other agencies related to the above efforts. Project Composition and Rationale 1.14 The proposed project would include the following components: (a) rehabilitation and upgrading of the Croix-des-Bossales (CDB) central market area (about 12 ha) in Port-au-Prince; (b) relocation of 1,036 families displaced by the upgrading of the market, to a sites and services project in the capital; (c) pilot sites and services project for 1,093 low-income families in Cap-Haitien; (d) pilot sites and services project for 278 low-income families in Les Cayes;  -6- (e) limited technical and fiLnancial support for the institutional development of a metropolitan market management agency (SAGMAP); and (f) technical assistance, tra:ining and equipment f'or the institution- al reorganization and development of the Putblic Social Housing Promotion Company (EPPLS),, formerly the ONL. The basic premises underlying this strategy for supporting urban develop- ment in Haiti are described below. 1.15 The Croix-des-Bossales market upgrading would include the con- struction of a wholesale market, two. retail markets and an open-air market. Today, besides providing the goods that the urban poor consume, the Croix-des-Bossales market is also the single largest source of employ- ment and the center of commercial activity in the metropolitan area. Within this context, the CDB is the focal point for the largest low-income concentrations in the capital--St. Flartin and Bel-Air to the east, and Cit6 Simone and its environs to the north--and a key structural element of the metropolitan area. The proposed project to upgrade and develop the CDB market would have a major potential impact on welfare and on the functional efficiency of the metropolitan area as a whole. In addition, the market management agency, SAGMAP, would initially operate the CDB market and even- tually incorporate and upgrade the other retail markets in the capital, thus increasing the impact of this corrective intervention. 1.16 Sites and Services. There is an intimate link between the CDB investments and the proposed sites and services scheme in Port-au-Prince. The CDB rehabilitation and expansion requires the relocation of over 1,000 low-income families; the sites and services component is designed to help relocate these families without diminishing the capital's low-income hous- ing stock, and also to carry out pilot shelter projects in two secondary cities. This component would provide a vehicle for strengthening the EPPLS through financial and administrative discipline and enhanced design and im- plementing capacity. This would be the institutional cornerstone for future shelter development in the country and would also support and guide a number of ongoing and planned investments by other donor agencies. 1.17 The proposed project wou:Ld generate short- and long-term bene- fits. The short-term benefits would derive from the physical investments directly affecting the largely low-income beneficiaries. The longer-term benefits would be related to guiding the development of urbanization in Haiti. First, the creation of an effective metropolitan market management authority would point to a relevant solution for the development of other sectors in managing the development of Port-au-Prince. A city-wide agency such as this would be responsible to the central Government and this, given the dominance of Port-au-Prince in Haiti's urban system, seems appro- priate. Second, the project would focus on the CDB market because of its importance in the metropolitan capital area, but it would also lay the basis for the longer-term development of a market system in the city. Third, the direct link between the market and the sites and services com- ponents would provide the need for and opportunity to develop the national housing agency. Fourth, extending t'he housing component of the project to  -7- the secondary cities of Cap-Haitien and Les Cayes would be consistent with the policy of supporting the development of provincial cities on a select- ive basis by providing housing and services. II. THE INSTITUTIONAL FRAMEWORK The Creation of SAGMAP 2.01 The markets of Port-au-Prince are currently the responsibility of the four municipalities that make up the metropolitan area. Although the CDB, by virtue of sheer size, presents the most serious problems, other markets in the capital are not much better off. Against this background, the proposed project would include the establishment of an autonomous, city-wide market operating agency, the "Socifte Autonome de Gestion des Marches de l'Aire de Port-au-Prince", or SAGMAP. The role of such an agen- cy would be threefold, initially with respect to the CDB and eventually to the rest of the markets in the metropolitan area: operation and mainte- nance; financial management; and security and surveillance. In carrying out these functions, SAGMAP would coordinate its efforts with a series of other Government agencies, including the Departments of Agriculture, Public Health, Interior, Economics and Industry, as well as with public utilities and municipal services such as water, power and garbage collection. SAGMAP would not be responsible for other important functions, including setting and controlling food prices and establishing hygiene standards for market planning, which would remain the province of the relevant governmental agencies. 2.02 Parallel to the creation of SAGMAP, the proposed project contem- plates the upgrading of the central CDB market. As an autonomous, city- wide agency, SAGMAP would generate sufficient profits through the operation of the improved CDB market to begin to upgrade the 30 or so secondary mu- nicipal markets in the metropolitan area. As these markets are upgraded-- introducing water, sanitation and the modernization of the facilities--they would be incorporated legally, and operated by SAGMAP. The fees collected from vendors in the improved markets would serve to finance the upgrading of others. 2.03 Charter. As an autonomous government agency charged with operat- ing the markets of the metropolitan area, SAGMAP would be constituted legally in the form of a "Socift6 Publique Propriftaire" or Public Owner- ship Society. This would allow SAGMAP to provide a public service while conducting its affairs like a private corporation--albeit owned by the Government. The Public Ownership Society would have the following advan- tages: (a) it would clearly define and separate the responsibilities of SAGMAP from those of other Government agencies; (b) it would provide finan- cial autonomy which would allow SAGMAP to relate its fees to costs; and, (c) it would encourage operational efficiency. 2.04 Financial autonomy would not exempt SAGMAP from a measure of con- trol by Government, because it would be accountable to the Government through its proposed parent ministry, the Ministry of Interior. In addi- tion, SAGMAP would be subjected to budgetary control, through its board of  -8- directors, by the Ministry of Finance. Finally, SAGMMP would be audited by external auditors named by this Ministry. Certain investment responsLbili- ties would be included in SAGMAP's charter, i.e., to maintain its physical plant, and to gradually upgrade ancl incorporate the physical faciliti'es of all other markets in the metropolitan area. To this effect, SAGMAP would establish fees and tariffs necessary to preserve its physical plant and to guarantee the fulfillment of its operational responsi'bilities (para. 8.01 (d)). The proposal outlined above is detailed in the draft decree establishing SAGMAP.1/ Establishment of 'SAGMAP would' be a condition of effectiveness of the credit (para. 8.02 (a)). 2.05 Design Criteria. Local conditions require that special design criteria be observed. The system should be responsive to human resource constraints, including the shortage of qualified personnel, and the fact that a large part of the population is illiterate; rules, for instrance, should therefore be simple to urnderstand and apply. Given the weak economic environment, and the low elasticity of demand with regard to consumer prices, the proposed scheme of financial self management requires that investment and operating costs should be minimized in order that tariffs and fees can be kept as low as possible. This means that even some desirable services, such as health lposts or day care centers, would ha've to be excluded. Finally, given the changes foreseen in SAGMAP's operations (involving the growth of the market system), the proposed structure should be flexible and adaptable. 2.06 Organizational Structure. The proposed organizational structure of SAGMAP responds to the particular needs of the entity by taking account of three chief principles: (a) efficiency; (b) adaptability; and, (c) sim- plicity. On the basis of these principles, a functional structure w7as selected, i.e., one in which staff would be specialized by function rather than area. This seems well adapted to the initially centralized nature of operations in a market such as the CDB, and to the limited skills required of supervisors. This type of struct:ure also suggests that nonroutine acti- vities, such as major repairs which are relatively specialized and/or re- quire special equipment, would be contracted out by SAGMAP. The organiza- tional chart of the proposed SAGMAP is shown in Annex 4, page 1. 2.07 The proposed organizational structure has two functional blocks: administration and operations. The administrative block comprises all sup- port services to operations, such as accounting, personnel and hygiene. This block reports directly to the Director General. The operational block carries out the services necessary for the functioning of the market: maintenance, collections and security. Given the larger number of staff assigned to operations, this block is under a Director of Operations., In addition, a consultative committee of market users (CCUM), made up by elected representatives of staff and of depot holders, would have direct access to the Director of Operations to submit suggestions or lodge com- plaints. 2.08 The Board of Directors would be made up of: the Minister of Interior as President; the Ministers of Finance, Agriculture and Public Health; the mayors of Port-au-Prince and of other municipalities, as they 1/ The draft decree, as well as the architectural arLd engineering pro- jects for the CDB market, were prepared by consultants and financed by the PPF (for documentation available in the Project File see Annex 1).  -9-- are incorporated, and the Director General of SAGMAP. Its responsibilities would include: administrative and financial organization and management of SAGMAP; approval of recruitment and remuneration norms; approval of annual budgets; establishment of tariffs; approval of annual financial statements; and approval of the expansion program to the other areas of Port-au- Prince. Details concerning the composition and functions of the General Directorate and the Directorate of Operations, as well as the operational procedures, which include maintenance, revenue collection and control, and security and surveillance, are given in Annex 4. 2.09 Technical Assistance. Technical assistance would be provided to prepare the personnel and operational manuals and SAGMAP's initial budget, and to train the newly recruited staff of the agency. About eight man- months of specialized consulting time would be needed to develop SAGMAP's rules and operating procedures in these manuals; two man-months would be invested in preparing SAGMAP's detailed operating budget for submission to the Board of Directors; and four man-months would be required to train the new staff, in specialty groups and as contracted. The Special Commission for Urban Development (SCUD) established in 1981 would contract and co- ordinate the services provided by consultants within 18 months after credit signature (para. 8.01 (1)). Institutional Development and Technical Assistance for the EPPLS 2.10 Background. The ONL (National Housing Office) was established in 1966 as a semi-autonomous agency attached to the Ministry of Social Affairs to build, maintain and manage low-cost housing for middle to low-income families. In practice, ONL's activities were confined to the maintenance and management of housing projects planned, built and financed by other state agencies, and consequently, ONL did not acquire much experience in housing development. Following an institutional diagnostic study of ONL by consultants in 19802/, the agency was reorganized in March 1981. The re- organization of ONL7coincided with the execution of the UNDP/UNCDF shelter project in St. Martin and Drouillard, which began in March 1979. As executor of this project (which will affect some 25,000 low-income resi- dents of Port-au-Prince) the ONL gained first hand experience in planning and implementing a complex upgrading/sites and services project. 2.11 Although the initial reorganization of ONL considerably improved the management of the agency, a subsequent analysis of management proce- dures undertaken by consultants,3/ revealed the need for greater autonomy in ONL operations, especially in financial management, and a more stream- lined administrative system for the design, execution and management of low-income shelter projects. The consultant's proposals have been reviewed 2/ The institutional diagnosis was financed by the IDA Project Prepara- tion Facility as the first step in determining the eventual restruc- turing of the ONL (see Annex 1, Project File). 3/ "Etude de l'Appui Institutionnel de l'ONL, SEMA, mars 1982." This study was also financed by the IDA Project Preparation Facility to provide a basis for restructuring of the ONL, linking it to the pro- posed IDA-supported project, and to projects financed by such other agencies as UNDP and KfW.  -10- and approved by ONL, by the GoverrLment and by IDA and are incorporated in the law concerning the further restructuring of ONL which provides the basis for the institutional development program in the proposed project. The law transforming the ONL into the EPPLS (Public Social Housing Promo- tion Company) was passed on November 27, 1982. 2.12 Institutional Development Program for EPPLS. The fundamental objective of the institutional development program would be to provide the EPPLS with the managerial and financial autonomy necessary to operate as an enterprise responsible for the production of housing in such a manner that income generated from housing sales or rentals would be sufficient to re- cover investment costs and replicate housing production programs, which are targetted to low-income families. The strengthening of EPPLS would enable the agency to develop and manage low-income shelter projects with less re- liance on subsidies. The entrepreneurial approach to EPPLS' operations is an important element of the law4! and is the raison d'etre of the revised administrative organization and procedures of the new EPPLS. This approach would also require considerable changes in the staffing of EPPLS to reflect revised procedures and functional activities. 2.13 On the basis of the law, the EPPLS would be an autonomous public agency ("Organisme public autonome et permanent"), within the administra- tive jurisdiction of the Ministry of Social Affairs. The responsibilities of EPPLS would comprise: (a) within the context of national housing pol- icies, the preparation, programming, implementation and management of so- cial housing projects destined for ILow-income populations; (b) the prepara- tion of annual programs designed to progressively resolve the housing pro- blems of low-income families and individuals and to carry out studies de- signed to identify target groups for EPPLS programs; and, (c) to manage so- cial housing projects according to the standards necessary to ensure econo- mic returns on investment and full-cost recovery, and to enter into rental- sales agreements concerning housing projects. 2.14 Organizational Structure. EPPLS would be administered by a five-member Board comprising the Executive Director of EPPLS, the Director General of the National Budget, the Director of Urban Planning Services (SPU/DTPTC), the Director General of the Department of Territorial Manage- ment (DATPE), and the Secretary General of the Department of Social Affairs. The Executive Director would be responsible for the overall admi- nistration and management of EPPLS. He would be assisted by a general manager ("Directeur general adjoint"), who would be reslponsible for opera- tions and management of EPPLS and by a Financial Controller who would be responsible for all financial aspeclts of EPPLS operations. Specific proj- ect management would be the responsibility of project managers. Project support services, such as social workers, architectural and engineering design, or procurement, would be coordinated and controlled by the general manager. The proposed organizational chart is shown in Annex 5. 2.15 Organizational Procedures. The principal functions of EPPLS are project identification, preparation, supervision and management. EPPLS 4/ Available in the Project File (see Annex 1).  -ii- procedures would be designed to respond to these requirements through proj- ect 'teams' with staff drawn from support service units, according to the specific requirements at each phase of project processing. Project manage- ment continuity would be assured by each project manager who would have responsibility for one (or more) projects from identification through to completion and commercialization of the project. Each project would have a preparation/supervision/management budget to cover staff costs. Each proj- ect manager would draw specialist services into the project 'team'. Sup- port service staff would be charged to the project budget according to sup- port service staff costs and overheads as if each support service unit were a separate 'consultancy'. These procedures would not only ensure an effi- cient use of specialist staff but would also ensure effective cost account- ing for EPPLS as a whole and for each project's accounts. 2.16 Staffing. The transformation of the ONL into the EPPLS would in- volve the restructuring of present staff positions and the removal of those staff who have been recruited in the past but whose services are no longer compatible with the new functions of EPPLS. The remaining technical and support staff would be redeployed according to the structure shown in Annex 5. Five additional staff positions would be filled to complete the staff- ing plan: a deputy financial controller; a deputy sociologist; an archi- tect; a chief accountant; and a project manager. Candidates for these positions have been identified from within EPPLS' present staff and from outside. These positions would be filled by March 1983. 2.17 Technical Assistance. Technical assistance would be required to assist EPPLS in its initial operations and to help train its staff. The following four specialists would be contracted no later than three months after credit signature (para 8.01 (1)): (a) management advisor (24 man- months); (b) financial analyst (24 man-months); (c) engineering advisor (18 man-months); and, sociologist (12 man-months). With the exception of the management advisor, the specialists would ensure line function responsibi- lity for the first 50% of their assignments with an EPPLS staff member act- ing as counterpart and deputy. For the remaining 50% of their assignments, the EPPLS staff member would take full time responsibility and the special- ist would act as deputy with the specific role of training EPPLS staff. The management advisor would not have line responsibility but would advise the Executive Director and General Manager. 2.18 Training. Training programs would be required to develop the technical and professional skills of EPPLS staff. The following training activities would be provided under the project (see Annex 8, page 1): (a) 4 seminars for engineers; (b) 14 study tours of low-income housing projects in Central America, South America, Africa and Asia for EPPLS project managers, architects and engineers; and (c) on-the-job training overseas for 4 EPPLS senior technicians. III. THE CDB MARKET UPGRADING AND SITES AND SERVICES COMPONENTS The Croix-des-Bossales Market Component 3.01 The food trading system in Port-au-Prince is extremely complex and follows numerous, mostly informal, patterns directly involving a varie- ty of factors. These and other trading activities represent the major  -12- source of employment for the poorest and least qualified 60% of the labor force. Among the many public markets in metropolitan Port-au-Prince (the number of which has increased from 23 in 1973 to 30 in 1982), the Croix- des-Bossales market is by far the most important, where 750 tons of goods are traded daily. It includes a retail market with some 14,0005/ mer- chants and 80,000 purchasers, storage facilities, and a wholesale-market through which are sold more than two-thirds of the food and manufactured goods for domestic use in Port-au-Prince. It also serves as a redistribu- tion center for about 30% of its traded goods which are channeled towards dozens of other markets in the metropolitan area. 3.02 The market functions depend to an important extent on a network of 158 warehouses or depots which have an average area of about 35 m2. Of these, only 111 are in the market area. The buyers and merchants in the adjacent streets tie-up pedestrian and vehicular traffic amidst a confusioni of trucks, buses and hand carts called 'brouettes' (see IBRD Map 16757). The absence of drainage and sanitation is worsened by the density of occu pation and by its location in the drainage basin of the northern part of the city. Business is conducted among heaps of rotting garbage and puddles of raw sewage. The peculiar stench of the market is overpowering during the rainy season when large areas are flooded with sewage. 3.03 Aiming at resolving these problems and meeting the projected needs of installed vendors (whose number is expected to increase from 8,000 today to 11,500 in 1990) and of the volume of goods stored and sold (200,000 tons rising to 248,000 tons in the same period), the development of the CDB market system would be divided in two phases: (a) the first phase would provide for a wholesale market located on the northern extreme of the existing market area; two covered retail markets for about 5,200 merchants; and one open air retail market with basic services for over 3,000 vendors. This first phase would also include the administrative building and a building for public dlormitories adjacent to the market; (b) the second phase would remove the wholesale market to a new facility to be built on land currently occupied by the old military airport of Chancerel- les, about one km. northeast of the CDB (see IBRD Map 16757); this site would become the property of SAGMAP no later than December 31, 1983 (para. 8.01 (i)). This would allow for the conversion of the initial wholesale market into a retail facility--which would be increased by building another retail building, the Marche MacajouX, on the site of the proposed open-air market. In any case, the current CDB would eventually become a purely re- tail market capable of housing over 12,000 vendors. The object of the IDA- supported project would be to complete the first phase of the CDB upgrading and development. The second phase of the project would begin one or two years after completion of the first, possibly as part of the next in a series of urban projects. A summary description of the first phase fol- lows; a detailed description of the proposal is included in Annex 6. 3.04 The Site. During the preparation of the proposed project an economic analysis was conducted to determine the optimum location for the 5/ Surveys conducted by the consultant preparing the project indicated that on any given day, 8,272 of these 14,000 vendors were installed merchants while 5,760 were ambulatory merchants.  -13- market. The analysis, coinciding with the physical planning view, indicat- ed that the existing location of the CDB was the best site for the new mar- ket. The site, which is just under 12 ha., already belongs to the muni- cipality. However, the clearing of the site would require indemnifying the owners of various types of buildings although indemnization, which would cost an estimated average of US$50/m2, would cover only the buildings, since the land they are built on (illegally) belongs to the Government. The most serious problem is the large number of dwellings involved. There are 1,053 families occupying 644 dwellings, only about 30% of which are owned by the occupants. The rest are rented. The owners would therefore be indemnified, but the occupants would be relocated to nearby serviced sites (see paras. 3.09 - 3.15). :3.05 The Wholesale Market. Designed to be eventually converted to a retail facility, the wholesale market would consist of two long parallel buildings with a net storage capacity of 4,400 m2. The wholesale market could accommodate 15% more depots than those displaced by the market, with greatly increased convenience and efficiency. In addition, by concentrat- ing the wholesale depots in one area, and separating transport of passen- gers and freight, this development would help alleviate vehicular conges- tion in the downtown area (see IBRD Map 16757). 3.06 The Retail Markets. This subcomponent involves two groups of buildings or markets for retail purposes, which would be located in the center of the new CDB. They are also the only two 'permanent' installa- tions inasmuch as the wholesale and open air markets are specifically designed to be eventually modified, whereas these are not. The St. Joseph market with a total area of 11,567 m2 and Remparts with 8,757 m2, would ac- commodate a total of 5,233 vendors. 3.07 The Open Air Market. Complementing the 'covered' retail markets, the Macajoux market would provide a large open area (12,527 m2) to accom- modate up to 1.5 times the overflow of installed retail merchants, estimat- ed to number about 3,000. The paved, fenced-in area would have storm drainage, water taps and sanitary modules, which, besides providing the de- sired sanitary environment, would allow for the collection of fees. The open-air market would also accommodate the passenger transport terminal. The terminal would eventually be moved to the old Gare MacDonald located nearby. The facility would be reserved for such use by the Government (para. 8.01 (j)). 3.08 Sanitation. A major problem in upgrading the market is water supply. The proposed project would combine different systems to meet the demands of a population of 10,000 vendors. Six sanitary modules would be strategically located throughout the market. Each would consist of 12 Turkish style latrines over a 60 cm duct which would be flushed automatic- ally every five or six minutes by a simple siphon. The Sites and Services Component 3.09 As noted in para. 3.04, preparing the site for the proposed dev- elopment of the CDB market would require that 644 dwellings be demolished. The-proposed sites and services component recognizes that urban development projects, whatever their overall goals and objectives, should not reduce  -14- the low-income housing stock. This implies that Government policy to date, i.e., the simple indemnification of dwelling owners, would no longer serve. Thus, a site, known as Linthau II would be developed prior to up- grading of the market to relocate i-amilies from the Crcix-des-Bossales (see IBRD Map 16756). 3.10 The scope and scale of the sites and services component, however, also reflects the fact that during project preparation, important changes were taking place in the sector. The Government's first experience with low-income shelter was being carried out, supported by UNDP and the UNCDF (see paras. 1.12 and 2.10), and other international agencies were beginning to take an interest in urban shelter, such as KfW through its support for the Cite Simone Master Plan (see para. 1.12). To take advantage of the challenge posed by the need to relocate families from the Croix-des- Bossales site and to turn it into an opportunity to develop institutional capacity to provide low-income housing, it was decided that the component should be of sufficient scale to have an impact on the development of EPPLS and provide a framework for future investments supported by other donors. To achieve this, and in support of Government strategy, the pilot projects in Cap-Haitien and Les Cayes were also therefore inc:Luded. The planned support by KfW of a sites and services project in Port-au-Prince, and of a not yet confirmed upgrading projeci: in Cap-Haitien, would multiply the im- pact of the IDA component, in effect making the Latter and IDA co- financiers of urban development. The component is sum[marized in the fol- lowing paragraphs. Annex 7 provides a detailed description of the compo- nent. 3.11 The Sites and Services Schemes. The component would involve the production of some 2,407 units in itwo secondary cities and in the capital, as follows: 1,093 in Cap-Haitien (see IBRD Map 16758), 278 in Les Cayes (see IBRD Map 16759), and 1,036 in Port-au-Prince (see IBRD Map 16760). The component was designed on the basis of the executing agency's estimated capacity (including other ongoing or proposed projects) and took account of the relative sizes of the cities involved. Of the total number of lots, 86% (2,070) would be for low-income housing; the remaining 345 would be larger lots for combined housing and commercial or industrial use and to cross-subsidize the smaller units. Thus, the price of land and infrastruc- ture for the latter group of 'commercial' units would 'be priced at 10% to 40% above the base cost. The use of a cross subsidy, of very low but ade- quate standards and of progressive development through self-help construc- tion would allow very low-income groups to have access :o the project. 3.12 Layout. In all these locations, the typical block would be made up of 134 lots, with a total area of 6,720 m2 (80 m x 84 m). The lots would be organized in four clusters around semi-private courtyards. The sanitary facilities would be at the entrance to each courtyard. The rela- tive value of a lot would be a function of both size anld location in a ty- pical block. Thus, the most inexpensive lots would be the smaller ones and/or those that share the inner courtyard; the most expensive lots would be the larger ones on main roads. 3.13 Dwelling Units. In Port-au-Prince and in the other cities, the design standards for the lots, infrastructure and dwelling solutions would be of the lowest possible but adequate levels. The dwelling units would consist of cinder block walled, tin-roofed single rooms with no direct  -15- service connections but sharing communal water taps and sanitary facili- ties.6/ However, the Linthau II scheme in Port-au-Prince would also pro- vide a minimum bare lot solution, in order to reach the very lowest income groups. Given that the land would be leased, this could be in effect, a rental unit. It would include a 36 m2 lot in the interior of a cluster, a wall, against which a temporary lean-to could be built, ard access to a sanitary unit and water tap. 3.14 Sanitation. Sanitary units would be located at the entrance of each housing cluster and would provide collective services for every 33 or 34 lots on the basis of one latrine for every four families and a shower for every eight to ten. The sanitary module would also provide water taps for cooking and washing needs, as well.as a common receptacle for garbage disposal. 3.15 Community Facilities. The proposed subprojects would include basic community facilities only when no other services in the vicinity are available. They would be of low standard and would be flexibly designed and would also be intended to serve not only the subproject in question but the larger immediate area as well. IV. PROJECT COST ESTIMATES AND FINANCING PLAN Estimated Costs 4.01 The total estimated project cost is US$23.8 million. The fol- lowing table summarizes costs by component, and includes physical and price contingencies. The costs are estimated on the basis of 100% detailed engi- neering for the civil works, detailed proposals for technical assistance, and actual expenditures in the case of land and professional services (such as studies and detailed engineering) which were financed by advances under the Project Preparation Facility. Base costs are expressed in 1982 prices. Physical contingencies were conservatively estimated at 10% for all civil works. Price escalation was based on an annual rate of increase of 10% for both foreign and local costs in 1983 tapering off by 1% yearly during the construction period.7/ The estimated foreign component amounts to 47% of total costs or about US$11.3 million. Cost details are given in Annex 2. Project Financing 4.02 The project has been designed to maximize the use of locally pro- duced materials and labor. Nonetheless, given the scarcity of local mate- rials, the foreign exchange component is comparatively high. Because of this and because of a very constrained fiscal situation, the Government is seeking 88% participation from IDA. This high level of IDA financing is 6/ The design, however, allows for future connections of water, electricity and, eventually, sewerage networks as well as for the expansion of the units. 7/ Price escalation on the construction sector has been higher than other sectors and around 10% per annum (8% per annum for local costs and 13% per annum for foreign costs) since June 1980. These trends are expected to continue, albeit at a slower rate.  -16- EAITI MBAN DEVELOPMENT PROJECT Estimated Costs a/ Item Local Foreign Total Foreign Total Market Upgrading Studies and engineering 122.00 488.00 610.00 80 3.1 Indemnization 800.00 - 800.00 - 4.0 Earthworks 760.24 1,007.76 1,768.00 57 8.9 Civil works 4,410.00 4,590.00 9,000.00 51 45.2 Implementation 665.00 285.00 950.00 30 4.8 Subtotal 6,757.24 6,370.76 13,128.00 49 65.9 Sites and Services (a) Port-au-Prince Studies and engineering 18.00 72.00 90.00 80 0.5 Land 38.00 - 38.00 - 0.2 Earthworks 205.88 272.92 478.80 57 2.4 Civil works 630.28 402.97 1,033.26 39 5.2 Implementation 155.64 66.70 222.34 30 1.1 Subtotal 1,047.80 814459 1,862.40 44 9.4 (b) Cap-Haitien Studies and engineering 16.00 64.00 80.00 80 0.4 Land 49.32 - 49.32 - 0.2 Earthworks 248.46 329.35 577.81 57 2.9 Civil works 756.75 483.83 1,240.58 39 6.2 Material loans 75.54 66.99 142.53 47 0.7 Implementation 337.87 144.80 482.67 30 2.4 Subtotal 1,483.94 1,088.97 2,572.91 42 12.9 (c) Lee Cayes Studies and engineering 12.00 48.00 60.00 80 0.3 Lard 13.15 - 13.15 - 0.1 Earthworks 55.97 74.20 130.17 57 0.6 Civil works 205.95 131.68 337.63 39 1.7 Material loans 18.09 16.05 34.14 47 0.2 Implementation 93.60 40.12 133.72 30 3.7 Subtotal 398.76 310.05 708.81 44 3.6 Subtotal S & S 2,930.50 2,213.61 5,144.12 43 25.9 Institutional Development SAGMAP Studies and engineeriug 16.00 64.00 80.00 80 0,4 Initial workaing capital 250.00 - 250.00 - . 1.3 Pre-operating expense 81.00 - 81.00 - 0.4 Vehicles and equipment 3.50 31.50 35.00 90 0.2 Technical assistance 28.50 66.50 95.00 70 0.5 Subtotal 379.00 162.00 541.00 30 2.7 Institutional Development EPPLS Studies and engineering 16.00 64.00 80.00 80 0.4 Technical assistance 240.00 560.00 800.00 70 4.0 Training - 100.00 100.00 100 0.5 Equip. and off. facilities 10.00 90.00 100.00 90 0.5 Subtotal 266.00 814 00 1,080.00 75 5.4 Base costs 10,332.74 9,560.37 19,893.11 Physical contingencies 692.20 598.49 1,290.69 Price contingencies 1,498.32 1,126.63 2,624.95 TOTAL PROJECT COST 12,523.26 11,285.49 23,808.75 a! Cost estimates exclude taxes and duties, fron which this project is exempt.  -17- recommended on the basis of the high foreign exchange requirements of the project, the pressures on budgetary resources, the country's international reserve position and the high priority attached to this project by the Haitian Government. It is therefore proposed that an IDA credit of US$21 million be granted to the Haitian Government,8/ which would put up the re- maining US$2.8 million in local currency. This is reflected in the follow- ing table: Financial Plan US$'000 Local Foreign Total IDA (including IDA Special Fund) 9,715 11,285 21,000 Government 2,808 - 2,808 TOTAL 12,523 11,285 23,808 4.03 The Government would make funds available for each component as follows (para 8.01 (a)): (a) The CDB market: an equity contribution of US$15.1 million to SAGMAP to cover the total capital investment of the CDB market (see para. 6.02); (b) Sites and services: a loan of US$4.2 million to EPPLS for the sites and services component and a budgetary allocation of US$2.1 million for community facilities and off-site infrastructure; and (c) Institutional development: grants totalling US$1.4 million would be made available to EPPLS and SAGMAP to finance technical assistance, staff training and equipment. 4.04 The equity contribution to SAGMAP is appropriate in view of the need to re-invest all SAGMAP's earnings (para. 6.02). IDA funds would be on lent to EPPLS through a subsidiary loan agreement for 25 years at 4% in- terest with a grace period of 3 years (para. 8.01 (a)). This would be the first loan contracted by EPPLS. Housing projects undertaken by ONL had been financed either from grant funds provided by international agencies or from Government budgetary allocations. The 4% interest rate, although well below the opportunity cost of capital, represents an important step towards establishing financial discipline within the agency and should enable EPPLS to demonstrate its ability to service loans and, over time, establish creditworthiness. Execution of subsidiary agreements with SAGMAP and EPPLS would be a condition of effectiveness of the proposed credit (para. 8.02 (b)). 8/ Of which US$13 million would be financed from the IDA Special Fund.  -18- 4.05 Project Preparation Facility and Retroactive Financing. For the preparation of the project, a Project Preparation Facility totalling US$1.0 million was approved between May 1979 and July 1981 for detailed engineer- ing of the CDB market and the sites and services components. The outlays under the PPF are included in the cost of the proposed project. V. PROJECT IMPLEMENTATION 5.01 The need to relocate the 1,036 families from the CDB area to the Linthau II sites and services scheme clearly establishes a link and thus an interdependency between the market upgrading and sites and services compo- nents. In order to avoid costly delays in starting the work of market up- grading, work on the Linthau II sites and services scheme was advanced to allow relocation of the affected families and the start of CDB earthworks after mid 1983. These works would be financed retroactively upon credit effec tiveness. Sites and Services 5.02 Retroactive financing of an estimated US$750,000 would include: (a) the earthworks and civil works necessary to start the Linthau II scheme; and (b) technical assistance to begin the EPPLS. In order that the first group of families could be relocated from the CD]3 area to Linthau II during the third quarter of 1983, the earthworks were begun in November 1982. To begin the organization and strengthening of EPPLS, teclnical assistance services were provided to EPPLS in September 1982. These services were provided by the same firm that prepared the ONL re- organization proposals, and were designed to assist in the detailing of job descriptions, in the relocation of staff to new positions in EPPLS and in the redeployment of excess personnel. This consultant team will also assist in ensuring that the implementation of the Linthau II earthworks and civil works program is managed according to EPPLS procedures. 5.03 Parallel to beginning the execution of Linthau II, in early 1983 five expatriate experts would arrive to complete the organization and strengthening of EPPLS and to prepare for initiating work as soon as possible after credit effectiveness. The reorganization of the ONL into the EPPLS would have been completed by the time the other two schemes for Cap-Haitien and Les Cayes, are readly to start. As discussed above (para. 2.17), the experts would stay on to train their counterparts. CDB Market 5.04 The civil works for upgrading the market would be expected to begin in mid-1983, and to go on for a year and a half. The Ministry of Public Works would be responsible for the execution of all civil works and for procurement of equipment. According to the plan. developed by con- sultants, the works on the wholesale market, two retail markets and an open air market would not proceed simultaneously but rather in phases. This ap- proach would allow for upgrading with the least possible amount of disrup- tion of the market activities. The first phase would involve relocating the 1,053 CDB families and the subsequent construction of the wholesale market at the northern end and of the open-air market (see IBRD Map 16757). The second phase would involve the construction of the remaining two retail markets. Parallel to these works, a number of activities  -19- leading to the creation of SAGMAP would be undertaken. SAGMAP would be fully operational by the time the wholesale market is opened, in the last quarter of 1984. 5.05 During project preparation, a number of preliminary steps were taken, ranging from land acquisition to the institutional design of SAGMAP and the drafting of the legal framework for its establishment. The esta- blishment of SAGMAP and the execution of the SAGMAP Subsidiary Agreement acceptable to IDA would constitute a condition of effectiveness (para. 8.02 (b)). SCUD would carry out all activities related to the development of SAGMAP into an operational entity, beginning with the recruitment of its Director General, and (a) the recruitment of the Director of Operations, the heads of Personnel and Accounting and the Division Chiefs, the recruit- ment of support personnel, and the operational staff; (b) together with the SAGMAP management team, the studying and planning of the temporary arrange- ments for market activities during construction and the programming and overseeing of the proposed training of the staff upon recruitment, accord- ing to the nature of their jobs; and (c) the preparation of SAGMAP's first operational budget for presentation to the Board of Directors upon its for- mal establishment. SAGMAP key positions (as of those of EPPLS) would at all times be occupied through the life of the project by competent indivi- duals acceptable to IDA (8.01 (p)). A project implementation unit (PIU) has been established in the Ministry of Public Works to carry out all act- ivities related to the construction of the market, including the tendering and letting of contracts for civil works and equipment and the supervision of the works. 5.06 The timing for the hiring of the managers, the support personnel and the operational staff would be determined by the training period they would undergo prior to the establishment of SAGMAP as an operating entity. This is targeted for mid-1984, three months before the opening of the wholesale and open-air markets. The technical assistance provided9/ would comprise both staff training and preparation of the operating rules and budget for SAGMAP (about US$95,000 have been allotted for this). Staff salaries and other expenses for this transitional period would be covered by a pre-operation fund (US$81,000, included in Government counterpart funds). Inter-Institutional Agreements 5.07 To simplify project implementation, the EPPLS and the Ministry of Public Works would receive all necessary financing to build all works for their components (sites and services and market upgrading, respectively) and to procure all related equipment and technical assistance. Designs and specifications would be previously approved by all agencies concerned. The EPPLS and the Ministry of Public Works would subsequently transfer all off- site networks, facilities and equipment to the corresponding sector agen- cies. For the sites and services, this refers to community facilities, the off-site water, drainage and circulation networks, and all electrical and public-lighting networks; for the market, it would refer to all off- site water, drainage, circulation and electrical networks. The sector agencies would assume responsibility for the operation and maintenance of 91 Detailed in the consultants' report (Item 2 in Annex 1: List of docu- ments in Project File).  -20- these facilities and, where applicable, for collection from beneficiaries and repayment to the Government. For the sites and services component, agreements would govern such municipal services as garbage collection and security, the cost of which would be recovered through city taxes. The costs of water and electrical networks, their operation and maintenance would be recovered from beneficiaries by the respective utilities who would in turn pay back the Government on the same terms as those on whiclh the money was received by EPPLS. The agreements governing these procedures would be finalized in a form satisfactory to IDA (para. 8.01 (i)) and would cover mutual obligations, scheduling of commitments, and other terms and conditions conducive to the required coordinated effort, including suitable financial arrangements, cost recovery, and operation and maintenance condi- tions. SAGMAP would enter into contractual agreements satisfactory to the Association, with relevant sectoral. agencies concerning support services such as water, power, garbage collection, etc. (SAR 8.01 (o)). Procurement 10/ 5.08 Construction (US$14.6 million). Due to the relatively small size of contract packages and the dispersed location of the sites and services schemes, it is not expected that foreign bidders would be attracted to ci- vil works contracts on this component (US$3.8 million) but neither would they be excluded from submitting proposals.1l/ All equipment materials, and civil work contracts, including the CDB market component (US$10.8 mil- lion),. would be procured through ]:cB.12/ Domestic contractors would re- ceive a margin of preference of 7 1/2a-and domestic rvinufacturers would receive a margin of preference of 15% or the applicable customs duties (whichever is lower). 5.09 Technical Assistance (US$'0.9 million). About 92 man-months of technical assistance to EPPLS and SAGMAP would be contracted, in all pro- bability prior to credit signature. They would be contracted according to the Bank Guidelines for the employment of consultants. The professLonal man-month cost averages'US$9,730. This is consistent with current practice in Haiti, and is considered reasonable in view of the highly specialized nature of the services required. In addition, micro-computing, engineering and office equipment would be procured by EPPLS on the basis of statements of expenditure as these items would not exceed US$250,000 (see para. 5.10). 5.10 IDA Review of Tender Docutments, Contracts and Training Programs. Draft tender and contract documents for the sites and services and CDB mar- ket components have been reviewed and approved by IDA. Approval by IDA of tender documents for all contracts above US$250,000 would be required,as would be bid evaluations of the respective contracts before awarding them (para. 8.01 (n)). All other contracts would be reviewed ex-post on. the 10/ The costs given here are base costs, i.e., excluding physical and price contingencies, as well as implementation costs incurred by the PIU and the EPPLS. 11/ Annex 7, Table 9 shows a tentative breakdown of civil works contracts for the sites and services components. 12/ Of this, civil works, materials and equipment for the CDB market would be procured under the IDA Special Fund.  -21- basis of statement of expenditure procedures. For the training programs, EPPLS and SCUD/SAGMAP would prepare and submit for approval detailed pro- posals, including detailed cost estimates. Regarding the provision of counterpart funds, the Government would exchange views with IDA on the adequacy of proposed budget allocation in order to ensure accelerated pro- ject implementation (para. 8.01 (k)). Disbursements 5.11 The Government would allocate the funds needed for project impl- ementation in its yearly budgets, from which funds would be transferred to the EPPLS for the sites and services component (including off-site infra- structure and community facilities), and to the Ministry of Public Works for the CDB market component, following a disbursement pattern correspond- ing to the anticipated investment schedule. The credit proceeds would finance the following items of both components: (a) One hundred percent of foreign expenditures and 77% of local ex- penditures for building materials, equipment and civil works (US$15.6 million equivalent); (b) One hundred percent of foreign expenditures and 10% of local ex- penditures for technical assistance and training (US$0.8 million equivalent); (c) Project Preparation Facility (US$1 million equivalent); (d) Initial deposit in Special Accounts (US$1.5 million equivalent); and (e) Unallocated (US$2.1 million equivalent). 5.12 In order to reduce the interval during which the Government would finance IDA's share of the project costs with its own resources, two Special Accounts would be opened in the Central Bank or other appropriate Bank with initial deposits totalling US$1.5 million (para. 8.01 (b)). This would be a condition of effectiveness of the proposed credit (para. 8.02 (c)). Government would make payments out of the Special Accounts and would request replenishment of the Special Accounts by IDA, on the basis of fully documented withdrawal applications. For disbursements in excess of US$1.5 million, regular disbursement procedures (i.e. not using the Special Accounts) would apply. In addition, the above agencies would provide the Association with regular progress reports for the duration of project exe- cution (para. 8.01 (e)). 5.13 The estimated schedule of disbursement, allowing for a six-month lag for preparing and processing withdrawal applications, is shown in the following table. The period of disbursements is five years, with the pro- posed completion date June 30, 1987. The five-year disbursement schedule compares favorably with the actual average profile for urban projects in the LAC region (7 years) and for projects in other sectors in Haiti (5 years). The proposed disbursement schedule is deemed feasible for the fol- lowing reasons: (a) the project is already underway (Linthau II sites and services and technical assistance for EPPLS);  -22- (b) the project has a much greater level of readiness than has been the case for most other urban projects: 100% detailed engineer- ing has been completed, all land has been acquired, and most of the necessary legislation is already in place; and (c) the proposed Special Accounts should expedite administrative pro- cessing which has caused delays in the past. Disbursement Schedule (in US$ million) Calendar Year Government IDAa/ ___________________ IDA's Fiscal Semesters Semester Cumulative Semester Cumulative Semester Year June 1983 0.80 0.80 2.5b/ 2.5 Second FY 83 December 1983 0.15 0.95 0.8 3.3 First FY 84 June 1984 0.40 1.35 3.6 6.9 Second FY 84 December 1984 0.71 2.06 6.4 13.3 First FY 85 June 1985 0.30 2.36 6.3 19.6 Second FY 85 December 1985 0.20 2.56 0.5 20.1 First FY 86 June 1986 0.12 2.68 0.5 20.6 Second FY 86 December 1986 0.06 2.74 0.2 20.8 First FY 87 June 1987 0.03 2.77 0.1 20.9 Second FY 87 December 1987 0.03 2.80 0.1 21.0 First FY 88 a/ Including the IDA Special Fund. b/ This pertains to advances under the Project Preparation Facility and to deposits into the Special Accounts. Accounts and Auditing 5.14 SAGMAP and EPPLS would maintain appropriate accounting systems to reflect their operations and financial condition. In addition, entities entrusted with the implementation of specific project components (EPPLS, MPW/PIU) would maintain separate project accounts (para. 8.01 (e)). SAGMAP, EPPLS and the project accounts would be auditesl annually by extern- al auditors whose qualifications are acceptable to IDA, and their reports and relevant statements would be forwarded to IDA not 'Later than four months after the end of the Haitian fiscal year (para. 8.01 (f)). The Government would provide the Association with the results of the audit of the Special Accounts in the Central Bank or other appropriate Bank no later than four months after the end of their fiscal year (para. 8.01 (g)).  -23- VI. FINANCIAL ANALYSIS, COST RECOVERY AND AFFORDABILITY 6.01 The soundness of the finances of the principal project entities, SAGMAP and EPPLS, will be determined by their ability to maintain reason- able operating efficiency as well as by the terms on which Government chan- nels the proceeds of the credit and its own contribution to them. Because SAGMAP is a totally new entity and EPPLS' operations are being substantial- ly reorganized, the financial projections are subject to considerable un- certainty and will have to be monitored and adjusted during project execu- tion. SAGMAP 6.02 The projected operating expenses of the CDB market (personnel, water and electricity tariffs and maintenance) were estimated by the con- siltants who prepared the feasibility study. As noted in para. 6.07, it should be feasible to increase fees paid by various users of the market once the improved facilities are in place, to cover these costs and gener- ate a surplus for reimbursement in the gradual rehabilitation of secondary markets in the Port-au-Prince metropolitan area. SAGMAP would undertake in the subsidiary agreement under which it will receive funds from the Govern- ment, to maintain a working ratio (operating expenses divided by revenues) ot not more than 0.9 (para. 8.01 (d)). 6.03 Government would make available as an equity contribution to SAGMAP the proceeds of the credit and its own allocation to the project, covering the full cost of the market, SAGMAP working capital and institu- tional development costs. Fees cannot be raised beyond the projected levels without affecting affordability (paras. 6.09 and 7.12). It would therefore be unrealistic to require SAGMAP to repay the project financing. In addition, the needs for investment in market expansion and upgrading are well in excess of the surplus expected to be generated by SAGMAP operations (between US$800,000 and US$2 million in the period 1985-90, depending on the buoyancy of revenues). Although an outline for future investments by SAGMAP has been developed (para. 3.03) it is at a very preliminary stage and sources of financing have not been identified. To assist SAGMAP in pLanning its expansion in an orderly manner, IDA would be given an opportu- nity to comment on proposed investments in excess of US$2 million (para. 8.01 (h)). EPPLS 6.04 During the execution of the pilot sites and services projects supported by the credit, EPPLS would evolve from a very small Government department depending largely on Government allocations to a semi-autonomous agency charged with the execution of a greatly expanded low-income housing effort. While budgetary support would have to continue, an increasing share of EPPLS expenses would be financed by the recovery from the benefi- ciaries of its investments and operating costs. As noted in para. 6.08, cost recovery would increase sharply as a result of the project. If EPPLS succeeds in maintaining affordability while collecting, as agreed, most project costs (including interest close to the expected rate of inflation) from beneficiaries, further gains may be possible under the proposed  -24- KfW-supported programs. To encourage EPPLS in this effort, project funds would be passed on in the form of a loan with the same 25-year term antici- pated for EPPLS' own lending (para. 4.04). Under these conditions, based on operating costs projected by EPPLS' consultants, the entity's growth is expected to be sustainable without increase in Government support for its operating budget. 6.05 EPPLS' growth can be g;auged by comparing :he size of its first program, the St. Martin-Drouillard schemes supported by UNDP/UNCDF (US$2.7 million), with the US$6.3 million program included in the proposed project and the tentative cost for the programs proposed for KfW financing (US$823 million). IDA would be given an opportunity to comment on planned invest- ments of more than US$1 million (para. 8.01 (h)). This would allow verifi- cation that EPPLS' programs are soundly financed and consistent with the basic objectives of the institution. Cost Recovery 6.06 The poverty of the target groups inhibits thte recovery of project costs at the opportunity cost of capital. However, the agreed recovery me- chanisms would achieve a greater degree of financial autonomy and replica- bility than have hitherto existed 6.07 SAGMAP. SAGMAP would recover 100% of CDB operating expenses plus a margin sufficient to cover more than 60% of depreciation on revalued as- sets. The necessary revenues would be generated directly by the benefi- ciaries as follows: (a) vendors would pay a fee whiLch would replace the current tax payable to the municipality and which woiLd represent a 50% in- crease over this tax (the fee would be adjusted to take into account the special benefits to be enjoyed by vendors of perishable goods); the current collection performance, which is good, would be improved by the rational- ization of the space, to cover al:L vendors; (b) parking fees paid by users of the parking lots who would benefit from the improved access to the mar- ket; (c) rental of storage areas to wholesalers who would suffer reduced losses from decay and theft; they would be charged an equivalent of US$15 per m2 per year instead of the current US$8; and, (d) fees from truck- drivers and "brouettiers", who do not currently pay fees but would profit from the greater handling efficiency (SAGMAP would have the authority to regulate the handling of goods outside the provided areas). SAGM&P would establish its fee schedule prior to starting operations in the new7 CDB (para 8.01 (d)). The municipality of Port-au-Prince would be responsible for maintaining access roads and for garbage collection, which would be financed under its normal budget. 6.08 EPPLS. About 96.5% of total costs would be recovered as follows- (a) Direct recovery: the costs of detailed engineering, land prepara- tion, civil works, supervision, on-site infrastructure and construction of dwelling units would be recovered directly from beneficiaries through 25- year contracts. EPPLS would obtain from the purchasers of the dwelling units a mortgage guarantee (para. 8.01 (c)). These contracts wouLd have differential interest rates of 6%' in the secondary cities (to cover site  -25- development costs, management costs,13/ maintenance costs and an allowance Eor default and to allow for the repayment of IDA funds to Government at an interest rate of 4% over the same period) and of 8% in Port-au-Prince (para. 8.01 (c)), (to cover the above and to generate surplus funds for the EPPLS for re-investment). These differential rates reflect the differences in payment capacity of target groups in secondary cities and Port-au- Prince. Recovery would be significantly higher than that currently being achieved by the EPPLS14/ although the interest rates would be marginally below projected annual inflation rates (9% in 1984 and 8% in later years). The rates would, however, be reviewed yearly beginning one year after user occupancy to determine their impact on the financial viability of the EPPLS and to correct unintended subsidies as a result of higher than projected inflation (para. 8.01 (c)); (b) Indirect recovery: the cost of water and electricity infrastructure networks and operation would be recovered through tariffs calculated on a full recovery basis. The EPPLS would col- lect the tariffs and pass them on to the relevant agencies (SNEP, and EDH) during an initial period of not more than five years to simplify collection procedures and to allow neighborhood communities to organize cost sharing for collective sanitary facilities. The cost of the circulation network and of storm drainage costs would be recovered in municipal budgets through the tax on buildings. The cost of street maintenance and garbage collec- tion would be incorporated to municipal budgets and recovered through general taxation; and, (c) The land would remain the property of the EPPLS and would be rented on a renewable 25-year lease at annual rates of 6% and 8% for secondary cities and Port-au-Prince, respectively (para. 8.01 (c)). The cost of social infrastructure (health center, school and community center amounting to US$173,500) and of part of the studies (US$25,000) would not be recovered (see Annex 7, Table 2). Affordability 6.09 CDB Market Component. User fees have been calculated to be com- patible with the financial capacity of each group of beneficiaries and to minimize the impact on the commercial behavior of groups using the market. The net effects of the improved conditions, after allowing for higher fees, would result in an increase in revenues for 90% of those vendors who sell goods worth more than Gdes. 75 (US$15) daily. Over 5% of the remaining vendors, whose daily sales are between Gdes. 50 and 75 would suffer a small loss in the short term. The modest increase anticipated in turnover (0.1%) and the greater efficiency of the market would allow a large proportion of these vendors to adapt their trade to the new conditions and recuperate their former revenues (see Annex 6, Table 1). It is unlikely that the higher fees would result in significant changes in consumer prices. In the event that vendors were to pass on the increase in fees to consumers in the form of higher prices, it is estimated, at worst, that this would result in a short-term increase in consumer prices for agricultural products of no 13/ Management costs correspond to 1% of initial investment; maintenance costs are 3% of annuities; the default or warranty funds is 2% of an- nuities. 14/ In the St. Martin-Drouillard UNDP/UNCDF-supported project, the EPPLS is recovering 45% of the costs at an interest rate of 7.3% over 15 years.  -26- more than 1.0% per annum, which is considered acceptable. The parking fee (US$0.3 or Gdes. 1.5) would only affect higher income groups; it has been set to a level to encourage proper parking. The 88% increase in the ware- house fee per square meter would be counterbalanced by a rationalization of the use of space and is justified by the revenues of the beneficiaries and the fee paid by truck-drivers would only affect marginally the benefits of the wholesale vendors. The fee levied on the "brouettiers" would not significantly affect their revenues. Because of the complexity of market operations, however, these estimates should be treated with caution until capacity to pay has been tested in practice (para. 7.12). 6.10 The Sites and Services Component. The affordability of the three schemes has been calculated on the assumption that bet:ween 22% and 25% of beneficiary family revenues would be allocated to the cost of housing and related services costs, including those of water and electricity. Incomes were estimated on the basis of a household survey performed in 1980 and up- dated to March 1982 (Annex 7, Table 5). A cross-subsidy was used to lower the price of land and infrastructure for the smallest lots (by 25% in Les Cayes, and by 20% in Cap HaitierL), and to therefore allow lower-income groups to benefit from the project. The subsidy would be recovered from the larger lots, especially the commercial lots, 206 of which are located in Cap-Haitien and 20 in.Les Cayes. 6.11 In Cap-Haitien and Les Cayes, the overall monthly charge includ- ing the rent of the site, the purchase of the house, all services, finan- cial and management costs, and provision for risks range between Gdes. 6.10 and 26.5 a month, with 94% of the lots costing less than Gdes. 17.2 a month. Despite the cross subsidy and the reduction of standards and costs to minimum levels, households able to afford one room range from those in the 26th percentile (on a 32 m2 lot) to those in the 31st percentile (on a 40 m2 lot) in Cap-Haitien and from the 37th to the 42nd percentile in Les Cayes. However, since 74% of the inhabitants live under the absolute po- verty level, all but about 10% of the lots would be affordable to the ab- solute poor. EPPLS would apply design standards low enough to reach this target population (para. 8.01 (c)). Eligibility 6.12 To avoid encroachment by higher income groups than those intend- ed, several measures are proposed. In the case of the Linthau II scheme in Port-au-Prince, the EPPLS would use an update of the survey of the CDB area residents conducted for the market feasibility study, as a basis to ensure that the beneficiaries were those families being relocated. For all three schemes, EPPLS would conduct careful screening of applicants to determine eligibility on the basis of household income and the need for shelter. After occupancy, anyone wishing to sell a unit would be obliged to offer it to EPPLS first. Finally, since EPPLS would retain, ownership of land, 'higher income encroachment would be discouraged.  -27- VII. PROJECT JUSTIFICATION General Benefits 7.01 The benefits of this project are of two types: specific benefits to individual beneficiaries and indirect benefits or externalities. (a) Concerning the CDB market, specific benefits include those pertaining to the upgrading of the market--i.e. to the truckers, merchants and vendors who would function in an improved environment. The indirect benefits re- garding the CDB upgrading would include: (i) improved sanitary conditions that would benefit the health of the hundreds of thousands of users of the central market; (ii) the same effect on the secondary markets of the metro- politan area as they were progressively incorporated to SAGMAP; and, (iii) reduced congestion and improvement in the functional operation of the en- tire northwest quadrant of the city around the CDB market. (b) Concerning the shelter components, the indirect benefits would include: (i) the effect of improved basic living conditions on productivityl5/ and on health; (with regard to the latter, an average saving of two days per month by pro- ject beneficiaries in the labor force, assuming they earn minimum wages, would produce enough incremental outputl6/ to equal the initial invest- ment); and, (ii) the increase of the above externalities deriving from the improved efficiency and strengthening of the national housing agency, which through adopting realistic standards and policies would make it possible to provide growing numbers of the low- and very low-income population with better housing. Economic Costs and Benefits 7.02 The CDB Market. The economic analysis is based on costs and benefits estimated for a period of 15 years and not for the full 50 year life of the project, because of the uncertainties associated with such a lengthy period. The analysis focusses on quantifiable benefits directly linked to improvements in the physical conditions of the market, and there- fore to the commercialization process. It assumes an average 2% reduction in deteriorated goods sold at a discount (currently 4% of all goods), dead losses (currently 2% of all perishable goods), and storage losses (current- ly 5%). It also assumes a decrease of 30% in truck unloading delays and a reduction of congestion in the Croix-des-Bossales area on the basis of es- timated vehicle operation costs. 7.03 The project costs taken into account are: (a) All investment costs, excluding taxes; the opportunity cost of unqualified manpower esti- mated at half a minimum salary; the cost of all qualified personnel; the cost of land situated between the highly priced commercial center and the expanding harbor (calculated at twice its current real estate value of US$14 m2); and, (b) Operating expenses for which financial costs were used except for the unqualified manpower which was shadowpriced at half of the minimum salary. The economic rate of return is 13%. 15/ See Burns & Grebler, Housing the Nations, 1977, although it applies more to company towns. 16/ Discounted at the opportunity cost of capital.  -28- 7.04 Sites and Services Component. An economic evaluationr was made for each of the sites and services schemes, representing 8105% of the total cost of the shelter component. Costs and benefits were estimated in corn stant 1982 prices, taxes and transfer payments excluded. The benefits in cluded in the analysis are: (a) imputed rental value which -in the eb-ne of a market for low income housing was represented by the annuity p&_f, beneficiaries;17/ and, (b) the valorization of the serviced urban land; conservative estimates were made by the appraisal mission derived from the observation of existing developments in Port-au-Prince with access to similar service levels. Valorization was estimated at US$25 per m2 of- dwelling area; this value was imputed annually at 7% of the acquired land value. The benefits included in the analysis do not measure consumer SUr- plus, or the value of service to the consumer beyond its commercial value (in particular health benefits arid the possible benefits associated witth subleasing). 7.05 The project costs included were: (a) Estimated market value ,o land used for the sites and services component; (b) Earthworks ard con- struction; costs of manpower shaelowpriced to reflect unemployment in the various categories of workers in the cities concerned: the resultinrg econ- omic manpower cost, estimated at half of its financial cost; (c) Planning, detailed engineering, supervision and administrative expenses of EPPLS; and, (d) All on-site and off-site infrastructure including water, sewerage, drainage, electricity and roads. The cost of communit:y facilities was ex- cluded because of the difficulty of quantifying their benefits. The eco- nomic rates of return are 24% for Linthau II in Port-au-Prince, 18% :or Lns Cayes, and 11% for Cap Haitien. Annex 7, Table 7 shows the cost andc bene- fit streams. Poverty Impact 7.06 CDB Market Upgrading. About 86% of the benefits related to im- proved sanitary conditions and commercialization operations would accrue to the poor, as well. as some 37% of the benefits linked to traffic improvement and decongestion. As in the case of the costs and benefits mentioned above, it can be assumed that about 85% of the nonquantifiable benie^its (described in para. 7.01) would go to the urban poor. 7.07 Sites and Services. Given the difficulty of establishing an up- dated level of absolute poverty in Cap-Haitien and in Les Cayes, the rela- tive poverty threshold was used for the poverty impact analysis. This provides a very conservative estimate of the poverty impact: as is noted in para. 1.03, it was estimated in 1976 that in secondary cities, 60% of the Haitian population lived under the relative poverty threshold and 74%' lived in absolute poverty. The table below shows the percentage of benefits and costs goinig to the poor: 17/ This addresses the value of shelter alone on totally unserviced land- which is not uncommon. The valorization is applicable to serviced land. This distinction was necessary given the unavailability cf ade- quate comparators in Haiti.  -29- Poverty Impact Percent Impact on Poor Scheme Benefits Costs Linthau II 80 60 Cap-Haitien 75 62 Les Cayes 59 42 7.08 The sites would provide housing to a poor population of more than 9,500. Given the virtual lack of adequate housing and services available to this category of population in urban areas, demand for housing is prac- tically equal to the number of poor families. These are estimated to be over 8,000 in Cap-Haitien, 3,600 in Les Cayes, and 115,000 in the Port-au- Prince metropolitan area where Linthau II is located. Population growth will create a demand for respectively 1,800 and 1,000 dwellings in Cap- Haitien and Les Cayes, between 1980 and 1985 of which 1,080 and 600 will concern poor families (see Annex 7, Table 6). In Cap-Haitien, 48% of the demand for dwelling construction for the poor between 1980 and 1985 (and a third of the overall demand) would be satisfied by the project. In Les Cayes, the proportions would fall respectively to 30% and 20%. Environmental Impact 7.09 The consultants preparing both the market and sites and services components included analyses of the ecological impact of the project in their studies. The proposed project incorporates protective measures for *the vegetation and water resources and includes comprehensive proposals to mitigate the environmental impact of both the market and sites and services components as well as in the former case, the control of pests and dis- eases, all within the financial constraints of the project. Project Risks 7.10 Any new program involving a decisive change in public policy, such as in the case of the shelter component, necessarily carries certain risks. These would include continuity of Government support, fiscal abili- ty of the Government to meet counterpart financing requirements, and the capacity of the executing agency. The project design has taken these risks into account as much as possible, and they are deemed acceptable. The Government has shown a serious commitment to the proposed project over three years of project preparation. Safeguards to detect and respond to problems with the executing capacity of the EPPLS have been built into the project--including considerable technical assistance for strengthening the institution. 7.11 The establishment of SAGMAP implies a new approach to public administration in the metropolitan area. This also involves a certain number of risks. However, the design of the institution takes into account the-local constraints of human and institutional resources on the one hand,  -30- and on the other, permits the recruitment of qualified managers and pro- vides them with adequate decision miaking power. Also, there are recent en- couraging experiences in IDA involvement with the public sector, such as is the case of power projects. Problems related to the construction of the market would be minimized by the Project Implementaticon Unit in MPW, with clearly identified responsibilities and access to higher levels of Govern- ment and to technical assistance. Future project benefits could be reduced if the second phase of the CDB were not undertaken within a few years after completing the project supported first phase. The profits generated by SAGMAP are estimated to allow for the upgrading and incorporation of the other secondary municipal markets. However, the construction of the new wholesale market, as well as the relocation of the transport terminal, will require additional Government borrowing.. 7.12 For both components, there is a risk that lower-income beneficia- ries may not be able to afford the levels of payments required to achieve the intended level of cost recovery. This has proven to be a problem in the IDA-assisted provincial city water supply project. While the Govern- ment has demonstrated its willingness to increase its budgetary support under that project to achieve the objectives of improving health conditions in secondary cities and can be expected to do likewise if similar problems are encountered by SAGMAP or EPPLS, it must be recognized that severe fisc- al constraints would limit its ability to proceed with other urgent invest- ments. The importance of improving fiscal revenues and the critical defi- ciencies addressed by the project fully justify acceptance of this risk. VIII. R_ECOMMENDATIONS 8.01 At negotiations, assurances were received by Government on the following matters:18/ (a) The Government would assume the foreign exchange risk and would extend funds for the on-site infrastructure and shelter compo- nents of the sites and services component to the EPPLS at an in- terest rate of 4% p.a. for 25 years (SAR 4.04; CA 3.02 (b) (i)). For the off-site infrastructure, community facilities and office facilities components of the sites and serviLces component, the Government would make funds available to EPPLS as a grant (SAR 4.03 (b); CA 3.02 (b) (ii)). For the upgrading of the market, the Government would make funds directly available to SAGMAP through the Ministry of Public Works as an equity investment (SAR 4.03 (a); CA 3.02 (d)). For institutional development, the Government would make the funds available to SAGMAP and EPPLS as grants (SAR 4.03 (c); CA 3.02 (b) (ii)). (b) The Government would establish two Special Accounts into which would be deposited amounts of US$0.5 million (SAR 5.12; CA 2.02 (c)-(g)); and US$1.0 million (SAR 5.12; SFA 2.02 (c)-(g)); and from which funds would be disbursed on the basis of fully docu- mented withdrawal applications. 18/ References in parentheses are ito relevant paragraphs of the Staff Ap- praisal Report (SAR), the Credit Agreement (CA), the Special Fund Agreement (SFA), and the Project Agreement (PA).  -31- (c) EPPLS would apply construction standards commensurate with the ability to pay of prospective purchasers, such standards to be satisfactory to IDA (SAR 6.11; PA 2.08 (a) (i)). EPPLS would lease the lots and sell the dwelling units at levels permitting the recovery of all on-site costs (SAR 6.08; PA 2.08 (a) (ii)). EPPLS would finance the lease of the lots and the sale of the dwelling units under contracts establishing for a repayment pe- riod of 25 years and an interest rate on the outstanding balance of 8% per annum for lots located in Port-au-Prince and 6% per an- num for lots located in secondary cities (SAR 6.08; PA 2.08 (a) (iii)) and EPPLS would obtain from the purchasers of the dwelling units a mortgage guarantee (SAR 6.08; PA 2.08 (a) (iv)). These interest rates would be reviewed on a yearly basis in order to determine their impact on the financial viability of the agency (SAR 6.08 (a); PA 2.08 (b)). (d) SAGMAP would balance its revenues by modifying its fee structure to fully cover operations, maintenance costs, depreciation and generate a level of profits necessary to gradually upgrade and incorporate the rest of the municipal markets in the metropolitan area (SAR 2.04). To this effect it would maintain a working ra- tio (expenses/revenue) not greater than 0.9 (SAR 6.02; CA Sched- ule 5 (m)). SAGMAP would establish its fee schedule prior to starting CDB operations (SAR 6.07, CA Schedule 5 (m)). (e) SAGMAP and EPPLS would maintain appropriate accounting systems (SAR 5.14; CA Schedule 5 (g) and PA 4.01). During implementa- tion, separate project accounts would be kept by EPPLS for sites and services and technical assistance to the Ministry of Public Works (PIU),for the market construction, and SAGMAP for institu- tional assistance (SAR 5.14; CA 4.01 (b); Schedule 5 (s); and PA 4.02 (a)). In addition, the above agencies would provide IDA with regular progress reports for the duration of project execu- tion (SAR 5.12; CA 3.04 (b); SFA 3.05 (b)). (f) The EPPLS, MPW/PIU and SAGMAP would arrange for annual indepen- dent audits of the accounts mentioned above; these agencies would submit such audits to the Association not more than four months after the close of the fiscal year. (SAR 5.14; CA 4.01 (b) (iii); Schedule 5 (s); and PA 4.02 (c)). (g) Not later than four months after the end of their fiscal year, the Government would provide to the Association the results of an audit of the Special Accounts carried out by independent auditors suitable to the Association (SAR 5.14; GA 4.01 (b) (iii); SFA 4.01 (g) (iii)). (h) The EPPLS and SAGMAP would consult with IDA prior to undertaking any investment expansion plans beyond, respectively, US$1 million and US$2 million (SAR 6.03 and 6.05; CA Schedule 5 (n); PA 3.04). (i) The Government would reserve 16 ha. of land at the Chancerelles military airport for the future wholesale market, by transferring the property to SAGMAP no later than December 31, 1983 (SAR 3.03; CA 3.05 (b)).  -32- (j) The Government shall utilize the existing facilities of the &are Macdonald as a passenger transport terminal (SAR 3.07; GA 3.05 (c) - (k) The borrower shall exchange views with the Association Th March of each year on the proposed budget allocations for the project and prior to August 15 of each year on the adequacy thereof (SAR 5.10; CA 3.01 (b)). (1) SAGMAP/SCUD, PIU and EPE'LS would contract the technical asistance services within 18 and 3 months after cred:Lt signature, respec- tively (SAR 2.09, 2.17; CA Schedule 5 (b); PA 2.02). (m) EPPLS and the relevant sectoral agencies anl utilities would en- ter into agreements sat:isfactory to IDA, c.oncerning the proce- dures for operating, maintaining, and recovering costs of all facilities, infrastructure networks, and equipment transferred to them by the EPPLS (SAR 5.07; PA 2.09). (n) Prior review by IDA would be required for bidding documents for all contracts, as would be bid evaluations before the awarding of the respective contracts. IDA would review and approve t:he bid evaluations for all contracts above US$250,000 (SAR 5.10; CA Schedule 3 (D) (1); PA 2.03). All others would be reviewed on the basis of Statements of Expenditure procedures. (o) SAGMAP and the relevant sectoral agencies would enter into sepa- rate agreements satisfactory to IDA concerning support services for the market (SAR 5.07; CA Schedule 5 (u)). (p) SAGMAP and EPPLS would ensure that at all tiLmes through the life of the project key managerial positions would be occupied by com- petent individuals acceptable to IDA (SAR 5.05: CA Schedule 5 (o), (t); PA 3.01). 8.02 In addition, the following would be special conditions f-or ef- fectiveness: (a) The establishment of SAG:MAP, (SAR 2.04; CA 6.01 (b)); (b) Execution of the subsid:iary agreements between EPPLS and SAGMAP and the Government (SAR 4.04; CA 6.01 (a), (b)); and (c) Opening of the two Special Accounts in an appropriate bank (SAR 5.12; CA 2.02 (c)-(g) and 6.01 (c); SFA 2.02 (c)-(g) and 6.01 (b). 8.03 Subject to the above assurances and conditions, the projiect is suitable for an IDA credit of US$21.0 million to the Government of Haiti.  -33- ANNEX 1 Page 1 of 1 HAITI URBAN DEVELOPMENT PROJECT List of Documents in Project File L. Decree transforming the ONL into the EPPLS (Public Enterprise for the Promotion of Public Housing), Port-au-Prince, November 1982. 2. Institutional Diagnostic of the ONL, IDET-CEGOS, S.A., Suresnes, May 1980. 3. Institutional support study, SEMA, Montrouge, 1982. 4. Feasibility study for the upgrading of the Croix-des-Bossales market, Lavalin, Port-au-Prince/Montreal, 1981. 5. Feasibility study for a sites and services program in Cap-Haitian and les Cayes, TECINA/Groupe Huit, Port-au-Prince, 1981. 6. Master Plan for the northwest zone of Port-au-Prince, KfW/CHF, Port-au-Prince, July 1982. 7. Urban Employment and Economy, IDA Appraisal mission, Washington, D.C., September 1982. 8. EPPLS Project File, prepared by EPPLS, Port-au-Prince, January 16, 17, 18, 1983 9. EPPLS and SAGMAP financial projections, IDA Appraisal Mission, February 1983.  -34- ANNEX 2 HAITI URBAN DEVELOPMENT PROJECT Detailed Cost Tables TABLE 1: Summary of Investment Schedule Sites and Services Components TABLE 2: SAGMAP Summary Cost Table  HAITI URBAN DEVELOPMENT PROJECT TABLE 1: SUMMARY OF INVESTMENT SCHEDULE-SITES & SERVICES COMPONENTS: HAITI URBAN I PREVIOUS 1982 1983 1984 1985 1986 TOTAL - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -COSTS CHECK- 7 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 COMPONENT A4 LAND ACGUISITION STATE PROPERTY 30.00 0.00 0.00 0.00 0.00 0.00 0.00 0 .00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 38.00 PRIVATE 46,42 0.00 00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.80 0.00 0.00 0.00 0.00 0.00 0.00 46.42 EXTENSION 16.05 0.00 0.06 0.00 0.00 0.00 0.00 0..0 0.00 0.00 0.00 0.OV 0.00 0.00 0.00 0.00 0,00