Mexico - Solid Waste Management Pilot Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15896 IMPLEMENTATION COMPLETION REPORT MEXICO SOLID WASTE MANAGEMENT PILOT PROJECT (LOAN 2669-ME) July 3, 1996 Environment and Natural Resources Leadership Group Mexico Country Department Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in (he performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency unit New Mexican Peso (N$) US$1.00 Mex$367 (December 1985) US$1.00 N$7.58 (July 2, 1996) FISCAL YEAR January I - December 3 1 WEIGHTS AND MEASURES One Hectare (ha) = 10,000 square meters One Metric Ton (mt) = 2,200 pounds One Metric Ton (mt) = 1,000 kg One Kilometer (km) = 0.6215 miles One Kilometer (km) = 1,000 meters One Cubic Meter (m3) = 1,000 liters One Liter = 1,000 milliliters ABBREVIATIONS AND ACRONYMS USED BANOBRAS Banco Nacional de Obras y Servicios Publicos (National Development Bank for Public Works and Services) FORTAMUN Programa para Fortalecimiento Municipal (Municipal Strengthening Program) PFPA Procuraduria Federal de Protecci6n del Ambiente (Office of the Attorney General for the Protection of the Environment) SEDESOL Secretaria de Desarrollo Social (Secretariat for Social Development) SEDUE Secretaria de Desarrollo Urbano y Ecologia (Secretariat for Urban Development and Ecology) SHCP Secretaria de Hacienda y Credito P[blico (Secretariat of Finance and Public Credit) TCU Technical Coordination Unit  IMPLEMENTATION COMPLETION REPORT FOR OFFICIAL USE ONLY MEXICO SOLID WASTE MANAGEMENT PILOT PROJECT (Loan 2669-ME) Table of Contents Preface ..............................................i Evaluation Summary ............................................... i-iv PART I: PROJECT IMPLEMENTATION ASSESSMENT I . Introduction ................................................1 2. Statement/Evaluation of Objectives ................................................ I 3. Achievement of Objectives ...............................................3 4. Implementation Record and Major Factors Affecting the Project ........................................... . 6 5. Project Sustainability ................................................7 6. Bank Performance ................................................7 7. Borrower Performance ...............................................8 8. Assessment of Outcome ...............................................9 9. Future Operation ................................................ 10 10. Key Lessons Learned ................................................. 10 PART II: STATISTICAL TABLES Table 1: Summary of Assessments Table 2: Related Bank Loans/Credits Table 3: Project Timetable Table 4: Loan Disbursements: Cumulative Estimated and Actual Table 5: Key Indicators for Project Implementation Table 6: Key Indicators for Project Operation Table 7: Studies Included in the Project Table 8: Project Costs Table 9: Project Financing Table 10: Economic Costs and Benefits Table 11: Status of Legal Covenants Table 12: Compliance with Operational Manual Statements Table 13: Bank Resources: Staff Inputs Table 14: Bank Resources: Missions APPENDICES A. Aide-Memoire of Mission B. Borrower's Final Implementation Report T,s 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. l   IMPLEMENTATION COMPLETION REPORT MEXICO SOLID WASTE MANAGEMENT PILOT PROJECT (Loan 2669-ME) Preface This is the Implementation Completion Report (ICR) for the Solid Waste Management Pilot Project in Mexico, for which Loan 2669-ME in the amount of US$25.0 million equivalent was approved on March 25, 1986 and made effective on September 10, 1986. The Loan was closed on June 30, 1995. Final disbursement took place on October 11, 1995, at which time a balance of US$7.3 million was canceled. The ICR was prepared by John Stein (Task Manager) supported by Edgard Martinez (Consultant) and reviewed by Theodore Nkodo (Sector Leader) of the Environment and Natural Resources Sector Leadership Group of the Latin America and Caribbean Region. Preparation of this ICR was begun with a mission of the consultant to Mexico during the Bank's final supervision/completion mission in July 1995. The mission's Aide Memoire is included as Appendix A. The ICR is based on material in the project file and discussions with Bank staff and representatives of the Borrower. The Borrower contributed to the preparation of this ICR by submitting a Final Implementation Report on the project with an evaluation of the project's execution which is included as Appendix B.   IMPLEMENTATION COMPLETION REPORT MEXICO SOLID WASTE MANAGEMENT PILOT PROJECT (Loan 2669-ME) Evaluation Summary Introduction 1. Urbanization has been expanding at a rapid rate in Mexico, with growth especially strong in many intermediate and secondary cities. The increasing need for providing more extensive urban services, combined with the ongoing process of decentralization, has placed significant demands on local authorities. The solid waste subsector was, and remains, largely undeveloped and is an important source of environmental concern. With collection, transfer and disposal of solid waste inadequate in most Mexican cities, the Government sought the Bank's support in the mid 1980s for a pilot effort to develop policy and strategy for the subsector and assist municipalities to improve service provision. The project was to build on the approach utilized for the water sector of directed credit through Mexico's urban infrastructure Bank (BANOBRAS), with technical support from SEDUE, the Secretariat for Urban Development and Ecology (now SEDESOL). This dialogue resulted in a Bank loan of US$25 million equivalent, approved in March 1996, for the Solid Waste Management Pilot Project (Loan 2669-ME). Project Objectives 2. The stated objectives of the project were to: (i) assist the Government to more clearly define subsector objectives and policies and develop national and local institutional capabilities to improve subsector management; (ii) improve subsector services through pilot/demonstration subprojects; (iii) reduce public health risks and improve environmental conditions in selected cities; (iv) test and evaluate alternatives for promoting cost savings, providing training and channeling funds in the subsector; (v) help national and local governments to fully understand solid management costs and to develop a basis for cost recovery of solid waste services; and (vi) provide an adequate basis for preparing full-scale solid waste management improvement projects. The project's objectives were appropriate to the subsector at its stage of development and in the context of Mexico's decentralization process. Implementation Experience and Results 3. The project was modestly successful in heightening the awareness of policy makers and national and local government officials within Mexico of the issues involved in managing the solid waste subsector. It also was effective in defining policies for the subsector and preparing full-scale integrated solid waste management plans which were supported by a  ii follow up project with the Bank. The project did not significantly improve the operations of the solid waste subsector or environmental conditions, nor did it develop replicable models for solid waste management or cost recovery. Most of the risks identified at appraisal materialized during implementation. Coordination remained poor between the project units in SEDUE and BANOBRAS. Multiple financing windows at the federal level competed with the project's financing which led to lower demand for subloans. Demand was also reduced during periods of economic difficulties accompanied by high interest rates, and public expenditure cuts which made counterpart funds scarce. Only two of the original eight municipalities evaluated in the Staff Appraisal Report (Monterrey and Merida) ended up participating in the project. Monterrey, which was the largest subproject financed, accounted for 34% of total costs of the pilot component. The change in interest of cities originally selected for the project was due to both difficult economic conditions in Mexico and changes in local government administrations that affected investment priorities. Subsequently, other subprojects had to be found and evaluated to replace them. 4. Slow progress in the development of a framework of adequate regulations and their enforcement for solid waste management at the federal, state and local levels, and the inability to obtain sufficient technical and managerial capacity in solid waste operations, including the participation of the private sector, are the most significant factors in the failure to improve subsector performance. Municipalities are wholly responsible for solid waste management as defined in the Mexican constitution. Thus, federal enforcement is minimal and is largely indirect, occurring through regulations governing toxic emissions such as leachates and methane gas. Even this area has not received sufficient enforcement attention from the federal environmental enforcement officials. 5. The Bank's performance during preparation and appraisal was generally satisfactory. During supervision it was less effective. The Bank correctly highlighted the sector policy issues, and a considerable unanimity of views was developed between the Bank, the Government and the sector institutions on the problems of municipal solid waste development that were to be addressed by the project. Cost recovery, however, was not given sufficient weight in individual subproject design, which later became the major factor impeding the sustainability of the investments financed. The Bank's supervision effort was, on balance, deficient, owing to frequent task manager and staff turnover, short duration and infrequent missions, and an insufficient field presence despite the local nature of many implementation difficulties and the project's decentralized focus. Supervision was strengthened once the project entered problem project status and an agreement was reached with the Government to develop a more effective approach based on the lessons learned from the pilot. 6. Borrower performance was generally unsatisfactory, affected through much of the implementation period by inadequate counterpart funding and, consequently, insufficient staffing in the Technical Coordination Unit (TCU) in SEDUE. Organizational and coordination problems plagued the project beginning shortly after loan effectiveness. It was never clear which agency was responsible for technical quality and the financial soundness of the proposed investment schemes since SEDUE's and BANOBRAS' responsibilities overlapped. Neither the Borrower nor the executing agency devoted adequate resources to the supervision of the subprojects. Reliance on SEDUE/SEDESOL and BANOBRAS field personnel was made difficult by the frequent mismatch  iii between the skills of such personnel and the needs of the project. Many of the state delegates of BANOBRAS and SEDESOL were political appointees and were not supported by technical staff. Summary of Findings, Future Operation and Key Lessons Learned 7. It is unlikely that improvements introduced by the project will be sustainable, and the outcome of the project must be judged as unsatisfactory. The 14 investment subprojects financed under the project have had mixed results, due in large part to the unresolved issues facing the sector and to local difficulties, especially because of changes in administration, in instituting serious financial and technical reform. The project was not successful in helping local governments to filly understand and develop a basis for cost recovery of solid waste services. All participating municipalities were able to attain some degree of improvement in their collection service, but again, the lack of proper cost recovery schemes as well as ongoing issues of municipal overstaffing, poorly designed collection routes and inadequate community participation have undermined the potential for success. On the positive side, public awareness campaigns organized under the national component were effective in spurring waste reduction in Queretaro, Monterrey, Mazatlan, Chihuahua and Tequisquiapan. Some of the public education campaigns which were organized have generated some cost-savings by reducing the need to clean clandestine dumps and streets. 8. The project was more successful in laying the basis for a more intensive dialogue on the sector with the Bank and for development of a second project (Second Solid Waste Management Project - Loan 3752-ME) which addressed the deficiencies of the pilot project. The experience with the pilot project was essential for defining the core approach of the second project which included: an integrated approach to investment with integrated plans prepared for 25 cities; support for development of standards and regulations for solid waste management at the federal, state and local levels; the requirement for sound cost recovery once investments were completed; and the incorporation of the social aspects of solid waste management -- i.e. scavengers -- into investment designs. Unfortunately, the occurrence of another economic crisis in late 1994, which resulted again in a cycle of limited counterpart funds, high interest rates, and reduced borrowing capacity by municipalities, raises questions about the desirability of attempting to tackle the problem of municipal services and environmental protection through projects whose frameworks are national in scope and depend on a coincidence of interests and approach of federal agencies and local authorities. An alternative arrangement of dealing with individual municipalities/cities would likely be preferable although this approach had not be selected in the past due to the advantage of scale, the disadvantage of higher transaction costs for the Bank, and the current extemal borrowing policy of Mexico which requires the federal govermment to be the borrower of external funds. 9. There are five main lessons learned from project execution. First, complex institutional arrangements, which have impeded the success of many Bank projects, should be avoided in project design. Multiple agency involvement dilutes the focus of accountability and subjects the project to competing agendas and objectives that better coordination does not necessarily solve. Second, the Bank will need to develop stronger relationships with clients at the local level in order to become more effective. The use of federal agencies to assist local govemments has not been an effective means to tackle this problem. Third, a comprehensive, rather than piecemeal, approach must be taken in modernizing municipal solid waste systems.  iv The pilot project's ultimate focus mainly on physical investments resulted in most investments being unsustainable, ignoring important financial, environmental and social impacts. Fourth, the introduction of cost recovery practices is essential to guarantee adequate resources for operations and maintenance, and to contribute to investment. Without such schemes in place, attracting the private sector for both management expertise and investment financing will not be achieved as the current situation in Mexico today demonstrates. Fifth, without some type of enforcement pressure, municipalities will be prone to continue to muddle along with the quality of existing solid waste services. Public clamor for better services has not yet reached a high enough pitch to prompt change. The federal government will need to strengthen its enforcement efforts in parallel to the strengthening of enforcement by agencies at the state level. To be effective, such controls will require a harmonized system of regulation among all levels of government.  IMPLEMENTATION COMPLETION REPORT MEXICO SOLID WASTE MANAGEMENT PILOT PROJECT (Loan 2669-ME) PART I: PROJECT IMPLEMENTATION ASSESSMENT Introduction 1. Urbanization in Mexico has been expanding at a fast rate, with over 60% of the population living in urban areas. Growth rates have been particularly sharp in many intermediate and secondary cities. Growing demand for urban services combined with continuing reforms to enhance the participation of local governments in the provision of these services and in the protection of the environment, have placed increasing responsibility on municipalities. A key subsector where service provision has remained undeveloped and environmental impacts have become significant is solid waste management. 2. Collection, transfer and disposal of solid waste are inadequate in most cities in Mexico. Of the solid waste generated (over 60,000 tons per day), it is estimated (1994) that only two percent is disposed of properly, mainly due to poor management or absence of sanitary landfills. The principal impediments to development of the subsector have been: weak institutions at the federal, state and local levels; limited availability of professional staff with adequate technical, financial and managerial skills; an undeveloped regulatory framework and inadequate analysis and monitoring of environmental impacts of solid waste investments; insufficient service coverage and lack of controlled final disposal which has led to clandestine dumping; and little or no cost recovery to maintain sustainable operations or contribute to investment. 3. Building on the approach developed for the water sector which appeared to yield positive results, i.e. directed credit to municipalities through Mexico's development bank for urban infrastructure (Banco Nacional de Obras y Servicios Pzublicos - BANOBRAS) supported by the relevant federal technical agency, the Government requested the support of the Bank to initiate a similar pilot effort to assist municipalities in managing solid waste services through the Solid Waste Management Pilot Project (Loan 2669-ME). The project was supported with a Bank loan of US$25 million equivalent, approved in 1986. Statement/Evaluation of Objectives 4. The project's objectives were to: (a) assist the Government to more clearly define subsector objectives and policies and develop national and local institutional capabilities to improve subsector management;  2 (b) improve subsector services through pilot/demonstration subprojects; (c) reduce public health risks and improve environmental conditions in selected cities; (d) test and evaluate alternatives for promoting cost savings, providing training and channeling funds in the subsector; (e) help national and local governments to fully understand solid management costs and to develop a basis for cost recovery of solid waste services; and (f) provide an adequate basis for preparing full-scale solid waste management improvement projects. 5. The project's objectives were to be met through two components: