Argentina - Water Sector Reform

Report No. PIC5288 Project name Argentina-Water Sector Reform (+) Region Latin America and Caribbean Sector Other Water Supply & Sanitation Project ID ARPE6046 Borrower The Argentine Republic Implementing Agency Subsecretariat of Water Resources Secretariat of Public Works of the Ministry of Economy and Public Works and Services Hipolito Irigoyen 250, Piso 1, Oficina 1129 Buenos Aires Republica Argentina Mr. Jorge Rais, Subsecretario Phone: 54-1-349 7701 Fax: 54-1-349-7721 Date this PID prepared April 15, 1997 Project Appraisal Date May 28, 1997 Project Board Date August 1997 Country and Sector Background: According to the 1991 census, about 72t of the urban population in Argentina was connected to a water network, and about 38t to a conventional sewerage system, lower than the average for Latin America. Public management of water utilities have been plagued by low technical and operational capacity, overstaffing, commercial and financial inefficiency. During the 1980s, their capacity deteriorated even faster as Argentina's external debt problems and hyperinflation led to sporadic adjustment programs that drastically reduced wage levels, investment programs, and even maintenance efforts. Employees became demoralized, and the quality of services was greatly diminished. All these resulted in slow investment, and created a large investment backlog in the sector. In 1990, convinced that the only way to improve public enterprise performance is to undertake a radical reform, the Argentine Government launched a massive and ambitious privatization program, encompassing virtually all public services and federally owned enterprises, including the water sector. The Bank fully supported this effort. The ongoing loans shifted their support to preparatory activities for private sector participation. In the water sector, public water agencies of the provinces of Corrientes, Santa Fe, Formosa, Tucuman and Buenos Aires awarded concessions to private operators. Facing massive investment needs and encouraged by the success of the concession awards, many other provinces and municipalities have decided to pursue the privatization strategy for their water and sewerage systems. Project Objectives: The main objective of the project is to support and consolidate the reform of the water and sanitation  sector in Argentina through increased private sector participation in investments and management of water utilities. Project Description: The project will include two parts: (A) a private sector participation component to finance up to 509 of the first five-year investment plan, including: (i) rehabilitation of pipes, water treatment plants, and connections, and the supply and installation of water meters; (ii) repair/replacement of pumping and control equipment; (iii) supply of emergency and maintenance equipment; and (iv) expansion of water connections in poorer neighborhoods; and (B) a regulatory and management component to: (i) support project management; (ii) carry out training of regulatory agencies; (iii) prepare PSP contracts and regulatory frameworks; and (iv) create a sector information system. Project Financing: The total project cost is estimated to be US$300 million, of which US$180 million will be financed by IBRD, US$100 million by the water utilities and US$20 million by the Government. Project Implementation: The Republic of Argentina will be the borrower, and the Subsecretary of Water Resources/ENOHSA the executing agency. A Project Management Unit (PMU) will be established at ENOHSA. The Subsecretary of Water Resources will provide the policy framework for sector development and overall guidance to the project. The Government through a private financial agency, will make subloans to the private operator in the case of concession, or to the provincial or municipal government in the case of leasing or management contracts. The PMU at ENOHSA will be responsible for reviewing compliance of privatization documents with guidelines prepared by the SSWR, for analyzing specific loan applications, maintaining and updating the sector information system, and for hiring a private financial agent to handle loan administration. Project Sustainability: The project is fully consistent with the Government's strategy to improve overall sector efficiency by transferring water and sanitation services to the private sector. Sustainability will also be supported by the selection of private operators through a transparent competition "for" the market, to reflect the most efficient price to provide water and sanitation services. Lessons Learned: The lessons learned that are reflected in the project design are: (i) investments under the project will respond to realistic demand scenarios and will be focused on rehabilitation of the service capacity of operational infrastructure; (ii) investments and institution-building of utilities will be efficiently implemented by private operators selected competitively; (iii) adequate regulatory frameworks will be operational before PSP takes place; and, (iv) the financial administration of the loan will be carried out by a private financial agency. Poverty Category: The project does not have a direct impact on - 2-  poverty reduction, but it requires specific targets to expand water services in low income areas.. Environmental Aspects: This project is classified as category "B". The project will finance rehabilitation and emergency investments to rehabilitate the service capacity of existing infrastructure. The project will define detailed environmental regulations for the water and sanitation sector to be adopted by utilities. Program Objectives Categories: The project's aims are to improve Economic Management and support Private Sector Development. It will also improve water and sanitation services to low-income populations in participating utilities by establishing specific targets to extend services to poor neighborhoods. Contact Point: Public Information Center The World Bank 1818 H Street N.W. Washington, D.C. 20433 Telephone No.: (202) 458-5454 Fax No.: (202) 522-1500 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by the Public Information Center week ending June 6, 1997. - 3 -  Annex Environmental Assessment The Water Sector Reform Project has been asigned a B category. The subprojects financed under the loan are mostly rehabilitation of water systems and most of the environmental impacts they will have, should be able to be predicted and subsequently avoided or mitigated with common practices. All projects will be subject to an evaluation process, and a methodology to carry out environmental impact analysis has been incorporated into the evaluation methodology. The description of the methodology will be included in the Implementation Manual. A proposal of environmental regulations for the water and sanitation sector has been developed during project preparation and they will be included in provincial regulatory frameworks governing water sector operations and investments. The proposal and the methodology will be further reviewed during appraisal and negotiations. Environmental aspects will be also included in a periodic review of sector compliance to environmental regulations and in ex-post evaluation of a sample of subprojects. -4-