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Report No.: AB6560
OSE Response to Climate Change
Project Name
Latin American and the Caribbean
General water, sanitation and flood protection sector
Lending Instrument
Project ID
{If Add. Fin.} Parent Project ID
Administración de las Obras Sanitarias del Estado (OSE)
Administración de las Obras Sanitarias del Estado (OSE)
Implementing Agency
[ ]A [ X ]B [ ]C [ ]FI [ ]TBD (to be determined)
Environmental Screening
Date PID Prepared
Estimated Date of Appraisal
Estimated Date of Board
The review authorized the preparation to continue.
Concept Review Decision
Other Decision {Optional}
Introduction and Context
A. Country Context
Uruguay is known for its high literacy rate, large urban middle class, advanced education
and social security systems, and relatively even income distribution. The country benefits from a
growing tourist industry and export of livestock, but dependence of foreign markets, especially
Brazil and Argentina, have left it vulnerable to the world economy. Uruguay has managed to
decrease its vulnerability after the 2001-2002 financial crisis through a combination of macrofinancial policy framework and sounder global integration. As a result, the economy grew by an
average of 6.6 percent between 2004 and 2008, reducing unemployment to 8 percent (from 13
percent) and poverty to 25 percent (from 42 percent). During the 2008-2009 crisis, the country
managed to avoid a recession and kept positive growth rates. The GDP in 2010 exceeded 7
percent and current projections estimate an annual long-run growth of about 4 percent during the
rest of the decade.
To consolidate the positive economic and social outcomes achieved so far, the current
administration has identified in its 2010-2015 National Budget the following key priorities with a
strong focus on results: (i) strengthening competitiveness through increased coverage, better
quality of infrastructure and a more conducive business environment; (ii) expanding and
improving the impact of social service delivery with an emphasis on education; iii) enhancing
productivity, income and job generation in the agriculture and food sector; (iv) protecting the
environment by mitigating and adapting to the effects of climate change; and v) improving
security of citizens. The 2010-2015 Country Partnership Strategy (CPS) covers the years 20102015 and is aligned with the country’s development vision.
B. Sectoral and Institutional Context
Supported by the World Bank-financed OSE Modernization and System Rehabilitation
Adaptable Program Loan (APL), OSE has evolved from a vulnerable, inefficient utility to a
confident and capable company. As Uruguay is no longer content comparing itself to countries in
the region and has turned its sights toward developed countries, OSE is no longer content
comparing itself to the average regional water utility and has turned its sights toward top regional
utilities. To play in this league, however, OSE needs to address multiple challenges- from
maintaining universal coverage and the high quality of its services to expanding wastewater
collection and treatment, as well as revamping and replacing aging infrastructure. This challenge
is consistent with the Government’s vision of Uruguay’s future, of its role within MERCOSUR,
and its opening to the world.
OSE’s delivery of water supply and sewage services is exemplary in the region but its
efficiency is still lacking significantly. Despite recent accomplishments, water losses remain very
high, labor efficiency continues below regional best practices and tariff collection levels are still
sub-optimal. Consolidating OSE’s modernization and completing the rehabilitation of its systems
remains critical to its sustainability as well as developing and implementing additional
innovative policies. Climate Change (CC)-related initiatives are priority among these policies as
repeated, severe droughts and floods as well as the forecast of increased extreme weather have
brought a new set of challenges to OSE’s provision of services. How OSE responds to the
challenge of CC will be fundamental to its sustainability.
To that end, in 2009 the Government created a National Response System to Climate
Change (NRSCC) under the Ministry of Housing, Land Management and Environment
(MVOTMA) with co-participation of the public and private sector. In 2010, the NRSCC
launched the National Plan of Response to Climate Change (NPRCC), defining clear strategic
actions to address climate change by focusing on mitigation, adaptation, and capacity building.
Climate change is also inserted in Uruguay’s legal framework in various instruments, such as the
Environmental Protection Law (2000), the Land Use and Sustainable Development Law (2008),
the Water Law (2009), National System Emergency Law (2009), and the Energy Efficiency Law
(2009). OSE has also shown its commitment to climate change in its 2010-2015 Budget Plan.
C. Relationship to CAS
An innovative project with a long-term, competent partner that supports cutting-edge
climate change and sustainability efforts is highly attractive to the Bank, Uruguay and OSE. The
proposed operation, a continuation of a 25 years partnership between the Bank and Uruguay’s
Water and Sanitation sector, is consistent with the 2010-2015 CPS as it supports two of its four
development pillars: (i) Improvement of Competitiveness and Infrastructure and (ii)
Environmental Protection, Mitigation of Climate Change Effects, and Strengthening Family
Agriculture. The project is also consistent with the 2011 LCR Regional Strategy for small upper
income countries in two strategy areas: Global Involvement and Guardian against Disasters.
Finally, the Bank can bring global knowledge to help design and implement a climate change
strategy and use its convening power to facilitate dialogue among stakeholders. Through southsouth and north-south exchanges facilitated by the Bank, Uruguay can gain access to other
utilities doing similar work, while providing an opportunity for OSE and the Bank to showcase
innovation in the region.
Proposed Development Objective(s)
A. Proposed PDO
The project development objective is to support OSE’s adaption to climate change by
increasing the resilience of existing and future water supply and sanitation systems.
B. Key Results Indicators
The preliminary PDO indicators (values to be determined during preparation) are: (i)
OSE has institutionalized and is implementing a climate change strategy; (ii) OSE has increased
its volume of reliable potable water.
Preliminary Description
A. Concept
1. Description
The proposed project is based on OSE’s need for a holistic approach to respond to
climate change, through looking at adaptation and mitigation measures along a spectrum of
engagements. These engagements include investments in water supply and sanitation systems,
monitoring and planning, and stakeholder involvement. The project also focuses on institutional
and public engagement, as well as knowledge-based activities to strengthen local capacities and
enable sustainability. The investment loan would be centered on strengthening OSE’s ability to
adapt to climate change by reducing water supply and sanitation vulnerability while contributing
to the nation’s mitigation efforts to reduce green house gasses (GHGs). To that end, OSE will
apply a disaster risk management approach combining climate change science with local
conditions to assess existing systems and new infrastructure investments.
Considering the project’s climate change optic, the new investment loan is more
appropriate than to continue implementing the APL. However, the proposed project will draw
from the APL institutional renewal and unaccounted for water programs, consolidating OSE’s
modernization objectives. The total cost of the proposed project has been estimated at US$100
million and the World Bank loan has been tentatively set at around US$60 million. A brief
description of the components follows:
Component one – Investing in Climate Change Adaptation and Mitigation Measures
(about US$50 million). This component would finance short-term measures (also known as the
no regrets)1 to improve efficiency and increase resilience of water and sanitation systems. The
proposed actions include: (i) construction and rehabilitation of water treatment plants affected by
floods; (ii) optimization of wastewater systems; (iii) optimization of groundwater extraction
systems; (iv) equipment renewal and rehabilitation; and (v) reduction of non-revenue water. In
addition, this component includes adoption of measures to help mitigate the onset of climate
change by reducing energy consumption that contributes to the production of GHGs.
Component two - Institutionalizing Climate Change into OSE's service management
and operations (about US$25 million). This component would support incorporating climate
change into OSE’s planning program by financing the development of a strategy with short and
long-term actions based on vulnerability assessments and cost-benefit analysis, including water
demand management, water reuse, and training of OSE’s staff. This component includes
financing for climate change modeling and hydro-meteorological equipment, development of
climate change indicators, and instruments to assist OSE’s public communication efforts and
management’s decision-making process.
Component three - Integrated Watershed Management in the Santa Lucia Watershed
and the Sauce Lagoon (about US$18 million). This component would finance the carrying out
of integrated plans, in collaboration with the Ministry of Agriculture, Livestock and Fishery
(MGAP), the Ministry of Industry, Energy and Mining (MIEM), MVOTMA, the Laguna del
Sauce Watershed Commission, and other key stakeholders, to support the environmental
sustainability of these water bodies that are Uruguayan’s main water source.
Component four – OSE as a Climate Change Observatory for South-South Knowledge
Collaboration (about US$5 million). This component would finance technical assistance to
document and disseminate best practices and lessons learned from preparing and implementing
the project, as well as a series of south-south and north-south exchanges (conferences,
workshops, field visits, etc) to strengthen OSE and other urban utilities in the region to undertake
climate change. Throughout the implementation of this project and with the support of the Bank
knowledge platform, OSE is well-positioned to facilitate knowledge exchange and disseminate
best practices on climate change adaptation and mitigation not only to national and local
government institutions, but also to the Latin American water utility community.
Component five - Project Management (about US$2 million). This component would
provide funding for project management, supervision and engineering support, staff exchanges,
seminars and audits. The current APL2 Project Implementation Unit (Gerencia de Programas
con Financiamiento Externo, PFE) will remain in charge of coordinating all external financing,
including project implementation.
The Intergovernmental Panel on Climate Change defines this as a measure that would generate net social and/or
economic benefits irrespective of whether or not climate change occurs.
Safeguard Policies that might apply
Safeguard Policies Triggered
Environmental Assessment (OP/BP 4.01)
Natural Habitats (OP/BP 4.04)
Forests (OP/BP 4.36)
Pest Management (OP 4.09)
Physical Cultural Resources (OP/BP 4.11)
Indigenous Peoples (OP/BP 4.10)
Involuntary Resettlement (OP/BP 4.12)
Safety of Dams (OP/BP 4.37)
Projects on International Waterways (OP/BP 7.50)
Projects in Disputed Areas (OP/BP 7.60)
Natan Wagner
Program Manger
+598 2 1952 4050
[email protected]
Implementing Agencies
Natan Wagner
Program Manger
+598 2 1952 4050
[email protected]
VII. For more information contact:
The InfoShop
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 458-4500
Fax: (202) 522-1500
Tentative financing
Others (specify)
Contact point
World Bank
Carlos E. Velez
Lead Economist
(202) 473-9329
[email protected]