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PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB6560 OSE Response to Climate Change Project Name Latin American and the Caribbean Region Uruguay Country General water, sanitation and flood protection sector Sector SIL Lending Instrument P118064 Project ID {If Add. Fin.} Parent Project ID Administración de las Obras Sanitarias del Estado (OSE) Borrower(s) Administración de las Obras Sanitarias del Estado (OSE) Implementing Agency [ ]A [ X ]B [ ]C [ ]FI [ ]TBD (to be determined) Environmental Screening Category 04/07/2011 Date PID Prepared 01/15/2012 Estimated Date of Appraisal Completion 03/20/2012 Estimated Date of Board Approval The review authorized the preparation to continue. Concept Review Decision Other Decision {Optional} I. Introduction and Context A. Country Context 1. 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. 2. 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 3. 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. 4. 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. 5. 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 6. 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. II. Proposed Development Objective(s) A. Proposed PDO 7. 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 8. 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. III. Preliminary Description A. Concept 1. Description 9. 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. 10. 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: 11. 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. 12. 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. 13. 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. 14. 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. 15. Component five - Project Management (about US$2 million). This component would provide funding for project management, supervision and engineering support, staff exchanges, seminars and audits. The current APL2 Project Implementation Unit (Gerencia de Programas con Financiamiento Externo, PFE) will remain in charge of coordinating all external financing, including project implementation. 1 The Intergovernmental Panel on Climate Change defines this as a measure that would generate net social and/or economic benefits irrespective of whether or not climate change occurs. IV. Safeguard Policies that might apply Safeguard Policies Triggered Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) Yes X X X X X X X X ($m.) 40 60 Total Borrower/Client/Recipient Contact: Natan Wagner Title: Program Manger Tel: +598 2 1952 4050 Email: [email protected] Implementing Agencies Contact: Natan Wagner Title: Program Manger Tel: +598 2 1952 4050 Email: [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 Web: http://www.worldbank.org/infoshop TBD X X V. Tentative financing Source: Borrower/Recipient IBRD IDA Others (specify) VI. Contact point World Bank Contact: Carlos E. Velez Title: Lead Economist Tel: (202) 473-9329 Email: [email protected] No 100