PROJECT INFORMATION DOCUMENT (PID)



PROJECT INFORMATION DOCUMENT (PID)

CONCEPT STAGE

Report No.: AB1751

|Project Name |BR - Bahia State Highway Management Project |

|Region |LATIN AMERICA AND CARIBBEAN |

|Sector |Roads and highways (100%) |

|Project ID |P095460 |

|Borrower(s) |STATE OF BAHIA |

|Implementing Agency | |

| |State of Bahia, Brazil |

| |Departamento de Infra-Estructura de Transporte – DERBA, Brazil |

|Environment Category |[ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) |

|Date PID Prepared |August 11, 2005 |

|Estimated Date of Appraisal Authorization | |

|Estimated Date of Board Approval |July 13, 2006 |

1. Key development issues and rationale for Bank involvement

Key development issues

The state of Bahia, with an area of about 567,000 km2 (the size of France) and a population of 13.4 million accounts for about 7% of Brazil’s – and for over one-third of the Northeast’s - territory and population. The state’s favorable location between Brazil’s Northern and the more industrialized Southern regions, and at shorter maritime distances from Europe and Northern America than these regions as well as the Center-West region, together with appropriate logistics systems, could provide significant competitive advantages to various sectors of the economy. This favorable location is evidenced in a heavy freight transport concentration in two corridors: 50% of all freight transport occurs between Salvador[1] and the southern states (along BR116 and BR101), and 20% occurs between Salvador and the West of the State (along BR242).

Bahia has recently had good economic performance in spite of Brazil’s difficulties. The state’s GDP increased by over 3% p.a. during 1994-2003, when the national GDP increased at an average 2.2% p.a. Bahia is now the sixth largest state economy in Brazil with about 5 % of Brazil’s GDP (around US$25 billion). More importantly, the state made substantial progress toward diversifying its previously commodity-based economy. The primary sector enjoyed the rapid development of forestry for paper and cellulose in the South, soybeans and grains in the West, and fruits and vegetables in the Sao Francisco Valley. The industrial sector has started diversifying by expanding the production of consumer goods based on some of the state’s primary and intermediate products. The service sector, and particularly the tourism industry, has been successful in creating jobs. Gradual progress has also been made in deconcentrating economic power and services’ offer across the state, with the metropolitan region of Salvador still generating 70% of the state’s GDP, and 85% of income taxes (while the region covers only 6% of the state’s territory and includes 30% of its population).

The still high economic and services’ concentration around Salvador, and the fact that the strong economic contribution of a number of the dynamic and modern sectors does not necessarily trickle down at the individual level, [2] do not facilitate a rapid decrease of inequality within the state. A large proportion of the population is still dependent on low-productivity activities, mainly traditional farming and cattle raising. This is particularly true in the semi-arid region, which includes about one-half of the state’s population on over two-thirds of its territory. As a result, average per capita income in the state (about US$1,800) is still well below Brazil’s average per capita income (US$3,000).

Both the modern and the traditional sectors of the economy, however, are faced with serious transport and logistics problems. The competitiveness of the agro-businesses established in the western region and in the Sao Francisco Valley is affected by the poor condition of the road corridors to the ports of Ilheus, Camamu and Salvador. The petrochemical industry established in the Camacari complex, and the wood and cellulose industry are facing increasingly high logistics costs with the deteriorating traffic conditions in the North – South highway corridor, and the lack of capital investment to resolve railway bottlenecks. Rural communities in the semi-arid region lack adequate access to markets and to education and health services in order to increase productivity and to improve their living conditions.

In the social area, the performance of the state has also been above the national average, with most indicators showing substantial improvements over the past decade. The Municipal Human Development Index (IDH-M) for the state increased from .60 in 1991 to .69 in 2000, more rapidly than the national index, which increased from .70 to .76 over the same period. But Bahia is still in the 20th position in the state IDH ranking in Brazil. The priority given to strengthening local health and education services has helped decrease child mortality and increase school attendance but the quality of these services is still a concern.

The fiscal performance of the state has been sound and stable over the past several years. From a balanced situation in 2000, the state has achieved increasing positive primary balances, reaching 11% of net current revenues in 2004. The combination of effective controls of current expenditures and increased efficiency of revenue collection allowed the state to finance substantial investment programs and to cover its financial obligations. The state is among the very few which complied with all the fiscal targets established by the fiscal responsibility law since its enactment in 2000.

In order to address the major economic and social issues, a (long term) strategic plan for the state was prepared by the present administration to provide guidelines for the (medium term) planning process and multi-year plan (PPA) [3]. In the Government’s vision for the long term (2020), the state would be: (a) socially just and cohesive, with universal access to basic social services; (b) economically diversified and competitive, with well-integrated production and distribution chains and effective logistics systems; (c) spatially integrated, with adequate local and regional infrastructure and transport services; and (d) environmentally clean, with rational and sustainable use of natural resources and effective preservation of ecosystems. In this vision, the state’s IDH would exceed the national average by 2020.

The PPA 2004-007 was prepared to achieve important steps in the medium term along the above four long term strategies and along a fifth one designed to foster decentralized and participative management of public actions, so as to reach a new level of human development and competitiveness. It was prepared through broad public consultations and the involvement of all State Secretariats and of a large proportion of their staff. The PPA includes 675 actions organized into 37 programs and 17 lines of actions. Many of these programs are multi-sectoral, reflecting the complexity of the problems being addressed. Special efforts have been made to establish an effective monitoring and evaluation system, with appropriate implementation and result indicators, which still needs to be consolidated across Secretariats.

Consistently with the PPA of the Federation, the state PPA and its investments are spatially organized along 13 development axes. In the four coastal axes (Metropolitano, Grande Reconcavo , Mata Atlântica, Extremo Sul), which account for a large proportion of the population and enjoy denser infrastructure, investments and actions are concentrated in the tourism and industrial sectors, as well as in the trade and service sectors of the SMR and larger cities. In the four western axes (Baixo Medio Sao Francisco, Centro Leste Sao Francisco, Medio Sao Francisco e Oeste do São Francisco), which enjoy a rapid expansion of capitalized agriculture (soybeans, corn, etc…), public investments and actions are focused on the infrastructure sectors, particularly roads and logistics services. The central axes (Nordeste, Chapada Norte, Chapada Sul, Planalto Sudoeste e Planalto Central), which correspond to the less dynamic semi-arid region where traditional and subsistence agriculture dominates, are the target of the territorial integration policy which, by strengthening linkages between the eastern and western regions, is expected to integrate the central region into the state development process.

The major issues in the transport sector is the poor condition of the road networks (which support about 92% of good and over 95% of passengers’ movements in the State), including the federal, the state and the municipal networks, and the lack of adequate intermodal connections (especially road/rail connection around Salvador, and road/waterway connection around Juazeiro). The drastic reduction of the funds allocated to roads over the past ten to fifteen years as a results of the fiscal adjustment policies implemented at the federal and state levels, and the parallel weakening of the roads institutions led to a deterioration of the networks, which is now accelerating with the increasing traffic resulting from the current economic recovery. Also, because of the poor condition of many federal trunk highways, substantial proportions of traffic, including heavy trucks, have deviated onto alternative state routes which had not been designed for such heavy traffic and consequently deteriorated very rapidly. The state road network covers an extension of about 20,000 km, with about 9,000 km of paved road sections, of which only 35% is in good condition.

In order to address the transport and logistics sector issues, the Government prepared a specific Transport Logistics State Program (PELTBAHIA)[4]. In view of the dimension of the roads problem and of the funding limitations resulting from the fiscal adjustment objectives and slow progress (at the national level) in increasing private sector interest in expansion of infrastructure, the program’s highest priority is, in the medium term, to rehabilitate and maintain the key state highway corridors, which would contribute to its spatial integration strategy. The rest of the state network would subsequently be rehabilitated and maintained in accordance with the availability of funds to the sector. In order to carry out such road maintenance and rehabilitation activities efficiently and effectively, the Government has decided to gradually abandon the traditional form of contracting works through input-based form of contracts and instead to contract both the rehabilitation works and maintenance services together under long term (5-year) performance, output-based contracts (CREMA).

Rationale for Bank involvement

The proposed project will contribute to the three pillars (equity, sustainability, and competitiveness) of the Bank’s Country Assistance Strategy, approved by the Bank’s Board of Directors on December 9, 2003. The CAS emphasizes the necessity for the Bank to consider economic growth as an equal priority with social equity and fiscal balance. The CAS notes that without faster and sustained growth it will be increasingly difficult to support these two other important objectives. In addition, in terms of choice of client, the proposed project is strictly in line with the CAS recommendation for the Bank to work in a more coordinated and integrated fashion in the states and municipalities where it is already active, selectively lending to creditworthy states.

Over the last 5 years, the State of Bahia and the Bank have gradually developed a solid and comprehensive partnership for development, consistent with the State’s long-term development strategy and priorities. Five projects are now underway in the areas of rural poverty alleviation, heath, education, urban development, and water management.

The Rural Poverty project aims to reduce rural poverty and its consequences through grants to small rural communities for common use investments and for the strengthening of community associations. The first project benefited 267 thousand families with investments in water supply, sewer, electrification, transport, agriculture mechanization and transformation, and home improvements. A second project is now at approval stage.

The Health project, which aims to strengthen health infrastructure, particularly in the poorest areas, and improve access of the poor, has only recently been started. The Education project, which aims at universal access to basic education, service quality and efficiency improvements, particularly in the poorest areas, has already had significant results in its first phase.

The recently-approved Bahia Urban Integrated Development project, aims to improve the living standards and quality of life of the urban poor in the metropolitan region of Salvador and various cities in the interior. A second Water Resources Management project is being prepared to help establish sustainable, participative watershed management systems in the semi-arid region, contributing, together with the rural poverty project, to improving the living standards of the rural poor and to social inclusion in the poorest region of the state.

2. Proposed objective(s)

The Project’s ultimate development objective is to increase effectiveness in the use of the state road infrastructure, thus to stimulate higher economic growth and contribute to poverty alleviation. The objective is to be achieved through (a) rehabilitation and maintenance of the state paved road network, so as to significantly improve the proportion of the network in good or fair condition over a period of 6 years, and (b) support to a set of key institutional improvements in the road sector to ensure the sustainability of physical achievements, as well as the fostering of a greater integration within the state’s regions, and of the state with the rest of Brazil.

3. Preliminary description

The proposed project will have two components:

Component 1: highway maintenance and rehabilitation (US$185 million)

The rehabilitation needs on the state road network largely exceed the expected availability of funds over the medium-term. As such, the state’s road network management strategy focuses on improving conditions on the state’s five main transport corridors, instead of following a more traditional, network-wide strategy. The transport corridors have been selected so as to support the state’s strategy to “deconcentrate” economic growth and services’ offer, taking into account the following criteria: (a) improving transport conditions between the main production areas in the state and the related markets; (b) strengthening connectivity between the state’s main urban areas; (c) improving the state’s competitive advantage as a preferred point of entry/exit for imports/exports within the North-East region of Brazil; and (d) accommodating large increases in through traffic, especially along the littoral.

The state of Bahia has closely followed, over the last 3 years or so, the introduction of pilot strategies for long-term, result-based road maintenance and rehabilitation on the federal and Rio Grande do Sul state road networks, under two Bank operations. [5] Given that early results from the introduction of such strategies have been positive especially in terms of efficiency/flexibility gains and cost savings, the state has asked the Bank to help it to adapt and implement a similar strategy at the level of the state paved road network.

The component will thus support, at a large scale, the introduction and execution of long-term, result-based road maintenance and rehabilitation contracts (the so-called CREMA contracts). It is expected that CREMA contracts will be laid on about 2,000 km of the state paved road network. Works will include rehabilitation, resurfacing, safety and environmental rehabilitation works.

Component 2: institutional strengthening (US$15 million)

The component will support: (a) government efforts in optimizing the role of transport services to help deconcentrate economic growth and provision of basic services, through determination of existing logistics bottlenecks and level/localization of repressed economic growth due to inadequate transport costs, integration of transport dimension in planning for education and health interventions, identification of public actions required to improve logistics’ efficiency in the state, and definition of incentives to private sector to invest in logistics, (b) the consolidation and gradual implementation of the state’s logistics program (PELTBAHIA), especially with respect to the strengthening of the state’s regulatory framework and capacity to model public-private partnerships, (c) the strengthening of the state road administration, with respect to the consolidation of its planning system (to allow for prioritization of interventions at the network level taking into account fiscal constraints, and for systematic road/bridge condition and traffic data collection), capacity improvements with respect to environmental/social impacts mitigation and works supervision, and modernization of information systems; and (d) the preparation of works’ engineering designs and supervision, as well as support to the road administration in coordinating the project’s implementation.

4. Safeguard policies that might apply

The Project’s rehabilitation and maintenance works would take place in state highways’ rights-of-way (ROW) and in the sites associated with roads civil works. Possible environmental issues would occur along existing ROWs and in the sites associated with the roads civil works. The natural ecosystems that once stood in and along the ROW and sites associated with civil works have already been modified by road construction, which occurred mostly in the period from the 1960’s to the first half of the 1990’s. In addition, given their location, the works to be financed under the proposed project are not expected to require resettlements or interactions with indigenous populations.

The rehabilitation and maintenance works are related to the existing platform of the highway, mostly to the pavement. Road maintenance and rehabilitation activities can cause soil erosion, disturbance of water flows, chemical pollution, traffic disruption, noise, and other impacts on surrounding communities and natural life. Three issues are especially relevant:

• Chemical pollution caused by herbicides used for weed control, and chemicals used in pavement stripping and resurfacing;

• Waste materials from drain clearing, pavement reconstruction, and other activities that may find their way into waterways or contaminate the soil; and

• Displacement of existing dwellings and businesses resulting from shoulder improvements and widening.

Road rehabilitation and maintenance activities normally also have positive environmental impacts, which include environmental restoration works that may correct drainage systems and avoid uncontrolled erosions, and restoration of degraded areas. In some intensively farmed agricultural areas, roadside environments provide important habitats for local wild plant and animal species. These can be preserved and enriched through appropriate maintenance actions. Maintenance work can also generate positive impacts by eliminating or reducing environmental problems caused by the deterioration of road surfaces, drains, and shoulders.

Induced impacts, such as the increase in the pace of land cover and land use changes (LCLUC) are typical for road construction. The linkages of road maintenance and rehabilitation with LCLUC are deemed to be modest since the road network has been in place for decades and those impacts already occurred in the past.

Basically, the Project’s direct, indirect and cumulative environmental impacts would be site specific and would not significantly affect human populations or alter environmentally fragile areas. Few, if any of the impacts are irreversible and mitigation measures are well known and do not represent any difficulty for project implementation, as illustrated by the experience gained with about 140 federal and state road maintenance and rehabilitation contracts in Brazil under various Bank-financed operations over the last 7 years: no significant environmental and social impact has been observed during or following execution of these contracts. It is also worth noticing that the proposed project will also allow for some environmental restoration along the road sections to be rehabilitated and maintained, and will further strengthen the environmental management capacity of the state road administration.

5. Tentative financing

|Source: |($m.) |

|BORROWER |100.00 |

|INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT |100.50 |

| Total |200.50 |

6. Contact point

Contact: Aymeric-Albin Meyer

Title: Sr. Transport. Spec.

Tel: +1-202- 473-7101

Fax: +1-202-676-9594

Email: Ameyer1@

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[1] The state’s capital city

[2] e.g. the petroleum and derivatives sector represents about 18% of the State’s GDP, and 43% of the State’s exports, while generating few employments.

[3] Bahia 2020, O Futuro A Gente Faz, Plano Estratégico da Bahia, 2003, and

PPA 2004-2007, Plano Plurianual da Bahia, Desenvolvimento Humano e Competitividade

[4] PELTBAHIA, Programa Estadual de Logística de Transportes, Caminhos para o Desenvolvimento

[5] The Federal Decentralization and Rehabilitation Project (Bank loan amount: US$250 million) and the Rio Grande do Sul State Highway Management Project (Bank loan amount: US$70 million), scheduled to close by the end of 2005.

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