Document of The World Bank

Report No: ICR00003773

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-79640)

ON A

LOAN

IN THE AMOUNT OF US$ 50.00 MILLION EQUIVALENT

TO THE

CAIXA ECONOMICA FEDERAL

WITH A GUARANTEE FROM

THE FEDERATIVE REPUBLIC OF BRAZIL

FOR A

INTEGRATED SOLID WASTE MANAGEMENT

AND CARBON FINANCE PROJECT

June 22, 2016

Social, Urban, Rural and Resilience Global Practice Brazil Country Management Unit Latin America and the Caribbean Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective May 12, 2016)

Currency Unit = Real 1.00 = US$ 0.29 US$ 1.00 = 3.47

FISCAL YEAR 2016

ABBREVIATIONS AND ACRONYMS

ABRELPE Associação Brasileira de Empresas de Limpeza Pública CAIXA CAIXA Econômica Federal CDM Clean Development Mechanism CER Certified Emissions Reductions CF Carbon Finance CFIA Carbon Finance Intermediary Agreement CPA Component Project Activities CPF Carbon Partnership Facility CTR CRA

Centro de Tratamento de Residuos (Waste treatment center) Colombian Water and Sanitation Regulatory Commission

ERPA Emissions Reductions Purchase Agreement ESMF FGTS

Environmental and Social Management Framework Fundo de Garantia do Tempo de Serviço (Brazilian Pension Fund)

FM Financial Management GECOA National Management Office of Control and Supervision of Sanitation and

Infrastructure Operations at CAIXA GESAN National Management Office of Financial Products for Sanitation and

Infrastructure at CAIXA GESIC National Management Office of Strategy and Innovation at CAIXA GHG Greenhouse Gas GIDUR Management Office of Urban and Rural Development IBRD International Bank for Reconstruction and Development IFR Interim Financial Report ISR Implementation Status Report JSDF Japanese Social Development Fund LAC Latin America and the Caribbean MTR Midterm Review PAC Program for Growth Acceleration PAD Project Appraisal Document PDO Project Development Objective PGFN Procuradoria Geral da Fazenda Nacional (National Treasury's Attorney

General) PGSA Plano de Gestão Socio Ambiental (Environmental and Social Management Plan) PMI Procedimento de Manifestação de Interesse (Procedure for Expression of

Interest) POA Programme of Activities PPP Public Private Partnerships

SERB Saneamento e Energia Renovável do Brasil S/A SOE Statement of Expenses SPA Seller Participatory Agreement SUSAN National Department of Sanitation and Infrastructure SW Solid Waste SWM Solid Waste Management UNFCCC United Nations Framework Convention on Climate Change

Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez

Sector Manager: Anna Wellenstein

Project Team Leader: Catalina Marulanda

ICR Team Leader: Catalina Marulanda

BRAZIL Integrated Solid Waste Management and Carbon Finance Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design .......................................................... 12. Key Factors Affecting Implementation and Outcomes .......................................................... 43. Assessment of Outcomes ..................................................................................................... 134. Assessment of Risk to Development Outcome .................................................................... 185. Assessment of Bank and Borrower Performance ................................................................. 196. Lessons Learned ................................................................................................................... 227. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ...................... 23Annex 1. Project Costs and Financing ..................................................................................... 25Annex 2. Outputs by Component ............................................................................................. 33Annex 3. Economic Analysis ................................................................................................... 35

Annex 4. Bank Lending and Implementation Support/Supervision Processes

A. Basic Information

Country: Brazil Project Name: Integrated Solid Waste Management and Carbon Finance Project

Project ID: P106702 L/C/TF Number(s): IBRD-79640

ICR Date: 05/12/2016 ICR Type: Core ICR

Lending Instrument: FIL Borrower:

Caixa Economica Federal, with a guarantee from the Federative Republic of Brazil

Original Total Commitment:

USD 50.00M Disbursed Amount: USD 16.72M

Revised Amount: USD 50.00M

Environmental Category: F

Implementing Agencies: Caixa Economica Federal

Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 05/30/2007 Effectiveness: 01/30/2012

Appraisal: 07/31/2009 Restructuring(s):

Approval: 11/02/2010 Mid-term Review: 07/31/2014 10/29/2014

Closing: 12/31/2015 12/31/2015 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Unsatisfactory

Risk to Development Outcome: Substantial

Bank Performance: Moderately Unsatisfactory

Borrower Performance: Unsatisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Moderately Unsatisfactory

Government: Moderately Unsatisfactory

Quality of Supervision: Moderately Unsatisfactory

Implementing Agency/Agencies:

Unsatisfactory

Overall Bank Performance:

Moderately Unsatisfactory

Overall Borrower Performance:

Unsatisfactory

C.3 Quality at Entry and Implementation Performance Indicators

Implementation Performance

Indicators QAG Assessments

(if any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

Yes Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Unsatisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Public administration- Water, sanitation and flood protection

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Solid waste management 90 100

Theme Code (as % of total Bank financing)

Climate change 25 25

Pollution management and environmental health 75 75 E. Bank Staff

Positions At ICR At Approval

Vice President: Jorge Familiar Calderon Pamela Cox

Country Director: Martin Raiser Makhtar Diop

Practice Manager/Manager:

Anna Wellenstein Guang Zhe Chen

Project Team Leader: Catalina Marulanda Paul Procee

ICR Team Leader: Catalina Marulanda

ICR Primary Author: Catalina Marulanda F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The objective of the project is to improve the treatment and final disposal of municipal solid waste in Brazil while: (a) supporting (i) the closing of open dumps and the

implementation of modern and environmentally safe landfills or alternatives to waste disposal; (ii) improved municipal solid waste management practices; (iii) reduction of poverty among waste pickers; and (iv) increased private sector participation in solid waste service provision; and (b) strengthening Caixa Economica Federal’s capacity to manage carbon finance projects. Revised Project Development Objectives (as approved by original approving authority) The Project Development Objectives were not revised. (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Number of open dumps closed and monitored Value quantitative or Qualitative)

0 6 3

Date achieved 09/29/2010 12/31/2015 12/31/2015

Comments (incl. % achievement)

Not achieved. Three dumps were closed in the state of Rio de Janeiro in relation to the Project:

• Dump in the municipality of Seropédica, where CTR Santa Rosa is located.

• Dump in the municipality of Itaguaí. • Jardim Gramacho (Duque de Caxias), which was the original dump of

the City of Rio de Janeiro. The closure of this dump was not financed by the Project, but the start of operations at CTR Santa Rosa (financed under the loan) allowed the City of Rio to close its dump.

Indicator 2 : Increase in volume of waste disposed in environmentally sustainable sanitary landfills

Value quantitative or Qualitative)

0 t/day 4000 t/day 9000 t/day

Date achieved 09/29/2010 12/31/2015 12/31/2015 Comments (incl. % achievement)

Achieved. Roughly 9,000 tonnes/day are disposed at the CTR Santa Rosa.

Indicator 3 : Number of municipalities with investments targeting improving recycling and composting activities

Value quantitative or Qualitative)

0 4 7

Date achieved 09/29/2010 12/31/2015 12/31/2015 Comments (incl. % achievement)

Achieved. The Project supported investments to improve SWM in (7) municipalities through the Santa Rosa and Candeias Landfills. Santa Rosa Landfill: Rio de Janeiro, Seropédica and Itaguaí

Candeias Landfill: Recife, Jaboatão dos Guararapes, Cabo de Santo Agostinho, and Moreno

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Number municipal solid waste projects with private financing Value (quantitative or Qualitative)

0 4 2

Date achieved 12/31/2015 12/31/2015 Comments (incl. % achievement)

Not achieved. Two (2) sub-projects in 7 municipalities have benefitted from the Project.

Indicator 2 : Growth of loan portfolio of project funds Value (quantitative or Qualitative)

0 10 percent increase

Increase of over 900 percent from 2009 to 2013

Date achieved 09/29/2010 12/31/2015 12/31/2015 Comments (incl. % achievement)

CAIXA’s SWM lending portfolio multiplied (roughly) by a factor of 10 between 2009 and 2013, going from BRL$ 56 million to BRL$539 million. This increase, however, cannot be attributed to the Project.

Indicator 3 : Number of commercial banks financing or co-financing municipal solid waste projects

Value (quantitative or Qualitative)

0 2 0

Date achieved 09/29/2010 12/31/2015 12/31/2015 Comments (incl. % achievement)

Not achieved. No results related to this indicator.

Indicator 4 : Availability of tools for solid waste management and attract private sector participation in final disposal and treatment of municipal solid waste

Value (quantitative or Qualitative)

0 Yes Yes

Date achieved 09/29/2010 12/31/2015 12/31/2015

Comments (incl. % achievement)

A set of tools were developed including: Diagnostic of viability of various management models with private sector participation, environmental and social management framework, CF pre-feasibility worksheets (e.g. emission generating models, investment needs)

Indicator 5 : Number of participating cities with regulatory framework and cost-recovery to adequately manage solid waste services

Value (quantitative

0 5 0

or Qualitative) Date achieved 09/29/2010 12/31/2015 12/31/2015 Comments (incl. % achievement)

Not achieved. No municipality has benefited from the Project in this regard.

Indicator 6 : Creation of specific unit within CAIXA that manages carbon finance initiatives Value (quantitative or Qualitative)

0 Yes Yes

Date achieved 09/29/2010 12/31/2015 12/31/2015

Comments (incl. % achievement)

A task force within CAIXA was established for the management of carbon finance initiatives. However, the existing team remains small, divided among different units and without a dedicated carbon finance specialist. The new organizational structure of CAIXA did not allow the creation of a dedicated carbon finance unit.

Indicator 7 : Number of carbon finance initiatives managed by CAIXA. Value (quantitative or Qualitative)

0 6 2

Date achieved 09/29/2010 12/31/2015 12/31/2015

Comments (incl. % achievement)

Not achieved. CAIXA is the Coordinating Entity for the POA “Caixa Econômica Federal Solid Waste Management and Carbon Finance Project”. Two sub-projects with legal agreements (ERPA) signed with CAIXA (Santa Rosa, which has been included as a CPA, and São Gonçalo, was included as CPA in 2016 – after the closure of the Project).

Indicator 8 : Adequate staffing and project management systems in place (financial, M&E) and timely reporting (Progress Reports,Audits)

Value (quantitative or Qualitative)

0 4 progress reports and 4 audits

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Date achieved 09/29/2010 12/31/2015 12/31/2015 Comments (incl. % achievement)

Achieved.

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 03/01/2011 Satisfactory Moderately

Unsatisfactory 0.00

2 12/03/2011 Satisfactory Moderately

Unsatisfactory 0.00

3 06/22/2012 Moderately SatisfactoryModerately

Unsatisfactory 0.00

4 11/25/2012 Moderately SatisfactoryModerately

Unsatisfactory 0.00

5 06/26/2013 Unsatisfactory Unsatisfactory 0.00

6 01/01/2014 Unsatisfactory Moderately

Unsatisfactory 9.40

7 07/20/2014 Moderately

Unsatisfactory Moderately

Unsatisfactory 14.78

8 12/29/2014 Unsatisfactory Unsatisfactory 14.78 9 06/21/2015 Unsatisfactory Unsatisfactory 14.78

10 12/22/2015 Unsatisfactory Unsatisfactory 14.78 H. Restructuring (if any) Not Applicable

I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1. The Integrated Solid Waste Management and Carbon Finance Project (P106702) was designed as a partnership between the World Bank and the Caixa Econômica Federal (CAIXA), the second largest public bank in Brazil, aimed at providing financing and technical assistance for the preparation of viable public-private partnerships and concessions for solid waste management (SWM), and promoting private sector participation and investment in the sector.

2. At the time of Project approval, Brazil was among the most proactive countries in Latin America in pursuing Clean Development Mechanism1 (CDM) opportunities, and was the third in the world (after China and India) in number of ongoing CDM projects. Both the private sector and civil society saw Carbon Finance as a suitable instrument to help attract foreign investment and technology transfers. Most of the focus of Carbon Finance operations at the time was on biodiversity protection and climate change mitigation. This Project aimed at demonstrating the potential of Carbon Financing, and specifically the sale of carbon credits, as a viable mechanism to enable investments in disposal and treatment of solid waste.

1.1 Context at Appraisal

3. Country and Sector Context. At the time of appraisal, the 251 municipalities in Brazil with over 100,000 inhabitants were generating over 100,000 tons of solid waste per day. Large disparities existed across the country with regards to solid waste management practices. In 2007, it was estimated that while 141,000 tons of waste were collected daily around the country, only 39% of the 5,564 municipalities adequately disposed of their waste (i.e. at a sanitary landfill). Approximately 32% of municipalities deposited waste in controlled landfills, and the remaining 30% did it in open dumps, reflecting the significant deficiencies in terms of infrastructure. In the South and the South East regions of Brazil, 65 and 70%, respectively, of the waste that was generated was being adequately disposed of in sanitary landfills. In contrast, in the North and Central West regions, less than 30% of the waste was adequately disposed. Sophisticated technologies and adequate levels of service were typical in the larger south-eastern urban areas, while large gaps in service provision (e.g. collection, transportation and treatment, and final destination) existed in other regions of the country and typically increased with decreasing size of municipalities.

4. The Brazilian Constitution stipulates that urban cleaning and SWM services are the responsibility of municipalities. Yet, by 2010 financial resources were generally inadequate and municipalities spent only a small proportion of their budgets on SWM. Roughly half of the municipalities in Brazil collected fees for the services they provided, which were insufficient to recover costs. Fees varied by region: in the North and particularly the North East a small fraction of the services provided were charged to final beneficiaries.

5. While the government had made efforts to attract private sector investment, the participation of private operators in SWM was often in its nascent stages. Private SWM concessions were still not able to generate profits primarily due to the low tipping fees paid by municipalities.

1 The Clean Development Mechanism (CDM), defined in Article 12 of the Kyoto Protocol, allowed a country with an emission-reduction or emission-limitation commitments under the Protocol to implement an emission-reduction project in developing countries. Such projects could earn saleable certified emission reduction (CER) credits, each equivalent to one tonne of CO2, which could be counted towards meeting Kyoto targets.

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However, additional businesses – such as recycling, treatment of medical waste, and special waste from private suppliers – were showing potential to make waste disposal operations financially attractive and were starting to attract private sector providers.

6. In 2009, it was estimated that 59% of the municipalities in Brazil had recycling programs in place, although public recycling programs were not profitable and accounted for only a small fraction of the recycling in the country (estimates of quantities recycled are as low as 1% of total waste generated). The majority of the recycling (estimates are up to 30% of the total waste generated) was undertaken by the informal sector, which included between 500,000 and 800,000 people both in organized groups and individuals that work throughout the country collecting recyclables in households, in dumpsites and in other informal ways and making profit from the sale of the recyclables.

7. At the time of appraisal, the National Solid Waste Policy bill, a comprehensive policy covering rules and responsibilities along the entire solid waste value chain had been debated by the the National Congress for over a decade and was not yet approved. The policy proposed to use the 3Rs (reduce, reuse and recycle) as its basic principle and would provide guidelines for managing waste from source to final disposal. It was expected that once approved, the bill would provide important regulatory incentives for the implementation of comprehensive waste management plans and reduction of environmental impacts related to open dumping.

8. Rationale for Bank involvement. The Banks’ involvement in this Project offered an approach for addressing bottlenecks that were known to prevent municipalities from using federal resources ear-marked for SWM and managed by CAIXA2, and barriers that limited private sector investment in the sector. These barriers included, for instance: (i) problems with the environmental licensing of landfills; (ii) social issues related to the presence of informal sector workers at dumpsites; (iii) lack of local government capacity to prepare SWM and Carbon Finance projects that are commercially viable for the private sector; and (iv) a general mistrust between the private and public sectors in a relatively young sector. Through this partnership with the Bank, CAIXA had access to financing and technical assistance for the preparation of technically sound and financially viable SWM projects. CAIXA was also the coordinating agency for the Carbon Finance program, in charge of contractual arrangements, oversight, and coordination of individual carbon sub-projects. An integrated lending and Carbon Finance operation allowed the Bank to channel lending, TA and carbon resources for SWM investments through a single entity, CAIXA, and this presented additional incentives for private sector participation in the sector. The Project was expected to generate a demonstration effect that would build momentum for lending in SWM, ultimately resulting in more favorable market financing conditions and increasing investment in infrastructure and operation of SWM facilities around the country.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved)

9. The Project Development Objective was to improve the treatment and final disposal of municipal solid waste in Brazil while: (a) supporting (i) the closing of open dumps and the implementation of modern and environmentally safe landfills or alternatives to waste disposal; (ii) improved municipal solid waste management practices; (iii) reduction of poverty among waste

2 The most important fund managed by CAIXA is the Fundo de Garantia do Tempo de Serviço (FGTS), which is the national workers’ severance fund, whose proceeds are an important source of finance for water, sanitation and SWM projects, as well as for housing finance in Brazil.

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pickers; and (iv) increased private sector participation in solid waste service provision; and (b) strengthening CAIXA’s capacity to manage carbon finance projects.

10. The key project outcomes and indicators were:

(i) number of open dumps closed and monitored; (ii) increased volume of waste disposed in environmentally sustainable sanitary

landfills; and (iii) increased volume of waste composted and recycled in targeted municipalities.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

11. The PDO and key indicators were not revised during the Project.

1.4 Main Beneficiaries

12. The primary beneficiaries from this Project included the public or private sector entities that received funding, from the credit line set up at CAIXA or through the Carbon Finance agreements, for infrastructure investments aimed to improve final waste disposal and treatment. Additional beneficiaries were those impacted by the sub-projects financed under the Project, including: (i) the population of municipalities where SWM strategies were prepared, or where infrastructure investments were carried out, with Project funding, to improve SWM services; (ii) recipients of training and capacity building on SWM and Carbon Financing practices, including government employees, CAIXA staff, and employees of private sector companies that were involved in the Project; and (iii) waste pickers living in or in the vicinity of dumps addressed under the Project.

1.5 Original Components (as approved)

The project had two components:

13. Component 1. Infrastructure Investments in Solid Waste Disposal and Treatment (US$44.88 million of IBRD financing). This component would provide financing, through a credit line of US$ 153.9 million, to public or private entities (Beneficiaries) for infrastructure investments (Subprojects) to improve final waste disposal and treatment within comprehensive solid waste management strategies reducing negative environmental and health impacts, such as, inter alia: (a) the construction and operation of sanitary landfills; (b) the closing of open dumps and related management of environmental impacts; and (c) the development of alternative waste treatment facilities.

14. Eligibility criteria were established for the selection of participating cities, consortia, autarchies3 and private enterprises investing in municipal solid waste service delivery. Contractual arrangements with the private sector could include activities in one or more of these components (e.g., a contract to close existing dumps and open a sanitary landfill). The project was designed to finance subprojects focused on final disposal and alternative treatment. In cases where transfer stations were needed and additional financing is required, the project would consider such financing.

3 Private operators directly managed by the municipal administration, very common in the sanitation sector.

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15. Component 2: Technical Assistance and Institutional Strengthening and Project Management (US$5 million of IBRD financing). This component was designed to support the development of an integrated approach to solid waste management in Brazil, by preparing regulatory, financial and technical guidelines to enable and encourage investments in the solid waste sector through the provision of:

(i) Technical assistance and capacity building for the preparation of solid waste management investments with a special focus on any of the following, inter alia.: (i) increased accountability and transparency in service delivery; (ii) improved municipal capacity in financial management and cost recovery; (iii) improved assessment of the technical and economic viability of final treatment and disposal alternatives; (iv) development of new models for private sector participation; (v) environmental licensing of final disposal and treatment activities; (vi) attention to waste pickers in an equitable, viable and sustainable way; (vii) promotion of carbon finance initiatives to maximize their benefits.

(ii) Technical assistance to strengthen CAIXA’s institutional capacity to manage, supervise and monitor solid waste management investments. An important project goal was to strengthen CAIXA’s institutional capacity to manage credits and design appropriate lending products for investment in the waste sector and blend these, wherever viable, with Carbon Finance. The Bank would provide the necessary technical support to build the CAIXA team’s capacity to apply the necessary Bank policies in subprojects, so as to allow CAIXA to serve as both a financial intermediary for future on-lending IBRD resources to the private and public sectors for finance investments (described in Component 1), as well as for managing Carbon Finance Initiatives that generate carbon credits. CAIXA allocated its own training budget and resources to these capacity building activities (as it has done throughout Project Preparation).

(iii) Support CAIXA to insure proper management and supervision structures for Project implementation. This component would ensure that the proper management and supervision structures were in place to monitor project implementation. The project’s complexity and nature required that considerable resources are devoted to this component. It was also important that external experts and consultants could become involved to assist CAIXA in the technical aspects of implementation.

1.6 Revised Components

16. Project components were not revised during implementation.

1.7 Other significant changes

17. No changes were made to the original Project design during implementation.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry Project Preparation and Design 18. Project design was ambitious and introduced an integrated approach to SWM that aimed to have a transformational impacts on the sector. The Project combined financial and technical elements with the objective of addressing key systemic issues of

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financing in the SWM sector, through the development of technical and financial tools aimed at promoting private sector participation. The deployment of these tools was to be done in partnership with the largest financier of public SWM infrastructure (CAIXA, the second largest development bank in Brazil, with presence in virtually all municipalities). The objective of this comprehensive approach was to induce a transformative impact on the sector. Lessons learned from other similar Bank projects informed its design4.

19. The CAIXA Project was the first fully blended IBRD-CF operation in the Latin America and the Caribbean (LAC) Region. The project combined a Financial Intermediary Loan, a Carbon Finance component, and a Technical Assistance package, all aimed at improving the economic feasibility, as well as the environmental and social sustainability of interventions in SWM. Specifically, the Project involved the Integrated Solid Waste Management and Carbon Finance Project (P106702) – “the Loan”, and the CAIXA Solid Waste Management Project (P124663) - “the Carbon Finance (CF) Project”. The latter resulted from a Carbon Finance Intermediary Agreement (CFIA) between the Bank and CAIXA, which set the framework for a pipeline of CF projects in Brazil. The objective of the CF Project was to scale-up implementation of CF in the solid waste sector, focusing on landfill gas capture and treatment projects and, should there be sizeable potential, composting, landfill gas-to-power projects or other solid waste related activities.

20. A programmatic approach to implementation of CF sub-projects was set up as a Program of Activities (POA). The Project was the first programmatic Carbon Finance operation in the SWM sector to be registered in Brazil. The eligibility of potential new CF sub-projects within the Program was to be determined by CAIXA, following a precise set of criteria (specified in the Operations Manual) developed for the registration of the POA5. CAIXA had the possibility of adding sub-projects under the POA, as a pipeline was identified and eligibility criteria verified. The Bank assisted CAIXA in building its capacity in terms of safeguards, as well as management of the CDM project cycle - from project identification and evaluation, to registration by the UNFCCC Executive Board and monitoring.

21. A main objective of the operation was to strengthen CAIXA’s capacity to develop and manage CF transactions. Bank staff were involved throughout the preparation of the Loan in providing full support to the Bank and CAIXA’s teams, in fact advancing in the identification of

4 Projects reviewed included the Mexico Second Solid Waste Management Project, the Argentina National Urban Solid Waste Management Program and the Colombia Solid Waste Management Project. 5 Most CDM projects are prepared on a stand-alone basis, each of them developing project documents tailored to its specific conditions. Under a POA all project requirements and considerations, including those related to the management of the program, are developed under a single template that is validated once by the United Nations Framework Convention on Climate Change (UNFCCC) for a project specific case. After the template is approved, any project complying with the POA requirements can request its inclusion under the program using the same standardized template. This structure requires a coordinating managing entity that represents all sub-projects on all matters related to UNFCCC, and it is in charge of monitoring and aggregating information at a program level. In the initial stages of the dialogue between the World Bank and CAIXA for the CF component, both parties considered a structure of stand-alone projects, with CAIXA acting solely as a financier, using the carbon revenues as a partial guarantee, and the World Bank entering into Emission Reduction Purchasing Agreements (ERPAs) directly with each of the project implementers. Both parties considered changing to this aggregating structure as a way to standardize the identification and inclusion of new projects. Under the POA structure, CAIXA becomes the only counterpart to the World Bank, acting as aggregator and coordinating managing entity for all sub projects. In this way, each project enters into an individual agreement with CAIXA, placing CAIXA at core of the CDM cycle.

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CF subprojects, thereby gradually building CAIXA’s capacity to prepare and supervise CF operations. Within the Project framework, CAIXA was the Coordinating Entity for the registered POA, which involved the following responsibilities: (i) providing technical assistance to municipalities and private entities developing the sub-projects or Component Project Activities (CPA), as well as monitoring and centralizing data necessary for verification and certification process; and (iii) centralizing issued Certified Emissions Reductions (CER) of the POA on behalf of the CPAs (maintaining their individual ownership), and commercializing them after Emissions Reductions Purchase Agreement (ERPA) deliveries have been agreed to with the Bank’s Carbon Funds6.

22. The Project successfully introduced technical and financial tools to promote private sector participation in the SWM sector. Specifically, an innovative financial incentive for financing of landfills was introduced, by linking the interest rate of loans offered by CAIXA to the performance of the landfill project. In order to include CDM revenues as a partial guarantee, CAIXA had to internalize into their processes and guidelines the concept of CF, understanding how it affected the risk profile of the underling investment. CAIXA was able to factor into their analysis that any project able go through the CDM project cycle and its associated technical audits would have a reduced risk profile. In line with this, CDM success was expected to become a proxy of good project management and compliance with project design7. Specifically, sub-projects within the POA became eligible for discounted financing rates (for implementation, operation, and CDM/biogas components) based on risk profiles that incorporated CDM considerations. In practical terms, CAIXA incorporated into their portfolio the option for projects to benefit from a first discount on their loan interest rates after registration with the United Nations Framework Convention on Climate Change (UNFCCC), and a second discount upon delivery of a minimum volume of emission reductions, in line with the agreed annual contract volumes. On the other hand, any under-delivery of CERs resulted in an interest rate adjustment, losing the second discount and returning to the previous interest rates until the under-delivery is resolved. Through this mechanism CAIXA became the only bank in Brazil to offer loans that accept future carbon revenues as partial guarantees. Landfills incorporated into the POA not only benefitted from direct payments for emission credits in accordance to the ERPA, but they also had access to discounted financing terms from CAIXA, for capital and operations at the landfill.

23. CAIXA was selected by the Bank as a pilot for the Use of Borrower Systems in Brazil. During preparation and implementation CAIXA received extensive support in the development and implementation of safeguards instruments. The Environmental and Social Management Framework

6 In December 2009, CAIXA signed a Seller Participatory Agreement (SPA) with the Bank’s Carbon Partnership Facility (CPF), which committed CAIXA to the sale of 2 million tonnes of CO2-equivalent to the CPF. The terms of the transaction were included in the ERPA that was signed between CAIXA and the CPF. The ERPA referred to specific CPAs from which CERs were expected to be generated, although flexibility in the share of CERs committed from each CPA was allowed. These CPAs had the potential to be partially financed by the Loan, and the amount of CERs they will ultimately generate will exceed the 2 million tonnes of CO2-e that will be purchased by CPF. CAIXA will keep the option of selling to other buyers emissions reductions in excess to those committed to CPF. 7 For a project to be registered under the UNFCCC, it has to pass a thorough audit to validate the project design and make sure that the project complies with all relevant national and local requirements and regulations as well as CDM requirements. For a project to issue credits under the UNFCCC, it has to comply with a minimum level of standards in terms of implementation and operation. For each issuance request, the project has to pass an audit proving that: (i) the implementer complies with the latest national and local requirements and regulations as well as CDM requirements; (ii) the project is implemented and operated in compliance with the approved project design; and (iii) the project complies with minimum standards for monitoring and managing operations, as CDM requires keeping auditable records of the operations related to the emission reductions. Under those terms it is possible to assume that a project in compliance with all CDM requirements and issuing credits at the expected volume level is under good management, thus reducing its performance risk.

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(ESMF) that was develop during preparation was later applied to CAIXA’s entire solid waste management portfolio8.

24. Grant resources from the Japanese Social Development Fund were mobilized during project preparation to support activities related to the informal sector, specifically to assist waste pickers who could be impacted by the closure of waste dumps. A recipient-executed Grant Agreement was signed on January 28, 2011 with the Japanese Social Development Fund (JSDF) for the Solid Waste Picker Social Inclusion Initiative (P121881), with a total value of US$ 2,729,900. This JSDF project was conceived as a complement to the investment loan, i.e. as an incentive to participating SWM sub-projects within CAIXA’s portfolio, aimed at financing social inclusion initiatives for waste pickers. Specifically, grant resources were mobilized with the objective of: (i) creating and test a set of innovative, flexible, and replicable mechanisms to promote the participation of waste pickers in social inclusion activities, leverage experience and lessons learned from pilot interventions, and mainstream best practices across the CAIXA portfolio; (ii) strengthening the involvement of informal recyclers, not only as beneficiaries of social inclusion initiatives, but also as active agents in the design and implementation of activities and in training; and (iii) developing a sustainable strategy for the inclusion of informal recyclers, so as to allow for the continuation of funded activities beyond initial JSDF-financed pilots.

25. In summary, the design of this Project was highly innovative as it integrated multiple sources of financing (IBRD lending, JSDF grant and Carbon Finance) and centralized execution through one coordinating agency that could channel the bundled resources to the private sector for SWM investments. It is important to note, however, that the scope of this ICR does not include a review of the impacts of the Carbon Finance Project (P124663), nor those of the JSDF grant (P121881). Implementation of the former is ongoing and will be completed on the closing date of the ERPA (December 2019). The latter closed in January 2014 and has its own Implementation Completion Memorandum (ICM)9.

Quality at entry

26. CAIXA had clear interests in acquiring the expertise in Carbon Financing applicable to SWM, as well as in having a comprehensive framework for addressing environmental and social safeguards. The partnership with the Bank and CAIXA’s ability to gain capacity in CF operations and in safeguards positioned CAIXA as the only financial institution in Brazil with the ability to provide such an integrated approach to SWM (to local governments and to the private sector). Significant emphasis was placed during preparation on the development of these two aspects of the loan. A pipeline of infrastructure sub-projects that could be financed with the loan was pre-identified during preparation, through consultations with municipal governments and with the private sector.

27. However, implementation was affected by a limited pipeline of ready subprojects. A list of possible sub-projects projects had been pre-identified, including potential operations in the states of Rio de Janeiro, São Paulo, Pernambuco and Espiritu Santo. Most of the operations pre-identified involved private sector facilities. With the exception of a project for the Rio de Janeiro landfill that was ready for financing, no specific project designs had been completed. At Project appraisal, the pipeline of sub-projects eligible for investment in SW infrastructure was not robust.

8 The Portuguese version of the assessment was disseminated in August 2009 and may be consulted at the following link: http://imagebank.worldbank.org/servlet/WDSContentServer/IW3P/IB/2009/08/06/000020953_20090806122033/Rendered/PDF/SR220BR0integrated0solid0waste.pd 9 The overall outcomes of the JSDF grant were rated Unsatisfactory in the ICM. Due to implementation and institutional coordination challenges, roughly 95 percent of the grant resources were returned to the donor and the Development Objectives were not met.

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No specific municipal requests existed for technical assistance that could be addressed under the modalities of Component 2. While many gaps in local government capacity had been identified and possible tools to address them had been planned, no specific requests existed from municipalities for technical assistance through the CAIXA line of credit. Given the pressing needs in the sector, the expectation was that demand would be high when the project became effective. This demand ultimately did not materialize during implementation. Under the CF component, following extensive consultations with the private sector during preparation, a firm list of possible private sector landfills that could benefit from CF operations existed, and most of the facilities that had been identified at the time ultimately became sub-projects under the POA.

28. Evaluation of Risks: Key factors that affected implementation were identified as risks in the PAD, such as lack of public sector demand for funding, environmental and social management issues at new landfills, the low private sector interest, and CAIXA’s potentially weak capacity to manage the Project in addition to other commitments. However, the mitigation measures were not sufficiently effective at addressing these risks and reducing delays. A significant risk related to carbon finance activities that was not identified as part of project preparation, relates to risks linked with the need to supervise landfill gas generation projects that will continue operation (as per the provisions in the ERPAs with the World Bank carbon funds) several years after the closure of the project.

2.2 Implementation

29. Implementation was characterized by longer execution periods than originally envisioned. The project implementation period was November 2010 to December 2015 with no extensions to the closing date. Only 33.4 percent of the loan was disbursed by closure. The main factors that affected implementation are summarized in the following paragraphs:

30. Early delays in implementation - Although the project was approved by the World Bank Executive Board on November 2, 2010, CAIXA did not sign the Loan Agreement until December 5, 2011. This period of over one year between approval and signing was mostly due to CAIXA’s internal processes to obtain the clearance for signature, as well the complexity of the operation due to the blending of funds and their associated risks. Regulatory changes that took place in late 2010 resulted in the need to reevaluate the financial model of the operation. This led to a delay of several months in the internal review process of the project, which was approved by CAIXA’s Executive Board on March 3, 2011. After the internal process, the project had to obtain the clearance from the Ministry of Finance and the National Treasury's Attorney General (Procuradoria Geral da Fazenda Nacional, PGFN), and ultimately was approved by the Senate prior to CAIXA’s signature.

31. The regulatory and political context of the SWM sector in Brazil in which the Project was developed in 2009 was considerably different from that during implementation and at closure. With the approval of the Solid Waste Law in 201010, a robust regulatory framework for the management of solid waste was finally in place (after more than a decade of political debate) when the Project became effective. The gap between the status of SWM in the vast majority of Brazilian municipalities and the targets imposed by the Law was large, and the needs for investments in infrastructure, technology and capacity were considerable. The Law made special provisions to incentivize private sector engagement in the sector, and as a result, examples of

10 The SW Law addresses the management of solid waste in a systematic manner, covering producer responsibilities in the reduction of waste and in the management of the waste produced, waste recycling, treatment and disposal. The law has a series of deadlines for its implementation that put pressure on governments at all levels, but primarily on municipalities, which are responsible for the management of solid waste. The first target set by the law was the establishment of municipal solid waste management plans (for all 5,565 municipalities) by August 2012.

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public-private partnerships or private ventures for SWM became more prevalent in larger cities around the country (e.g. Belo Horizonte, Recife, Rio de Janeiro). Very high priority was given by the central government (thorough the Ministers of Environment and of Cities) to providing financial resources and technical assistance to municipalities to comply with very aggressive planning and investment targets under the Law. Moreover, the amount of funding existing for the sanitation sector (including SWM) multiplied by orders of magnitude thanks the availability of Program for Growth Acceleration (Programa de Aceleração do Crescimento, PAC)11 resources.

32. The Project positioned the Bank to support municipalities in building the capacity to prepare, implement and manage solid waste management projects with private sector participation, but abundant government resources limited the demand for Bank funding. In the new regulatory context, the Project offered a solid vehicle to channel support to the municipalities, and to the private sector. However, by the time the loan became effective, there were abundant resources available to municipalities, and the Project’s credit line was small relative to the amount of resources in the system. Federal resources directly available to CAIXA12 through the National Pension Fund (Fundo de Garantia do Tempo de Serviço FGTS) for SWM projects grew very significantly and options of financial terms (e.g. cost of funding) increased, making the use of Banks’ funding less competitive and less attractive. In 2010, when the Project was approved, the value of CAIXA’s active loan portfolio in the sanitation and infrastructure sector (including SWM) amounted to BRL$ 12,013 million (approximately US$7,236 million at December 31, 2010). In 2015, the active value was BRL$ 70,869 million (approximately US$17,896 million at December 31, 2015), of which roughly 9 percent was in the SWM sector. Not only was the Bank’s loan small compared to CAIXA’s portfolio in the infrastructure and sanitation sector when the project was approved in 2010, but with time its relative importance decreased as CAIXA’s active portfolio increased. Moreover, the team within CAIXA managing the Project was responsible for an increasing portfolio with limited increase in the number of staff members, and this further reduced the demand for Bank resources under the Project.

33. The outreach to municipal governments was insufficient. One attractive characteristic of partnering with CAIXA under this Project was its national network of offices and market penetration. It was expected that, having offices in the majority of Brazilian municipalities, CAIXA would be in a unique position to reach out to municipal governments and provide technical assistance and financing for SWM. This country-wide presence was expected to promote local government demand for Project resources and to advance implementation. However, CAIXA’s local outreach potential was overestimated during preparation, and it ultimately never materialized during implementation. Difficulties stemmed from CAIXA’s large institutional and administrative structure, in which business development at local branches is typically coordinated from regional hubs. Sector-specific technical capacity was deployed to local branches, as needed. New strategic corporate programs and business lines that were launched at headquarters (where the Project was managed) needed to follow very specific procedures for roll-out and implementation at the regional and local level. The integrated SWM program introduced through the Project was too small in amount and was never positioned at the strategic level required to become at corporate priority. The line of credit was managed at the central Brasilia unit, and therefore it was never disseminated to local governments through CAIXA’s offices. One aspect of the engagement that was in fact showcased as a corporate asset and disseminated publically (online and corporate materials) was

11 The Federal Programa de Aceleração do Crescimento (PAC), a national program that provides funding to local governments for infrastructure, allocated significant resources for financing of SWM. 12 The Project was managed by the Gerencia Nacional de Investimentos en Saneamento e Infrastrutura, GESAN, the central unit within CAIXA overseeing all investments in infrastructure and sanitation (including sewage, solid waste and drainage) across Brazil.

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CAIXA’s SWM POA and its ability to access CF. However, the knowledge and the capacity to develop CF sub-projects under the POA was confined to the small team in Brasilia that was only able to identify and implement a relatively small number of CF operations. Ultimately, mainstreaming of the CF component was not achieved under the Project13.

34. Lengthy administrative and processing times within CAIXA and their impact on implementation were underestimated and negatively impacted the ability to execute Project activities. Managing the IBRD resources in compliance with the Bank’s fiduciary requirements implied putting in place a separate system of controls within CAIXA, both for executing and reporting expenditures. The duration and the complexity of instituting Operating Procedures for the management of multilateral resources was completely underestimated during preparation. For example, new internal procedures were required for CAIXA to use Bank resources to hire consultants, procure goods and services and review products. Almost two years were needed to have all the procedures in place for CAIXA to use Project resources, for matters as simple as the hiring of individual consultants. This length of time, in addition to CAIXA’s own standard processing times, led to significant delays in implementation. Another example of the difficulty to harmonize the procedures of the Bank and CAIXA was implementation of a US$2.79 million grant from the Japan Social Development Fund (JSDF), executed by CAIXA and aiming to support the social and economic inclusion of informal recyclers in SWM projects. After three years of unsuccessful attempts to put in place execution mechanisms that complied with CAIXA and Bank procedures, implementation was ultimately canceled with minimal expenditures14.

35. Internal restructuring of CAIXA. CAIXA underwent two major and consecutive restructuring processes in 2012 and 2013, which significantly impacted the team managing the project and resulted in delays in the project implementation. Specifically, these continuous restructuring prevented CAIXA from forming a specialized solid waste team that could focus on providing capacity to municipalities, as originally planned.

36. Low level of priority at the management level. CAIXA’s primary interests in pursuing this operation were (i) to access the global knowledge and expertise that the Bank could provide, (ii) the possibility to strengthen its capacity to design, manage and monitor CF operations and to develop blended projects with alternative sources of financing, and (iii) to strengthen its capacity to effectively address environmental and social issues common to SWM projects. The credit line, relatively small compared to the size of CAIXA’s portfolio in the sector, was not the main incentive of the engagement. This became clear once the Project started, as CAIXA’s main focus became the registration of the POA and the identification of additional Carbon Finance sub-projects, while lower priority was given to the development of implementation mechanisms for the execution of the investment and technical assistance components. The different priority levels became all the

13 The scope and size of the POA could have been expanded, if other buyers of carbon emissions credits who had shown interest in the program had been incorporated. However, CAIXA did not approach other buyers outside the Bank. Without additional demand for CERs, CAIXA did not have an incentive to expand the POA program to include other landfills. More than 10 additional landfills registered in Brazil under the CDM after the registration of the POA, which proved there was a pool of possible projects that CAIXA did not exploit. 14 Considerable work was involved in the design of the JSDF proposal, including multiple meetings with stakeholders and associations of waste pickers. While the needs were well understood, the implementation mechanisms that were designed to address them were not sufficiently developed. The grant was designed without a clear idea of these mechanisms, leaving the options open for various models of executing agencies. The implementation mechanisms between the World Bank, CAIXA and third-party institutions were overly complex and time consuming. The time necessary for these implementation arrangements was not factored into the design of the project, and it ultimately affected the overall viability of the project. Implementation was ultimately not successful, and after nearly three years the grant was closed with roughly 5% disbursement.

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more evident as CAIXA’s sanitation portfolio started its drastic increase, and most technical personnel focused on the preparation and implementation CAIXA’s portfolio of investments.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 37. Design. The original M&E framework included an ambitious set of indicators, which aimed to capture the sector transformation that was expected under the Project. As such, the indicators and their targets focused more on downstream outcomes than on processes (e.g. increase in portfolio of lending for SWM of banking institutions). Although the Project is a Financial Intermediary loan, many of the indicators in the results framework referred to results expected at the level of municipal governments and the private sector. The results framework did not include PDO indicators to measure impacts towards the second main development objective, i.e. the strengthening of CAIXA’s capacity to manage Carbon Finance operations. Moreover, no intermediate indicator was included to measure reduction of poverty among waste pickers.

38. Implementation. Indicators and targets were monitored during the implementation phase and discussed with the CAIXA team during regular supervision missions. Given the slow progress of implementation, and given that the number of sub-projects and the level of engagement with local governments were lower than originally anticipated, it was difficult to monitor and to capture advances in the definition of implementation mechanisms for the various components. A more “upstream” type of indicators would have ultimately better reflected the nature of the issues faced during implementation of the Project. At the time of Mid-Term Review (MTR), consideration was given to changing some of the original indicators. However, the decision was not to revise the M&E framework. At MTR, the conclusion was that difficulties in reaching some of the critical targets reflected more a change in overall context of the SWM sector, rather than on the wrong choice of indicators.

39. Utilization. Given the implementation challenges faced by this Project, the M&E framework was not a very useful tool to help track progress on the main bottlenecks. The outcome indicators that are part of the M&E framework would have been very useful to capture and to assess the downstream impacts of the Project, if it had achieved its intended objective of promoting better SWM in municipalities. However, at the time of preparation of the ICR, with a better understanding of the challenges that were required in setting up the internal institutional arrangements in CAIXA needed for a more effective implementation, the assessment is that it would have been beneficial to include process-oriented indicators as part of the M&E framework.

2.4 Safeguard and Fiduciary Compliance 40. Environmental Safeguards. The project triggered the following safeguards: Environmental Assessment (OP 4.01), Natural Habitats (OP 4.04), Pest Management (OP 4.09), Physical Cultural Resources (OP 4.11), and Involuntary Resettlement (OP 4.12).

41. Environmental and Social Management Framework (ESMF). CAIXA was selected as a pilot for the Use of Borrower system, as it adopted the Bank’s required ESMF for its entire solid waste management portfolio15. Supervision arrangements for safeguards agreed at QER required Bank’s approval of (at least) the first two subprojects identified under the Project, as well as

15 The Portuguese version of the assessment was disseminated in August 2009 and may be consulted at the following link: http://imagebank.worldbank.org/servlet/WDSContentServer/IW3P/IB/2009/08/06/000020953_20090806122033/Rendered/PDF/SR220BR0integrated0solid0waste.pd

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monitoring of CAIXA’s capacity during implementation. This approach meant that, in practice, project supervision started as a regular investment project and evolved to a full-fledged “country systems” mode once CAIXA demonstrated it has full capacity to manage environmental and social safeguards according to Bank procedures. Regular safeguards supervision confirmed that the ESMF and other related safeguards instruments were applied in a satisfactory manner throughout implementation.

42. Financial Management: Financial management (FM) performance ranged from Satisfactory to Moderately Satisfactory throughout Project implementation. Minor shortcomings related to with the inability of the Project Monitoring and Reporting System (SIAPF) to automatically generate the SOEs and IFRs were ultimately resolved and Bank requirements were complied with adequately. All Project audit reports were reviewed and found acceptable to the Bank.

43. Procurement management: The Procurement management rating throughout the lifetime of the project was maintained at Moderately Satisfactory. Little procurement was ultimately carried out under the Project, and the capacity of the PIU to apply the Bank’s procurement rules remained limited.

2.5 Post-completion Operation/Next Phase

44. While the IBRD loan is now closed, the World Bank Carbon Partnership Facility (CPF) ERPA is still ongoing, and activities related to the POA will require additional supervision until the ERPA closing date of December 31, 2019. In non-programmatic CF operations involving landfills, safeguards supervision requirements are typically transferred from the responsible Global Practice to the CF Unit prior to the closing of the Project. By that time, all construction has been completed, environmental issues are being addressed, social programs (if existing) are being implemented and landfill gas capture is ongoing. In these cases, the CF Unit continues supervision of sub-projects until the completion of the ERPA terms, which typically involves monitoring: (i) a number of key environmental /social variables as identified and agreed between CF and the corresponding unit; (ii) that the landfills are complying with the methodological requirements approved by the CDM; and (iii) that the agreed emissions reductions are being accomplished. In the case of this Project, safeguards responsibilities cannot yet be transferred to the CF Unit, because: (i) construction of the Santa Rosa facility has not been completed, and (ii) new sub-projects (CPAs) will be incorporated to the POA in the near to medium term, and new activities will require the Bank’s approval of their compliance to environmental and social safeguards. A phased transferred approach for safeguard supervision of individual sub-projects (i.e. CPAs) to the Carbon Finance Unit will follow the Carbon Finance Operations Process and Guideline Note (Issue No. 3.2) from June 24, 2013.

45. With regards to CTR Santa Rosa, the landfill is operating at capacity and all safeguards are in order. One aspect associated to infrastructure remains open, which will require follow-up supervision in the future, involving the construction of two additional waste transfer stations that were part of the original design of the landfill. The sites that had been originally designated by the municipal government of Rio de Janeiro for the construction of these stations are no longer suitable16. The task team and the CAIXA team have been following the progress of this activity, which is being coordinated by the municipal government of Rio de Janeiro. The teams have visited the location of the future Tanque and Penha stations, which are currently undergoing permitting. During the last supervision mission (in December 2015), Safeguard Specialists

16 CTR Santa Rosa currently operates with four associated transfer stations: Santa Cruz, Caju, Bangu, and Marechal Hermes. The construction of additional stations, Tanque and Penha, remains to be completed.

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confirmed that potential environmental and social impacts are likely to be minor, as both sites are located along major transportation arteries in primarily industrial and commercial areas. Nevertheless, follow-up supervision activities will be required to confirm compliance with CAIXA’s ESMF as implementation takes place.

46. A second aspect that will require follow up is the expansion of the POA to incorporate additional sub-projects, as was originally planned under the programmatic approach. A recent addition to the Program in fact was recently agreed. In March 31, 2016, the Sao Gonçalo landfill (in the metropolitan region of Rio de Janeiro), a sub-project that had been identified in the original CF pipeline during Project preparation, was registered with the UNFCCC under the POA. A second potential addition was presented by CAIXA for consideration of the CPF in late 2015, involving the Ipojuca Landfill (in Pernanbuco). The CF Unit has agreed to the inclusion of this activity under the POA, and the sub-project would be expected to start validation/registration within the coming year. The task team has visited both of these new proposed facilities. They are both new, modern, privately owned engineered landfills, fully permitted and in operation (both are closed facilities where the presence of waste pickers was never allowed). The two landfills are owned and operated by companies that are already participating in the POA and that have considerable experience with the procedures and requirements involved: (i) the Sao Gonçalo landfill is owned by one of the two companies within the consortium that operates as CTR Santa Rosa; and (ii) the Ipojuca landfill is owned by the same company as the Candeias landfill. Incorporation under the POA will not require any financing to be provided by the Bank or by the CF Unit (beyond technical assistance).

47. Following the closure of this Project and in the medium-term future, periodic supervision of environmental and social safeguards will be required at the Santa Rosa landfill (including the Tanque and Penha transfer stations), as well as the Sao Gonçalo, Ipojuca and other facilities that may request incorporation under the POA. These supervision missions will need to take place until the sub-projects can be transferred to the CF Unit. For all of the above, the CF Unit and the CPF have agreed to continue coordination with the Urban and Safeguards team, and to the provision of annual budget that will cover the costs of supervision of the program, as has been the practice to date. An annual budget of US$ 50,000 has been agreed for FY17 and will continue to be provided until the Project is transferred to the CF Unit.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

Rating: Modest

48. Objectives. At the time of appraisal, the relevance of the Project objectives was High. At the time of preparation of the ICR, the relevance of the PDO remains High, among the country’s priorities. The 2016 Strategic Country Diagnostic (SCD) states that Brazil’s environmental challenges threaten its competitiveness and productivity. Lack of sanitation and of adequate solid waste management is a major source of environmental degradation, particularly evident in a country that is more than 85 percent urbanized17. Urbanization has led to a concentration of poor

17 Total generation of municipal solid waste in Brazil in 2014 was approximately 78.6 million tonnes, representing an increase of 2.9% since 2013, roughly three times higher than the rate of population growth. Approximately 58.4% of the waste generated is adequately disposed in engineered landfills, such that roughly 30 million tonnes per year end up in garbage dumps. Significant regional disparities persist, with states in the North showing much lower amounts of waste disposed of adequately. Social inclusion of waste pickers remains high in the government’s agenda (ABRELPE, 2014).

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in urban areas, where a significant gap in access to basic services, including solid waste management services exists between the poor and the more affluent areas. The SCD notes that lack of access to basic services has important economic and social consequences, and highlights the improvement of quality of public and the participation of the private sector in service delivery as key opportunities to address some of the most pressing development constraints. Many of the targets of the 2010 Solid Waste Law have not been met, and the low capacity of local governments to design, operate and finance solid waste management operations remains a major constraint of the sector.

49. Design – The relevance of the Project’s design was Modest at the time of appraisal. The Project introduced innovations aimed at addressing key bottlenecks of the sector in terms of access to financing and private sector participation, technical capacity of municipalities to manage solid waste, and environmental and social considerations related to SWM. The design of the project successfully incorporated elements aimed at addressing specific and very relevant challenges of the SWM sector, and in line with Client needs, including: (i) innovative financing alternatives (e.g. CF and attractive lending terms); (ii) technical assistance to CAIXA and to municipalities on SWM, environmental and social safeguards, and CF; and (iii) safeguards instruments that could be replicated to all subprojects in CAIXA’s portfolio. However, the design also included a line of credit for solid waste investments, which was not fully aligned with CAIXA’s needs and priorities, and that ultimately impacted the Project’s outcome. Specifically, the interest of CAIXA was primarily the strengthening of its capacity on CF and safeguards, and the access a partnership with the Bank would bring in terms of becoming a global player in the carbon markets. Additional resources for infrastructure investments, relatively small in comparison to CAIXA’s own line of credit (even before the expansion of the portfolio), were not CAIXA’s main interest or priority, and were ultimately not implemented. The choice of the instrument (i.e. FIL) was not fully aligned with Client needs, and a Technical Assistance loan could perhaps have been more effective.

50. Implementation – The relevance of the implementation mechanisms set up for the Project was Modest at Appraisal, and remained as such throughout implementation. The Project successfully piloted the use of Country Systems in its approach to environmental and social safeguards and developed instruments, consistent with the Bank’s but building on those systems, which were effectively deployed and used during implementation. However, the same approach was not followed when it came to operational and fiduciary procedures that CAIXA was required to follow to disburse IBRD resources. In order to execute the funds, CAIXA was required to create new operational procedures that significantly delayed implementation. The need to do this was not identified at Appraisal, as a significant challenge of the proposed implementation mechanisms.

3.2 Achievement of Project Development Objectives

Rating: Modest

51. The PDO objective of improvement in the treatment and final disposal of municipal solid waste in Brazil was only partially achieved. The Project was expected to achieve the PDO objective through (i) supporting SWM infrastructure, municipal capacity, reducing poverty among waste pickers and increasing private sector participation; and (ii) strengthening CAIXA’s capacity to manage Carbon Finance operations. With a relatively modest amount of Bank resources (given the size of the SWM challenge in Brazil), and leveraging the partnership with CAIXA, the Project had ambitious targets across the solid waste management value chain (e.g. infrastructure, municipal management, financing, environmental and social). From the Bank perspective, the partnership with CAIXA allowed to leverage a large resource envelope for sanitation and SWM investments, with the potential to achieve substantial improvements in SWM in multiple municipalities. From CAIXA’s perspective, collaboration with the Bank leveraged global knowledge, access to

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alternative sources of financing (CF), and environmental and social management expertise. An assessment of Project achievements shows that the target values of some of the outcome and PDO indicators were met, and in some cases exceeded. However, the demonstrational results that were expected in terms of transformation of municipal solid waste management capacity were not achieved.

52. Two of the three PDO indicators were met and exceeded during the lifetime of the project, as shown in Table 1.

Table 1 – PDO Indicators

PDO Indicator Actual End target

1. Number of open dumps closed and monitored

Three (3) dumps were closed in the state of Rio de Janeiro:

Dump in the municipality of Seropédica, where CTR Santa Rosa is located.

Dump in the municipality of Itaguaí. Jardim Gramacho (Duque de Caxias),

which was the original dump of the City of Rio de Janeiro. The closure of this dump was not financed by the Project, but the start of operations at CTR Santa Rosa (financed under the loan) allowed the City of Rio to close its dump.

6 dumps closed under the project Partially met at EOP.

2. Increase in volume of waste disposed in environmentally sustainable sanitary landfills

Roughly 9,000 tonnes/day are disposed at the CTR Santa Rosa

4,000 tonnes of waste /day disposed in an adequate manner Exceeded at EOP.

3. Number of municipalities with investments targeting improving recycling and composting

The Project financed investments to improve SWM in (7) municipalities, including: 1. Santa Rosa Landfill:

o Rio de Janeiro o Seropédica o Itaguaí

Candeias Landfill: o Recife o Jaboatão dos Guararapes o Cabo de Santo Agostinho o Moreno

4 municipalities benefitting with investments in solid waste Exceeded at EOP.

53. Having reached most of the targets does not reflect the fact that only one investment sub-project received financing under Project. Only one subproject was financed under component 1, namely the construction of a state-of-the-art treatment and final disposal facility in the metropolitan region of Rio de Janeiro. The Santa Rosa Waste Treatment Center (Centro de Tratamento de Resíduos – CTR - Santa Rosa) is the facility that receives most of the waste generated in the metropolitan region of Rio de Janeiro. The landfill is privately owned, and it

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operates under a concession contract with the city of Rio de Janeiro. Preliminary construction had started at the time of Project approval, financed with private capital. However, the overall financing of the facility was structured through a loan of roughly BRL$ 400 million from CAIXA, with approximately 14 percent of IBRD resources (see Annex 2 for details). The Santa Rosa sub-project was comprehensive and included not only the construction of facility, but also the closure of dumps in three adjacent municipalities, a modern leachate treatment facility, improvement of working conditions of waste pickers at closed dumps, and capture and flaring of landfill gas. In addition to contributing to the resolution of a critical priority of the metropolitan region in a financially, environmentally and socially sustainable manner, with the implementation of this sub-project CAIXA was able to register Brazil’s first programmatic solid waste management program under the United Nations Clean Development Mechanism (CDM). Throughout implementation, the task team was able to provide financial and technical assistance to CAIXA, to the municipality of Rio de Janeiro and to Ciclus Ambiental (the operator of the landfill). The scale of the Santa Rosa landfill is such that the targets for the entire Project (in terms of closed dumps and amounts of waste properly disposed) were met with only one subproject. While these achievements were highly significant and of tremendous impact in Rio de Janeiro, the sub-project was not replicated to other municipalities. In that sense, having met PDO and intermediate targets with just one intervention, the Project did not achieve the broader development objective to improve SWM practices in Brazil.

54. The Rio de Janeiro sub-project became a very visible engagement, which ultimately limited the Bank’s proactivity. For many years the metropolitan region of Rio de Janeiro had disposed of its waste in the largest dump of Latin America, known as Jardim Gramacho. The closure of Gramacho became a major priority of Mayor Paes’ first term in government, all the more important as Rio + 20 approached, in June 2012. The Santa Rosa Waste Treatment Center and the closure of Gramacho were moved forward and took place in early 2012, prior to the major international event. The signature of the loan between CAIXA 18 and Saneamento e Energia Renovável do Brasil (SERB), the private sector company who owned the landfill, was scheduled to be signed, with the presence of the President of Brazil, during Rio +20. Participation of the Bank in the financing of this emblematic project received significant attention and was showcased during the event. However, the signature of the loan ultimately did not take place as planned, as ownership of the company changed prior to the final signature, altering CAIXA’s risk assessment and requiring additional analysis. The final signature was postponed over one year and took place in late September 2013. Delays not only resulted in major implementation and disbursement setbacks for the Project, but they also had a distracting impact on the CAIXA team, which had to ensure (under significant pressure) the signature of that contract. The fist disbursement ultimately took place in late November of 2013, more than three years after approval of the Project. During this interim period the Bank could not facilitate or speed up the signature of the contract, and it would have been politically complex to turn away from financing that investment. Work on the identification of other sub-projects continued in parallel.

55. The Project did not contribute in a significant manner to the improvement of municipal solid waste management capacities in Brazil. No activities were implemented under component 2 to strengthen municipalities in SWM. Low capacity at municipal level continues to be one of the most pervasive challenges in Brazil, which the availability of federal resources has not resolved. The Project was designed as a vehicle to fill gaps in knowledge on technical, administrative and procurement issues, and to help municipalities prepare well-designed projects with private sector participation. A Project Preparation Fund had been conceived during preparation, although implementation mechanisms for the Fund had not been developed. Attempts were made

18 The financial package included 80% of resources from CAIXA (FGTS), 14% from IBRD and the remaining were counterpart funding from SERB.

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during the lifetime of the Project to operationalize the Fund, but this proved to be difficult in light of the institutional changes within CAIXA and the low level of priority of the Project. Efforts to partner with other institutions to deliver knowledge and materials to municipal governments did not succeed either. In the long run, in a context of availability of funding and demand for projects, and with a stretched team, technical assistance activities under this relatively small component were not high in the list of priorities of the CAIXA team and the component was not executed.

56. The Project positively contributed to improving conditions for recyclers at two old dumps. The Project provided technical support and financed the implementation of two Social Inclusion Plans that were prepared by Ciclus Ambiental for the waste pickers impacted by the closure of the Seropédica and Itaguaí dumpsites. The Plans, prepared in accordance to the Environmental and Social Management Framework of the Project, benefited a total number of 59 waste pickers in Itaguaí and 57 in Seropédica. The Plans included support to the waste pickers and their families, which included assistance for registration in government assistance programs, education and vocational training, support in the preparation of business plans, support in the formalization of recycling cooperatives and others.

57. The Project successfully demonstrated the substantial benefits that can result from incorporation of alternative innovative sources of financing such as Carbon Finance. A second part of the PDO, which was successfully achieved, related to the strengthening of CAIXA’s capacity to manage CF projects. In fact, among the most significant results of the Project was the demonstration of the viability to incorporate CF as a complementary and substantial source of financing for landfill operations. With the ability to integrate their regular sources of financing with CF, CAIXA was able to align incentives for potential landfill owners. The generation of carbon emission reductions is typically a secondary activity for the landfill owner. Many CDM projects in the past have suffered from a disconnection between operations on the ground and financial/strategic decisions at a higher management level, which have tended to limit the impact of CDM projects. This Project demonstrated that the generation of emission reduction credits could lead, in the short term to a revenue stream for the landfill, and in the medium term it could result in a way to reduce debt for the duration of the loan. By establishing this structure of incentives, the Project demonstrated that landfill owners have clear incentives, not only to develop facilities where landfill gas is captured, but also to improve overall operations in order to comply with CDM requirements. Moreover, the Project was successful in strengthening CAIXA’s capacity to develop and manage carbon finance operations. Throughout implementation and now beyond Project closure, CAIXA has benefited from a substantial amount of technical assistance and one-on-one support from the Carbon Finance Unit. As a result of this work, CAIXA was able to register a Program of Activities, identify various sub-projects, coordinate delivery of emissions credits under multiple operations, and receive payment from international carbon buyers.

58. However, CAIXA’s ability to sustain its acquired capacity to manage CF operations remains a concern. While CAIXA successfully achieved significant milestones related to the registration and management of a CF POA and its associated sub-projects, this was done under the close supervision and with significant support from the Bank’s CF team. One of the original indicators meant to track CAIXA’s long term capacity in CF, was the establishment of a dedicated CF unit. However, at Project closure, there is still no dedicated Carbon Finance team within CAIXA, and the expertise remains heavily concentrated in a number of individuals. A task force has been established for the management of the CF initiatives, but the group remains small and members are scattered among different units. While the World Bank’s CF Unit will continue its engagement in the Project until the terms of the ERPA have been finalized, their support is increasingly less detailed and CAIXA will be expected to take an increasingly leading role in the management of the Program. The lack of a centralized unit that would hold CAIXA’s institutional knowledge and

18

expertise on CF is an issue of concern for the long-term sustainability of this newly acquired capacity.

59. The Project did not contribute to increasing private sector participation in solid waste service provision. The Project sought to increase private sector presence in SWM by strengthening municipal capacities for project design, and by improving contractual documents and management modalities that would make it more attractive for private sector to engage. For the same reasons as explained in the earlier paragraph, the technical assistance originally conceived to facilitate legal and technical work for the development of improved contractual models and terms was never a priority of CAIXA’s, and was never carried out. The sub-project in Rio de Janeiro was already in place at the start of the Project. Moreover, it involved a leading private solid waste operator (SERB) that was not representative of the target universe for the technical assistance that the Project aimed at providing. SERB is partly owner of the majority of the companies that have ongoing CF agreements under CAIXA’s Program of Activities. While the partnership with SERB has been extremely beneficial for all parties, and has contributed to the outcomes of the operation, the original objective of the Project was to have a more diversified engagement with the private sector, which did not take place.

60. The Project was successful at helping to strengthen CAIXA’s Environmental and Social Management Framework (ESMF) for SWM operations. An important objective of the Project was to strengthen CAIXA’s capacity to manage environmental and social risks of the SWM sector. The Project provided training to CAIXA to make their ESMF compatible with the Bank’s. The resulting framework Plano de Gestão Socio Ambiental (PGSA) was adopted by CAIXA for its entire SWM portfolio, is publically available through the CAIXA website, and has become one of the technical assistance tools that CAIXA can make available to municipalities.

3.3 Efficiency

Rating: Modest

61. The Project Appraisal Document (PAD) proposed to carry out an impact evaluation at the end of the project to evaluate the impacts of investing in landfills on environmental conditions and household heath indicators. That evaluation was not carried out given the low level of investment that took place, and given that only one investment received a very limited amount of Bank resources. The low disbursement levels, the very long timeline for execution, the level of supervision that it involved (and its associated costs), and the opportunity cost of nearly five years of unspent Bank resources in Brazil all point to the fact that the Project did not represent the least-cost solution for the results achieved.

62. Nonetheless, a “value for money” analysis was carried out to assess the efficiency of the investment at the Rio de Janeiro’s Santa Rosa landfill. Following procedures used in ICRs for recently closed SWM operations in Latin America19, investment and operation costs per tonne of solid waste disposed at the Santa Rosa landfill were compared with similar systems financed under Bank lending operations in Colombia and Argentina. The methodology involves comparing the costs of the Santa Rosa landfill, including capital and operation costs, to reference costs of similar landfill operations in Colombia using costing formulas developed by the Colombian Water and Sanitation Regulatory Commission (CRA). Based on more than 20 years of experience in regulating the solid waste management sector, the CRA has established cost formulas based on

19 Colombia’s Solid Waste Management Program Project (P101279) and Argentina’s National Urban Solid Waste Management Project (P089926)

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economic models of the sector that define what is considered a cost-effective service depending on the particular situation of a municipality and combination of infrastructure and services.

63. For the case of the Santa Rosa landfill, accounting for the costs of the landfill, the leachate treatment facility, five transfer stations and the closure of two dumps, results are summarized in Table 2. The analysis showed that costs were comparable to those considered efficient in Colombia and Argentina, using CRA formulas. The operating costs of the Santa Rosa landfill are comparable to those in Argentina, indicating that the investment was efficient, when compared to others financed under comparable World Bank projects. While the two facilities used as comparators lead to lower operating costs, they are smaller landfills, located in less urbanized areas, where costs of labor, land and services are lower than in Rio de Janeiro.

Table 2. Results of comparative analysis of solid waste disposal system

Solid Waste System Reference cost for system using Colombia’s CRA

formula (USD/tonne of waste

disposed)

Actual operating cost (USD/tonne of waste

disposed)

CTR Santa Rosa, Brazil (transfer, transport, disposal)

49.8 58.3

Mendoza, Argentina (transfer, transport, disposal)

41.6 54.6

Mar del Plata, Argentina (disposal)

13.2 11.4

3.4 Justification of Overall Outcome Rating

Rating: Unsatisfactory

64. Overall Project Outcome is rated as Unsatisfactory based on the assessment of the Project’s relevance (Modest), efficacy (Modest), and efficiency (Modest). The Project objectives were and continue to be highly relevant to Brazil’s priorities and to the Bank’s assistance strategy. However, the innovative design of the Project was not able to effectively respond to a changing sector context and to set up adequate implementation mechanisms. Ultimately, outcomes fell short of the originally envisioned objectives.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development N.A. (b) Institutional Change/Strengthening

65. As described in earlier sections, a central objective of the project was to strengthen institutional capacities within CAIXA, as well as at the level of municipalities and the private sector, for the management of solid waste. The Project was partly successful in accomplishing this objective. First, related to strengthening CAIXA’s capacity, the Project: (i) provided support to ensure CAIXA could develop, register and monitor CF projects under the CDM POA, thereby

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successfully increasing its capacity to integrate alternative sources of financing into their portfolio; and (ii) supported CAIXA in the development of an ESMF, consistent with global best practices, which CAIXA has incorporated as its standard procedure and will apply to all of its solid waste management investments. Second, related to the strengthening of municipal and private sector capacities, the Project was not successful, as it ultimately did not implement specific technical assistance activities with public and/or private sector as it has been originally planned.

(c) Other Unintended Outcomes and Impacts (positive or negative) N.A.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

N.A.

4. Assessment of Risk to Development Outcome Rating: Substantial

66. Two distinct risks could compromise the results achieved under the Project. First, and of most concern, there is Substantial risk that the institutional capacity developed within CAIXA to manage CF operations is not maintained. As noted in earlier sections, during Project implementation, it was impossible to set up a dedicated CF Unit within CAIXA. While capacity has been generated, it lies in a limited number of individuals who actively participated in the implementation of sub-projects under the POA. Those individuals may or may not remain engaged with SWM and CF operations in the medium to long term. Given the complexity of mainstreaming a procedure/program in CAIXA’s complicated institutional structure, there is a significant risk that the acquired CF management capacity is lost if the selected group of CF trained professionals move or leave the institution. There is some risk associated to the extent to which CAIXA will be able to manage the POA, according to the requirements of the CDM, and to incorporate new sub-projects, without the close support and supervision of the Bank’s CF team (following the closure of the loan). This latter issue will be mitigated by CF supervision missions that will continue after the closure of the loan.

67. Second, there is a risk that the operation of CTR Santa Rosa may not be successful in the medium to long term, and that emissions reductions do not meet the targets agreed under the ERPA. The risk of this occurring is Modest. Santa Rosa is a state-of-the-art facility, operated by a competent private company, under the provisions of a long-term concession contract with the Rio de Janeiro municipality. There is low likelihood that the operator of the landfill will run into unresolvable technical or financial problems in the near future. With regards to the generation of emissions reduction credits in compliance with the ERPA, there is a possibility of underperformance. In fact, during the first two years of operation of the landfill gas capture system, emission reduction levels were considerably lower than those projected. However, the reasons for the initial low performance have been identified and are being addressed by the operators. Specifically, the Santa Rosa landfill has hired an engineering firm that will support them in the operation and monitoring of the landfill gas collection system, and improved collection rates have been observed since 2015.

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5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Unsatisfactory

68. Project design was innovative and ambitious to address a very critical development problem. Preparation involved a very thorough diagnostic of the bottlenecks affecting the solid waste management sector, including: (i) review of regulatory framework, management models and contracting options to promote the involvement of the private sector20; (ii) assessment of typical environmental and social issues that impacted SWM projects; (iii) extensive discussions with private sector and municipal government representatives; and (iv) assessment of CAIXA’s fiduciary capacity. The project was designed to respond to the main issues identified, and particularly: (i) funding to provide technical assistance to the private sector and municipalities to improve management capacity and models; (ii) technical assistance to CAIXA in Bank safeguards procedures, as well as in the development of an environmental and social framework to address issues encountered in project implementation; (iii) training to CAIXA staff on the Bank’s procurement and financial management procedures; and (iv) technical assistance on Carbon Finance operations and procedures. A CF Intermediary Agreement between CAIXA and the CF Unit was signed during preparation, which set the framework for a pipeline of CF projects in Brazil. The targets set in the M&E framework were estimated based on the various stakeholder consultations, and a procurement plan for the first year of implementation was ready by appraisal.

69. It would have been impossible to predict, during preparation, the significant changes that occurred in the regulatory context of the solid waste sector, the increased availability of federal resources, and the impact these would have on implementation. However, the Bank failed to anticipate the need to put in place internal mechanisms for implementation, and the cumulative delays this would cause21. Specifically, the Bank underestimated the complexity of CAIXA’s internal administrative processes and the impact this would have to the ability for timely implementation of the project, particularly following more than one year of delay in effectiveness. These initial delays had substantial negative consequences, because they set back preliminary agreements that existed on potential sub-projects. After the early delays in implementation, the preliminary pipeline of sub-projects that had been identified during preparation did not materialize (with the exception of the Rio de Janeiro landfill). Moreover, the demand for technical assistance from local governments was overestimated, and there was little interest in CAIXA to set up a Project Preparation Fund for municipalities as it had been originally conceived in the design of the operation.

(b) Quality of Supervision Rating: Moderately Unsatisfactory

20 PPIAF resources were used during preparation to carry out an assessment of the solid waste sector, and opportunities for private sector involvement under different management models. 21 New Operational Procedures had to be prepared and approved by CAIXA’s Board of Directors to execute IBRD resources. This meant approval of protocols to engage staff from units other than the direct project counterparts in the implementation of activities (e.g. legal, data management, municipal affairs, knowledge management), development of new contract templates, capacity building initiatives for municipalities, communication and training materials, etc.

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70. The Bank carried out supervision activities to oversee implementation of the Project, including technical, safeguards and fiduciary supervisions. Three supervision missions per year were carried out between 2011 and 2015, with teams composed of technical staff (solid waste and carbon finance specialists), environmental and social safeguards specialists, financial management and procurement specialists. During the first three years of implementation at least one video conference was held every month with CAIXA’s project team. The team worked closely with CAIXA in the design of the capacity building program, in the preparation of terms of reference for activities and for consultants, in bringing in global experiences and models for engagement of municipalities. The task team met with municipal governments and with the private sector in efforts to identify sub-projects and demand for technical assistance. Safeguards teams worked closely with CAIXA from the design phase and throughout implementation, providing support in various forms: in the preparation and review of safeguards instruments, in training and capacity building activities to ensure that various CAIXA teams, as well as landfill operators, were knowledgeable on the ESMF and its application, in periodic visits to landfill sites to review implementation of safeguards instruments. Fiduciary teams conducted training at least once a year, and worked with CAIXA in the preparation of periodic fiduciary and audit reports. The CF team provided (and continues to provide) very close support to CAIXA on CF operations, including monitoring and reporting to UNFCCC. This close support throughout supervision was an important factor for the strengthening of CAIXA’s capacity to manage safeguards and Carbon Finance operations.

71. Implementation performance issues with the Project were highlighted early on, and reflected in the Project ISRs and Management letters. The Mid-Term Review was delayed until it could better tailor recommendations to the new institutional structure of CAIXA, following its reform. The restructuring of CAIXA was a lengthy process that lasted over one year, and the MTR was postponed until October 2014. The MTR recommended restructuring of the Project with partial cancellation of the unused balance. However, CAIXA was not interested in a major restructuring of the Project to shift the focus from investment to technical assistance. Moreover, CAIXA did not want to pursue the option of partial cancellation. Therefore, during the last year of implementation, efforts focused on completing planned activities at the CTR Santa Rosa, and on moving forward with the registration of additional CF sub-projects.

72. The Task Team, with the support of management, attempted a number of pro-active measures to impact the Project’s implementation performance, including critical ISRs, Management visits to CAIXA and direct Management Letters, proposal for restructuring and for partial cancellation of the operation. Without CAIXA’s agreement, it was ultimately not possible to implement any of these measures. The team, however, did not propose a revision of the Results Framework, and specifically of the PDO indicators, to more explicitly account for the strengthening of CAIXA’s CF capacity as a main outcome of the project. A revisions of the M&E framework could have also eliminated some of the intermediate indicators that were no longer relevant as implementation advanced.

(c) Justification of Rating for Overall Bank Performance Rating: Moderately Unsatisfactory

73. Project design was innovative and preparation was extensive. Supervision was consistent throughout implementation and involved close support of CAIXA’s team. However, implementation mechanisms overlooked during preparation, combined with a changing sector context negatively impacted the Project. During implementation, the measures put in place to address these issues were not sufficient to change implementation outcomes, and the results framework was not revised to better capture some of the successful outcomes of the operation.

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5.2 Borrower Performance

(a) Government Performance Rating: Moderately Unsatisfactory

74. Overall government performance during preparation and up to effectiveness was Satisfactory. Representatives of the Federal Government were involved during preparation and until effectiveness. Moreover, the Government provided the guarantee for CAIXA to directly access the IBRD loan. However, communication with the central government after effectiveness were limited to the audit reports made by the Central Auditors. Throughout implementation and until closure, the Ministry of Finance did not engage with the Bank on discussions over the performance of the Project (in spite of receiving management letters to CAIXA and participating in portfolio review meetings with country management unit). The overall rating of the government’s performance is therefore assessed as Moderately Unsatisfactory.

(b) Implementing Agency or Agencies Performance Rating: Unsatisfactory

75. The CAIXA team was actively engaged during preparation of the Project and contributed to the design of the operation. However, it failed to anticipate the difficulties that would arise during implementation and caused by institutional and administrative bottlenecks. The Project remained the responsibility of the same team within CAIXA throughout its lifetime and until closure. During that time, the CAIXA team was not responsive to implementation delays, showed limited initiative in trying to resolve problems and improve overall performance. The approval process for the Santa Rosa credit took over one year, and after that there was little interest of the business development team to pursue additional sub-projects, even though one third of the resources remained unused. Implementation of component 2 was never a priority for CAIXA. A technical assistance program for municipalities was never finalized and no resources were ultimately used under this component. While CAIXA complied with all fiduciary, safeguards and reporting requirements of the loan, the team demonstrated limited ownership of the Project (with the exception of the CF component) and little interest to reverse the unsatisfactory implementation performance in order to reach the PDO.

(c) Justification of Rating for Overall Borrower Performance Rating: Unsatisfactory

76. The CAIXA team satisfactorily complied with all fiduciary and safeguards requirement under the loan, but they demonstrated little initiative to try to address implementation delays that affected the Project early on. They had little interest in identifying additional sub-projects that would be viable for financing, or municipalities interested in receiving technical assistance under the loan. At the end of the Project, almost 67 percent of the resources remained undisbursed.

6. Lessons Learned Lesson # 1 - Choosing the “right” financial intermediary for subnational investments in SWM – the wholesaling approach to subnational infrastructure investments, through a national-level aggregator with presence around the country was central to the design of this project. CAIXA appeared as a solid partner, with the required financial and technical capacity, branches in virtually all Brazilian municipalities and a strategic interest in the SWM sector. However, through

24

implementation, the following aspects proved to be critical bottlenecks to the effective execution of the Project:

i. Size of the operation relative to portfolio size of financial intermediary – The size of the sanitation infrastructure portfolio managed by the team at CAIXA was several orders of magnitude larger than that the loan. This affected the level of priority and the willingness to use Bank’s funds, given that the Bank’s operation involved separate and less known implementation procedures and within a context where alternate sources of funding were readily available. Project size in important, particularly relative to the size of the intermediary’s own financing portfolio, as it influences the level of priority for implementation and the human resources that will be dedicated to the Project.

ii. Lending conditions of financial institution – It is important to have a good understanding of the financial terms of the loans the intermediary financial institution offers its clients in order to understand the advantages and disadvantages of their credit lines compared to that set up with IBRD resources.

iii. Setting up the right incentives - It is critical to understand the motivation of the financial intermediary to engage in a programmatic solid waste management operation, in order to set clear priorities and to manage expectations. CAIXA’s main interest in partnering with the Bank on this operation was to have access to World Bank knowledge and technical assistance, in order to develop its CF capacity. A relatively small credit line of IBRD resources, particularly given the extent of CAIXA’s own financing resources in the sector, was not in itself a major incentive. Aligning incentives and operational objectives becomes critical in the development of an operation for subnational investments in SWM, through a financial intermediary.

iv. Compatibility of internal implementation procedures – The difficulties involved in having an institution of the size and the administrative complexity as CAIXA put in place procedures compatible to the Bank’s were severely underestimated in the design of this project. A clearer understanding of the time required to have approved operating procedures (beyond the Operations Manual) and of the restrictions to internal recruitment of consultants, procurement, training, etc. is needed upfront, to be able to factor in sufficient time into the implementation schedule.

Lesson # 2 – The need to identify a robust pipeline of investments and technical assistance at preparation. Having a well-defined pipeline of eligible subprojects is critical to allow implementation to begin once the Project is approved. Long delays at the onset of the Project while the viability of a pipeline of subprojects is being evaluated results in a loss of momentum and/or of political interest, which can have detrimental consequences. The negative repercussions will be compounded if, during the time that sub-projects are identified, the overall sectoral and/or political context changes, affecting the boundary conditions in which sub-projects will be prioritized and executed. Lesson # 3 – Results Framework should include process –oriented intermediate indicators when institutional changes are integral to achieving results. The revisions to CAIXA’s operating procedures that were required for the Project to be implemented were substantial. The Results Framework did not allow to monitor advances in this area, as it was designed to track longer term outcome indicators. Indicators reflecting progress (or lack of progress) on critical upstream reforms would have sent clearer signals to CAIXA’s team that internal bottlenecks needed to be addressed.

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Lesson # 4 – Well coordinated, blended IBRD-CF projects can successfully leverage and complement solid waste management operations. Even though the overall results of this Project were not satisfactory from the perspective of achieving the objectives of the IBRD loan, the CF components of the operation are moving forward successfully. The integrated work of the solid waste and CF teams was one of the most positive design aspects of the operation. Presenting a joint approach to Project implementation underscores the technical and financial advantages of integrating emissions reduction equipment and technology from the onset of the Project, and allows the inflow of (substantial) resources early during implementation. Payments for emissions reductions credits become a critical incentive to accelerate implementation and/or to more effectively operate landfills, in accordance to CDM technical procedures, as they are proxies for well-managed operations. Lesson # 5 – The alignment of ERPA and Bank project timelines needs to be carefully evaluated, particularly in blended, programmatic operations. The long-term arrangements for safeguards supervision of CF projects, beyond the closing date of the Bank project, have been an issue of discussion for a number of years. The issue is particularly relevant in the case of programmatic IBRD-CF operations, where the number and scope of potential sub-projects that will receive financing remains undetermined until the closing date of the Program’s ERPA. Provisions for the allocation of safeguards supervision resources must be made in advance to ensure the CF team is supported by an adequate safeguards team after the Program’s closing date. Lesson # 6 – The need to set up a distinct CF team in counterpart agency for implementation of blended operations. It is important to ensure that a well-trained team of dedicated CF specialists is set from the beginning of implementation of a blended IBRD-CF operation, in order to: (i) support an integrated and timely implementation of the project, in compliance with Bank and CDM requirements; and (ii) ensure that opportunities for expansion of the Program are exploited and that the IBRD resources are adequately leveraged.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies

No comments were received from CAIXA on the conclusions of the ICR. (b) Cofinanciers N.A. (c) Other partners and stakeholders N.A.

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Components Appraisal Estimate

(USD millions)

Actual/Latest Estimate (USD

millions)

Percentage of Appraisal

Total Baseline Cost 50.0 16.60 33%

Physical Contingencies 0.00 0.00 Price Contingencies 0.00 0.00

Total Project Costs 160.0 122.66 Front-end fee PPF 0.00 0.00 Front-end fee IBRD 0.1 0.1 100%

Total Financing Required 50.0 16.7 33%

(b) Financing

Source of Funds Type of

Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

Borrower Cash 110.00 97.65 89% Saneamento e Energia Renovável do Brasil (SERB)

Cash 0 8.29

International Bank for Reconstruction and Development

Cash 50.00 16.72 33%

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Annex 2. Outputs by Component

Component 1. Infrastructure Investments in Solid Waste Disposal and Treatment.

1. Objective - Provide financing to public or private entities for infrastructure investments (Subprojects) to improve final waste disposal and treatment within comprehensive solid waste management strategies reducing negative environmental and health impacts, such as, inter alia: (a) the construction and operation of sanitary landfills; (b) the closing of open dumps and related management of environmental impacts; and (c) the development of alternative waste treatment facilities. The following paragraphs describe the final results of implementation of activities under Component 1.

Construction and operations of solid waste landfills

2. CTR Santa Rosa, Seropedica (Rio de Janeiro). One operation was co-financed by the loan, namely the Centro de Tratamiento de Residuos (CTR) Santa Rosa, which provided a modern and fully integrated solution to the solid waste generated in the city of Rio de Janeiro and other municipalities in the Metropolitan area of Rio. The CTR is owned by the company Haztec and operated by Ciclus Ambiental.

3. CAIXA provided financing to Haztec’s parent company Saneamento e Energia Renovável do Brasil (SERB), through a loan that combined CAIXA and IBRD resources. The total amount of the loan was BRL $404 million, roughly US$ 200 million, of which R$ 68,897,090.75 (approximately US$31 million at the exchange rate of the date of signature) are IBRD resources (see Table 3 for the total loan amount including CAIXA’s resources, and disbursements). IBRD resources financed rehabilitation works at the Seropédica and Itaguaí dumpsites, as well as works at three transfer stations (Santa Rosa, Bangu and Caju). Although operations at CTR Santa Rosa started in April 2012, the signature of the CAIXA-SERB loan only took place in December 2013 and final disbursement occurred in December 2015.

4. Additional subprojects. Several other operations were considered for financing under the loan. They all involved privately owned companies that sought resources from CAIXA, either for the financing of landfills or for the installation of methane-capture equipment, as follows:

Itaoca landfill (São Gonçalo, Rio de Janeiro) - The landfill operated by Haztec and serving the municipality of São Gonçalo and large private generators in the state of Rio de Janeiro, was closed in February 2012. It was registered as a CDM Project in October 2011 with the objective of developing the landfill gas collection and flaring potential of the dumpsite. As part of the JSDF funded Project, CAIXA and the Bank agreed on an action plan with Haztec involving training for 246 ex-waste pickers, as well as the establishment of a recycling cooperative for 50 workers. However, motivated by policies implemented by the City of Rio de Janeiro related to the closure of Jardim Gramacho22, ex- waste pickers at Itaoca requested monetary compensation for the loss

22 At the request of the Mayor of Rio de Janeiro, prior to the launch of Rio+20, in 2012, waste pickers at Jardim Gramacho received a one-time payment of R$ 14,000 per person, from the City of Rio, as compensation for the closure of the dump where they worked.

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of livelihoods that resulted from the closure of the dump. After September 2012, and unable to reach a consensus, the decision was made to cancel all activities planned at Itaoca under the JSDF funded Project. The CDM project and the expected CERs were ultimately removed from the ERPA as no landfill gas collection was possible at the site.

São Gonçalo landfill (São Gonçalo, Rio de Janeiro) – The landfill was owned and operated by CTR Alcántara, a subsidiary of Haztec. It was operational since February 2012. The landfill was included in the ERPA with the CPF, and the CPA inclusion under the CAIXA POA took place on March 31, 2016. The implementation of the landfill gas collection equipment started in 2015. This landfill was considered for financing under the loan, but a final request was never completed.

Candeias landfill (Recife, Pernambuco) - The landfill, owned and operated by ECOPESA, was registered as a CDM project on December 30, 2011 with World Bank’s assistance under Nova Gerar II Carbon Finance Project (P079182). Originally, it had an ERPA with the Spanish Carbon Fund which was terminated in 2013. In addition, an ERPA was negotiated between the CPF and CAIXA to purchase carbon credits from Candeias, associated with the CAIXA POA. ECOPESA advanced in the preparation of documentation to request financing for methane-to-energy generation equipment, as well as for the expansion of their leachate treatment system. There was ultimately no request for financing under the Project.

Ipojuca landfill (Ipojuca, Pernambuco) – The landfill has been operated by ECOPESA since December 2013. After the closure of the loan, CAIXA continued discussions with ECOPESA about the possibility of including it as CPA under the CAIXA POA.

Barra Mansa landfill (Barra Mansa, Rio de Janeiro) – The landfill was operated by Haztec, was considered for inclusion as a CPA under the CAIXA POA, but the current size of the project does not justify the additional investments for CF.

Closure of solid waste dumps

5. Two dumps in the State of Rio de Janeiro were closed with financing from the Project, namely Seropédica and Itaguaí dumps. The environmental license for CTR Santa Rosa required the closure and remediation of these two local dumps. Ciclus Ambiental, the operator of the Santa Rosa landfill, carried out the closure of the Seropédica and Itaguaí sites on May 24 and June 1, 2011, respectively. With the closure of the sites, 57 catadores who used to work at Seropédica and 59 in Itaguaí were no longer picking waste, and were compensated under the Plano de Inclusão de Catadores (PISCA).

6. The Project also facilitated the closure of a third dump in the state, Jardim Gramacho in Duque de Caxías, one of the largest in Latin America. The closure of this dump was not financed by the Project, but the start of operations at CTR Santa Rosa allowed the City of Rio de Janeiro to close its dump. Several activities to work with ex-waste pickers at this site were discussed under the context of the JSDF funded Project, but did not materialize.

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Development of alternative waste treatment facilities

7. The CDM-POA “Caixa Econômica Federal Solid Waste Management and Carbon Finance Project” was registered in the UNFCCC on October 5, 2012.23 It was the fifth POA to be registered in Brazil and the first one in the SW sector. CTR Santa Rosa was the first Component Project Activity (CPA) included under the POA. CAIXA is the Coordinating Entity and has an ERPA in place with the Carbon Partnership Facility (CPF) to sell the carbon credits obtained by this POA.

8. Scaling up mitigation through Market Mechanisms – By October 2014, the CAIXA POA became the first ever large scale POA to issue credits under the CDM. This was a major milestone for two main reasons: (i) it shows the potential of carbon finance to support partner countries in their effort to move towards low-carbon economies and scale up mitigation on sector specific initiatives; and (ii) it is aligned with the World Bank objectives of partnering with local financial institutions to create new tools for mitigation activities.

9. Table 1 summarizes results for each indicator under component 1.

Table 1. Component 1 Intermediate Results

Intermediate result according to PAD

Result indicator according to PAD

Result

Increased private participation in solid waste service provision

1. Number of municipal solid waste projects with financing by the private sector

Two (2) sub-projects in 7 municipalities have benefitted from the Project.24

Sound performance of CAIXA’s line of credit for SWM lending

2. Growth of loan portfolio of project funds

CAIXA’s SW lending portfolio multiplied (roughly) by a factor of 10 between 2009 and 2013, going from BRL$ 56 million to BRL$539 million. This increase, however, cannot be attributed to the Project.

Increased commercial lending for SWM sector.

3. Number of commercial banks financing or co-financing municipal solid waste projects

No results related to this indicator

23 UNFCCC, PoA 6573 : Caixa Econômica Federal Solid Waste Management and Carbon Finance Project http://cdm.unfccc.int/ProgrammeOfActivities/poa_db/Q9LW74OKAXMUZPCE3IJBVS16025HDT/view

24 The project provided financed for the Santa Rosa Landfill and through the different ERPAs facilitated or will facilitate access to financing for Santa Rosa and Candeias landfills.

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Component 2: Technical Assistance and Institutional Strengthening and Project Management.

10. Objective of the component: Support the development of an integrated approach to solid waste management in Brazil, by preparing regulatory, financial and technical guidelines to enable and encourage investments in the solid waste sector through the provision of: (i) Technical assistance and capacity building for the preparation of solid waste management investments; (ii) Technical assistance to strengthen CAIXA’s institutional capacity to manage, supervise and monitor solid waste management investments; and (iii) Support CAIXA to insure proper management and supervision structures for Project implementation.

11. Final results: No disbursement took place under this component. The Bank and CAIXA worked closely to identify and implement several activities, although ultimately none materialized.

Sub-component 2.1: Technical assistance and capacity building for the preparation of solid waste management investments.

12. Throughout implementation of the Project, many options for capacity building activities were discussed with CAIXA, including: (i) the development of model contracts and other materials to promote and facilitate public-private partnerships between municipal consortia and solid waste management operators; (ii) the development of training and capacity building materials to assist municipalities in the preparation and implementation of SWM projects. A Programa de Assessoramento para o aperfeiçoamento na gestão de resíduos sólidos was prepared in 2012 to guide the preparation of capacity building products and training for municipalities with an expected roll-out at the end of 2012. However, two subsequent and major internal restructuring processes within CAIXA made it impossible to implement the Program as it had been initially conceived, and it was ultimately not carried out.

13. A collaboration agreement between CAIXA and the Associação Brasileira de Empresas de Limpeza Pública (ABRELPE) to support the capacity building agenda on solid waste management and carbon finance for was a high priority for both agencies, but was never signed. A number of knowledge pieces, targeted to local governments and the private sector, were considered for publication, expected to be financed with technical assistance resources from the Project, including: (i) “Residuos Solidos: Manual de Boas Praticas no Planejamento” (developed by ABRELPE); (ii) Potential for Waste Management in Brazil to Minimize GHG emissions and Maximize Re-use of Materials (developed in 2012 by the University of Utrecht); (iii) Guideline for the implementation of PPPs in the solid waste sector; (iv) Investments needed to expand the SWM and adapt to new SWM law; (v) Solid waste sector GHG potential and financing scenarios; (vi) Technological routes for Brazil, GHG emissions reductions, financial needs, economic models and associated risks; (vii) Mapping of solid waste consortia, including PMI, PPP and concessions; Financial instruments for Municipalities to cover SWM costs. None of these publications were ultimately financed by the Project.

Sub-component 2.2: Technical assistance to strengthen CAIXA’s institutional capacity to manage, supervise and monitor solid waste management investments.

Institutional capacity on overall solid waste management

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14. The Project helped strengthen CAIXA’s Environmental and Social Management Framework (ESMF) for SWM operations. The Project provided training to CAIXA to make their ESMF compatible with the Bank’s. The resulting framework Plano de Gestão Socio Ambiental (PGSA) was adopted by CAIXA for its entire SWM portfolio, and became one of the technical assistance tools that CAIXA can make available to municipalities.

Institutional capacity on Carbon Finance

15. Throughout implementation of the Project, multiple activities were initiated with CAIXA, but ultimately not pursued. Reasons vary from the restructuring of CAIXA, to the collapse of the carbon markets25, which limited the extent to which CAIXA continued to actively pursue new engagements.

16. As part of the ERPA agreement and, in order to improve CAIXA’s capacity as managing entity of the POA, the CPF provided a series of trainings on CDM technical and regulatory requirements. These included on-site inspections of the projects, face-to-face trainings and workshops with CAIXA staff, as well as the preparation, in coordination with CAIXA of a CDM Operations Plan.

17. There is no dedicated Carbon Finance Team within CAIXA, but a task force was established for the management of the CF initiatives. However, the team remained small, scattered among different units and no dedicated specialist to work on CF initiatives was ever designated. In CAIXA’s restructured organizational matrix, it was not possible to create a specific unit to manage carbon finance initiatives.

Sub-component 2.3: Support CAIXA to ensure proper management and supervision structures for project implementation.

18. At the onset of the Project, CAIXA had a strong capacity to manage and supervise the project implementation. Therefore, most of the Bank’s assistance focused on harmonizing CAIXA’s existing processes and procedures for procurement and financial management with those required by the Bank. Managing the IBRD resources in compliance with the Bank’s fiduciary requirements implied putting in place a separate system of controls within CAIXA. Almost two years were needed to have all the procedures in place for CAIXA to use Project resources.

19. Procurement. Staff from GESAN and CAIXA’s Central Procurement Division received training on World Bank procurement procedures, and a Procurement Specialist was temporarily hired to support the CAIXA team.

20. Financial Management and set-up of internal control systems. Multiple training sessions were organized with the CAIXA team, especially to help with the generation of the agreed IFR and SOE formats by CAIXA’s internal accounting system (SIAPF).

25 The global economic crisis, which started in late 2008 and intensified early in 2009, negatively impacted both the demand and supply sides of the carbon market. As industrial output plummeted the demand for carbon assets fell. On the supply side the financial crisis spurred financial institutions and private investors to deleverage and redirect their positions away from risky investments and toward safer assets and markets. Capital inflow to developing countries fell dramatically, while already internalized resources flowed out. As a result, many carbon finance project developers found it impossible to lock in finance, and project origination effectively ground to a halt. The carbon markets continued to decrease throughout 2010, and finally plummeted in early 2011. The price of carbon credits never recovered to its pre-2010 levels (State and Trends of Carbon Markets, The World Bank 2008-1015).

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21. Table 2 shows final results for each indicator under component 2.

Table 2. Component 2 Intermediate Results

Intermediate result according to PAD

Result indicator according to PAD Result

Improved municipal solid waste management systems

4. Availability of management models, cost-recovery mechanisms, contracts for solid waste management

Diagnostic of viability of various management models with private sector participation

ESMF CF pre-feasibility

worksheets (e.g. emission generating models, investment needs)

5. Number of participating cities with regulatory framework and cost-recovery to adequately manage solid waste services

No municipality benefitted directly from the project.

Increased capacity of CAIXA to manage carbon finance initiatives

6. Creation of specific unit within CAIXA that manages carbon finance initiatives

A task force within CAIXA was established for the management of carbon finance initiatives. However, the existing team remained small, divided among different units and without a dedicated carbon finance specialist. The new organizational structure of CAIXA did not allow the creation of a dedicated carbon finance unit.

7. Number of carbon finance initiatives managed by CAIXA.

CAIXA is the Coordinating Entity for the POA “Caixa Econômica Federal Solid Waste Management and Carbon Finance Project”. Two sub-projects with legal agreements (ERPA) signed with CAIXA (Santa Rosa, which has been included as a CPA, and São Gonçalo, which was included as CPA in 2016). In addition, two stand-alone projects also signed contracts with CAIXA (Itaoca and Candeias).

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Intermediate result according to PAD

Result indicator according to PAD Result

Project management and monitoring system established and operational

8. Project management systems in place (financial, M&E) and timely reporting (Progress Reports, Audits)

Achieved

Disbursements

22. Final disbursement levels reached US$16.72 million, corresponding to 33.4 percent of the loan. From this amount, US$ 125,000 corresponds to the front end fee.

23. Disbursements under Component 1. The disbursements for this component corresponded to roughly 37 percent of what was originally anticipated in the PAD. The only subproject financed under the loan was CTR Santa Rosa. Table 3 summarizes the distribution of the original sources of funding for the project, as well as the final breakdown of resources (at ICR stage).

Table 3. Financing of CTR Santa Rosa 

  Contract Value

(BRL $) Contract Value

(USD $) Total disbursed

(BRL $) Total disbursed

(USD $)

IBRD 68,897,090.75 19,876,836.52 57,970,919.30 16,724,631.96

CAIXA 338,469,735.07 97,648,645.51 338,469,735.07 97,648,645.51

Own-resources (SERB)

17,814,196.58 5,139,402.39 28,740,368.03 8,291,606.96

TOTAL 425,181,022.40 122,664,884.43 425,181,022.40 122,664,884.43

24. Disbursements under Component 2. No Project resources were used in the financing of component 2 of the loan. Specifically: (i) no technical assistance was provided to municipalities; and (ii) CAIXA opted for financing the operation of the Project management team with its own resources, not utilizing the funds that had been allocated for this purpose at the onset of the Project.

25. Final disbursement of IBRD resources. Table 4 provides a more detailed breakdown of all disbursement that occurred under the Project, and how the resources were utilized.

Table 4. Financing of CTR Santa Rosa 

Description of resource use

Amount disbursed

(USD) Front-end fee 125,000.00

Rehabilitation Seropedica and Itaguai dumpsites 11,775,000.00

Equipment and civil works required in the upgrade of Santa Cruz Transfer station

1,085,000.00

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Equipment and civil works required in the upgrade of Caju Transfer station

1,915,000.00

Equipment and civil works required in the upgrade of Bangu Transfer station

1,824,631.96

Total amount disbursed 16,724,631.96

Total amount returned to IBRD 33,275,368.04

26. CF resources generated by Santa Rosa sub-project. Estimates of the amount of CF resources that were disbursed to CAIXA from the CPF under the terms of the ERPA are as follows:

Carbon Finance resources disbursed to date: 2.6 million Euros

Total Carbon Finance resources committed under the ERPA: 15 million Euros

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Annex 3 - Economic Analysis

1. A “value for money” analysis was carried out for the investment of Rio de Janeiro’s Santa Rosa landfill following procedures used in ICRs for recently closed SWM operations in Latin America26. Investment and operation costs per tonne of solid waste disposed were compared with those of similar systems financed under Bank lending operations in Colombia and Argentina. Reference costs were calculated using costing formulas developed by the Colombian Water and Sanitation Regulatory Commission (CRA). The CRA has established formulas based on economic models of the sector that define what is considered a cost-effective service depending on the particular situation of a municipality and combination of infrastructure and services, based on more than 20 years of experience in regulating the sector nationwide.

2. Construction of New Landfills and Closure of Open Dumps. The project financed the Rio de Janeiro’s CTR Santa Rosa, a solid waste management system that included: (i) an engineered landfill, (ii) a leachate treatment plant, (iii) five transfer stations; and (iv) involved the closure of two dumps. The analysis considered the costs (including investment and operation) per tonne of solid waste managed.

3. Investment and Operational Costs: Investment and operational costs were based on figures reported by Ciclus Ambiental for expenditures on capital as well as operational costs, as follows:

Investment costs: US$104,269,780 Operational costs: US$ 5,700,000/month @ 9,000 tonnes/day

4. Results: Applying a discount rate of 5% for the opportunity cost of capital along with the exchange rate of construction, the following results were obtained from the CRA formulas:

Results of comparative analysis of solid waste disposal system

Solid Waste System Reference cost for system (USD/tonne of waste

disposed)

Actual operating cost (USD/tonne of waste

disposed) Santa Rosa CTR (transfer, transport, disposal)

49.8 58.3

Mendoza, Argentina (transfer, transport, disposal)

41.6 54.6

Mar del Plata, Argentina (disposal)

13.2 11.4

26 Colombia’s Solid Waste Management Program Project (P101279) and Argentina’s National Urban Solid Waste Management Project (P089926)

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5. Results of the analysis show that costs of operation of the Santa Rosa landfill are comparable to those considered as efficient in Colombia and Argentina. The two facilities used as comparators are smaller and located in less urbanized areas, where costs of labor, land and services are lower than in Rio de Janeiro, and therefore it is not surprising that the overall operation costs in Rio are higher.

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibilit

y/ Specialty

Lending Catalina Marulanda Lead Urban Specialist GSU10 Sarah Anthony Murphy Miguel Navarro-Martin Lead Financial Officer FABBK Sebastien Pascual Paul Procee Program Leader LCC5C Chandra Shekhar Sinha Lead Climate Change Specialist GSU18 Eduardo Martin Urdapilleta Joao Vicente Novaes Campos Financial Management Specialist GGO22 Peter Cohen Consultant GSU01 Sandra Cointreau Consultant GSU12 Regis Thomas Cunningham Sr Financial Management Specialist GGO20 Gunars H. Platais Senior Environmental Economist GEN04 Luis R. Prada Villalobos Senior Procurement Specialist GGO05 Jennifer J. Sara Director GWADR Sunita Varada Special Assistant GGEVP Jessica Wurwarg Da Zhu Senior Economist GSU08 S.A. Dan Biller Sector Manager MIGEC Melissa Bonneton Frederico Rabello Costa Senior Procurement Specialist GGO04 Catherine Lynch Sr. Urban Specialist GSUGL Ming Zhang Practice Manager GSU12 Sameh Naguib Wahba Tadros Practice Manager GSU13 Soraya Silmao Melgaco Etel Patricia Bereslawski Lead Procurement Specialist GGO08 Emma Elizabeth Hetnar Alberto Ninio Deputy Gen. Counsel Operations LEGVP Egils Peters Grants

Supervision/ICR Catalina Marulanda Lead Urban Specialist GSU10 Augusto Ferreira Mendoca Consultant GSURR Paul Procee Program Leader LCC5C Ming Zhang Practice Manager GSU12 Robert Brunet Marcia Cortes Pereira Consultant Clarisse Torrens Dall Acqua Senior Environmental Specialist GEN04

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Camila Correia Muller Consultant GSU10 Anna Stewart Perkinson Maria Carolina Mantaras Assistant Project Manager GSDTI Ondina Francisca Rocca Consultant Marcos Abicalil Sr. Water & Sanitation Specialist GWA04 Javier Freire Coloma Carbon Finance Specialist GCCCF Emanuela Monteiro Urban Specialist GSU10 Jason Jacques Paiement Social Development Specialist CRKI2 Rui Doming Ribeiro Consultant GWADR Lorena Vinuela Public Sector Specialist GGO16 Beatriz Eraso Puig Consultant GSU10

(b) Staff Time and Cost

Stage of Project Cycle Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including travel and consultant costs)

Lending FY08 24.94 108.29 FY09 27.18 134.92 FY10 19.15 75.81

FY11 7.20 60.65

Total: 78.47 379.67 Supervision/ICR

FY11 11.47 62.77 FY12 8.79 66.97 FY13 8.29 70.35 FY14 10.36 73.79 FY15 18.93 116.62 FY16 7.72 46.78

Total: 65.56 437.28