The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) Project Information Document (PID) Appraisal Stage | Date Prepared/Updated: 21-Feb-2021 | Report No: PIDA31094 Jan 28, 2021 Page 1 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) BASIC INFORMATION OPS_TABLE_BASIC_DATA A. Basic Project Data Country Project ID Project Name Parent Project ID (if any) Brazil P174619 Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) LATIN AMERICA AND CARIBBEAN 22-Feb-2021 28-May-2021 Water Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Municipality of Belo Municipal Secretariat of Horizonte Works and Infrastructure (SMOBI) Proposed Development Objective(s) To reduce flood risks and improve the living conditions of vulnerable people in selected areas of Ribeirão Isidoro basin in the Borrower’s territory. Components Component 1 – Flood Risk Reduction in the Ribeirão Isidoro Basin Component 2 – Urban Upgrading of Selected Informal Settlements in the Izidora Region Component 3 – Institutional Strengthening Component 4 – Project Management PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 168.00 Total Financing 168.00 of which IBRD/IDA 134.40 Financing Gap 0.00 DETAILS -NewFinEnh1 Jan 28, 2021 Page 2 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) World Bank Group Financing International Bank for Reconstruction and Development (IBRD) 134.40 Non-World Bank Group Financing Counterpart Funding 33.60 Borrower/Recipient 33.60 Environmental and Social Risk Classification High Decision The review did authorize the team to appraise and negotiate Other Decision (as needed) B. Introduction and Context Country Context 1. The COVID-19 pandemic has exposed Brazil to unprecedented social and economic challenges. Following the 2015-16 recession, the country had not yet recovered and had limited fiscal space. The pandemic and the multidimensional policy response to it have resulted in a sharp decline in external demand and have both affected domestic demand and constrained supply. As a result, Brazil’s Gross Domestic Product (GDP) is projected to decline 4.5 percent in 2020, followed by respective rebounds of 3.0 in 2021 and 2.5 in 2022. 2. Brazil’s poorest 40 percent and those living in urban areas are par ticularly exposed to the fallout from the COVID-19 pandemic. Currently, close to 20 percent of the Brazilian population is estimated to live in poverty (defined as less than US$5.50 per day, PPP). About half of the population either lives in poverty or is vulnerable to falling into poverty, and, thus, is in a disadvantaged position with regard to protecting themselves from infection and recovering from its impacts. This is particularly true for those living in favelas (urban slums), who lack reliable basic services, including water supply and sanitation (WSS) facilities. According to official statistics, 13.6 million Brazilians (7.1 percent of the country’s population) live in favelas1. Non-governmental agencies operating in the sector, such as Central Única de Favelas (CUFA), place this number at 37 million (approximately 17.5 percent of the country’s population). 3. To protect the most vulnerable from the impacts of COVID-19, the Federal Government of Brazil (GoB) has put forward a large, targeted and time bound fiscal package focused on social assistance. The cost of this package in 2020 is estimated at R$815.5 billion (US$151.6 billion), or 11.4 percent of GDP, of which R$25 billion (US$4.65 billion) would constitute transfers to partially compensate municipalities for tax revenue losses resulting from the recession. Simulations show that some of these actions helped 1 IBGE Census estimates, 2020. Jan 28, 2021 Page 3 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) cushion and even revert the pandemic-induced income shock for the bottom half of the income distribution. However, with the end of some of the emergency transfers, it is likely that households experience a drop in their income in 2021. 4. Restoring fiscal sustainability represents the most urgent economic challenge for Brazil . In order to address unsustainable debt dynamics, in 2016 the GoB adopted a constitutional amendment to limit federal primary expenditure growth to inflation until 2026. Implementing this fiscal adjustment requires alleviating the rigidities affecting public spending and revenue earmarking mechanisms, which are mandatory over 90 percent of the GoB’s primary spending. A constitutional reform of the pension system was approved by Congress in 2019 and a constitutional reform to control the wage bill of the civil service was proposed in September 2020. 5. The large fiscal disequilibrium also affects most subnational governments in terms of revenue shortfalls, rigid current expenditures (mainly, personnel and pensions) and lack of access to capital markets. At the outset of 2020 and prior to the COVID-19 outbreak, Brazilian municipalities already confronted fragile fiscal situations with revenues slowly recovering from the low levels reached during the 2015-16 economic crisis. In real terms, by 2018 primary revenues (R$666 billion) had just been restored to 2014 levels (R$621 billion). Although investments began to recover in 2018 following declines between 2014-17, the recovery ended in 2019 (R$42 billion, in real terms) below the level reached in 2010 (R$57 billion). On the other hand, recurrent expenditures have quickly risen as a result of pressing wage bills and public pensions. As a result, only 13 out of the 26 state capitals were considered creditworthy to request federal guarantees for external borrowing, including Belo Horizonte (BH). BH is also one of the four state capitals with least rigid expenditures (i.e., wage, pensions, debt services and other current expenditures only amounted to 47.2 percent of the total expenditures in 2019). This was possible given that expenditures with salaries and pensions in 2019 were only 47.8 percent of the net current revenues (the third lowest among state capitals). This flexibility in expenditures is especially important since it allows the BH Municipal Government to adjust its budget to accommodate the reduction in tax revenues resulting from the COVID-19 pandemic. 6. In Brazil, investment in infrastructure is necessary to ensure an adequate stock of infrastructure capital, increase resilience to climate change, and expand access to social services to accelerate its productivity and boost long-term growth. Low total factor productivity (TFP) growth between 1996 and 2015 has limited the increase in per capita income to just 0.7 percent per year since the mid-1990s. This figure represents one tenth the rate in China and only half the average in OECD countries. Brazil also has one of the lowest infrastructure investment levels (2.1 percent of GDP on average between 2000 and 2013) compared to its peers, resulting in a deterioration of the infrastructure stock and acute bottlenecks for production. Given the limited fiscal space and a dwindling demographic dividend2, accelerating productivity growth remains key to Brazil’s long-term growth. To this end, reforms should focus on boosting market competition, opening the economy to external trade that could reduce inputs’ and technologies’ prices and simplifying the tax system. Higher levels of investment in infrastructure are also necessary to ensure an adequate stock of infrastructure capital, remove the aforementioned bottlenecks to production, increase resilience to climate change, and expand access to social services. 7. The Metropolitan Region of Belo Horizonte (MRBH), which encompasses 34 municipalities and an overall population of 5.9 million, represents the third largest metropolitan area in Brazil. The city of BH 2The demographic dividend is the accelerated economic growth that can result from a rapid decline in a country’s fertility and the subsequent change in the population age structure. Jan 28, 2021 Page 4 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) is the political and administrative capital of the State of Minas Gerais, and the economic nucleus of the MRBH, with 2.5 million inhabitants and an area of 331 km2. Throughout the past 10 years, the city has experienced stagnant economic growth, as evidenced by the fact that its real GDP did not increase between 2010 and 2017. The population is growing at 0.25 percent annually since 2009. 8. BH still presents overall a solid economic and fiscal position, however, its dependency on the service sector renders it more susceptible to recent economic shocks. According to recent projections, the services sector in Brazil fell 5 percent in 2020 (a bigger drop than the 4.5 percent in the overall economy), and it is expected to bounce back only 2.2 percent in 2021 (a lower rebound than the projected 3 percent across the nation). BH’s economy, where the service sector represented more than 86 percent of the municipal's value added in 2017, is projected to be significantly hit in 2020 as face-to-face activities were curtailed by the social distancing measures and sustained high virus count. 9. While poverty in BH is substantially lower than the national levels, inequality remains high, resulting in a substantial number of residents among the most vulnerable in the country. According to the 2019 nation-wide household survey (PNAD-C), representative for metropolitan areas and capital cities, the proportion of BH’s residents living with less than half a monthly minimum wage (R$499) per capita was 12.7 percent, less than half the national rate of 26.7 percent. This result is in line with the fact that BH’s average income is R$2180, compared to the R$1420 nationally. However, while being a relatively rich city, inequality remains very high in BH. The Gini index in BH is 0.531, close to the country’s 0.537, yet higher than that found in most LAC countries. In turn, about one-fourth (23.2 percent) of the city’s residents belong to the bottom 40 percent of the income distribution (B40) in Brazil. The vulnerability of this group in Belo Horizonte is evidenced by their average per capita income of R$431, just about a fifth of the city’s average. 10. The residents of the proposed Project targeted areas – the Norte and Venda Nova districts – belong to the most vulnerable population groups of the capital. Vulnerable households, for the purposes of the Project, refer to those with a high likelihood of being poor, being a shock away from poverty, having significant material deprivation, or having low income-generating capacity. Their relatively low levels of welfare across several indicators provide suggestive evidence of their undependable livelihoods. For instance, in 2019, about 430,000 individuals from BH were registered in Cadastro Único3, the country’s Social Registry for low-income individuals looking to apply for social programs. Among those registered, about 33 percent had incomes per capita below R$178, despite receiving support through the Bolsa Familia cash transfer program. This rate was higher in the Norte (40.1 percent) and Venda Nova (37.8 percent)4 districts. Other indicators also show relatively higher vulnerabilities in a variety of dimensions. Compared to BH, Norte and Venda Nova show lower coverage rates of sanitation (84.8, 82 and 77.7 percent, respectively), lower indexes of environmental health (0.93, 0.83 and 0.91, respectively), lower access to early child education (53, 51.4 and 37.6 percent, respectively)5, higher adolescent pregnancy rates (8.7, 10.81 and 10.31 percent, respectively), higher rates of detection of interpersonal violence or self-harm among women 10-59 years old (197/100,000, 276.6/100,000 and 256.9/100,000 women, respectively), and higher rate of homicides of young men (106.8/100,000, 143/100,000 and 149.6/100,000 inhabitants, respectively).6 3 Only those with income per capita lower than half a minimum wage can be registered in the Cadastro. 4 According to the Relatório de Acompanhamento dos Objetivos de Desenvolvimento Sustentável de Belo Horizonte , 2020. 5 Based on the Census 2010. 6 Average of 2015-2017, as reported in the Relatório de Acompanhamento dos Objetivos de Desenvolvimento Sustentável de Belo Horizonte, 2020. Jan 28, 2021 Page 5 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) 11. The Project will directly benefit approximately 290,800 individuals, all with high degrees of vulnerability. Direct beneficiaries of Component 1 include approximately 278,300 people in Venda Nova district, an area affected by regular floods, where the Project’s flood risk reduction interventions will occur. According to a 2012 survey, residents of Venda Nova are largely reliant on public transportation (51.4 percent compared to 41.1 percent among BH residents) thus highlighting the disruptive impact of floods on their economic activity, as these floods affect mobility on important public transport axis. Under Project’s Component 2, approximately 12,500 vulnerable individuals will directly benefit from urban upgrading interventions in the selected settlements in the Izidora area. Residents of the Izidora area are among the most vulnerable residents in BH. Their vulnerability is both monetary and non-monetary. Estimations7 suggest they have an average income per capita of R$278, about 10 times smaller than the average of the city. Moreover, a significant share of them live in informal and precarious settlements, such as “favelas� and “ocupações organizadas�8. Projections show that over a quarter of the population in the Norte district (where the Izidora area is located) live in precarious settlements. Sectoral and Institutional Context Sectoral Context 12. Population growth in BH has been accompanied by unplanned territorial expansion, increased informal settlements, and the partial obstruction and encroachment of streams, altering their natural drainage and ecosystem functions in many ways. Since the 1960s uncontrolled urbanization has intensified. With the arrival of the automobile industry to Brazil, urban reforms started favoring the widening of roads, and opening of expressways and avenues, among others. Urban water courses were perceived as obstacles to the city’s development and used for sewage and solid waste disposal. Rivers and streams had no landscape or economic value to the city. The approach to urban drainage consisted of the canalization and tunneling of the city's main rivers – there have been interventions in 208 km out of the total 700 km of water courses in BH (43 km of which constitute open channels and 165 km tunnels).9 A large portion of the city is built on hills that have suffered substantial reductions in their retention and infiltration capacities due to unchecked urbanization and impermeabilization of the surface, which has considerably increased direct surface runoff with high peak flows. The increased runoff, coupled with the occupation of original flood areas of these streams and confinement of natural drainage, have too often resulted in floods, especially in the lower areas of the city. 13. BH is confronting extraordinary urban development and water management-related challenges. In addition to the increasing frequency and intensity of climate-related events – such as floods and landslides – challenges include: rapid and exclusionary urbanization processes and high housing costs relative to income, which drives vulnerable inhabitants to occupy low-lying flood plains and hillsides; 7 Prefeitura Municipal de Belo Horizonte. Instrumentos de Gestão de Riscos Ambientais e Sociais, January 2021. 8 Informal settlement is the general term used to refer to a number of typologies of settlements with no formal rights to the land, usually occupied by vulnerable population, and with lacking or inadequate access to infrastructure and services. Based on BH’s definitions, they include: (i) “Vilas and favelas�, areas occupied without any planning regulation, characterized by poor housing and lack of access to infrastructure and public services and amenities; (ii) “ Ocupações organizadas� (or organized settlements), similar to the favelas, but areas squatted by organized community groups, following some sort of plan; (iii) “Loteamentos irregulares or clandestinos�, large plots of land promoted by developers following a plan, but without formal rights to the land, and without formal licenses; and (iv) “Conjuntos habitacionais irregulares�, affordable housing complexes promoted by the public sector, which never obtained formal rights to the land. 9 https://www.otempo.com.br/hotsites/os-rios-de-bh Jan 28, 2021 Page 6 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) scarcity of land resources to promote affordable housing options; and the overall difficult task of providing adequate housing, basic services and infrastructure in informal and precarious settlements. Approximately 25 percent of BH’s population lives in more than 300 informal settlements10, which occupy an area of 24.6 km2 – equivalent to 7.4 percent of the municipality’s entire territory. 14. Flooding occurs frequently in BH; the unprecedented storms throughout 2020 significantly impacted people and assets with substantial economic damages. According to the Plano Municipal de Belo Horizonte 2016-2019, the city was struck by 2,054 flooding events between 1995 and 1998 and an average of 440 flood events per year registered between 2009 and 2015. In the northern part of the city, the Venda Nova district alone has registered an average of 46 floods per year between 1995 and 2015. In January 2020, the city endured a prolonged period of rain totaling 935 mm, half the average annual precipitation, and almost three times the average volume of rain for that month. A peak in precipitation occurred on January 24th, when the city was struck by rainfall totaling 171.8 mm in 24 hours. This was the highest volume of rain reported in 110 years of continuous recorded data. That day the storm delivered 70 mm of rain in 30 minutes – an event with a return period of 1000 years, which led to the Minas Gerais Government’s decision to issue a state of emergency in BH and another 100 municipalities impacted by the torrential rains11. Minas Gerais’ Civil Defense reported 14 casualties in the MRBH, including in BH and the municipalities of Ibirité and Betim – mostly as a result of landslides. Close to 6,770 people were evacuated and an estimated 3,390 were left homeless. Roads turned into rivers, dramatically reducing mobility in and around the city, buildings were destroyed by floods and landslides, including a city hospital. These torrential rains and resulting flooding and landslides underscore the need to increase the city’s resilience and invest in structural and non-structural measures to mitigate the effects of these natural events. 15. The Ribeirão Isidoro basin is located in the northern part of BH and includes territories facing challenges of different natures. While the consolidated western portion of the basin is frequently struck by flooding due to a combination of surface impermeabilization, reduced drainage capacity and more intense storms driven by climate change, the eastern portion acknowledges the rapid increase of informal and precarious settlements, most of which occupying areas of steep topography and fragile geology rendering them prone to landslide risks. 16. West and in the upstream part of the Ribeirão Isidoro basin lie the Nado and Vilarinho streams, which drain major parts of the Venda Nova district. This district is densely occupied and extremely important to the territorial planning and overall service economy of BH due to its strategic location between the city’s downtown area and the northern municipalities of MRBH. Venda Nova is one of the most significant and vibrant centralities in BH, as it plays an important role in providing a range of services, commerce and leisure opportunities to BH and the MRBH’s population at large. It is also intersected by two of the city’s main public transport systems (Move Bus Rapid Transit Corridor and Metro). The city has already built large detention and retention reservoirs12 to temporarily retain water and reduce peak flows. 17. To enhance flood risk management and mitigate impacts of floods BH has planned and started implementation of a series of structural and non-structural interventions. These interventions include retention and detention reservoirs, adaptation of existing infrastructure to increase the drainage capacity 10 Refer to footnote # 8. 11 The Government of Minas Gerais issued a state of emergency on January 27, 2020. 12 BH describes “detention� reservoirs as those that maintain a water level throughout the year, while “retention� reservoirs would be the ones that are completely emptied when peak flows reduce. Jan 28, 2021 Page 7 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) of the system, as well as improvements of the flood early warning system and increased citizen awareness about risks. The interventions in the Vilarinho and Nado basins will be implemented independently of the interventions proposed by the World Bank-financed Project and will further increase BH’s ability to regulate discharges into the main streams and towards their confluence, thus reducing flood probability in targeted areas up to a 50-year return period13. 18. The eastern part of the basin, administratively identified as the Norte district and also referred to as the Izidora region, covers an area of approximately 9.5 km2 and is recognized as the city’s “last frontier� for urban expansion. The area is considered highly important and sensitive from both the urban and environmental perspectives, housing cerrado14 and rain forest fragments, as well as 280 water springs and 64 streams, including the Macacos Stream (Córrego dos Macacos). The area drains to the Ribeirao Isidoro, which joins the Onça river before reaching the Rio das Velhas and then São Francisco river (roughly 305 km to the northwest). Beginning in 2013, the Izidora region has experienced a rapid encroachment of informal settlements by vulnerable population, which was facilitated by grassroot organizations and a few local universities15. 19. Despite the city government's efforts to enforce multiple planning, zoning and land use regulations, Izidora’s rapid expansion threatens to jeopardize the city’s capacity to safeguard its numerous sensitive ecological systems. Such uncontrolled expansion could also render the municipality unable to provide adequate solutions to the area’s vulnerable population who already live in precarious and/or at-risk housing conditions, and lack infrastructure and public services, such as WSS, electricity, solid waste collection, and accessibility. Approximately 12,500 vulnerable people currently live in four consolidated settlements classified as “ocupações organizadas� in the Izidora region: Helena Greco, Rosa Leão, Esperança and Vitória. In the process of upgrading these, the reduction of flood risks and landslides needs to be fully integrated. 20. The vulnerability of the population living in the informal settlements located in the north of BH is also characterized by their difficult access to multiple services, such as health . IBGE’s data from 201916 show that the four areas in the north of BH to be targeted by the Project do not have easy access to health centers and hospitals. Esperança and Vitória constitute the areas with weakest access to health services since they are furthest away from health centers and hospitals. The estimated 1,440 households residing in Vitória, for instance, live on average roughly 1.4 km away from a health center, and more than 3 km away from a hospital. With only four hospitals in the north of BH, the average distance to a hospital is 3 km, while for the rest of the slums in BH, the average is 1.3 km. 21. According to a 2016 Climate Change Vulnerability Study of BH17, the Norte, Nordeste and Leste 13 The goal of the city is to protect targeted areas up to a 50-year return period. In other words, the system will be designed to allow for peak flows to be discharged without flooding, that occur with a probability of 2 percent in any one year. It is a statistical measurement typically based on historic data over an extended period and is used for risk analysis. 14 Cerrado is a Brazilian biome, a vast tropical savanna ecoregion, considered one of the most important savanna biomes in the world. Its landscape is diverse, with a mix of open pastures, shrubland, open forests and also closed canopy forests. It is the second largest biome in Brazil, covering an area of 2 million km2, which corresponds to 204 million hectares. 15 Homeless movements and housing activists partnered with local universities (Architecture and others) to provide technical assistance and plans guiding the expansion of Izidora’s informal settlements over unserviced areas, in an attempt to urge Government’s actions. This is why they are referred to as “ocupações organizadas� (organized settlements). 16 Aglomerados Subnormais, IBGE, 2019. 17 Análise de Vulnerabilidade às Mudanças Climáticas do Município de Belo Horizonte , 2016. https://www.kas.de/c/document_library/get_file?uuid=81e6462d-a9af-ae09-9817-b797afbf41ad&groupId=252038 Jan 28, 2021 Page 8 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) districts of the city will become more vulnerable to floods and landslides . Future climate projections show an increase of 32 percent in the relative variation to climate exposure of events associated with intense rain. This will result in an increase in the number of high vulnerability neighborhoods to 60 percent (331/486 neighborhoods). The meteorological models simulated for 2030 indicate that in general, there will be an increase in the intensity of storms, leading to increased and more intense flooding in the city, and an increase of rain intensity and higher impacts. This will place a particularly heavy burden on the already vulnerable population living in the area. Institutional Context 22. BH has been at the frontier of innovation and upgrading of urban infrastructure and services. Over the last fifteen years, the municipality has carried out an ambitious program (Vila Viva), that has completed integrated upgrading interventions in twelve favelas18, benefiting approximately 138,000 residents and has led to a fundamental transformation of their disadvantaged communities. The municipality has also adopted consistent policies and investments in infrastructure which prioritized the integrated urban water management agenda. The municipal government now seeks to follow up on its ambitious plan to upgrade selected informal settlements in the northern region and contain uncontrolled expansion. 23. The 2004 Belo Horizonte Sanitation Plan, which remains valid to date, has adopted a multicriteria analysis (MCA) including sanitation, epidemiological and environmental criteria to prioritize interventions. The Plan includes a diagnostic of actions and services in the areas of water supply, sanitation, drainage and solid waste management, based on which key annual investment demands to be financed by the Municipal Sanitation Fund (Fundo Municipal de Saneamento, FMS) are identified and prioritized. In relation to flood risk reduction, the MCA identified the Nado and Vilarinho sub basins amongst the top 10 priority basins in BH. 24. The BH’s comprehensive Drainage Master Plan (Plano Diretor de Drenagem) was approved in 1996 and is in its second phase of implementation since 2009. The Plan is based on modern principles and combines green and gray infrastructure and multi-functional land use. It also integrates different sectors to optimize the impacts of planned interventions. The municipality has been focusing on implementing sector programs, such as the Belo Horizonte Program for Environmental Recovery (Programa de Recuperação Ambiental de Belo Horizonte – DRENURBS) (launched in 2004), targeted at investments in civil works, environmental and social management, as well as overall institutional strengthening for risk mitigation. The second phase of the DRENURBS (2013-2020) focused on institutional development and activities for flood risk prevention, including the development of a hydrometeorological network, early warning systems, an integrated flood management system, and studies for flood reduction and mitigation in the main risk areas of Ribeirão Isidoro, Ribeirão do Onça, and Ribeirão Arrudas basins. 25. BH recognizes that controlling the expansion of informal settlements into Izidora’s environmentally sensitive areas remains one of the biggest challenges ahead. Only through a large scale and integrated project, can multidimensional approaches be deployed. They involve: (i) urban upgrading design features to limit expansion; (ii) structured community mobilization strategies aimed at strengthening the engagement and capacity of community leaders and local influencers as supporters (and enforcers) of land use control, as well as partners in operation and maintenance (O&M) of infrastructure, parks and green areas; and (iii) institutional strengthening to help the city efficiently 18Belém, Califórnia, Cemig/Alto das Antenas, Morro das Pedras, Pedreira Prado Lopes, Santa Terezinha, Santa Lúcia, São José, São Tomás/Aeroporto, Serra, Taquaril and Várzea da Palma. Jan 28, 2021 Page 9 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) implement its land-based instruments which aim to promote environmentally sustainable and inclusive territorial development. 26. Building on previous and ongoing engagements, and to ensure synergies and sustainable results, BH has requested World Bank support for a multipurpose operation that will combine innovations in flood risk reduction interventions and urban upgrading in the Ribeirão Isidoro basin tailored to the specific needs and characteristics of the Nado and Vilarinho basins and the Izidora region. On the one hand, the Nado and Vilarinho watersheds present challenges in finding sufficient space to detain, retain and discharge increasing amounts of rain in already consolidated and densely occupied areas – especially in the area near the confluence of the two streams considered vital for the mass transportation system and the BH and MRBH’s service economy. On the other hand, in the downstream Izidora region, the challenge is to address the critical needs of a population that suffers from higher levels of deprivation within the city, while assuring that urban water management and environmental preservation features are fully integrated into the new urban expansion and settlement areas. Environmental preservation and the use of green infrastructure are also expected to contribute to carbon sequestration, reduction of heat islands and improved air quality. 27. Addressing the complexity and nature of the urban, social and environmental development challenges presented by BH will require public sector financing, as well as strong innovation and institutional strengthening inputs. The World Bank plays a central role in the delivery of public goods, in closing institutional gaps19, and in mainstreaming cutting-edge solutions to cross sector development challenges. While the overall regulatory framework for the water, sanitation, solid waste and drainage sectors in Brazil has been recently updated aiming to attract more private participation and investment20, actual implementation is yet to come, and shall start by the standalone water supply and sanitation subsectors. Basic infrastructure such as the ones intended by the proposed Project to address flood risks and promote urban upgrading of precarious settlements remain as purely public goods, for which there is no viable private or commercial financing solution available. These are however very cost-effective. C. Proposed Development Objective(s) Development Objective(s) (From PAD) To reduce flood risks and improve the living conditions of the low-income people in selected areas of Ribeirão Isidoro basin in the Borrower's territory. Key Results a. People in the Vilarinho and Nado basins benefiting from enhanced flood protection through Project interventions, 21 and; b. Improved urban living conditions of the vulnerable living in selected areas of Ribeirão Isidoro basin. 19 Refer to section II.B of the PAD (as well as Annex 1) for a detailed description of the activities and areas to be supported by Component 3 of the Project, fully dedicated to institutional strengthening and capacity building. 20 Lei No 14.026/20. 21 The indicator measures the people benefitting from enhanced flood protection. Based on hydrologic modelling (HEC-HMS) developed in 2008 and updated with data up to 2019, the interventions to enhance flood protection are expected to reduce the probability of floods up to an event with a return period of 25-years. During Project implementation, the hydrologic model used to estimate the effect of interventions on different flood events will be further improved by BH. Jan 28, 2021 Page 10 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) D. Project Description Component 1 – Flood Risk Reduction in the Ribeirão Isidoro Basin (US$81.35 million of which US$59.92 million IBRD) 28. The Component will finance interventions to enhance flood protection, including activities to engage people living in the areas where physical interventions will be carried out, land acquisition (of a total area of approximately 42,500 m2) and the resettlement of approximately 40 families, which will be resettled in housing units built by the Project or will receive cash or other means of compensation (Refer to Annex 1 for a detailed Project description). This will significantly reduce the effect and frequency of floods for the people living in the Nado and Vilarinho basins especially in relation to damage to assets and economic stoppage. Interventions will decrease disruptions of mobility for tens of thousands of people commuting between home and work. 29. Subcomponent 1.1: Enhancement of Flood Protection (US$78.55 million, of which US$57.55 million IBRD). This subcomponent aims at enhancing flood protection in targeted areas of the Nado and Vilarinho basins through, inter alia: (i) the carrying out of technical studies and designs; (ii) the implementation of drainage works, detention and retention reservoirs and related infrastructure22 and pumping systems (Refer to Table 1); (iii) the construction of housing and commercial units for PAP; (iv) activities related to the preparation and implementation of the Resettlement Action Plans; and (v) the provision of related technical support and supervision, including the development of operational and communication protocols23. Table 1: Interventions of Subcomponent 1.1 Basin Intervention Volume Type Vilarinho Padre Pedro Pinto 89,000 m3 Surface detention reservoir Liege Reservoir From 51,000 to 66,000 Expansion of surface detention m3 reservoir 3 Candelaria 30,000 m Underground retention reservoir Vilarinho Reservoir 3 80,000 m3 Underground retention reservoir Nado Anuar Menhen 40,000 m3 Surface detention reservoir Nado Reservoir 2 65,000 m3 Underground retention reservoir NB: During the first year of the Project the detailed designs of the reservoirs will be prepared after which works will be implemented mostly in parallel during the following years 2-6. 30. Subcomponent 1.2: Citizen Engagement (US$2.8million, of which US$2.37 million IBRD). This subcomponent will finance activities aimed at building citizen awareness and increasing stakeholder participation in the implementation of Part 1.1. through, inter alia, training, workshops, public hearings, preparation and dissemination of newsletters. Component 2 – Urban Upgrading of Selected Informal Settlements in the Izidora Region (US$80.23 million of which US$68.06 million IBRD) 31. The Component will target four consolidated informal and precarious settlements in the Izidora region (Helena Greco, Rosa Leão, Esperança and Vitória) (Refer to Annex 1 / Figure A1.3) to contain the advance of informal urban sprawl over environmentally sensitive areas, reduce populations living in areas with geological and/or geotechnical risks and environmentally protected areas, and improve the precarious living conditions that prevail among the inhabitants of the four selected settlements (Refer to Annex 1 for a detailed Project description). 32. Subcomponent 2.1: Urban Upgrading, Risk Reduction and Environmental Protection (US$77.29 Jan 28, 2021 Page 11 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) million, of which US$65.12 million IBRD). This subcomponent aims at carrying out urban upgrading activities in selected informal settlements in the Izidora Region, including, inter alia: (i) studies, technical designs and works to improve access to basic infrastructure, parks and community facilities,24 which will incorporate climate resilient25 and universal access design features; (ii) studies, technical designs and works to mitigate geological and/or geotechnical risks26; (iii) safeguarding and/or restoration of environmentally protected areas27; (iv) the construction of green housing and commercial units for PAP28; (v) activities related to the preparation and implementation of the Resettlement Action Plans; (vi) carrying out of housing improvements; and (vii) the provision of related technical support and supervision. 33. Subcomponent 2.2: Social Management, Community Development and Economic Inclusion (US$2.94 million, all of which IBRD). This subcomponent aims at promoting community participation, social development, and economic inclusion through, inter alia: (i) community participation and strengthening activities; (ii) activities related to the preparation and implementation of the Resettlement Action Plans; (iii) environmental education, including climate change awareness campaigns; and (iv) economic development activities. 34. The economic development agenda include skills training and other activities to enhance employment opportunities and promote entrepreneurship, all of which to be scoped following market demands, and placing particular emphasis on targeting women, female-headed households and afro- descendants. The subcomponent will also support the establishment of mechanisms at the community level that guarantee the participation of residents in identifying and addressing needs through the participatory design of Project interventions and throughout the Project cycle. (Refer to the description of Component 4 and to Section III.B, on Monitoring and Evaluation (M&E) arrangements, for details about how the Borrower intends to accompany and evaluate the results of the social development and economic inclusion activities supported by the Project). Component 3 – Institutional Strengthening (US$3.51 million, all of which IBRD) 35. This Component aims at strengthening the institutional capacity of the Borrower in the following areas: (i) urban planning instruments to balance urban expansion and environmental protection, including land readjustment; (ii) innovative strategies for the operation, maintenance and management of parks 22 Greening of the areas around the surface reservoirs and development of public areas above the underground reservoirs will add to urban upgrading and will provide a number of co-benefits alongside flood risk reduction. 23 Communication protocols will be developed and implemented with the city’s Meteorological Service and the city’s Integrated Drainage and Flood Alert Management System (GEDAI-BH). 24 Including rehabilitation and/or construction of roads, sidewalks and bike lanes, construction of water supply, sewerage, storm drainage, electricity infrastructure, installation of LED public lightning, development of a park of approximately 120,000 m2 and development of community facilities to be defined through community participation. 25 Infrastructure design will incorporate features to reduce energy and water consumption, promote wastewater reuse and energy recovery in wastewater treatment, and improve retention and drainage capacity through nature-based solutions. 26 Including erosion control and slope stabilization-types of interventions. 27 The restoration of approximately 260,000 m2 of environmentally protected areas is foreseen, contributing to carbon sequestration, stormwater runoff reduction, air quality improvement, urban heat island effect reduction and urban wildlife habitat improvement. 28 The new houses (estimated at 680) are one of the alternatives for resettlement to be provided by the Project. They will be built following sustainability standards to reduce energy and water consumption and will include solar power for electricity generation, aiming to achieve a target of approximately 20 percent reduction compared to business-as-usual social housing design, and also contributing to achieve the commitments under BH’s GHG Emission Reduction Plan for 2030. Overall resettlement will be of approximately 980 PAP (including a few local businesses), mainly from areas at risks of landslides or environmental protected areas. Jan 28, 2021 Page 12 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) and environmentally protected areas; (iii) alternative mechanisms for co-financing affordable housing; (iv) sustainable construction methods and technologies, including nature-based solutions and renewable energies, for the provision of climate-smart urban infrastructure, public spaces, and residential and public buildings; (v) integrated urban water management and disaster risk management; and (vi) citizens’ engagement and participatory processes through, inter alia, the provision of technical assistance, including technical notes, studies, guidelines, training and capacity building activities. Component 4 – Project Management (US$2.91 million, all of which IBRD) 36. This Component focuses on providing overall implementation support to the Project Management Unit (PMU) and the Project Executing Unit (PEU) in technical, environmental, social, fiduciary, supervision, monitoring and evaluation, and communications-related areas, including training and operating costs. 37. The Borrower will develop under Component 4 a strong M&E system for the Project, cutting across the preparation, implementation and completion stages. Gathering information during Project implementation will take place to monitor progress on the indicators included in the RF as well as to further substantiate the economic rate of return. The Component will support a thorough assessment of costs as well as direct and indirect benefits of the flood reduction, urban upgrading, resettlement, community development, and economic inclusion interventions supported by the Project to compare the ‘before and after situation’ and evaluate possible changes for the ‘with and without Project situation. . . Legal Operational Policies Triggered? Projects on International Waterways OP 7.50 No Projects in Disputed Areas OP 7.60 No Summary of Assessment of Environmental and Social Risks and Impacts . Environmental Risk Rating 38. The environmental risk assessment found that: (i) adverse environmental risks and impacts are mostly site-specific, temporary, predictable and reversible (ii) they are low in magnitude and in spatial extent and without potential for cumulative effects; (ii) the Project’s nature also suggests low probability of adverse effects to human health and/or the environment; and (iii) the Borrower has previous experience with the ESF, a strong track record in managing complex stakeholder engagement, proven competence in dealing with such environmental impacts, during the implementation of several other similar interventions, a solid legal and regulatory framework and robust enforcement capacity, which ensure a participatory process in the management of environmental risks and impacts due to the proposed works and in a well succeeded implementation of the appropriate mitigation measures. However, the environmental risk is rated as substantial solely due to the fact that Component 2 supports interventions in the Izidora occupations that are located in an environmentally sensitive area. Component 1 main premise is Jan 28, 2021 Page 13 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) the urban and environmental requalification of the territories of the Ribeirão Isidoro watershed, seeking to optimize macro-drainage systems and reduce flood risks through works that will take place in already consolidated urban areas. Component 2 intends to slow down urban sprawl over sensitive environmental areas and reduce the exposure of vulnerable populations to geological risks. 39. Expected adverse environmental impacts tend to involve disturbances in the construction stage and may include: production of debris and solid waste due to soil movement; local traffic interruptions and congestion and potential increase of traffic accidents due to circulation of trucks and other heavy vehicles; increase in determined pollutant emissions, mainly particulate material, leading to alteration of air quality; proliferation of synanthropic fauna; inconveniences to the neighboring population (increased noise, dust, and vibration levels); temporary disturbance in normal frequency of public services and interference with public utility networks and the functioning of commercial activities. These temporary negative environmental impacts would be minimized or reduced to acceptable levels by the adoption of simple and well known mitigation measures. 40. Direct and localized positive impacts are also expected from these interventions and positive downstream effects include consequent internalization by the municipality of planning innovations and nature-based design solutions. The benefits of the interventions in the Izidora occupations are expected even before the end of the works, including reduction of geological and geotechnical risks, protection of sensitive habitats and permanent preservation areas (also through the creation of public parks, whose participative management involving neighboring communities can decrease the chance of re-encroachment) and the reduction of the pollution of water-streams. 41. As project designs are not definitive yet and would only be available as a result of project implementation, a draft Environmental and Social Management Framework (ESMF) was prepared and publicly disclosed for consultations before Appraisal. The ESMF examined - in a generic and prospective basis - environmental and social risks and impacts, established the principles, rules, guidelines and procedures to assess environmental and social risks and impacts, proposed generic measures and plans to reduce, mitigate and/or compensate risks and adverse impacts and considered the institutional capacity of the agencies responsible for dealing with Project's environmental and social risks and impacts. The final ESMF will be disclosed within 30 days after Project effectiveness. As part of the preparation of project designs, specific environmental and social impact assessments and management plans will be prepared for each work. Social Risk Rating 42. The social risk of the Project is considered high because of the large scale of population resettlement caused by the activities supported under Project Component 2 that aims to contain the advance of informal urban sprawl over environmentally sensitive areas, while reducing the exposure to geological risks of the inhabitants of consolidated informal settlements in the Izidora Region. However, adverse resettlement risks and impacts will be minimized and mitigated, are not expected to give rise to significant social conflict or harm (on the contrary, these activities answer the claims of the population living in such areas for enhanced urban and housing conditions) and do not require specific mitigation measures that are beyond the Client’s institutional capacity, proven track-record and strong commitment in relation to stakeholder engagement, social accountability and management of environmental and social issues. Furthermore, the Project and Jan 28, 2021 Page 14 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) the mitigation measures will be developed in an environment marked by robust legal and regulatory as well as strong enforcement. 43. Component 1 would require the acquisition of a small number of land plots and the relocation of up to 40 families. Component 2 would involve the relocation of a significant number of people (estimated in 980 families and small business) from areas of permanent protection, areas at-risk of flooding and landslides and areas needed for urban upgrading interventions. The potential re-encroachment in the areas acquired for environmental protection, prevention of geological and flooding risks and urbanization is another risk as urban sprawl is often rapid and uncontrolled. The Borrower has already in place an institutional plan to keep control of public areas. This plan relies on community engagement, early warning systems and quick response to avoid the occupation of public lands. In the Project area of intervention, it will also rely on awareness raising campaigns, destination and occupation of the areas by public equipment, and engagement of community members on the protection and preservation of the environmentally relevant areas. The implementation of both the Project’s Stakeholder Engagement Plan and Social Work Plan are expected to reduce and mitigate such risk. Using drone flights, the Borrower has already mapped and registered in its georeferenced database all the existing buildings in the area. Other social risks relate to neighborhood disturbances caused by routine circumstances during construction works – temporary increase of road traffic of heavy machinery, temporary closing of streets, noisy and dust, etc. – that may temporarily reduce the quality of life of neighboring communities or cause adverse impacts on the health and safety of project-affected communities. These impacts are not unanticipated, unprecedented, irreversible or unavoidable. The Borrower has a large and positive track-record with their management and the Environmental and Social Management Framework proposes measures for road safety, signaling and fencing off of work sites, management of hazardous and non-hazardous materials, and continuous communication with neighboring communities. Project contractors and workers will be required to follow a code of conduct that avoids circumstances of potential sexual harassment/sexual exploitation and abuse and proper measures to ensure that the safeguarding of personnel and property is carried out in a manner that avoids or minimizes risks to local communities. 44. As project designs are still to be developed, the Borrower prepared a Resettlement Policy Framework, covering all elements required by ESS 5 (procedures for consultation with affected people and socio-economic census and cut-off date; different alternatives of compensation to meet the needs of PAPs, ensure compensation of affected assets at replacement cost; measures to allow for livelihood restoration; and a description of the grievance redressing mechanism). Relevant Environmental and Social Standards (ESSs) and E&S Risk Management Tools 45. The relevant ESSs for this Project are: “Assessment and Management of Environmental and Social Risks and Impacts�, “Labor and Working Conditions�, “Resource Efficiency and Pollution Prevention and Management�, “Community Health and Safety�, “Land Acquisition, Restrictions on Land Use and Involuntary Resettlement�, “Biodiversity Conservation and Sustainable Management of Living Natural Resources�, “Cultural Heritage� and “Stakeholder Engagement and Information Disclosure�. ESS “Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Local Communities� is not applicable to the Project; in spite of the fact that there are individuals and small groups who migrated to BH in search of economic opportunity who self-identify with Indigenous Peoples, these individuals are spread all over the city and there is no evidence that they have established distinct communities within Jan 28, 2021 Page 15 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) the Project area. As detailed engineering designs are not available yet and would only be available as a result of Project implementation, the E&S risk management tools proposed that will be publicly disclosed and consulted before Project Appraisal are: (i) an Environmental and Social Impact Assessment (ESIA), including a gender lens and paying particular attention to disadvantaged and vulnerable individuals and groups potentially affected by Project interventions; (ii) an Environmental and Social Management Framework (ESMF)29; (iii) a Stakeholder Engagement Plan (SEP)30, including a GRM; (iv) Labor Management Procedures (LMP); and (v) a Resettlement Policy Framework (RPF)31. These instruments will apply to Project investments and technical assistance activities. The preparation of the specific ESMPs and Resettlement Action Plans (RAPs) will be carried out after detailed designs are finalized. Throughout the Project life cycle, the PEU will keep expert staff in environmental and social risks and impacts management. In addition to in-house expertise, the PEU will also include externally hired consultants as needed to: (i) avoid delays in obtaining the environmental licenses, (ii) carry out social mobilization, stakeholder consultation and resettlement action plans; and, (iii) oversee compliance of contractors with the terms set in the environmental and social risks management tools. 46. The proposed Project's GRM will build on existing systems. Following lessons learned from the implementation of other projects requiring the resettlement of large number of families, the GRM will comprise a few uptake channels that will be integrated into the Municipal Ombudsman System. The most important among these will be the local Social Service Offices that will be opened in the areas of intervention, thus functioning as entry doors for PAP who tend to rely on face-to-face relationships to convey their concerns. This proposal addresses the need: (i) to have a GRM that is able to provide timely and effective response / resolution to complaints that are very diverse in complexity, (ii) thoroughly register and report on all complaints received, and (iii) use the complaints as an input to preventatively address issues avoiding its recurrence (i.e., to use the GRM as a tool for adaptive management). 29 TheESMF includes: (i) a Civil Works Environmental Management Program, addressing the management of solid waste, noise, emissions, and community and workers health and safety issues; (ii) an Environmental Compensation Program, aimed to compensate for suppression of trees and intervention in Permanent Protected Areas (APPs); (iii) Monitoring Programs for Synanthropic Fauna and Birdlife; (iv) a Cultural Heritage Plan to be approved by the National Institute of Historic and Artistic Heritage (IPHAN) to deal with chances to find cultural heritage during excavation works; (v) a Contaminated Area Management Program aiming to avoid that workers and local communities are exposed to pollutants and hazardous materials; (vi) a traffic management plan during construction; (vii) an assessment of the urban downstream impacts that may emerge from the implementation of technical assistance activities; (viii) a Social Mobilization and Communication Program; and (ix) a Gender Action Plan. 30 TheSEP sets principles for the continuous consultation of key stakeholders (as embedded in the Project’s highly participator y planning and implementation approach), disclosure of information and grievance redressing. 31The RPF considers different compensation alternatives to better respond the needs of the families according to their composition, livelihood and vulnerabilities. The socioeconomic census and the establishment and public dissemination at the local level of the cut-off date for the resettlement are yet to be carried out. The timeline for this will also be aligned with the detailed design process of the relevant works and interventions, which are part of Project implementation. In the meantime, the Borrower has mapped the existing buildings in the area through drone flights and registered them on their georeferenced database, having estimated the number of people that may be affected by the Project. The Borrower is also in constant dialogue with community leaderships, which allows to mitigate the associated social risks. Finally, the Borrower is carrying out a study of socioeconomic conditions of the local population, using secondary sources and academic researches. Jan 28, 2021 Page 16 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) E. Implementation Institutional and Implementation Arrangements 47. The Municipal Secretariat of Works and Infrastructure (Secretaria Municipal de Obras e Infraestrutura - SMOBI) will serve as the key implementing agency of the proposed Project. The SMOBI will house both the PMU and the PEU (Refer to Annex 4 for details about the implementation arrangements). The PMU will hold the key deliberative and managerial roles, including the overall responsibility for Project Coordination, Financial Management (FM), Procurement, Planning and Monitoring and Evaluation (M&E) tasks. It will be staffed with a Project Coordinator, a focal point staff for Procurement and a focal point staff for M&E (all within SMOBI’s Finance, Management and Planning Subsecretariat - Subsecretaria de Planejamento, Gestão e Finanças - SUPGF-OBI/DCCA). The PMU will operate under deliberations made by the heads of SMOBI, the Capital Development Superintendence (Superintendência de Desenvolvimento da Capital - SUDECAP), the Belo Horizonte Housing and Urban Company (Companhia Urbanizadora e de Habitação de Belo Horizonte - URBEL) and the Municipal Secretariat of Urban Policies (Secretaria Municipal de Política Urbana - SMPU). 48. The PEU, in turn, will be responsible (in a decentralized manner) for implementing sector-specific and technical tasks in areas related to FM, procurement, technical aspects, and implementation of the environmental and social instruments of the Project. The PEU will include a co-Coordinator for the Project (within SMPU), specific focal point staff for Environmental and Social aspects, and other experienced technical staff within each municipal body holding Project operational roles: a. SMOBI’s Urban Water Management Department (Diretoria de Gestão de �guas Urbanas - DGAU) will provide technical support and guidance regarding the implementation of Components 1 and 3; b. SUDECAP will be in charge of the implementation of Component 1 (including the preparation of technical inputs for Procurement, and the management of environmental and social risks); c. URBEL will be in charge of the implementation of Component 2 (including the preparation of technical inputs for Procurement, and the management of environmental and social risks); and d. SMPU’s Urban Planning Subsecretariat (Secretaria Municipal de Política Urbana - SUPLAN) will be in charge of the implementation of Component 3 and will oversee the performance of the PEU. 49. The PMU and the PEU will be mainly comprised by staff from BH, and will be supported by externally hired consultants, as needed. The proposed arrangement, cutting across multiple local authorities within BH’s government structure, will allow for the necessary interdisciplinarity, internalization and transfer of knowledge and innovation on key agendas, such as resilient planning, climate action, gender inclusion and citizen engagement. . CONTACT POINT World Bank Jan 28, 2021 Page 17 of 18 The World Bank Reducing flood risks and improving living conditions in Ribeirao Isidoro Basin, Belo Horizonte (P174619) Emanuela Monteiro Senior Urban Development Specialist Nicolaas Johannes Placidus Mar de Groot Senior Water Resources Management Specialist Borrower/Client/Recipient Municipality of Belo Horizonte Implementing Agencies Municipal Secretariat of Works and Infrastructure (SMOBI) Leandro Pereira Subsecretary for SMOBI leandroc.pereira@pbh.gov.br FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects APPROVAL Emanuela Monteiro Task Team Leader(s): Nicolaas Johannes Placidus Mar de Groot Approved By Practice Manager/Manager: Country Director: Sophie Naudeau 22-Feb-2021 Jan 28, 2021 Page 18 of 18