Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 42908-NI

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT IN THE AMOUNT OF SDR 0.2 MILLION (US$0.3 MILLION EQUIVALENT)

AND A

PROPOSED GRANT IN THE AMOUNT OF SDR 12.0 MILLION (US$19.7 MILLION EQUIVALENT)

TO THE

REPUBLIC OF NICARAGUA

FOR A

RURAL WATER SUPPLY AND SANITATION PROJECT

May 12,2008

URBAN AND WATER UNIT CENTRAL AMERICA COUNTRY MANAGEMENT UNIT LATIN AMERICA AND THE CARIBBEAN REGION

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents mav not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective March 3 1 st, 2008)

ANA APL B I C U CAPS CIDA CONAPAS

COSUDE CP s cso cv DAR DGAF DO ENACAL

FISE FM

GEF GoN IBRD I C I C B ICR IDA IDB IFC IFR ILO INAA INIDE IN IFOM IPP I S D S ISR JMP KfW M&E MABE M A C P M

FOCARD-APS

CurrencyUnit = SDR SDR0.60804 = US$1 US$ 1.64464 = SDR 1

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS

National Water Authority Adaptable Program Loan Bluefields Indian and Caribbean University Comitt de Agua Potable y Saneamiento (Water and Sanitation Committee) Canadian International Development Agency Comision Nacional de Agua Potable y Alcantarillado Sanitario (National Water and Sanitation Commission) Swiss Agency for Development and Cooperation Country Partnership Strategy Civi l society organizations Curriculum vitae Rural Aqueducts Directorate Direccidn General Adm inistrativa Financiera Development objective Empresa Nicaraguense de Acueductos y Alcantarillados Sanitarios (Nicaraguan Water and Sewerage Enterprise) Fondo de Inversion Social de Emergencia (Emergency Social Investment Fund) Financial management Forum on Potable Water and Sanitation for Central America and the Dominican Republic Global Environmental Facility Government o f Nicaragua International Bank for Reconstruction and Development Individual Consultant International Competitive Bidding Implementation Completion Report International Development Association Inter-American Development Bank International Finance Corporation Interim Financial Report International Labor Organization Instituto Nacional de Acueductos y Alcantarillados (Nicaraguan Water and Sewerage Institute) National Information and Statistics Institute Instituto Nicaraguense de Foment0 Municipal (Nicaraguan Institute for Municipal Development) Indigenous Afro-Descendant Peoples Plan Integrated Safeguards Datasheet Implementation Status Report Joint Monitoring Program (of the World Health OrganizatiodUNICEF) German Development Bank Monitoring and evaluation Miniacueducto por Bombeo Electric0 (small piped systems using pumps) Municipal Project Cycle Management Manual

FOR OFFICIAL USE ONLY

M A G MDGs MINSA NCB NGO O&M OPEP PCN PDO PEBM PGC PHRD PIC PICE P ID P I M M PLANSAR PND PPBM: RAAN R A A S R M S SBDs SDR SEAR SEFIN SEPA SIA S I L SIMA:

SOE SRfP SWAP TORS UIFRs UNDP UNICEF UNOM URACCAN USAID UTM VIP W&S WSP wss

Miniacueducto por Gravedad (small gravity fed piped systems) Millennium Development Goals Ministry o f Health National Competitive Bidding Nongovernmental organization Operation and maintenance Organization o f Petroleum-Exporting Countries Project Concept Note Project Development Objective Pozo Excavado con Bomba de Mano (excavated wells with hand pumps) Proyecto Guiado par la Comunidad (Community-driven Project) Policy and Human Resources Development Fund (Japanese Trust Fund) Public Information Center Indigenous Peoples and Ethnic Groups Project Information Document Plan de Inversidn Municipal Multianual (Multiyear Municipal Investment Plan) Rural Basic Sanitation National Plan Plan Nacional de Desarrollo (National Development Plan) Pozo Perforado con Bomba de Mano (boreholes with hand pumps) Regidn Autdnoma del Atlantico Norte Regidn Autdnoma del Atlantico Sur Results Management System Standard Bidding Documents Special Drawing Rights Regional Autonomous Education System Secretariat o f Finance Procurement Plan Execution System Nicaragua’s Financial Management Information System Specific Investment Loan Sistema de Mejoramiento y Ampliacidn de acueducto de agua potable y saneamiento (Rehabilitation and extension o f existing systems) Statement o f expenditures Standard Request for Proposals Sector-Wide Approach Terms o f reference Summary Reports United Nations Development Programme United Nations Children’s Fund Operation and Maintenance Units Regional University o f the Caribbean Coast United States Agency for International Development Unidad Tdcnica Municipal (Technical Unit in Municipalities) Ventilated improved pi t Water and sanitation Water and Sanitation Program Water supply and sanitation

Vice President: Pamela Cox Country Director: Laura Frigenti

Sector Director Laura Tuck Sector Manager: Guang Zhe Chen

Task Team Leaders Maria Angelica Sotomayor / David Michaud

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

NICARAGUA

Rural Water Supply and Sanitation Project

CONTENTS

Page

STRATEGIC CONTEXT AND RATIONALE ................................................................. 9 I . A . B . C .

I1 . A . B . C . D . E .

I11 . A . B . C . D . E . F .

I V . A . B . C . D . E . F . G .

Country and sector issues .................................................................................................... 9

Rationale for Bank involvement ....................................................................................... 11

Higher-level objectives to which the project contributes ................................................. 12

PROJECT DESCRIPTION ........................................................................................... 13 Lending instrument ........................................................................................................... 13

Project Development Objective and key indicators .......................................................... 13

Project components ........................................................................................................... 13

Lessons learned and reflected in the project design .......................................................... 18

Alternatives considered and reasons for rejection ............................................................ 20

IMPLEMENTATION .................................................................................................... 21 Partnership arrangements .................................................................................................. 21

Institutional and implementation arrangements ................................................................ 22

Monitoring and evaluation o f outcomes/results ................................................................ 23

Sustainability ..................................................................................................................... 24

Critical risks and possible controversial aspects ............................................................... 25

Loadcredit conditions and covenants ............................................................................... 26

. . .

APPRAISAL SUMMARY ............................................................................................. 27 Economic analysis ............................................................................................................ 27

Technical ........................................................................................................................... 28

Fiduciary ........................................................................................................................... 29

Social ................................................................................................................................. 31

Environment ...................................................................................................................... 32

Safeguard policies ............................................................................................................. 32

Policy exceptions and readiness ........................................................................................ 33

Annex 1: Country and Sector or Program Background ......................................................... 35

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 40

Annex 3: Results Framework and Monitoring ........................................................................ 42

Annex 4: Detailed Project Description ...................................................................................... 49

Annex 5: Project Costs ............................................................................................................... 57

Annex 6: Implementation Arrangements ................................................................................. 58

Annex 7: Financial Management and Disbursement Arrangements ..................................... 61

Annex 8: Procurement Arrangements ...................................................................................... 66

Annex 9: Economic and Financial Analysis ............................................................................. 71

Annex 10: Safeguard Policy Issues ............................................................................................ 74

Annex 11: Project Preparation and Supervision ..................................................................... 90

Annex 12: Documents in the Project File ................................................................................. 92

Annex 13: Statement of Loans and Credits .............................................................................. 94

Annex 14: Country at a Glance ................................................................................................. 95

Annex 15: M a p IBRD 36093 ...................................................................................................... 97

N I C A R A G U A

Source BORROWEWRECIPIENT International Development Association (IDA) Credit IDA Grant Total:

RURAL WATER SUPPLY AND SANITATION PROJECT

Local Foreign Total 2.60 0.50 3.10 0.30 0.00 0.30

15.30 4.40 19.70 18.20 4.90 23.10

PROJECT APPRAISAL DOCUMENT

LATIN AMERICA AND CARIBBEAN

LCSUW

Date: M a y 12,2008

Country Director: Laura Frigenti Sector ManagedDirector: Guang Zhe Chen

Team Leaders: Maria Angelica Sotomayor Araujo and David Michaud Sectors: Water supply (50%); Sanitation (50%) Themes: Rural services and infrastructure (P); Other rural development (S) Environmental screening category: Partial Assessment

Project Financing Data

Project ID: P106283

Lending Instrument: Specific Investment Loan

[ ] Loan [XI Credit [XI Grant [ 3 Guarantee [ 3 Other:

Borrower: Republic o f Nicaragua

Responsible Agency: Emergency Social Investment Fund (FISE) Altamira D'Este Contiguo a la Clinica Tiscapa Nicaragua Tel: 505-278-1 664 3j arquin@fise. gob.ni www.fise.gob.ni

Fax: 505-278-1 663

6

?Y 4nnual I 1.00 I 2.50 I 6.80 I 6.00 I 6.00 I 0.80 I

9 I 10 I 11 I 12 I 13 I 14 I

3umulativeI 1.00 I 3.50 I 10.30 I 16.30 I 22.30 I 23.10 I Project implementation period: Start October 1,2008 End: March 31,2014 Expected effectiveness date: October 1,2008 Expected closing date: March 31,2014 Does the project depart from the CAS in content or other significant respects? Re$ PAD I. C. Does the project require any exceptions from Bank policies? Re$ PAD I K G.

I s approval for any policy exception sought from the Board? Does the project include any critical r isks rated “substantial” or “high”? Re$ PAD III. E. Does the project meet the Regional criteria for readiness for implementation? Re$ PAD IKG. Project development objective Re$ PAD II. C., Technical Annex 3 The Project Development Objective i s to increase access by project beneficiaries to sustainable water and sanitation services in rural areas.

[

[ ]Yes [XINO

[ ]Yes [ ] N o [XIYes [ ] N o

[XIYes [ ] N o

No

Have these been approved by Bank management? [ ]Yes [ IN0

Project description [one-sentence summary of each component] Re$ PAD I .D. , Technical Annex 4 The Project includes financing for four components.

This component wi l l finance investments to increase access to water and sanitation services in the country’s rural areas.

US$5.7 mi l l ion (IDA US$ 5 million) This component will finance investment to increase access to water and sanitation services in the country’s two autonomous regions on the Atlantic Coast, R A A S (Region Autonoma del Atlantico Sur) and RAAN (Region Autonoma del Atlantico Norte), along with the Al to Coco and Bocay region, which have the lowest levels o f coverage and a large indigenous population.

develop a series o f pilots to address challenges o f the rural water and sanitation sector and establish best practice models o f intervention.

Component 4: Institutional Strengthening and Project Management - Cost US$2.6 mi l l ion (IDA US$2.0 million) This component wi l l strengthen the rural WSS institutions and finance the cost o f salary, travel, and general operating costs o f the staff working on the project’s implementation, along with the monitoring and evaluation activities required by the project.

Component 1: Coverage Increases in Rural Areas - Cost U S $ l 1.5 mi l l ion (IDA U S $ l O mil l ion)

Component 2: Coverage Increases in the South and North Autonomous Atlantic Regions - Cost

Component 3: Pilot Projects - Cost US$3.3 mi l l ion (IDA US$3.0 million) T h i s component wil l

Which safeguard policies are triggered, if any? Re$ PAD I K F., Technical Annex 10 The Project triggers the Environmental Assessment Policy (OP/BP 4.01) and has been qualified as “Category B.” The Project also triggers the Physical Cultural Resources Policy (OP/BP 4.1 l), and the Indigenous Peoples Policy (OP/BP 4.10).

7

Significant, non-standard conditions, if any, for: Re$ PAD IIL F. Board presentation: None other than the standard presentation to the Board.

Granucredit effectiveness: *Signature o f a subsidiary agreement between the Recipient and FISE. *Adoption o f an operating manual acceptable to the Bank.

Covenants applicable to project implementation: 1 .Disbursement Conditions: *For Component 2: Formation o f the Project Committee (Cornit4 de Proyecto) *For Component 2: Adoption of an annex to the Operating Manual describing the detailed

implementation criteria and procedures, including the subproject cycle.

2. Dated Covenants: No later than June 30,2009, issuance o f the WSS strategy describing, among others, the specific responsibilities with regard to providing long-term support to WSS committees,

8

1. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues

1. Nicaragua, with 5.5 mi l l ion inhabitants, is the second-poorest country in Latin America and the Caribbean with an estimated per capita income o f US$957 in 2006. About 45 percent of the population i s considered poor and 15 percent extremely poor. In rural areas, home to 41 percent o f the total population, poverty dropped substantially from 76 percent in 1993 to 69 percent in 1998. Today, as can be expected, poverty remains greater in rural areas, where about 64 percent o f the population i s poor and 25 percent extremely poor.

2. Nicaragua has 189 urban localities with a population o f 2,000 to 1 mi l l ion inhabitants and approximately 7,500 dispersed rural communities. Of the 189 urban localities there are 105 localities which are considered small towns, each with a population o f less than 5,000. Nicaragua has three main geographic areas: (a) the Pacific coast, (b) the Central area, and (c) the Atlantic coast, which present large disparities across regions. Poverty levels are higher in the Atlantic coast-fonned by the autonomous governments o f the North Atlantic Region (RAAN) and South Atlantic Region (RAAS)-which i s home to most o f the country’s indigenous population.

3. Nicaragua’s rural’ water and sanitation sector i s characterized by (a) l o w coverage levels; (b) an institutional framework in transition that leads to overlapping responsibilities both within institutions at the national government and among different levels o f government; (c) coexistence o f conflicting models for rural water and sanitation interventions and financing, depending on the donor source; and (d) lack o f adequate technologies to respond to the demands from the different market segments in the rural areas.

Low coverage. In 2004, according to the Wor ld Health OrganizationLJnited Nations Children’s Fund’s (WHOLJNICEF’s) Joint Monitoring Program (JMP), overall (piped and non-piped) water supply coverage stood at 90 percent in urban and 63 percent in rural areas while sanitation coverage reached 56 percent o f urban and 34 percent o f rural households. According to the 2005 Census, however, rural sanitation coverage was as high as 70 percent. The difference can be largely explained by the fact that the JMP definition takes into account only improved latrines with a complete structure that are in service, while the Census also counts abandoned or traditional latrines. Although no dependable data exists for the autonomous regions o f M A N and RAAS, coverage for both rural water and sanitation services i s the lowest in the country, with recent estimates based on the Census. Appropriate correction factors place rural water coverage below 20 percent and sanitation coverage below 30 percent2 in those two regions.

’ This document uses the term rural in the context o f water and sanitation services to describe settlements of less than 5,000 inhabitants and not served by the National Urban Water Utility (ENACAL) in a range o f situations extending from small towns to dispersed or agglomerated communities. * Cobertura de Agua Potable y Saneamiento en Nicaragua en 2005, WSP-BM, Managua, February 2008. This study uses the Census joint ly with a limited household survey to establish corrective factors translating census data into JMP-equivalent coverage numbers, assuming among other things a certain proportion o f latrines as dysfunctional.

9

Institutional framework in transition. Until recently, the water and sanitation sector was defined by the 1998 Water and Sanitation Services Law and the laws that created the institutions o f the sector. A new Water Law was passed in 2007 and i s being im~lernented.~ However, i t s implication for institutional responsibilities i s not yet clear. There are currently three main public sector institutions: (a) the Comisidn Nacional de Agua Potable y Alcantarillado Sanitario (National Water and Sanitation Commission, CONAPAS), the governing entity (ente rector) led by a committee chaired by the Presidency Secretariat. Theoretically, CONAPAS has the responsibility for strategic planning for the sector; (b) the Nicaraguan Water and Sewerage Institute (INAA) i s the water regulatory agency responsible for regulating tariffs, promoting efficient and adequate service quality, and for defending the users from monopolistic abuse o f service providers; and (c) the Nicaraguan Water and Sewerage Enterprise (ENACAL) i s the national service provider and de facto strongest institution o f the sector. It manages almost all the urban water systems in the country and, according to the 2007 Water Law’s regulation, is also responsible for supervision and control o f service provision in rural areas. Water and sanitation services in rural areas are managed by small water user committees generally called Cornitis de Agua Potable y Saneamiento4 (Water and Sanitation Committees, CAPS), however, which are often not formed as legal entities. The actual works are usually contracted by municipalities, with financing from and under the fiduciary and technical oversight o f the Emergency Social Investment Fund (Fondo de Inversidn Social de Emergencia, FISE). FISE, which i s not a formal water and sanitation sector agency, also currently provides assistance to municipalities responsible for providing post-construction support to CAPS, although the consequences o f the new water law on this activity are unclear. A strategy for the entire sector is under preparation by ENACAL-rather than CONAPAS-and should shed some light on the institutional roles in the rural sector.

Conflicting models for rural water and sanitation interventions and financing. Since 2004, FISE has been the only national investment vehicle for rural Water Supply and Sanitation (WSS) projects. It is currently implementing WSS projects financed by the German Development Bank (KfW), the Inter-American Development Bank (IDB), the Swiss Development Agency (COSUDE), and the Canadian International Development Agency (CIDA). Although the project cycle has been harmonized among donors-with FISE using one single Operations Manual for al l o f i t s rural WSS interventions-FISE uses different mechanisms for selecting i t s interventions, with different co-financing requirements from the municipalities for each donor, which creates tensions among municipalities.

Standardized approach that does not respond to the demands from the different market segments in the rural area. Despite the broad spectrum o f the rural population, (from

The law i s meant as a water resources management instrument but actually covers a number o f water supply and

In some cases these community organizations can take other forms, such as users cooperatives. Since the vast sanitation aspects as well.

majority o f the organizations are CAPS and CAPS i s also the accepted terminology in Nicaragua, this document w i l l make use o f the term when referring to any type o f community organization responsible for the operation and maintenance o f the WSS system.

10

dispersed populations living in small, remote communities to denser small towns o f up to 5,000 inhabitants), FISE applies the same project cycle and the same set o f technical options and management models. There is only l imited scope to incorporate local conditions. As a result, FISE’s projects may promote sanitation options that do not necessarily correspond to what beneficiaries are able and willing to pay, such as simplified sewerage systems for small towns and flush latrines for communities with access to water services instead o f regular latrines, resulting in systems that are abandoned after a short time.’ The same i s true for the management model offered. FISE is geared toward supporting the creation o f CAPS; however, in many cases, other models such as small cooperatives or municipal utilities may exist or might be better suited to serve larger, denser small towns, and might be more sustainable over time.

B. Rationale for Bank involvement

4. The World Bank has been asked to take a leading role in supporting the Government of Nicaragua (GoN) to coordinate donor support in the sector. From i t s extensive lending in Latin America and other regions, the Bank has wide experience in increasing the poor’s access to water and sanitation services and in improving sustainability o f service provision in rural areas. This experience allows the Bank-as a relative newcomer to the Nicaraguan sector-to offer a fresh yet well-articulated menu o f technical assistance to the GoN. Capitalizing on this expertise, the Ministry o f Finance and Public Credit has asked the World Bank to take a leadership role in the sector through three new water projects and a more active role in supporting pol icy development. Specifically, i t hopes that the World Bank wil l be able to assist the government in leveraging additional support from other donors, coordinating investments, and helping to reestablish a working roundtable on water. The 2008-1 2 Country Partnership Strategy (CPS)- which, at the GoN’s request, plans for three water and sanitation projects-confirms the World Bank’s intention to lead donor involvement in this sector, while ceding leadership to other donors in sectors such as energy, environment, and agriculture. The Bank, which has been consulting widely during the project preparation, intends to fulfill this role by working at two levels. At a project level, the Bank team wil l promote a consistent sector vision throughout i t s lending operations and include - in the project’s results framework - a few indicators that monitor the entire sector rather than only the project. At a higher level, the Bank wil l promote - through i t s on-going participation in the sector discussion table - the organization o f regular informal donor meetings to improve donor alignment in the sector and create a space for pol icy discussion with the government.

5. The World Bank’s involvement wil l complement the work of other donors. A number o f donors including the IDB, the KfW, the European Union and, to a lesser degree, COSUDE and UNICEF, are involved in rural water and sanitation in Nicaragua. The number o f donors working in Nicaragua’s water sector-as in many International Development Association (IDA) countries-makes i t important that the work o f those donors i s coordinated. The Bank has established and wil l sustain close consultations with other donors to coordinate regional coverage and scope such that projects wi l l complement each other without overlapping.

The large discrepancy between Census and JMP data on sanitation i s mostly explained by the large number o f abandoned latrines that attest to this problem.

11

6. Sector needs vastly exceed available funding. The sector strategy 2005-15, which was published by the previous administration but retains i t s relevance in terms o f sector needs, estimated that US$400 mi l l ion was necessary to reach the Mil lennium Development Goals (MDGs) in terms o f rural WSS coverage. This translates into yearly investments o f U S $ 4 0 mi l l ion compared with a current investment level o f U S $ l O mi l l ion to US$15 million. This project i s therefore a limited, but cost-effective contribution to a larger problem. In absolute terms, the target population i s significant and the project wi l l generate major economic benefits. Finally, through this project, i t i s expected that investment practices in the rural WSS sector can be improved and the sustainability o f the sector’s investment be increased.

7. I n addition, as a newcomer to the sector with a vast experience and institutional capacity on rural water and sanitation projects, the Bank is well positioned to provide support to FISE, the agency in charge of rural WSS investment, to assist it in harmonizing its project policies across donor agencies. IDB and KfW have a jo int U S $ 4 0 mi l l ion rural investment project implemented by FISE, o f which approximately 35 percent o f the funds go to the rural water and sanitation sector. There are current1 discussions about revisiting the eligibility criteria, which uses a “project auction” modality. Bank involvement, in close consultation with the other donors, wi l l provide an excellent opportunity to strengthen the institution and reduce the burden o f uncoordinated donor policies on FISE by moving toward a more uniform rural water and sanitation policy.

I?

C.

8. The Nicaragua Rural Water and Sanitation Project supports the fol lowing strategic objectives o f the Bank’s Country Partnership Strategy (CPS) for Nicaragua (FY08-12): (a) infi-astructure and sustainable development, and (b) human capital development-improving social equity and opportunity. This project also responds directly to the government’s development objectives, as improvements in water and sanitation have been explicitly outlined in the National Development Plan (PND). The Sectoral Strategy Area I11 o f the PND- Infrastructure and Sustainable Development-aims to increase coverage and quality o f infrastructure to support economic growth and attain the MDGs. The plan outlines the government’s intention to promote the sustainability o f water and sanitation infrastructure and service expansion in rural areas through community participation and education, and the coordination o f agencies such as FISE and the municipalities.

Higher-level objectives to which the project contributes

9. Beyond the Bank’s CPS and the government’s P N D and alignment with the Poverty Reduction Strategy Paper, the proposed project also supports progress toward the drinking water and sanitation targets contained in MDG No. 7, “Ensure Environmental Sustainability.” Because o f i t s geographic scope targeting rural and indigenous areas, the project i s expected to have a strong de facto poverty focus. Improving access to water services also has a much stronger impact on women and children because they traditionally are tasked with fetching water from and washing clothes and children in far-located water sources.

This modality, by which municipalities compete for investment f inding by offering a higher percentage o f co- financing, i s seen by FISE as nonequitable and contrary to the poverty reduction mission o f the institution.

12

11. PROJECT DESCRIPTION

A. Lending instrument

10. The proposed project is designed as a Specific Investment Loan (SIL), and combines investment and technical assistance financing. The project wil l be financed through a blend o f IDA grant (SDR 12.0 million, US$19.7 million) and IDA credit (SDR 0.2 million, US$0.3 million). This wil l be the first project to be financed by the Bank after a long absence from the water and sanitation sector in Nicaragua. The project can be seen as a first step in the development o f a Sector-Wide Approach (SWAP) for the rural water and sanitation subsector, because i t aims at developing, a unified approach to the provision o f services to the different segments o f the rural water and sanitation market. Two additional water and sanitation sector operations are planned for Nicaragua in the current CPS. An urban operation with E N A C A L for Managua and a follow-up o f the proposed project to scale-up the results o f this project wi l l pave the way to the development o f a harmonized SWAP for the sector.

B.

11. sustainable' water and sanitation services in rural areas.g

Project Development Objective and key indicators

The Project Development Objective i s to increase access by project beneficiaries7 to

12. The key outcome indicators to measure attainment o f the project's objectives are:

1.1, Number o f additional beneficiaries with sustainable access to water supply in rural communities intervened by the project; 1.2. Number o f additional beneficiaries with sustainable access to sanitation services in rural communities intervened by the project; 1.3. Percentage o f CAPS created in the f i rs t three years that continue to operate in a sustainable manner.

Specific indicators to measure the results o f each component are presented in Annex 3.

C. Project components

13. The proposed operation would assist the Government o f Nicaragua (GoN) in strengthening its ongoing effort to increase access to water and sanitation services in rural areas o f the country. Since a formal decision in 2004,'' the Emergency Social Investment Fund (Fondo de Inversidn Social de Emergencia, FISE) has been the governmental body in charge o f investments in rural water and sanitation solutions. FISE is currently implementing several donor-funded rural water

Measured in terms o f individual persons. The concept o f sustainable access goes beyond the mere provision o f physical infrastructure and includes a series

o f dimensions capturing the sustainability o f such service provision, as defined by the CAPS scorecard presented in Annex 3.

Rural areas in the context o f the water and sanitation sector in Nicaragua are defined as dispersed communities and small towns with less than 5,000 inhabitants that are not served by E N A C A L . lo Prior to that date, the national water and sewer utility, the Empresa Nicaraguense de Acueductos y Alcantarillados Sanitarios (ENACAL), was in charge o f rural investments in water supply and sanitation.

9

13

supply and sanitation (WSS) projects, including a large, multisector rural investment project funded by IDB and KfW for which WSS represents a key sector, and several smaller projects financed by C I D A and COSUDE.

14. For this purpose, the operation would finance investment to increase access to water and sanitation services in the country’s rural areas (Component 1) and the country’s two autonomous regions on the Atlantic Coast, the Regidn Autdnoma del Atluntico Sur (RAAS) and the Regi6n Autdnoma del Atlantic0 Norte (RAAN), together with the Al to Coco and Bocay area, which have the lowest levels o f coverage and large proportions o f indigenous populations (Component 2). The project would also develop a series o f pilots to address challenges o f the rural water and sanitation sector and establish best practice models o f intervention (Component 3). Finally Component 4 wi l l finance institutional strengthening and project management activities.

15. The following section provides further details on the project’s components and subcomponents, and Annex 4 provides a complete project description. Amounts show total component costs with credit/grant proceeds in parentheses.

Component 1: Coverage Increases in R u r a l Areas - Cost US$11.5 million (IDA US$10 million)

16. Current rural water coverage i s estimated to be 62 percent (63 percent according to JMP) and rural sanitation coverage 70 percent (34 percent according to JMP), with important regional variations. This component wil l support municipalities in increasing coverage o f water and sanitation services in their rural territory through investments and technical assistance to communities.

17. Donor coordination i s important in rural WSS projects because projects that use different rules and implementation mechanisms may compete against each other and decrease the commitment o f communities to participate in the project execution-creating unnecessary tensions between institutions and donors. In addition, the use o f a consistent intervention framework can decrease costs and speed up implementation. Therefore, the project wil l ini t ial ly fol low implementation rules similar to other donor-funded projects currently under implementation by FISE, with a few adjustments to reflect some o f the issues identified during project preparation. FISE and the other rural WSS donors have indicated an interest in learning from the project’s progress and incorporating lessons learned in FISE’s Operations Manual during implementation. More details are provided in Annex 4.

18. This component would be implemented by FISE (overall management and contracting o f social and technical support) in partnership with the municipal governments (contracting o f the works).

Component 2: Coverage Increases in the South and N o r t h Autonomous Atlantic Repions - Cost US$5.7 million (IDA U S $ 5 million)

19. In 1989, the Government o f Nicaragua created two autonomous regions on the Atlantic Coast, the Regidn Autdnoma del Atlantico Sur (RAAS) and the Regidn Autdnoma del Atlantico Norte (RAAN), to respond to the local population’s demands for a right to preserve their culture and their natural resources. Over the past few years the GoN has given more autonomy to the

14

R A A S and MAN, which now have relatively strong regional governments (executive and legislative) that are elected locally. In addition, the Al to Coco and Bocay area, which i s administratively part o f the Jinotega department, but ethnically linked with the population o f the RAAN, will also be included in this component.

20. Both regions have only limited access ways to the rest o f the country, and boast important indigenous populations. Poverty levels and access to basic services are lower than in the rest o f the country. A 2005 census estimated rural water coverage to be 62 percent at the national level but only 42 and 36 percent in RAAN and RAAS, respectively. The same census estimated national sanitation coverage at 70 percent, with M A N and RAAS trailing the l ist at 48 and 49 percent, respectively. ' ' 21. Component 2 would pursue the same goals as Component 1 but would focus on the RAAS and M A N and o n the Al to Coco and Bocay area, with a subproject cycle that would make use o f local government structure and be adapted to the cultural and economic conditions in these regions. Several donors are either preparing new projects in one or both regions (KfW, UNICEF, European Commission) or have ongoing projects (BID/KfW, COSUDE). Most existing donors work either through FISE and the municipalities, or directly with nongovernmental organizations (NGOs); there i s no consistent engagement mechanism. This component would, however, be strongly coordinated with both regional governments and other donors in order to create a quasi- SWAP for rural investment in the regions.

22. FISE and the regional governments wil l set up a Comit i de Proyecto that wil l decide on funds allocations and implementation principles, together with other donors and municipal governments. The key principles for the implementation o f this component are:

23,

Strong participation o f local governments (regional, territorial, and municipal) in selecting beneficiary communities and defining the subproject cycle's details.

Strong community participation in the subproject cycle including engagement o f local NGOs with understanding o f local culture and languages in the capacity-building process and hygiene promotion, and use o f community execution for technically simple projects.

Use o f appropriate, low-cost technologies and service levels, given the difficulty o f access, small size, and dispersion o f the rural communities. Decentralized workshops for material and/or prefabricated elements wi l l be considered in strategic locations. Lessons learned from former projects including decentralized services (SanPlat, bomba de mecate [rope pump]) wil l contribute to the pi lot project implementation. Facilities for individual greywater reuse will also be tested.'*

In an init ial phase, this component would be implemented by the local FISE branch (overall management and contracting o f social and technical support) in partnership with the

'' The 2005 Census data do not use the internationally agreed JMP definition for water and sanitation coverage. The WSP in February 2008 published a study proposing correction factors to adjust the census data to JMP definitions. According to this study, access numbers for RAAN and R A A S are around 19 percent for water and 30 percent for sanitation. l2 For instance, taking into consideration recent experience in the northern part o f the country, where individual small sand trenches are located downstream o f laundryhathing areas.

15

regional government (funds allocation through the Comitk de Proyecto) and municipal governments (contracting o f the works). The regional government o f the M A N will contract the works for the Al to Coco and Bocay area given the cultural and geographic disconnects between this area and i t s municipal capital. At midterm review, these arrangements may be reviewed in light o f the experience, and a stronger role may be given to the regional governments. Experience gained in terms o f use o f technologies and social intervention mechanisms wil l also be evaluated in order to determine whether adjustments are needed.

Component 3: Pilot Proiects - Cost US$3.3 million (IDA US$3.0 million)

24. Despite the long engagement o f several donors in the water sector, there are certain “market niches” that have not been properly catered to, and for which no best practice model o f intervention exists in Nicaragua. This component therefore seeks to develop a series o f pi lot projects-and the accompanying intervention strategies-making best use o f the Bank’s international experience and successful models developed in other countries in the region. These pi lot projects could serve as the basis for some larger-scale activities in the follow-up rural water and sanitation project planned for FY10, or be picked up by other donors. This component wi l l include complementary activities to ensure that the pilots are evaluated, documented, and shared properly. The following paragraphs describe two possible pilots for which the analytical groundwork exists; the need for others may emerge during project implementation.

25. Simplified sewers in dense, small towns. The possibility o f building condominia1 and/or small-bore systems in concentrated communities where soil conditions and urban structure do not facilitate individual sanitation, and where the population agrees to the principle o f connecting to and paying for such a service, wil l be explored. There i s at least one case o f a condominial system built in a small town in Nicaragua, but this experience has not been properly documented. In parallel, and given the additional complexity that the management o f a sewer system brings, those towns wil l participate in a pi lot for appropriate management models (see below).

26. Appropriate management models in small towns. While E N A C A L i s in charge o f most larger towns in the country, and those small communities that have water supply systems usually have CAPS to manage them, there i s a gap in water management for the 2,000-to-5,OOO- inhabitants range. In these communities, management models relying on elected, unpaid boards cannot adequately provide service and the income generated i s too small to warrant a full autonomous operator. A recent study by the Water and Sanitation Program (WSP)I3 showed that systems in this range o f municipalities are operated by CAPS, municipalities, ENACAL, or municipal or private companies. Anecdotal evidence from the study shows that service quality i s l imited in most, calling for a different way to manage the services. This Pilot would consist o f supporting a few small towns in developing a suitable management model addressing the weaknesses o f their current situation.

27. This component wil l be entirely implemented by the central office o f FISE. If, in the course o f the preparation o f the pi lot projects it i s determined that beneficiary municipalities should take an implementing role, then the implementing mechanism will be identical with that

l3 Evaluacidn del funcionamiento y la calidad de 10s servicios de agua y saneamiento en pequen‘as localidades urbanas en Nicaragua, Water Group and ESA consultants for the Water and Sanitation Program, Lima, 2007.

16

o f Component 1. Other actors, such as local c iv i l society organization actors, will be consulted in the decision process.

Component 4: Institutional Strengthening and Proiect ManaPement - Cost USS2.6 million {IDA USS2.0 million)

28. T h i s Component wi l l finance all activities aimed at ensuring the sustainability and proper implementation o f the project. The f i rst subcomponent strengthens the institutions that directly or indirectly provide long-term technical assistance to the CAPS, while the second subcomponent finances traditional project management and monitoring activities.

Subcomponent 4A: Institutional Strengthening - Cost US$1.4 million (IDA US$1.0 million)

29. In 2004, the GoN decided to give sole responsibility for the rural water and sanitation sector to FISE. ENACAL, which had previously been very active in the rural sector, stopped providing post-construction technical assistance to the CAPSI4. FISE has since been relying on municipalities to provide this support to the CAPS and has conducted l imited capacity-building activities. In addition, in the recent Water Law (2007) and the related bylaws, the overall responsibility to control and supervise the CAPS returns to ENACAL. There i s no clarity on whether E N A C A L will continue working through municipalities at least in those areas where i t does not operate the urban municipal system, or intends to retake complete control o f the technical assistance services to rural WSS operators. E N A C A L i s preparing a strategy that i s expected to address this question.

30. Therefore, this subcomponent wil l finance the support and strengthening o f the institutions working in the rural WSS sector-whether E N A C A L or the municipalities-in order to ensure that the existing and new WSS systems and their CAPS are made more sustainable through the provision o f technical assistance and specific support in the long term. This institutional strengthening may take the form o f studies, purchase o f vehicle and equipment, working environment improvements etc. In addition, this component wil l finance exchanges o f experience with other countries, training, and consultancies in order to move toward a more unified sector pol icy (financing policy, social intervention, and community participation).

Subcomponent 4B: Project Management and Monitor ing - Cost US$1.2 million (IDA US$l.O million)

31. This subcomponent wi l l finance the incremental cost o f ~ a l a r y , ' ~ travel, and the general operating costs o f the team working on the project's implementation within the Water and Sanitation unit o f FISE. In addition, this component would also finance M&E activities, including the collection o f information and development o f reports for continued evaluation throughout the project cycle by both project management and the Bank's supervision team. I t

l4 In some cases these community organizations can take other forms, such as users cooperatives. Since the vast majority o f the organizations are CAPS and CAPS i s also the accepted terminology in Nicaragua, this document will make use o f the term when referring to any type o f community organization responsible for the operation and maintenance o f the WSS system. l5 The agreement wi th FISE i s that salaries for the core incremental staff w i l l be financed by the project following a decreasing schedule; from year 5 on, these salaries should be entirely financed from the national budget.

17

will also cover audits and other project management activities required for the proper implementation o f the project. Finally, this component wil l finance the strengthening of the implementing unit, through participation in trainings and study tours, purchase o f vehicles and equipment, and upgrading o f the working environment as needed.

Component

32. This component wi l l be entirely implemented by FISE. Should the pending sector strategy result in changes in terms o f the institutional responsibility for long-term support to the CAPS, the project may be restructured to allow other institutions to participate in the implementation o f component 4A.

IDA Recipient Municip. TOTAL

Estimates of Project Costs, by Component (US$ m)

Component 1: WSS Services in Rural Areas US$IO.OM US$0.6M US$0.9M US$l l .SM

Component 4: Institutional Strengthening and Project Management

Component 2: WSS Services in R A A S and

US$2.0M US$0.6M - US$2.6 M

1 Component 3: Pilot Projects I US$3.0M I - I US$0.3M I US$3.3M I

I Total I US$ZO.OM I US$l.SM I US$1.6M I US23.1 M I D. Lessons learned and reflected in the project design

33. T h i s project represents a new engagement for the Bank in the water and sanitation sector in Nicaragua. The project design therefore incorporates lessons learned horizontally--from other similar projects in Lat in American countries, and vertically--from earlier Bank-financed projects and projects from other donors in Nicaragua.

34. Need to involve all key stakeholders. The water and sanitation sector in Nicaragua i s characterized by a multitude o f institutional, civil, and private actors exerting various functions (investment, regulation, policymaking, service provision, and so forth). Coordination and consultation is o f paramount importance in the sector. Contradicting financing policies or community participation policies, for example, can undermine the effectiveness o f an innovative project. Several countries have attempted to improve this situation through the creation o f coordination bodies which, in the case o f Nicaragua, i s CONAPAS-although CONAPAS ’ existence and purpose are being questioned with the 2007 Water Law. Given the fact that the institutional situation o f the water sector i s st i l l fairly fluid, this project seeks to concentrate on noncontentious issues for which the institutional responsibility i s relatively clear. In parallel, the project wil l serve as a vehicle to showcase regional best practices, address more difficult issues, and push toward a consistent intervention model among the donors.

18

35. Emphasis on Demand-Based Approach. Past and ongoing experience o f the Bank in the rural WSS sector globally (Asia, Africa) and in Latin America in particular (Ecuador, Paraguay, Peru) has shown the importance o f designing large-scale ruralhmall town WSS projects with the expressed demand o f communities at the center o f the project. Therefore, this project wil l be based on the existing participatory municipal planning process, will require up-front commitment by the communities to enter in the program, and will actively involve the communities not only in the construction o f the systems but also in their design and in the choice o f an appropriate level o f service and the type o f hygiene-promotion activities relevant for the community.

36. Importance of focusing on sustainability of the investments. There i s always a tension between executing more works, more rapidly, and taking the time and the resources necessary to build sustainable systems. Projects in other countries (Ecuador, Haiti, Paraguay, Peru) have shown that the up-front effort spent on empowering communities, getting messages across on the need for cost recovery, hygiene practices, water source protection, and so forth, can result in more sustainable investments. Within this project, particular attention has been given to the “software” aspects o f investments, moving the current model o f hiring o f individual technical and social consultants by municipalities to a centrally hired model ensuring continuity and better consistency and quality control in their work. These specialists wi l l be involved before, during, and after the investments to ensure that the community i s in a position to make informed decisions on the range o f investments available, and that their impact i s maximized.

37. Necessity of an integrated approach to obtain actual results. Recent research has consistently shown that the mere construction o f water and sanitation systems does not necessarily lead to the expected impact (such as the reduction in water- or excreta-related diseases or appropriate use o f these systems). There have been cases o f systems being built without the beneficiary population connecting to them. Inappropriate hygiene practices wi l l continue even after a new water sanitation system i s built, constraining their expected public health impact. This project wi l l seek to use an integrated approach where investments in water and sanitation are complemented by strong hygiene promotion and outreach programs. Those programs wil l be coordinated with the National Handwashing Campaign under preparation with support from the Bank’s Water and Sanitation Program (WSP) as part o f the Forum on Potable Water and Sanitation for Central America and the Dominican Republic (FOCARD-APS), a regional forum created in 2004 o f which Nicaragua i s a member country, represented by the Ministry o f Health. Furthermore, the beneficiary communities will be trained and equipped to assume responsibility for essential operation and maintenance functions and wil l have access to technical assistance when needed.

38. Importance of a tailored approach for small towns. The management o f water and sanitation services in small towns requires a tailored approach, since small town water and sewer systems are often too small for national or municipal utilities to function and too large for community-based organizations such as water committees to run them. The Bank and WSP recently completed a study on this particular topic at the regional and national level, which highlights, among other things, a generally l o w service quality in small towns. As a result, this project includes pi lot models for small towns where alternatives to the current models will be tested to address some o f the challenges identified in the study.

19

39. Need for a specific sanitation and hygiene promotion strategy. Experience has shown that a “push” model, where latrines are built without creating a real demand for them beforehand, usually leads to rapid deterioration and a lack o f usage. T h i s project suggests preceding the actual technical and social intervention at the community level with a sanitation communication campaign aimed at raising awareness of, and demand for, sanitation solutions and the importance o f hygiene improvements. This initiative wil l target not only direct beneficiaries and communities, but also key decision-makers (mayors, municipality technical staff, and so forth).

40. Lessons f r o m the last W o r l d Bank-funded project with F ISE. The Bank recently (2007) closed a “Poverty Reduction and Local Development Project” that had been implemented by FISE and included, among other things, water and sanitation projects. The project was rated satisfactory, as was the performance o f the implementing agency during implementation (FISE). The main lessons learned (summarized below from the Implementation Completion Report are consistent with the design proposed for this operation.

Bottom-up and demand-driven initiatives can improve quality and relevance of social and economic investments. This project therefore wi l l use a demand-based approach rather than a supply-driven community targeting mechanism. One model does not Jt every situation. Communities wi l l be involved in the selection o f their own level o f service and technical design from a menu o f options. Specific approaches are under development for indigenous areas. Small-scale social investments implemented without appropriate complementary sectoral strategies have mixed impacts. This project also includes a strong institutional strengthening component where the issue o f post-construction sustainability wi l l be tackled. Similarly, the project includes strong hygiene promotion activities that will be complemented by the National Handwashing Initiative which i s under preparation. Coordination of social policies and strategies at the national level is still an unJnished agenda in Nicaragua. During the preparation o f this project particular emphasis has been put on donor coordination. The main implementation mechanisms (fund allocation mechanism, subproject cycle, eligibility, and co-financing) have been discussed by FISE with other donors and there i s a general interest o f al l actors to move toward unified policies for the rural WSS sector.

E. Alternatives considered and reasons for rejection

41. Formal S W A P for the rural WSS sector. The appeal o f a Sector-Wide Approach for the rural WSS sector i s undeniable. There are a number o f active donors, using non-coordinated implementing mechanisms, institutions, and financing rules. However, several factors have led the team not to pursue this alternative for now. There are no uniform budgeting processes or monitoring and evaluation systems in place at sector level. Institutional arrangements in particular for post-construction support are s t i l l unclear, with FISE supporting a municipally driven model, and E N A C A L also mentioned as an important actor in a recent law. FISE i s currently implementing several projects with different fund allocation mechanisms and seeking to adjust at least one o f them to a different modality. And the Bank, as a relatively recent partner in the WSS sector, does not yet have the credibility to lead a strong dialogue on the issue from the donors’ side. Therefore, the approach taken i s that o f small steps, starting with a concerted project seeking to reuse as much as possible o f the other existing WSS projects, with the goal o f

20

moving toward more harmonization once the project i s under implementation and delivers results.

42. Complete alignment of the project with the ongoing German Development Bank (Kfw) / Inter-American Development Bank (IDB) project. The KfW and IDB are currently financing a project implemented by FISE with goals and a structure broadly similar to this project’s objective o f increasing access. The project i s multisectoral but water represents an important pillar. The project relies on a mechanism called concu~so de fondos, which i s close to an open auction by which municipalities can “win” projects if they offer sufficient counterpart financing. FISE and the municipalities have expressed their dissatisfaction with this mechanism because i t does not allow for the needed predictability and flexibility in the municipalities planning process. Therefore, i t was joint ly agreed that an alternative mechanism seeking to address those basic issues would be used. I t is expected that the model adopted in this project should be adopted in the fbture by other donors.

43. Implementation of the entire project by municipalities. FISE i s currently implementing rural projects entirely through the municipalities. Services, goods, and works are al l contracted at the municipal level, by the municipalities. This model has two significant weaknesses. First, the quality o f the “software” part o f the intervention (technical assistance, social intervention, hygiene promotion) becomes very difficult to monitor because o f the large number o f small contracts and the lack o f a direct contractual relationship between FISE and the consultants; and second, the municipalities have shown little understanding for the need o f such activities and have traditionally, at best, not paid much attention to the quality o f the activities. This project seeks to correct these weaknesses by recentralizing the contracting and supervision o f the software part o f the intervention; contracting o f works, which are more in l ine with the typical activities o f a municipality, wil l remain with the municipalities.

111. IMPLEMENTATION

A. Partnership arrangements

44. Many donors are present in Nicaragua, both at the national level and in the M A S and M A N . An init ial effort to develop a Sector-Wide Approach (SWAp) for the entire water and sanitation sector, pushed by several donors (but not the Bank) resulted in the adoption o f a Water and Sanitation Strategy in 2006. Unfortunately, this strategy was not recognized by the administration that took office in early 2007, putting the SWAP process on hold. In the current situation i t is unlikely that a sectonvide SWAP can be pushed forward.

45. For reasons mentioned earlier, the Bank team considers that this project should be seen as a first step in a rural Water Supply and Sanitation (WSS) SWAp. The SWAP will build on the donors’ commitment to further harmonize their activities in the rural WSS sector, which was evident during project preparation. One important factor i s that most rural WSS investments go through a single agency-FISE-which has been actively seeking donor alignment in the past. Assuming the institutional framework o f the rural WSS sector does not change dramatically in the next few years, the team envisions the following road map:

21

0 Prior to the commencement o f disbursement for Component 2, the team wil l seek a consistent, agreed-upon project cycle and financing pol icy for RAAS and RAAN. During the f i rst two years o f implementation, the team wil l seek to work with FISE and other donors to develop a consistent methodology in the rest o f the country. This methodology should be reflected in a single Operations Manual for al l operations- something for which a good starting point exists. At midterm review o f the project, the team will examine which adjustments are needed to the project in order to adopt the agreed-upon, consistent methodology. The project may need to be restructured if the consistent methodology uses different implementation arrangements. Finally, the team wil l also seek to use the third WSS project in the CPS, US$15 mi l l ion planned for FY10, as an opportunity to align with the consistent methodology if an agreement has been reached.

0

0

B. Institutional and implementation arrangements

46. The Republic o f Nicaragua wil l be the recipient o f the proposed credit/grant. The main implementation agency for this project i s the Emergency Social Investment Fund (FISE). FISE has the legal mandate to build rural water and sanitation systems in the country and i s implementing several such projects financed by other donors such as the IDB, the KfW, CIDA, and COSUDE. FISE has also implemented Wor ld Bank-funded projects in the past, including a Poverty Reduction and Local Development project that closed in 2007 and included rural water supply and sanitation (WSS) investments.

47. Although FISE has been active in the water and sanitation sector for a number o f years, i t has only recently decided to create a formal rural water and sanitation unit at the national level. This unit will include al l staff currently working o n WSS-related themes, and wil l be the leading unit in charge o f this project’s implementation. Fiduciary and safeguard functions wil l continue to be assumed by the l ine units within FISE. In addition, FISE i s seeking to create-partly with the support o f this project-small, dedicated WSS units in each o f i t s departmental agencies. I t i s expected that a small number o f consultants wil l be hired to strengthen FISE’s WSS team under the project. The professional staff involved in project implementation-whether existing or additional-will have qualifications and experience acceptable to the Bank according to the project’s Operations Manual. The Bank wil l co-finance the salaries and other operational recurrent costs required for the implementation, while national counterpart financing wil l be used to cover the cost o f strengthening FISE’s staff to ensure it complies with its legal mandate in the rural WSS sector.

48. Table 1 summarizes the suggested project implementation arrangements, with FISE as the main implementing agency and the municipalities implementing most o f the works associated with the project. Annex 6 contains more details about the component-by-component implementation arrangements.

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Table 1. Overview of Project Implementation Arrangements

Component

1. WSS Services in Rural Areas

Technical With Support Fromb Procurement and Supervisiona Financial

Management'

............................................................................................ Municipalities

Consulting services (technical and social)

Works

4. Institutional Strengthening and Project Management

.................................................................................................................................................................... 4A. Institutional Strengthening

4B Project Management

2. WSS Services in R A A S and RAAN

Comitk de Proyecto

Comitt? de Proyecto

............................................................................................................... " ......................................................................... FISE Other rural WSS FISE

sector institutions

FISE NA FISE ................................................................................................................................................................................................................................................................M�

Consulting services (technical and social)

Works

Municipalities

b. Support means the following institutions will be asked to prepare or review draft TORS and inputs from consultants but will not be making the final decision. c. In any case the overall final fiduciary responsibility lies with FISE.

C. Monitoring and evaluation of outcomes/results

49. The project-level monitoring and evaluation framework wi l l allow for tracking progress in implementation, measuring intermediate outcomes, and evaluating project impacts. The framework outlines key performance indicators, data collection methods, a timetable for collection, and responsible agencies. Th is framework wil l be used to supervise and monitor the implementation o f the project. The Fondo de Inversidn Socia1.de Emergencia (Emergency Social Investment Fund, FISE) has monitoring and evaluation facilities and can assume this coordinating role.

50. Progress reports wi l l be established to describe the main achievements o f the project on an semi-annual basis. They wil l include complete information on procurement, contracts, disbursements, detailed information on the project's financial status, inputs, number o f beneficiaries, and other outputs, and a range o f additional operational indicators to track project status. These reports will be produced by FISE and wil l be used by the Sector Interagency Coordination Committee and the World Bank. In addition, annual independent audit reports are expected to monitor use o f funds and physical progress.

23

5 1. Monitoring the progress toward achieving Millennium Development Goals (MDGs). Since Nicaragua i s an International Development Association (IDA) country and this i s a water and sanitation operation, the project wil l comply with IDA14 Results Management System (RMS), and wil l therefore use WHOAJNICEF Joint Monitoring Program (JMP) definitions o f improved drinking water16 and improved sanitation service^.'^. It should be noted however that current national practices are not aligned with the JMP or even among institutions. Besides the information obtained from the Census 2005, each sector institution (FISE, CONAPAS, INAA and ENACAL) uses different indicators, definitions and coverage.

52. Monitoring the progress toward national sector goals. The Government o f Nicaragua i s committed to improving its monitoring and evaluation systems to help strengthen transparency and accountability, and has requested donor support for this effort, which i s being coordinated by the UNDP. The Bank, through WSP, will continue to be an active participant in these efforts by supporting discussions among the various sectors, institutions, and the National Information and Statistics Institute (INIDE), to reach common definitions. With technical assistance from the PHRD grant, CONAPAS i s developing an integrated platform to merge information from the different existing information systems that wil l provide quality information on sectoral investments and wil l enable measuring progress toward the water supply and sanitation MDG.

D. Sustainability

53. The sustainability o f the water and sanitation facilities to be financed under this credit/grant wi l l be supported by a comprehensive and integrated strategy that addresses the key institutional, financial, social, environmental, and technical building blocks required for the provision o f sustainable water and sanitation services. Specific supporting elements include:

54. Community Willingness and Capacity to Manage and Sustain Rural Water Supply Services. In rural areas this wil l be achieved by requiring communities to demonstrate their commitment to service improvement up-fiont, including taking the initiative to present their request at the municipal level, selecting their preferred service level and management option, agreeing to an adequate tariff and starting to pay i t up-front, and assuming organizational responsibilities (forming a CAPS) before funding for construction i s approved. Communities will also provide unskilled labor during the construction phase. The project wil l strengthen community capacity in the areas o f organization, operations and maintenance, financial management, hygiene and environmental education, and effective water use and disposal. The project wi l l also ensure that there are appropriate mechanisms for the provision o f technical assistance to CAPS in the post-construction phase, both in the short term through contracted-out social and technical support, and in the long term through national and local institutions.

55. Rural Demand, Willingness, and Capacity to Manage Household On-site Sanitation. Key indicators for the sustainability o f household-level sanitation service i s that on-site sanitation infrastructure (VIP latrines, pour-flush latrines with septic systems, and so forth) i s built, and properly used and maintained by al l family members. In rural communities, effective hygiene

l6 Piped water into dwelling, plot, or yard; public tapistandpipe; tube wellhorehole; protected dug well, protected s ring, rainwater collection. "Flush or pour-flush to: piped sewer system, septic tank, pit latrine; ventilated improved pit latrine, pit latrine with slab, composting toilet.

24

promotion activities wil l be carried out during the early stages o f the project development phase to inform households about the importance o f sanitation and hygiene in protecting health and to create an effective demand for household-level sanitation. Informed and motivated households wi l l then select a sanitation solution based on a menu o f options and their willingness and ability to pay for the selected option (higher levels o f service will require a higher household financial and in-kind contribution). Support to CAPS will also include tailor-made hygiene promotion activities, based on a participatory community diagnostic.

56. Municipal Government Support to Community Management of Rural Water Systems. Municipal governments, too, will demonstrate their ownership by providing co-financing o f the overall investment costs for the subprojects under their jurisdiction. Municipal governments wil l be strengthened to provide the required technical backstopping to CAPS, without taking over direct operational responsibilities.'*

57. Community Willingness and Capacity to Manage and Sustain Sewerage Services. In more densely populated rural areas and/or small towns where community sewerage systems wil l be financed, sustainability will be achieved by strengthening existing CAPS to become responsible for the management o f community sewerage systems, with relevant training and technical assistance to be provided. Special care wi l l be taken during the initial phase o f the project to ensure that the sewerage technology that i s chosen i s within the financial, technical, and management capacity o f a rural CAPS to operate and manage it. Sewerage systems wil l be financed only where communities agree to pay a tari f f consistent with the needs for operation and maintenance and are currently adequately managing and paying for the water service.

E. Critical risks and possible controversial aspects

Overall Risk Rating: M (Moderate)

Risks

Design and implementation o f governance and anti-comption measures are at an incipient stage in the sector. Nevertheless, the Bank did not experience any major problems with a recently closed operation with FISE, which supported rural water and sanitation subprojects.

Municipal authorities favor construction o f subprojects in some specific communities for political reasons.

Risk Mitigation Measures

The fiduciary assessments (procurement and financial management) identify ways to address these issues, based on best practice experience implementing Bank projects in Nicaragua.

Project cycle considers involvement o f direct beneficiaries promoting social accountability mechanisms, to improve transparency.

During this and other municipal election years, special attention w i l l be placed on the screening o f the proposed investments and use o f project hnds.

Special attention to fiduciary issues w i l l be given during

Risk Rating wmitigation

M

M

The new water law seems to imply that ENACAL, rather than municipalities, should be providing post- construction support. A clear consensus on this issue should emerge in the coming months and the project w i l l be adapted to reflect the final decision on this issue.

25

Risks Risk Mitigation Measures

Overlaps and competition among donors create the coexistence o f projects with different rules and strategies to be implemented in parallel and are obstacles for project implementation.

The absence o f a comprehensive sector strategy reduces the effectiveness o f the use o f resources and threatens project’s sustainability.

The Bank must be careful not to create overlaps and to reduce competition among donors. The team designed the project in a way that largely harmonizes existing projects under implementation, aiming at establishing a uniform policy for the sector. The Bank team has engaged and will continue to engage with main players in the sector to develop a common intervention strategy for rural areas.

election years.

The result o f the pilots and institutional strengthening activities w i l l support FISE to define a comprehensive strategy for serving rural areas. The team expects to actively participate in the definition o f a unified financial policy for the rural water supply and sanitation sector that would aim at helping FISE expand services and support CAPS sustainability. The team wi l l also seek to provide feedback in the WSS sector strategy under preparation.

Unclear institutional responsibilities, lack o f interest and o f funding, and competing priorities hamper long-term support to CAPS and systems, hence threatening sustainability.

The project gives municipalities a very active role in project preparation and execution, including an important co-financing requirement, ensuring they feel empowered by and committed to the CAPS and their systems. In addition, the project also includes direct strengthening activities geared toward those institutions providing long- term support to CAPS.

Municipalities do not contribute counterpart funds.

Risk Rating wMitigation

Municipalities are already co-financing water and sanitation systems so the risk i s not expected to be high; however, adequate communication and promotion o f the project at the local level w i l l ensure this risk i s kept low.

M

Country’s exposure to natural disasters (hurricanes, floods, earthquakes)-in particular in the region targeted by Component 2- means systems built are rendered ineffective before reaching their design l i fe.

Overall Financial Management Risk.

Overall Procurement Risk.

N

The project w i l l promote regional best practices and use construction techniques that reduce the sensitivity o f the investments to natural disasters. Use o f local and simple technologies w i l l mean repairs can be made more easily.

See detailed action plan in Annex 7.

See detailed action plan in Annex 8.

S

N

M

M

M

M

26

F. Granvcredit conditions and covenants

58. Grant/credit effectiveness:

0 Signature o f a subsidiary agreement between the Recipient and FISE Adoption o f an operating manual acceptable to the Bank

59. Disbursement Conditions:

For Component 2: Formation o f the Project Committee (Comitk de Proyecto) For Component 2: Adoption o f an annex to the Operating Manual describing the detailed implementation criteria and procedures, including the subproject cycle.

60. Dated Covenants:

No later than June 30th, 2009, issuance o f the WSS strategy describing, among others, the specific responsibilities with regard to providing long-term support to CAPS.

IV. APPRAISAL SUMMARY

A. Economic analysis

61. A cost-benefit analysis has been completed for a sample o f subprojects under Components 1 and 2 (75% o f the total project cost). During project implementation, an economic assessment o f the pi lot projects to be financed under Component 3 (15% o f the total project cost) wi l l be undertaken as a part o f their evaluation process. The project i s demand-driven and offers new WSS infrastructure to communities expressing willingness to participate in the project. Direct beneficiaries and municipalities will be required to provide labor, and make in kind and/or cash contributions to cover part o f the investment cost. Communities wil l be offered different levels o f service and technological options (when available) and technical assistance will be available to ensure their adequate participation in the decision making process. At this stage the team only has an estimation o f the number o f beneficiaries and o f the type o f systems that would be selected by the beneficiaries. However, based on FISE's previous investment profile in rural WSS services, some typologies were identified and a sample o f subprojects was analyzed to use as aproxy for the expected results o f this project, which are expected to yield similar results as the projects previously executed by FISE in the sector.

62. Economic rates o f return have been calculated for each technology separately and for al l o f the subprojects in the sample. Results o f the economic analysis are summarized in the table below. The ERR estimates are downwardly biased since health benefits were not quantified. Based on the sample, the expected overall project ERR wil l be around 40%. Therefore the expected ERR exceeds the opportunity cost o f capital. Average ERR for the different typologies range f i om a high o f 73% for PPBM (boreholes with hand pumps) to a l ow o f 15% for MABE (small piped systems using electric pumps) schemes. In fact, with a few exceptions, MABE schemes do not appear to be economically viable under the current assumptions o f costs and benefits used in the analysis. During implementation special attention will be given to this type

27

o f system. FISE conducts an economic analysis for each subproject during the planning phase to ensure that only schemes that are economically viable are undertaken. Details o f the analysis are presented in Annex 9.

Table 2. Summary of ERR and NPV Estimates by Technology

Average NPV (US$) $65,370 $80,372 $76,648 $3 1,524 $29,978 $33,875 Average B/C Ratio 3.6 3.4 0.4 1.7 0.5 1.8

PPBM: boreholes with hand pumps, (Pozo Perforado con Bomba de Mano) PEBM: excavated wells withhand pumps (Pozo Excavado con Bomba de Mano) MABE: small piped systems using electric pumps (Miniacueducto por Bombeo Eldctrico) M A G : small gravity fed piped systems (Miniacueducto por Gravedad) SIMA: Rehabilitation and extension o f existing systems (Sistema de Mejoramiento y Ampliacidn de Acueducto)

B. Technical

W a t e r

63. No major technical issues are expected, since technologies considered for rural water supply systems are proven and wel l established. As part o f the project preparation, a consultant financed by a Policy and Human Resources Development (PHRD) grant i s reviewing existing technologies and making suggestions for an increased menu o f options. FISE already has, in i t s Operations Manual, standardized designs for a range o f technical options and service levels, together with standard costs for individual components. The availability o f standardized designs and cost tables wil l make it easier for engineers and social workers to present rural and urban communities with a range o f technical options and associated service levels that allow beneficiaries to select the system that they want and are willing to pay for.

64. Water supply options include (a) rainwater harvesting systems, (b) spring catchments, (c) boreholes with hand pumps, and (d) piped systems feeding mult i family standpipes and/or household connections. This project wil l seek to build on locally developed success stories such as the rope pump (bornba de rnecate), which has a very sturdy and easy-to-repair design and has proven to be very successful throughout the country. When pumping i s necessary, alternatives to the power grid may be considered in remote areas where hand pumps cannot be used.

65. Currently, there is limited disinfection in rural areas. Two recent WSP studies show that while most small towns do chlorinate their piped water supply, less than 30 percent o f the rural population has access to chlorinated water. Other disinfection methods, such as boi l ing water, solar disinfection, and domestic filtration are almost nonexistent,. This project will promote a case-by-case evaluation o f the disinfection needs o f each community and focus on safe practices and household-level solutions as alternatives to chlorination where the supply chains for chlorine do not exist.

Sanitation

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66. Generally, technologies for individual sanitation applied by FISE are confirmed: (a) dry-pit latrines, (b) VIP latrines, and (c) elevated latrines. Dry composting latrines have proven to be of l ow social acceptance and tolerance in the country, and would not be considered in the project unless strong local demand for compost reuse i s demonstrated. In addition, this project will consider technologies offering higher levels o f service such as flush latrines o r - o n a pi lot basis-simplified sewers where the technical, financial, social, and environmental conditions are conducive.

67. These technologies will be upgraded with an integrated sanitation approach at the individual level, including greywater management: (a) infiltration pits, or (b) trenches. Where appropriate, grey management facilities will include laundryldish washing facilities (lavadero) and showers. All facilities will be equipped with a handwashing basin if a piped water supply i s provided. When no piped water supply is provided, specific solutions will be developed.

68. Wastewater treatment technologies -if any- wil l be limited to low-technology, low-cost solutions such as lagoons, oxidation ponds or artificial wetlands. Mechanized treatment generates much higher operation and maintenance costs and wil l not be considered.

69. Technical norms and typical designs wil l be upgraded taking into consideration recent experience in the field. As part o f the integrated sanitation approach, hygiene promotion and education wil l include solid waste, vector control, local water resource protection, air quality (smoke), and animal management.

C. Fiduciary

Procurement

70. All procurement activities but the ones related with the contracting o f works for subprojects under Components 1 and 2 o f the project will be carried out by FISE’s Central Office or Department Delegations. Subproject works contracts will be carried out either by the participating municipalities or directly by communities. In both cases, FISE wil l be engaged in the follow-up and supervision o f procurement procedures, and wil l be responsible for issuing a previous formal approval for each process. FISE has successfully executed various Bank- financed projects, and has proven i tself to be one o f the strongest technical institutions in Nicaragua.

71. An assessment o f FISE’s capacity to implement procurement actions for the project was carried out by the Bank’s procurement specialist for Nicaragua on March 17, 18, and 19, 2008. The assessment reviewed the organizational structure for implementing the project; the quantity and capacity o f relevant staff responsible for procurement; the relationship between the procurement office and the technical, administrative, and financial offices; the administrative and Operations Manuals and standard procurement documents they use; and the filing capacity and support systems they use for supervising and controlling the whole procurement cycle. The assessment concluded that FISE, at i t s Central Office, has an overall installed capacity suitable to successfully carry out the procurement function for the project.

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72. The main r isks identified include (a) municipalities and communities, with limited capacity, will be responsible for contracting works for approved subprojects; and (b) the recently created FISE Department Delegations wil l accompany, supervise, and control part o f the processes delegated to municipalities and communities. To mitigate these risks, a range o f measures have been agreed upon and are described in detail in Annex 8.

73. report o f FISE’s Capacity Assessment can be found in the project files.

The overall project residual risk for procurement was assessed as Moderate, and a detailed

Financial Management

74. A financial management (FM) assessment was carried out to determine FM implementation risk and to help establish adequate FM arrangements for the proposed CrediUGrant. Based on the assessment, recommendations and complementary actions have been provided to ensure that the project i s implemented within a sound fiduciary environment in compliance with Bank requirements.

75 I FISE, through the Direccidn General Administrativa Finunciera (DGAF), wil l implement all project components, but Components 1 and 2 wil l also be partly executed by the municipalities. Fol lowing an established system that FISE uses in al l i t s sector projects, municipalities will actually contract out the works and manage the funds for the rural WSS investments.

76. FISE DGAF has specific World Bank experience managing IDA-3504, the “Poverty Reduction and Local Development Project,” which was recently closed (2007) with a final Moderately Satisfactory FM Implementation Status Report (ISR) Rating. Nevertheless, the FM assessment identified some institutional weaknesses. Accordingly, an Action Plan, detailed in Annex 7, has been agreed with FISE/DGAF to help strengthen i t s FM capacity.

77. The overall residual project risk for FM was assessed as Moderate.

Special Attention to Mitigation of Fiduciary Risks and Enhancing Transparency

78. In addition, the team intends to deal with the challenge o f supervising a decentralized project executed (in parts) by more than 100 municipalities in many more communities in the following manner:

Procurement decisions o f al l municipalities wil l be submitted to 100 percent prior review by FISE’s central office. All procurement processes wil l be published in the government’s procurement website, Nicaraguacompra (www . nicaraguacompra. gob. ni) . Although the works themselves wil l be contracted by the municipalities, the technical supervision wil l be contracted directly by FISE and not by the municipalities, ensuring independence and appropriate accountability relationships. The NGOs or social enterprises contracted as part o f the implementation o f Components 1 and 2 will be tasked with-among other things-the establishment o f appropriate social accountability mechanisms where communities wi l l be duly informed o f the upcoming

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works in their area, including technical specifications, and wil l be asked to let the works supervision team know if there i s any concern about the quality o f the works being executed. During supervision, the Bank's team wil l make frequent site visits to communities, alternating the regions and types o f projects to cover a maximum number o f beneficiary communities. Finally, a specialized company wil l be contracted to carry out annual audits o f procurement processes under the creditlgrant. T h i s audit will include physical verification o f a sample o f the works financed by the creditlgrant. The terms o f reference o f this audit wil l be agreed with the Bank prior to project effectiveness.

0

0

79. Most o f these measures-presented here in a coherent framework for convenience- correspond to current practices by the Recipient or are consistent with the technical design o f the project. They are designed to support the Recipient's effort to alleviate the shared concern o f managing the risk associated with the decentralized execution o f the project.

D. Social

80. The social analysis confirms that isolated rural areas and indigenous and Afro-descendant communities throughout the country continue to be excluded from equitable access to water and sanitation subprojects. Nicaragua i s a multiethnic, multicultural, and plurilingual country, where indigenous r ights are protected by the Constitution and ample legislation including Law 28 on the Autonomy Statutes o f the Atlantic Coast o f Nicaragua, and Law 445 on Indigenous Communal Property. The indigenous peoples account for approximately 14 percent o f the total population. The Atlantic Coast has some 700,000 people, o f which 42 percent, or 302,000, self- identify as belonging to one o f six groups: Miskitos, Mayangna-Sumu, Garifuna, English- speaking Creole, Ulwa, and Rama, whose native languages are off icial ly used. The indigenous population o f the Pacific, Center, and Northern regions i s approximately 333,000, belonging to one o f four major groups: Chorotega, Matagalpa, Sutiaba, and Nahua-Ni~arao. '~ The current project wil l include al l indigenous and Afro-descendant groups o f Nicaragua, but i t wi l l particularly concentrate under Component 2 on rural areas o f RAAN and R A A S that suffer from the largest deficits o f water and sanitation services and consequent health problems.

8 1. The Rural Water Supply and Sanitation Project has a pro-poor, inclusive, and gender focus targeting the more isolated indigenous and Afro-descendant communities that have been historically neglected, and ensures that women's needs are taken into account for the selection o f technical service options, and training needs. Component 2 wil l focus on the RAAN and RAAS regions and the indigenous territories in the Al to Coco and Bocay area (Wanki, in Miskito) along the Jinotega and Waspan municipalities, which have been highly vulnerable in the last decade to hurricanes (Mitch, Stan) and floods. The project wil l continue to support the fully participatory micro-planning process o f the municipalities. Moreover, i t wil l also assist municipalities to revise the eligibility, prioritization, and selection criteria to apply positive, pro-poor discrimination criteria, and ensure that the isolated indigenous and Afro-descendant communities are included in the Multiyear Municipal Investment Plans (PIMM) and are actually implemented.

l9 ILO, the Netherlands, Concejos Regionales de Pueblos Indigenas Pac@co Centro Norte. (2006) Estudio Base sobre las Condiciones de Vida de 10s Pueblos Indigenas del Paci jko Centro y Norte de Nicaragua.

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In the case o f M A N and RAAS, those preselected subprojects wi l l in turn be submitted to a Selection Committee composed o f FISE, the Regional Governments, and the Territorial Governments o f M A N and M A S , thus consolidating full and transparent participation o f stakeholders in the Atlantic regions.

82. The promotion, technical, and social interventions in the community before, during, and after project completion wil l be culturally adequate to ensure sustainable operation o f the installations, and the inclusion o f sustainable hygiene behaviors. Moreover, a gender indicator wil l be monitored to ensure women do not only participate in the CAPS (by 40 percent), but occupy prime decision-making positions (president or treasurer).

E. Environment

83. This project supports the goal o f protecting people’s health from environmental risks and pollution. Increased water supply and sanitation services or access to water and sanitation should decrease the incidence o f waterborne illness among the population. The environmental management framework permits the construction o f the water and sanitation projects in an environmentally sustainable manner such that any negative impacts wi l l be mitigated, managed, or minimized.

F. Safeguard policies

Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Pest Management COP 4.09) Physical Cultural Resources (OP/BP 4.1 1) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples (OP/BP 4.10) Forests (OP/BP 4.36) Safety o f Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP 7.60)* Projects on International Waterways (OP/BP 7.50) [I [XI

*By supporting the proposed project, the Bank does not intend to prejudice the final determination o f the parties’ claims on the disputed areas.

Environmental Safeguards

84. or irreversible environmental or social changes are expected.

The project i s category B; since these are small-scale projects in rural areas, no significant

85. The key environmental safeguard policy issues are environmental assessment and physical cultural resources, since works, albeit small, wil l be constructed. In addition, the disposal o f wastewater effluent, though in small amounts, i s an issue that wi l l be appropriately managed by the environmental management framework, which includes procedures that have been used by FISE for the past 12 years. FISE has drafted an environmental management framework

32

specifically for the project based on their already existing above-mentioned procedures and in compliance with World Bank Safeguard requirements. Since exact subprojects and locations are not yet known, the framework i s the appropriate level o f environmental analysis and will establish the arrangements under which the environmental aspects o f the project wil l be managed. The framework wil l contain details on the instruments FISE uses to monitor environmental benefits f rom the project.

86. FISE has a high capacity (more than sufficient) to implement the environmental safeguards in that i t already has well-considered environmental management procedures and instruments in use. In addition, they have a presence in the f ield o f 40 technical specialists (appropriately, architects and engineers) throughout their 17 territorial offices. These FISE technical specialists are called municipal consultants/evaluators since they assist the municipalities to comply with FISE technical guidelines and requirements by providing advice and filling out the required forms such as the site evaluation form. The FISE technical specialist assistance i s extremely helpful in compensating for the lack o f municipal technical and financial resources for environmental management. The municipalities find FISE environmental management tools so helpful that they even use them for non-FISE-sponsored projects when possible.

87. Consultations on the environmental framework were held April 1, 2008 in Bluefields, April 2, 2008 in Jinotega and April 11 , 2008 in Managua. The environmental framework was made available in InfoShop and in-country in March 2008. In-country, the Framework was placed on the FISE website and hard copies wil l be made available in the 17 territorial offices and Managua. FISE placed their Manual for Environmental Management, the source document for most o f the Environmental Framework for the project, on their website in February o f 2008. Additionally, during the process o f developing each sub-project, the community wi l l be informed o f the impending works. Before any studies are done or final designs made, the communities wil l be consulted in public meetings to determine if there i s demand for a sub-project.

Indigenous Peoples Plan

88. Consistent with Operational Policy 4.10 on Indigenous Peoples, the recipient carried out consultations nationwide, particularly in RAAN and RAAS and Jinotega, which have the largest deficits o f water and sanitation facilities and where the bulk o f the ethnic groups reside. Likewise, the GoN prepared an Indigenous and Afro-Caribbean Peoples Plan (IPP) to ensure (a) access and participation o f ethnic groups in the project design, implementation, and the ex post sustainability phase o f subprojects; and (b) culturally adequate participatory planning and delivery o f water and sanitation services under the project. The IPP was agreed by FISE with the Regional and Territory Governments and the indigenous organizations o f RAAN, M A S , and Central Pacific regions o n April 10,2008 (See Annex 10).

G. Policy exceptions and readiness

89. There are no pol icy exceptions.

90. First year program plan has been designed. The project i s substantially aligned with the current modus operandi o f FISE. Being a demand-driven project, no designs can be prepared upfront. The main preparatory tasks until effectiveness will be the selection o f the technical and

33

social consultants that wil l in turn lead the process at the community level and develop the designs. I t i s expected that by effectiveness the contracting process could be close to completion, meaning the consultants could start working shortly after the f i rs t disbursement i s made. The social intervention and design phase can take up to six months. Works would then be procured based on shopping processes, meaning the f i rst works could possibly start towards the end o f the f i rst year o f implementation.

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Annex 1: Country and Sector or Program Background

NICARAGUA: Rural Water Supply and Sanitation Project

Country Background

1 . Nicaragua, with 5.5 mi l l ion inhabitants, i s the second-poorest country in Latin America and the Caribbean, with an estimated per capita income o f US$957 in 2006. About 45 percent o f the population i s considered poor and 15 percent extremely poor. In rural areas, home to 41 percent o f the total population, poverty dropped from 76 percent in 1993 to 69 percent in 1998. However, as can be expected, poverty remains greater in rural areas, where about 64 percent o f the population i s poor and 25 percent extremely poor. At the same time, poverty remains greater in urban areas where rural people have immigrated because o f the lack o f basic human conditions in the rural areas. Results o f the 2005 Census indicate that the Nicaraguan population i s progressively urbanizing. According to the Census, 59 percent o f the total population lives in urban locations.

2. Nicaragua has three main geographic areas: (a) the Pacific coast, (b) the Central area, and (c) the Atlantic coast, which present large disparities. The current government i s updating the Poverty Map, which wil l give accurate information about the levels o f poverty by geographic zone. However, the last Poverty Map (2005) indicates that the extreme poor and poorest municipalities were located in the central northern areas and the Atlantic Coast, which are also home to large indigenous populations.

3. Managua (1.1 mi l l ion inhabitants), Nicaragua's capital, i s the main urban center o f the country. In addition, there are 189 urban localities with more than 2,000 inhabitants and approximately 7,500 dispersed rural communities. One-hundred five o f the 189 urban localities can be considered small towns. Large proportions o f the population who l ive in these small towns are also poor and lack access to basic services.

4. In 1989, the Government o f Nicaragua (GoN) created two autonomous regions on the Atlantic Coast, the Regidn Autdnoma del Atldntico Sur (RAAS) and the Regidn Autdnoma del Atlbntico Norte (MAN), to respond to the demand o f the local population for the right to preserve their culture and their natural resources. Over the past few years the GoN has given more autonomy to the RAAS and RAAN, which now have relatively strong regional governments (executive and legislative) that are locally elected.

5. Both regions have only l imited access ways to the rest of the country and boast important indigenous populations. Poverty levels and access to basic services are lower than in the rest o f the country. The 2005 Census estimated rural water coverage to be 62 percent at the national level, but only 42 percent and 36 percent in RAAN and RAAS, respectively. The same census estimated national sanitation coverage at 70 percent, with RAAN and RAAS trailing the list at 48 percent and 49 percent, respectively.*'

2o The 2005 Census data do not use the internationally agreed Joint Monitoring Program definition for water and sanitation coverage. The Water and Sanitation Program in February 2008 published a study proposing correction factors to adjust the census data to JMP definitions. The resulting coverage levels are much lower.

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Sector Background

Broad definition Water

Sanitation

House connections

Sewerage Broad definition

Institutions

Urban (58% of Rural (42% of Total

84% 27% 60%

population) population) 90% 63% 79%

56% 34% 47% 22% 0 Yo 13%

6. Until recently, the water and sanitation sector was defined by the 1998 Water and Sanitation Services Law and the laws that created the institutions o f the sector. A new Water Law was passed in 2007 and i s being implemented, with unclear institutional consequences.*' There are currently three main public sector institutions: (a) the Comision Nacional de Agua Potable y Alcantarillado Sanitario (National Water and Sanitation Commission, CONAPAS), the governing entity (ente rector) led by a committee chaired by the Presidency Secretariat. Theoretically, CONAPAS has the responsibility o f strategic planning for the sector; (b) the Nicaraguan Water and Sewerage Institute (INAA), which i s the water regulatory agency responsible for regulating tariffs, promoting efficient and adequate service quality, and defending users; and (c) the Nicaraguan Water and Sewerage Enterprise (ENACAL), which i s the national service provider and de facto strongest institution o f the sector. I t manages almost al l the urban water systems in the country and, according to the 2007 Water Law, i s also responsible for supervision and control o f service provision in rural areas.

7. Water and sanitation services in rural areas are managed by Cornitis de Agua Potable y Saneamiento (Water and Sanitation Committees, CAPS), which are small water users committees that are often not legal entities. Finally, the Emergency Social Investment Fund (FISE), which i s not a formal water and sanitation sector agency, i s responsible for rural water and sanitation investments for new systems and rehabilitation and expansion o f existing infrastructure. FISE also provides assistance to municipalities responsible for providing post- construction support to CAPS, although the consequences o f the new Water Law on this activity are unclear.

Coverage

8. The WHO/UNICEF Joint Monitoring Program (JMP) has estimated access to water and sanitation services in Nicaragua for 2004 based on surveys conducted in earlier years. The resulting levels are presented in Table A l . 1. The last census was conducted in 2005; it does not, however, use the same definition as the JMP, making comparisons difficult, particularly on sanitation levels, where the census accepts any latrine and the JMP excludes those not in working order or without proper superstructure.

*' The law i s meant as a water resources management instrument but actually covers a number o f water supply and sanitation aspects as well.

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9. Program (WSP) report that attempts at align the census data with JMP definitions.

Table A1.2 presents the census data and corrected data as per a 2008 Water and Sanitation

Table A1.2: Access Levels in 2005 According to Census and WSP (2008)

I Department I Water Rura l (YO) I Sanitation Rura l (YO) I

10. As shown in the Water and Sanitation Background Paper for the Nicaragua Poverty Assessment under preparation by the Bank, the trends in water and sanitation coverage have been stable for the urban sector, while the piped rural coverage has increased significantly over the past 30 years (overall access to rural water has been stable) (Figures A 1 - 1 and Al.2).

Figure Al.1: Access to Water in Nicaraguaa

100%

90%

80%

70%

6 0 % 1971

50% El 1995

40% Id 2005

30%

20%

10%

0%

-

-

I Urban Rural Total

a. Access to drinking water refers to households with: (a

Figure A1.2: Access to Water in Nicaragua (through piped system)b

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0 % Urban Rural Total

es inside the house, (b) pipes outside the house (within . . _ - the yard), (c) public-standpipe, and (d), public or private well. Data sources; Nicaragua National Censuses. 1971; 1995; 2005. b. Access to drinking water through piped system refers to households with: (a) pipes inside the house, and (b) pipes outside the house (within the yard),. Data sources: Nicaragua National Censuses 1971; 1995; 2005.

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11. The same report also shows significant inequalities in terms o f access to services for different income levels, together with worrying trends o f decreased coverage for the extreme poor (Figures Al.3 and Al.4).

Figure A1.3: Access to Water in Nicaragua among Different Income Groups

100%

90%

80%

70%

60%

50% Extrerm mor Poor hbn-poor

Figure A1.4: Access to Water in Nicaragua among Income Quintiles

(through piped systems) - __-______ .___

'Oooh r---- 90%

80%

70%

60%

50%

40%

30%

20% Poorest II 111 IV Richest

lata sources: LSMS 1998; 2001; 2005.

Rural Water and Sanitation Background

Historic Developments

Data sources: LSMS 1998; 2005.

12. There is a r ich experience in Nicaragua o f communities managing water and sanitation rural systems, with intervention models that have evolved over the years, incorporating lessons learned and regional best practices. This experience began in 1977 with the Rural Basic Sanitation National Plan (PLANSAR), funded by the U.S. Agency for International Development and the World Bank and carried out by the Ministry o f Health (MINSA). PLANSAR was designed to quickly increase coverage o f water and sanitation services, with technical solutions from the urban sector. There was no demand-based approach and no community participation.

13. In 1982 the program was transferred to the Rural Aqueducts Directorate (DAR), which was part o f the original INAA (now ENACAL). DAR implemented new programs with new donors, such as CIDA, COSUDE, and UNICEF. These programs were designed with the understanding that the technical solutions and proposals had to be adapted to the local needs. Strategic planning, project design, and management o f the resources were decentralized to the territorial units, and sanitary education and community promotion were integrated at the community level. The objective o f these changes in the rural sector was to improve sustainability o f the projects in their different dimensions.

14. D A W E N A C A L provided technical support to rural systems through the Operation and Maintenance Units (UNOM), which were located inside the Technical Services Units o f

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ENACAL. The approach used by UNOM combined community participation in operation and maintenance tasks and UNOM interventions when the community was not able to resolve the most difficult problems. UNOM visited the communities at least once a year.

Current Rural Model

15. From 1993 on, community participation became more important and a new project cycle was developed and applied to rural WSS programs. In this period, FISE started i t s own interventions in the rural area. In early 2000, a new model was developed by the program A G U A S A N COSUDE, in which the municipality assumed al l the responsibilities in the project cycle including long-term support to the CAPS. In 2004, FISE started implementing the entire rural WSS investments o f the government, excluding ENACAL. FISE also introduced a different approach to hiring people by letting the private sector have a major role compared with the system used by ENACAL, which hired permanent staff to manage the project cycle.

16. In some way, the model developed by FISE profited from the long experience gained by E N A C A L in the rural sector, which was incorporated in the new project cycle. This model i s included in the Operations Manual (Reglamento Operativo) that i s common to all donors. The project cycle, which i s now used by al l bilateral and multilateral donors, draws on the municipalities as the main actors in order to prioritize investments, contract designs and works, and provide technical assistance to the community organizations in charge o f the services.

17. municipalities and projects and i s currently using two modalities:

However, FISE has not been able to unify the mechanism to allocate funds among

The Funds Competition (Concurso de Fondos), in which municipalities submit projects to a competition organized by FISE every year, and projects are selected based on the share o f co-financing offered by the municipality. The contest includes safeguards to ensure poorer municipalities can also receive projects, although there are ongoing discussions with regard to whether they actually accomplish this. T h i s modality i s currently used by an IDB/KfW- funded project that represents the bulk o f FISE’s investment in the sector.

The Prior Allocation modality (ex ante), in which FISE and donors decide on the amount received by selected participating municipalities based on objective criteria such as poverty level or coverage gap. This modality i s currently used by COSUDE and CIDA.

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Annex 2: Ma jor Related Projects Financed by the Bank andor other Agencies NICARAGUA: Rural Water Supply and Sanitation Project

1. The Bank portfolio in Nicaragua contains four recent and ongoing projects with development objectives (DOs) related to rural water supply and sanitation (WSS) in Nicaragua. The current project would benefit and/or complement the fol lowing initiatives o f the Bank:

A. Social Development Project (ID: P064906). Overall, the project aimed at assisting FISE to move from a strong focus on infrastructure to a more comprehensive approach to poverty reduction, including greater participation at the local government and community level. The Project Outcomes were rated Satisfactory (ICR, October 2, 2007); the project was closed on December 3 1 , 2006. This project made a significant contribution to improving access to priority small-scale social and economic infrastructure and services to the poor and to strengthening local capacity (municipalities, community organizations, NGOs, and the private sector) to manage and participate in the project cycle and project committees o f FISE-financed subprojects. The Rural Water Supply and Sanitation Project wil l take advantage o f such capacities.

B. Second Rura l Municipalities Development Project (ID: P055823). The DO was to build the capacity o f rural municipalities in three major areas in which they can make a critical contribution to sustainable rural development: (a) provision o f local public infrastructure and the delivery o f municipal services, (b) the protection o f the environment and the sustainable management o f natural resources, and (c) the promotion o f local economic development. The project was rated Satisfactory and closed on December 31, 2007. The project helped rural municipalities increase tax revenue and improve the financial management o f Municipal Transfers from the National Budget; and enhance technical capacities to manage the project cycle o f municipal investments, including municipal technical capacity for environmental management. The Rural Water Supply and Sanitation Project will continue building on al l these enhanced capacities to involve municipal governments as key stakeholders for delivering and sustaining the services along with rural communities.

C. Health Services Extension and Modernization - 2"d Adaptable Program Loan (APL) (P078991). The DO i s to improve maternal and child health in the poorest municipalities o f Nicaragua, concentrating on roughly hal f o f Nicaragua's poor. By improving the health status o f this population, health inequities should be reduced, as shown by disparities in maternal and infant mortality indicators across geographic areas and income groups. The overall IP rating for this project i s Moderately Satisfactory and the PDO rating i s Satisfactory; i t i s expected to close by November 2009. The Rural Water Supply and Sanitation Project wi l l complement the efforts made by this A P L to improve health outcomes in Nicaragua, particularly among the rural poor.

D. Poverty Reduction Strategy Credit I1 (ID: P089816). The DO was to support the government's pursuit o f the pol icy objectives proclaimed in i t s Poverty Reduction Strategy Paper 11, while contributing to overall donor coordination. This project was rated Highly Satisfactory and closed on June 30, 2007. The Government o f Nicaragua and the Bank are currently discussing a stand-alone Development Policy Credit worth US$20 mil l ions that i s considering, among other things, prior actions and progress indicators in terms o f improving the institutional

40

framework in the water sector, updating the sector Strategy, and increasing coverage with water supply services.

2. In addition to the above-mentioned lending operations, the Water and Sanitation Program (WSP) o f the World Bank has had an active presence in the sector since 2005. The WSP has managed to provide relevant technical support and advice to government bodies related to the water and sanitation sector, including the promotion o f coordination mechanisms among donor agencies.

3. The Rural Water Supply and Sanitation Project has strong coordination linkages with the most relevant donors in the sector. Complementary projects in the sector financed by other international agencies include:

A. IADB / KfW: The IDB and KfW have a joint US$40 mi l l ion rural investment project implemented by FISE, o f which approximately 35 percent o f the funds go to rural water and sanitation investments, where municipal governments play a key role by contributing with relevant counterpart funds and technical capacities. The project i s intended to promote active involvement o f local communities in the appropriation o f subprojects and supporting sustainability.

B. Swiss Development Cooperation (COSUDE), as a part o f a long-term engagement with the water and sanitation sector in Nicaragua, is implementing a US$4.2 mi l l ion project (during 2004-09) to support FISE’s Rural Water and Sanitation Program in some 20 municipalities with l o w coverage o f services. The project i s financing investments through local governments and NGOs as a means to promote local management and institutional strengthening.

C. UNICEF i s starting to implement with FISE and other institutions a US$7 mi l l ion project during 2008-10 in the Caribbean region o f Nicaragua that aims at promoting economic governance in the regional rural water and sanitation sector by: (a) helping regional autonomous governments create institutional capacities to prepare and monitor regional policies and strategies for rural water supply and sanitation, (b) investing in enhancing access to rural water and sanitation services, and (c) promoting participation o f M A N and RAAS communities in the decision-making process for water supply and sanitation investments.

D. Canadian International Development Agency (CIDA) i s implementing with FISE a US$3 mi l l ion rural water supply and sanitation project (during 2006-1 1) in 11 municipalities in the northern region o f Nicaragua. The project aims at investing in water supply and sanitation infrastructure and local capacity development.

41

Annex 3: Results Framework and Monitoring

NICARAGUA: Rural Water Supply and Sanitation Project

Results Framework

1. The project-level monitoring and evaluation framework wi l l allow tracking progress in implementation, measuring intermediate outcomes, and evaluating project impacts. The framework outlines key performance indicators, data collection methods, a timetable for collection, and responsible agencies. This framework wi l l be used to supervise and monitor the implementation o f the project. The Fondo de Inversibn Social de Emergencia (Emergency Social Investment Fund, FISE) has monitoring and evaluation facilities and can assume this coordinating role.

2. Progress Reports wil l be produced by FISE’s monitoring and evaluation systems to describe the main achievements o f the project on a semi-annual basis. They wil l include complete information on contracts, procurements, disbursements, detailed information on the project’s financial status, inputs, number o f beneficiaries and other outputs, and a range o f additional operational indicators to track project status. These reports wil l be produced by FISE and they wil l be used by the Interagency Coordination Committee and the Wor ld Bank.

Monitoring the Progress toward Millennium Development Goals (MDGs) and National Sector Goals

3. Since Nicaragua i s an International Development Association (IDA) country and this i s a water and sanitation operation, the project will comply with IDA14 Results Management System (RMS), and will therefore use WHO/UNICEF Joint Monitoring Program (JMP) definitions o f improved drinking water22 and improved sanitation services.23. It should be noted however that current national practices are not aligned with the JMP or even among institutions. Besides the information obtained from the 2005 Census,each institution in the sector (FISE, CONAPAS, INAA and ENACAL) uses different indicators, definitions and coverage.

4. The Government o f Nicaragua i s committed to improving i t s monitoring and evaluation systems to help strengthen transparency and accountability, and has requested donor support for this effort, which i s being coordinated by the UNDP. The Bank, through WSP, will continue to be an active participant in these efforts by supporting discussions among the various sectors institutions and the National Information and Statistics Institute (INIDE) to reach common definitions. With technical assistance from the PHRD grant, CONAPAS i s developing an integrated platform to merge information from the different existing information systems that w i l l provide quality information on sectoral investments and wil l enable measuring progress toward the water supply and sanitation MDG.

22 Piped water into dwelling, plot, or yard; public taphtandpipe; tube wellhorehole; protected dug well, protected s ring, rainwater collection. 2PFlush or pour-flush to: piped sewer system, septic tank, pit latrine; ventilated improved pit latrine, pit latrine with slab, composting toilet.

42

5. The preliminary assessment o f the capacity o f the country to measure progress toward the water supply and sanitation MDG shows that the definitions o f the indicators used by the government’s monitoring program are not fully equivalent to those used by the JMP/IDA 14 results framework. The project, with support from WSP and the Bank’s supervision team, wi l l work with INIDE and the national government to ensure that the sector-monitoring mechanisms remain in place and working properly, and to ensure the indicators’ definitions are in l ine with JMP standards.

6. The matrix that follows provides a results framework for measuring project outcomes.

Results Framework

Project Development Objective

Increase access by project beneficiaries to sustainable watera and sanitationb services in rural areas.‘

Intermediate Outcomes

Component 1. Increase Water and Sanitation Coverage in R u r a l Areas (excluding RAAN and RAAS)

Component 2. Increase Water and Sanitation Coverage in Autonomous Regions of RAAN and R A A S

Project Outcome Indicators

Number o f additional beneficiaries with sustainable access to water supply in rural communities intervened by the project.

Number o f additional beneficiaries with sustainable access to sanitation services in rural communities intervened by the project.

Percentage o f CAPS created in the first three years that continue to operate in a sustainable manner.

Intermediate Outcome Indicators

Number o f additional people with access to new water supply services in rural areas.

Number o f additional people with access to rehabilitated water supply services in rural areas.

Number o f additional people with access to improved sanitation services in rural areas.

Number o f additional rural communities with adequate water and sanitation services. Number o f additional people with access to new water supply services in rural areas o f RAAN and R A A S .

Number o f additional people with access to rehabilitated water supply services in rural areas o f RAAN and RAAS.

Use of Project Outcome Information

To inform ex-post decisions regarding preparation o f fol low-up projects.

Use of Intermediate Outcome Monitoring

To track progress toward MDGs.

To take corrective measures during the midterm review and to track progress toward achievement o f PDO.

To track progress toward MDGs.

To take corrective measures during the midterm review and to track progress toward achievement o f PDO.

43

Component 3. Institutional Strengthening in the Rural WSS Sector and Pilot Projects Development

Strengthen the capacity o f existing and new CAPS to operate and maintain rural water and sanitation systems with long-term technical post-construction support.

Test new appropriate technologies and approaches to serve the different segments o f the rural population in Nicaragua.

Component 4 Effective Project Management in Place to Ensure Quality Project Implementation

Number o f additional people with access to improved sanitation services in rural areas o f RAAN and R A A S .

Number o f additional rural communities in RAAN and R A A S with adequate water and sanitation services.

Percentage o f indigenous communities benefiting from investments from Component 2.

Percentage o f Afro-descendent communities benefiting from investments from Component 2. Level o f implementation o f the post- construction strategy.

Percentage o f CAPS providing improved servicesd in the jurisdiction o f the strengthened institution.

Percentage o f CAPS with at least 30 percent o f women on the Board. Percentage o f CAPS with women in decision-making positions (president or treasurer) on the Board.

Percentage o f pi lot projects adequately documented, evaluated, and disseminated.

Cumulative percentage o f disbursement targeted according to disbursement plan i s met.

To inform decisions on post- construction technical assistance and monitor gender participation in the CAPS.

All pilots w i l l be subject to evaluation and the results w i l l be disseminated and benefit the design o f the following rural WSS project, planned for FY 10, and other projects to be financed by other donors.

To monitor project implementation and provide early warning about implementation capacity.

a. Access to improved rural water supply services i s defined as the number ’people wi th access to running water wi th at least a minimum level o f quality and quantity (not just access to infrastructure). Sustainable delivery o f the

adequate manner, classified with a ranlung “B” or higher according to an agreed scorecard, presented in the CAPS Scorecard, below. b. Access to sanitation services i s defined as the number o f people with access to at least a latrine (as defined by the JMP) that i s being used by i ts beneficiaries. c. Rural areas in the context o f the water and sanitation sector in Nicaragua are defined as dispersed communities and small towns with less than 5,000 inhabitants that are not served by ENACAL. d. With “B” or higher rank according to the scorecard.

44

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Annex 4: Detailed Project Description

NICARAGUA: Rural Water Supply and Sanitation Project

1. sustainable water and sanitation services in rural areas.

The Project’s Development Objective i s to increase access by project beneficiaries to

2. The key outcome indicators to measure attainment o f the project’s objectives are:

1.4. Number o f additional beneficiaries with sustainable access to water supply in rural communities intervened by the project; 1.5. Number o f additional beneficiaries with sustainable access to sanitation services in rural communities intervened by the project; 1.6. Percentage o f CAPS created in the f i rst three years that continue to operate in a sustainable manner.

Project Components

3. The proposed operation would assist the Government o f Nicaragua (GoN) in strengthening i t s ongoing effort to increase access to water and sanitation services in rural areas o f the country. Since a formal decision in 2004,24 the Emergency Social Investment Fund (Fondo de Inversidn Social de Emergencia, FISE) has been the governmental body in charge o f investments in rural water and sanitation solutions. FISE i s currently implementing several donor-funded rural water supply and sanitation (WSS) projects, including a large, multisector rural investment project funded by IDB and KfW for which WSS represents a key sector, and several smaller projects financed by C I D A and COSUDE.

4. For this purpose, the operation would finance investment to increase access to water and sanitation services in the country’s rural areas (Component 1) and the country’s two autonomous regions on the Atlantic Coast, the Regidn Autdnoma del Atlcintico Sur ( M A S ) and the Regidn Autdnoma del Atldntico Norte (MAN), together with the Al to Coco and Bocay area, which have the lowest levels o f coverage and large proportions o f indigenous populations (Component 2). The project would also develop a series o f pilots to address challenges o f the rural water and sanitation sector and establish best practice models o f intervention (Component 3). Finally Component 4 wi l l finance institutional strengthening and project management activities.

5. The fol lowing section provides further details on the project’s components and subcomponents. Amounts show total component costs with credit/grant proceeds in brackets.

Component 1: Coverage Increases in Rural Areas - Cost US$11.5 million (IDA US$10 million)

6. Current rural water coverage i s estimated to be 62 percent (63 percent access according to JMP) and rural sanitation coverage 70 percent (34 percent access according to JMP), with important regional variations. This component wi l l support municipalities in increasing coverage

24 Prior to that date, the national water and sewer utility, the Empresa Nicaraguense de Acueductos y Alcantarillados Sanitarios (ENACAL), was in charge o f rural investments in water supply and sanitation.

49

o f water and sanitation services in their rural territory through investments and technical assistance to communities.

7. Donor coordination i s important in rural WSS projects, because projects that use different rules and implementation mechanisms may compete against each other and decrease the commitment o f communities to participate in project execution-creating unnecessary tensions between institutions and donors. In addition, the use o f a consistent intervention framework can decrease costs and speed up implementation. Therefore, the project wil l ini t ial ly fol low implementation rules similar to other donor-funded projects currently under implementation by FISE, with a few adjustments to reflect some o f the issues identified during project preparation. FISE and the other rural WSS donors have indicated an interest in learning from the project’s progress and incorporating lessons learned in FISE’s operating manual during implementation. The fol lowing paragraphs describe the project cycle in greater detail.

8. Municipal Planning Process. The Nicaraguan Institute for Municipal Development (Instituto Nicaragiiense de Foment0 Municipal, INIFOM) has been promoting for several years the use o f participative processes at the municipal level (micro-planificacidn participativa) in order to establish priorities in municipal investments. In a process that involves consultations with al l communities through dedicated social workers, each municipality develops a Multiyear Municipal Investment Plan (Plan de Inversidn Municipal Multianual, PIMM). FISE only finances activities or projects that are included in the PIMM, and this project wi l l fol low the same principle.

9. Funds Allocation Process. As mentioned, FISE i s currently allocating funds among municipalities following two different mechanisms (funds competition and prior allocation). It has indicated that i t would l ike to do away with the funds competition process and that the main donors o f the sector in terms o f amounts (KfW and IDB) have indicated their interest in modifylng the current mechanism. For this project, the funds wil l be allocated on the basis o f the number o f houses without access to water and/or sanitation services in the 2005 Census. About 40 municipalities that do not have a significant number o f houses without access wil l be excluded because the equivalent project size would be very low.

10. Subproject Implementation Phase. FISE i s currently implementing i t s subprojects through the municipalities, which are in charge o f conducting the works procurement processes and managing the contracts and related funds. This project wil l continue with that design. However, based on an analysis made during project preparation, i t will not delegate to the municipalities the responsibility o f contracting accompanying social and technical support. Rather, local nongovernmental organizations (NGOs) and engineering companies wil l be contracted by FISE to provide consistent and controlled support to communities and municipalities before, during, and after the construction o f the systems. Communities wil l be involved from the beginning-making decisions on the service level and technical options during project preparation, participating in project construction, and managing the systems through the constitution o f Water and Sanitation Committees (Comi th de Agua Potable y Saneamiento, CAPS). Social interventions wil l focus on three main topics: community participation in the process, set-up and training o f the CAPS, and community-wide activities on hygiene and sanitation promotion.

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1 1, Community execution: FISE has an established tradition o f having simple projects executed directly by the communities themselves. In such cases, the community manages the funds and contracts the works fol lowing simplified procurement procedures, which are part o f the Operative Manual. This project wi l l follow the same design: simple projects (defined as those that do not involve piped networks) in those communities where a community diagnostic has revealed sufficient organizational capacity; the community itself wil l execute the project with the support o f the accompanying social and technical companies mentioned in the previous paragraph.

Water

12. Implementation Principles. FISE i s currently using a number o f implementation criteria that will ini t ial ly be retained. Those criteria are, however, fairly general and do not include specific information on issues such as community participation, allowable technologies, and so forth. Therefore, this project will be implemented in respect o f the additional criteria presented in

On-site Sanitation

Table A4.1.

Table A4.1. Rural Investment Implementation Principles

Eligibility Requirements

Eligible Expenditures

Financing Rule for New Systems

Financing Rule for Rehabilitated Systems Financing Rule for Domiciliary Installations

economic analysis). o New systems to include 100% metering.

o Rainwater harvesting systems. o Spring catchments. o Boreholes / wells with hand pumps. o Piped systems feeding multifamily taps

andor household connections (by gravity or pump).

Community contributes 5% (point supply) or 10% (piped supply) o f total cost in-kind (materials, work). In addition, community pays equivalent o f two months o f tariffs before construction starts, and another four months during construction. Community participation to be higher than for new systems, to depend on age o f existing system. To be paid by household.

o Individual recipient to actively

o Improved traditional latrines. o Ventilated improved pit (VIP)

demand on-site sanitation solution.

latrines wi th a range o f superstructures.

o Pour-flush toilets with a range o f superstructures and septic tanks.

o Basic sanitation units that integrate a shower, s ink, flush toilet, and septic tank.

units. o School and Health Center sanitary

N A

N A

Household excavates pit, pays 10% o f hardware cost.

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Tariffs

13. Special Considerations on Sanitation and Hygiene. Although municipalities have been including sanitation projects in their PIMM, this activity i s usually limited to latrine provision and i s o f low-priority ranking. Moreover, contractors hired by the municipality provide full service, including material provision and works, leaving l i t t le space for community or/and beneficiary participation. The quality o f the training and hygiene promotion provided by the contracted facilitators has been difficult to monitor. T o increase sanitation coverage in a sustainable way and to ensure improved hygiene practices, a strong hygiene promotion and sanitation marketing dimension w i l l be included in the project. Hygiene promotion wil l tap into the r ich experience in hygiene promotion in rural Nicaragua. These promotional efforts wi l l include investment in understanding community needs, wants, and behaviors, and this wil l contribute to the project baseline against which results wi l l be measured. It i s envisioned that monitoring and evaluation (M&E) wil l be participatory and locally owned and used. Sanitation marketing will aim at: (a) advocating on-site sanitation at the municipal level as part o f integrated sanitation planning, and (b) promoting individual household sanitation at the beneficiary level. These marketing measures wil l start before the physical and social implementation o f the project. Hygiene and sanitation promotion are distinct activities, but will be managed by the same N G O to simplify coordination and reduce management costs. A promotion process will be defined that i s distinct from, but coordinated with, the project cycle for the physical works. Hygiene promotion and sanitation marketing measures will focus o n the benefits provided by improved hygiene and sanitation (including criteria as perceived by the municipality and the beneficiaries, such as time saved, comfort, visual aspects, and so forth), to stimulate demand and to increase attention to expected outcomes.

Water On-site Sanitation M u s t cover at least O&M costs and the replacement cost of a l l electrical and mechanical equipmenthalve work over 10 years.

NA

14. This component would be implemented by FISE (overall management and contracting o f social and technical support) in partnership with the municipal governments (contracting o f the works).

Component 2: Coverage Increases in the South and North Autonomous Atlantic Regions - ~

15. In 1989, the G o N created two autonomous regions on the Atlantic Coast, the Regidn Autdnoma del Atlantico Sur (RAAS) and the Regibn Autdnoma del Atlantico Norte (RAAN), to respond to the local population's demands for a right to preserve their culture and their natural resources. Over the past few years the GoN has given more autonomy to the R A A S and RAAN, which now have relatively strong regional governments (executive and legislative) that are locally elected. In addition, the Al to Coco and Bocay area, which i s administratively part o f the Jinotega department, but ethnically linked with the population o f the RAAN, wil l also be included in this component.

16. Both regions have only l imited access ways to the rest o f the country and boast important indigenous populations. Poverty levels and access to basic services are lower than in the rest o f the country. The 2005 Census estimated rural water coverage to be 62 percent at the national

52

level, but only 42 and 36 percent in RAAN and RAAS, respectively. The same census estimated national sanitation coverage at 70 percent, with RAAN and R A A S trailing the l i s t at 48 and 49 percent, respective~y.~’

17. Component 2 would pursue the same goals as Component 1 but focusing on the M A S and M A S and the Al to Coco and Bocay area, with a subproject cycle that would use the local government structure and be adapted to the cultural and economic conditions in these regions. Several donors are either preparing new projects in one or both regions (KfW, UNICEF, the European Commission) or have ongoing projects (BID/KfW, COSUDE). Most existing donors work either through FISE and the municipalities, or directly with NGOs; there i s no consistent engagement mechanism. This component would, however, be strongly coordinated with both regional governments and other donors in order to create a quasi-SWAP for rural investment in the regions.

18. FISE and the regional governments wi l l set up a Comitk de Proyecto that wil l decide on funds allocations and implementation principles, together with other donors and municipal governments. The key principles for the implementation o f this component are:

8

8

8

19.

Strong participation o f local governments (regional, territorial, and municipal) in selecting beneficiary communities and defining the subproject cycle’s details.

Strong community participation in the subproject cycle including engagement o f local NGOs with understanding o f the local culture and languages in the capacity-building process and hygiene promotion, and use o f community execution for technically simple projects.

Use o f appropriate, low-cost technologies and service levels given the difficulty o f access, small size, and dispersion o f the rural communities. Decentralized workshop(s) for material and/or prefabricated elements wi l l be considered in strategic locations. Lessons learned from former projects including decentralized services (SarzPlat, bomba de mecate [rope pump]) wil l contribute to the pilot project implementation. Facilities for individual greywater reuse wil l also be tested. 26

In the initial phase, this component would be implemented by the local FISE branch (overall management and contracting o f social and technical suppoi) in partnership with the regional government (funds allocation through the Cornitk de Proyecto) and municipal governments (contracting o f the works). The regional government o f the RAAN will contract the works for the Al to Coco and Bocay area given the cultural and geographic disconnects between this area and i t s municipal capital. At midterm review, these arrangements may be reviewed in light of the experience and a stronger role may be given to the regional governments. Experience gained in terms o f use o f technologies and social intervention mechanisms wil l also be evaluated to determine whether adjustments are needed.

25 The 2005 Census data do not use the internationally agreed JMP definition for water and sanitation coverage. WSP in February 2008 published a study proposing correction factors to adjust the census data to JMP definitions. According to this study, access numbers for RAAN and R A A S are around 19 percent for water and 30 percent for sanitation.

For instance, taking into consideration recent experience in the northern part o f the country, where individual small sand trenches are located downstream o f laundryhathing areas.

53

Component 3: Pilot Proiects - Cost US$3.3 million (IDA US$3.0 million)

20. Despite the long engagement o f several donors in the water sector, there are certain “market niches” that have not been properly catered to, and for which no best practice model o f intervention exists in Nicaragua. This component therefore seeks to develop a series o f pi lot proj ects-and the accompanying intervention strategies-making best use o f the Bank’s international experience and successful models developed in other countries in the region. These pi lot projects could serve as the basis for some larger-scale activities in the follow-up rural water and sanitation project planned for FY 10, or be picked up by other donors. This component wi l l include complementary activities to ensure that the pilots are evaluated, documented, and shared properly. The following paragraphs describe two possible pilots for which the analytical groundwork exists; the need for others may emerge during project implementation.

2 1. Simplified sewers in dense, small towns. The possibility o f building condominial and/or small-bore systems in concentrated communities where soil conditions and urban structure do not facilitate individual sanitation, and where the population agrees to the principle o f connecting to and paying for such a service, wil l be explored. There i s at least one case o f a condominial system built in a small town in Nicaragua, but this experience has not been properly documented. In parallel, and given the additional complexity that the management o f a sewer system brings, those towns wil l participate in a pi lot for appropriate management models (see below).

22. Appropriate management models in small towns. While E N A C A L i s in charge o f most larger towns in the country, and those small communities that have water supply systems usually have CAPS to manage them, there i s a gap in water management for the 2,000-to-5,000- inhabitants range. In these communities, management models relying on elected, unpaid boards cannot adequately provide service and the income generated i s too small to warrant a full autonomous operator. A recent study by the Water and Sanitation Program (WSP)27 showed that systems in this range o f municipalities are operated by CAPS, municipalities, ENACAL, or municipal or private companies. Anecdotal evidence from the study shows that service quality i s limited in most, calling for a different way to manage the services. This Pilot would consist o f supporting a few small towns in developing a suitable management model addressing the weaknesses o f their current situation.

23. T h i s component wi l l be entirely implemented by the central office o f FISE. If, in the course o f the preparation o f the pi lot projects it i s determined that beneficiary municipalities should take an implementing role, then the implementing mechanism wil l be identical with that o f Component 1. Other actors, such as local c iv i l society organization actors, wil l be consulted in the decision process.

Component 4: Institutional Strengthening and Proiect Management - Cost US$2.6 million {IDA US$2.0 million)

24. T h i s Component wil l finance al l activities aimed at ensuring the sustainability and proper implementation o f the project. The first subcomponent strengthens the institutions that directly or

27 Evaluacidn del funcionamiento y la calidad de 10s sewicios de agua y saneamiento en pequefias localidades urbanas en Nicaragua, Water Group and ESA consultants for the Water and Sanitation Program, Lima, 2007.

54

indirectly provide long-term technical assistance to the CAPS, while the second subcomponent finances traditional project management and monitoring activities.

Subcomponent 4A: Institutional Strengthening - Cost US$1.4 million (IDA US$1.0 million)

25. In 2004, the GoN decided to give sole responsibility for the rural water and sanitation sector to FISE. ENACAL, which had previously been very active in the rural sector, stopped providing post-construction technical assistance to the CAPS2*. FISE has since been relying on municipalities to provide this support to the CAPS and has conducted l imited capacity-building activities. In addition, in the recent Water Law (2007) and the related bylaws, the overall responsibility to control and supervise the CAPS returns to ENACAL. There is no clarity on whether E N A C A L wil l continue working through municipalities at least in those areas where i t does not operate the urban municipal system, or intends to retake complete control o f the technical assistance services to rural WSS operators. E N A C A L i s preparing a strategy that is expected to address this question.

26. Therefore, this subcomponent wi l l finance the support and strengthening o f the institutions working in the rural WSS sector-whether E N A C A L or the municipalities-in order to ensure that the existing and new WSS systems and their CAPS are made more sustainable through the provision o f technical assistance and specific support in the long term. This institutional strengthening may take the form o f studies, purchase o f vehicle and equipment, working environment improvements etc. In addition, this component wil l finance exchanges o f experience with other countries, training, and consultancies in order to move toward a more unified sector pol icy (financing policy, social intervention, and community participation).

Subcomponent 4B: Project Management and Monitoring - Cost US$1.2 million (IDA US$1.0 million)

27. This sub-component wil l finance the incremental cost o f salary,29 travel, and the general operating costs o f the team working on the project’s implementation within the Water and Sanitation unit o f FISE. In addition, this component would also finance M&E activities, including the collection o f information and development o f reports for continued evaluation throughout the project cycle by both project management and the Bank’s supervision team. I t wil l also cover audits and other project management activities required for the proper implementation o f the project. Finally, this component will finance the strengthening o f the implementing unit, through participation in trainings and study tours, purchase o f vehicles and equipment, and upgrading o f the working environment as needed.

28. This component wil l be entirely implemented by FISE. Should the pending sector strategy result in changes in terms o f the institutional responsibility for long-term support to the CAPS,

28 In some cases these community organizations can take other forms, such as users cooperatives. Since the vast majority o f the organizations are CAPS and CAPS i s also the accepted terminology in Nicaragua, this document w i l l make use o f the term when referring to any type o f community organization responsible for the operation and maintenance o f the WSS system. 29 The agreement with FISE i s that salaries for the core incremental staff w i l l be financed by the project following a decreasing schedule; from year 5 on, these salaries should be entirely financed from the national budget.

55

the project may be restructured to allow other institutions to participate in the implementation o f component 4A.

Component IDA Recipient Municip.

Estimates of Project Costs, by Component (US$ m)

TOTAL

Component 1 : WSS Services in Rural Areas

Component 2: WSS Services in R A A S and RAAN

Component 3: Pilot Projects

Component 4: Institutional Strengthening and Project Management

US$lO.OM US$0.6M US$0.9M US$l l .SM

US$S.OM US$0.3M US$0.4M US$5.7M

US$3.0M - US$0.3M US$3.3M

US$2.0M US$0.6M - US$2.6 M

I Total

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Annex 5: Project Costs NICARAGUA: Rural Water Supply and Sanitation Project

Local Foreign Total US$ million US$ million US$ million Project Cost by Component and/or Activity

Component 1 : WSS Services in Rural Areas 9.0 2.5 11.5 Component 2: WSS Services in M A S and 4.4 1.3 5.7

Component 3: Pilot Projects 2.6 0.7 3.3 M A N

Component 4: Institutional Strengthening and 2.1 0.5 2.6 Project Management Total Baseline Cost 18.1 5.0 23.1

Physical Contingencies Price Contingencies

Total Project Costsa 18.1 5.0 23.1 Interest during Construction Front-end Fee Total Financing Required 18.1 5.0 23.1 a. The project wil l be exempted from taxes by the Government o f Nicaragua.

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Annex 6: Implementation Arrangements

NICARAGUA: Rural Water Supply and Sanitation Project

Component

1, WSS Services in Rura l Areas

1. The Republic o f Nicaragua will be the recipient o f the proposed creditlgrant. The main implementation agency for this project i s the Emergency Social Investment Fund (FISE). FISE has the legal mandate to build rural water and sanitation systems in the country and is implementing several such projects financed by other donors such as the IDB, the KfW, CIDA, and COSUDE. FISE has also implemented World Bank-funded projects in the past, including a Poverty Reduction and Local Development project that closed in 2007 and included rural water supply and sanitation (WSS) investments.

Technical With Support Fromb Procurement and Supervisiona Financial Mgmt‘

2. Although FISE has been active in the water and sanitation sector for a number o f years, i t has only recently decided to create a formal rural water and sanitation unit at the national level. This unit wil l include all staff currently working on WSS-related themes, and wil l be the leading unit in charge o f this project’s implementation. Fiduciary and safeguard functions wil l continue to be assumed by the l ine units within FISE. In addition, FISE is seeking to create-partly with the support o f this project-small, dedicated WSS units in each o f its departmental agencies. It i s expected that a small number o f consultants will be hired to strengthen FISE’s WSS team under the project. The professional staff involved in project implementation-whether existing or additional-will have qualifications and experience acceptable to the Bank according to the project’s Operations Manual. The Bank wil l co-finance the salaries and other operational recurrent costs required for the implementation, while national counterpart financing wil l be used to cover the cost o f strengthening FISE’s staff to ensure i t complies with i t s legal mandate in the rural WSS sector.

Consulting services (technical and social)

Works

3. Table A6.1 summarizes the suggested project implementation arrangements, with FISE as the main implementing agency and the municipalities implementing most o f the works associated with the project. The subsequent paragraphs contain more details about the component-by-component implementation arrangements.

................................................................................................................................................................................................................................................................� Municipalities FIsE I Municipalities

Municipalities FIsE I FISE

Table A6.1 Overview of Project Implementation Arrangements

Works (Alto Coco and Bocay area) Regional govt of RAAN

Comitt de Proyecto Regional govt of RAAN

2. WSS Services in R A A S and RAAN ................................................................................................................................................................................................................................................................“�

Consulting services (technical and social) I FISE 1 Comitt de Proyecto 1 FISE

I Works (RAAS and RAAN) I Municipalities I Comitt de Proyecto I Municipalities 1

I 1 Consulting services (technical and social) FISE FISE

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Component

I works I FISE/Municipalities I Municipalities/FISE I Municipalities/FISE I Technical With Support Fromb Procurement and

Supervisiona Financial Mgmt‘

4. Institutional Strengthening and Project Management

Other rural WSS FISE sector institutions

4A Institutional Strengthening

4B Project Management FISE NA FISE

4. Implementation of Component 1 (Rural WSS investments). FISE has departmental agencies throughout the country and they wil l be in charge o f the actual front-line oversight during the project’s implementation phase, with FISE’s central office in Managua acting as a coordination, supervising, backup, and resource center. Components 1 and 2 will also be partly executed by the municipalities. Fol lowing an established system that FISE i s using in al l o f its sector projects, municipalities wi l l actually contract out the works and manage the funds for the rural WSS investments under FISE’s fiduciary oversight. Contrary to the current situation, however, FISE wil l contract technical and social consultancies centrally.

5. Implementation of Component 2 (WSS Investments in RAAS and RAAN). The implementation arrangements for Component 2 wi l l generally be similar to those o f Component 1 (that is, technical assistance will be contracted by FISE and works by the municipalities), although the allocation o f funds and technical supervision o f the component wi l l be provided by a Comiti de Proyecto formed from representatives from the departmental FISE agency, the regional governments, the municipalities, the territorial governments, and the communities. In addition, in the Al to Coco and Bocay area, the works will be contracted by the Regional Government o f RAAN, which i s geographically and culturally closer to that area, rather than the municipalities themselves. The midterm review o f the project wi l l be used as an opportunity to discuss whether to give a stronger role to both regional and territorial governments.

6. Implementation of Component 3 (Pilot Projects). This component wil l be entirely implemented by the central office o f FISE. If, in the course o f the preparation o f the pi lot projects i t i s determined that beneficiary municipalities should take an implementing role, then the implementing mechanism wil l be identical with that o f Component 1,

7. Implementation of Component 4 (Institutional Strengthening and Project Management). This component wil l be entirely implemented by the central office o f FISE. Should the pending sector strategy result in changes in terms o f the institutional responsibility for long-term support to the CAPS, the project may be restructured to allow other institutions to participate in component 4A.

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Annex 7: Financial Management and Disbursement Arrangements

NICARAGUA: Rural Water Supply and Sanitation Project

1. A financial management (FM) assessment was carried out to determine FM implementation risk and help establish adequate FM arrangements for the proposed CredWGrant. Based on the assessment, recommendations and complementary actions have been provided to ensure that the project i s implemented within a sound fiduciary environment in compliance with Bank requirements.

2. The Emergency Social Investment Fund (FISE) through the Direccibn General Administrativa Financiera (DGAF) wil l implement al l project components, but Components 1 and 2 will also be partly executed by the municipalities. Fol lowing an established system that FISE i s using in al l o f i t s sector projects, municipalities wil l actually contract out the works and manage the funds for the rural WSS investments.

3. FISE/DGAF has specific World Bank experience managing IDA-3504, the “Poverty Reduction and Local Development Project,” which was recently closed (2007) with a final Moderately Satisfactory FM Implementation Status Report (ISR) Rating. Nevertheless, the FM assessment identified some institutional weaknesses. Accordingly, an Action Plan, detailed below, has been agreed with FISE/DGAF to help strengthen i t s financial management capacity.

Staffing

4. Currently, the DGAF staff includes a General Director responsible for three areas: budgeting, accounting, and treasury. Each area has a leader and three analysts. The staff has direct experience with Bank-financed projects and they have also been managing other externally financed funds (IDB, KfW, COSUDE, Organization o f Petroleum-Exporting Countries [ OPEP]) and are familiar with general external funds procedures. Before effectiveness and for strengthening purposes, FISE/DGAF wil l contract additional staff for each area (budgeting, accounting, and treasury). In DGAF there i s a Finanzas Municipales Unit with two analysts, which follows up with the municipalities on pending accounts payable.

Accounting System

5. FISE/DGAF will use i t s own Financial Management Information System (SIA) and wil l report based on a cash basis. I t includes modules for planning, budgeting, treasury, accounting, and reporting. The system complies with minimum Bank requirements.

6. On a semi-annual basis, FISE/DGAF wil l prepare and submit to the Bank Interim Financial Reports (IFRs) containing: (a) a Statement o f Sources and Uses o f Funds (with expenditures classified by disbursement category) and Cash Balances; and (b) a Statement o f Budget Execution (with expenditures classified by subcomponent); along with the reconciliation o f the segregated account with project records and with the budgetary execution. The IFRs wil l be submitted to the Bank not later than 30 days after the end o f each 6 month period. This review will enhance FM supervision, enabling periodic control over project accounts that wi l l complement the planned supervisions, thus helping to mitigate fiduciary risk.

Project Financial Reporting.

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External Audit

Audit Report

(1) Project Financial Statements

(2) Special Opinions

7. An external, independent, private firm acceptable to the Bank wil l be contracted not later than six months after CreditIGrant effectiveness to cover al l the components o f the CredWGrant execution. The reports wil l cover the calendar year, which i s also the fiscal year. T h e audited financial statements shall be presented to the Bank not later than six months after the end o f the fiscal period that coincides with the calendar year.

Due Date

June 30

June 30

Social Audit

8. There wil l be a social audit process through which the communities wil l be involved from the beginning and during project preparation, participating in project construction and managing the systems through the constitution o f Water and Sanitation Committees (Comitks de Agua Potable y Saneamiento, CAPS).

Internal Control

9. FISE i s subject to the control o f the Internal Audit (IA) Department and the Country’s General Comptroller ( Contraloria General de la Republica). Under international standards, i t is expected that the IA Unit will include the revision o f the financial documentation o f this project in the internal audit plan.

Summary Reports (IFRs)

(used for disbursement purposes)

June 30

I Designated Account (Special Account) June 30 I I Flow of Funds

10. The CreditIGrant wil l use a segregated designated account (DA) in U S dollars, with a proposed ceiling o f US$2,000,000, replenished by Statement o f Expenditure (SoEs). The project may also make use o f direct payments and reimbursements. The DA wil l be located at the Central Bank o f Nicaragua under the control o f the Treasury, from which the funds wil l be transferred to FISE DGAF’s operative account (Fondo Rotatorio) to finance expenditures made or to be made within 30 days. The limit for this advance i s 5 percent o f the given annual budget. The option i s also available o f direct payments (versus World Bank Direct Payments) by FISE/DGAF ordering Treasury to make such payments to suppliers.

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1 1. Under the Loan, the following disbursement methods may be used:

0 Reimbursement 0 Advances 0 Direct payment.

12. FISE/DGAF will be responsible for sending al l withdrawal applications. Partial advances may be made to the Designated Account up to the ceiling amount and as long as the aggregate amount advanced does not exceed the ceiling established in the Disbursement Letter determined by the World Bank. This ceiling can be amended during project execution to accommodate changes in project needs and as informed by the Bank in an amendment to the Disbursement Letter. All withdrawal applications will be complemented by appropriate supporting documentation.

13. Deposits into the Designated Account and replenishments up to the ceiling in the Disbursement Letter wi l l be made on the basis o f withdrawal applications supported by Statements o f Expenditures (SOEs) in an acceptable form confirming compliance with procurement procedures and accompanied by acceptable supporting documents. All supporting original documentation wil l remain at the municipality level and a copy will be maintained in FISE/DGAF. All supporting documentation and reports wil l be available at any time for the Bank’s supervision, at the FISE/DGAF locations and municipalities for auditing purposes.

Subprojects

14. FISE implements i t s subprojects (at the community level) through the municipalities that are in charge o f conducting procurement processes and managing the contracts and related funds. T h i s project wil l continue with that design. Thus, the Finanzas Municipales Unit in DGAF wil l follow-up with the municipalities on pending accounts payable.

15. The municipalities will provide counterpart financing. The detailed financial procedures o f these subprojects must be included in the Operations Manual. The size o f the subprojects should determine the needed accountability mechanisms to conduct an efficient follow-up o f the expenses; FISE/DGAF and municipalities wi l l be responsible for maintaining al l the sufficient documentation for ex post control purposes.

16. The Operations Manual should be revised and cleared by FM.

Risk Assessment and Mitigation

17. Risk Rating. Overall FM risk i s rated as Moderate. The FM design, which includes a series o f additional measures, responds to the identified risk and proposes a suitable supervision strategy. The adequacy o f FM arrangements would be continuously monitored during project supervision, and adjustments made when necessary to ensure fiduciary compliance. Table A7.2 presents the risk assessment and mitigating measures incorporated into project design and the FM implementation arrangements.

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Risk Risk Rating

l M Entity Level

Risk Mitigating Measures

0 Recently closed WB Project (3504-IDA) with a Moderately Satisfactory ISR Rating

Country Level

Project Level

M to S

M

Budgeting, Accounting, Internal Control

Contract an Accountant, a Budget Analyst, and a Disbursement Officer under DGAF

0 Prepare chapter on FM procedures to be included in the Operations Manual including the subprojects procedures

0 Relevant staff to attend specific FM and disbursement training 0 Contract external audit for the entire implementation period o f the

proiect

M 0 Continuing o f SIA

Action 1. Contract an Accountant, a Budget Analyst, and a Disbursement Officer. 2. Finalize the modifications to the FM section o f the Operations Manual including Subprojects. 3. Finalize draft TORS for External Audit. 4. Contract external auditors, based on short-list satisfactory to the Bank for the entire

I s Funds Flow

Responsible Entity Completion Date' FISE DGAF April 2008

FISE DGAF May 2008

FISE DGAF April 2008 FISE DGAF May 2008

Financial Reporting, M Auditing

5. Provide specific training in FM and disbursements I World Bank

Segregated account in dollars, under traditional mechanism o f replenishment by SOE method

0 Semi-annual Reports 0 Annual Audit Financial Statements

May 2008

I I I I

FM Risk I M l I I

Financial Management Action Plan

18. in place before implementation begins. The detailed activities are presented in Table A7.3.

An Action Plan has been agreed with FISE DGAF to ensure that adequate FM systems are

Table A7.3: Action Plan for FISE DGAF

I for project FM staff. a. This column presents the estimated completion date, and i s not an indication o f legal conditions.

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19. World Bank FM Supervision Plan. A World Bank FM Specialist may perform a supervision mission prior to effectiveness to verify the implementation o f the unit and the FM system. After effectiveness, the FM Specialist must review the annual audit report, should review the financial sections o f the quarterly IFRs, and should perform at least one supervision per year.

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Annex 8: Procurement Arrangements

N I C A R A G U A : Rural Water Supply and Sanitation Project

General Provisions

1. Procurement for the proposed project would be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits,” dated M a y 2004, revised October 2006; and “Guidelines: Selection and Employment o f Consultants by World Bank Borrowers,” dated M a y 2004, revised October 2006; and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the CrediUGrant, the different procurement methods, or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Recipient and the Bank in the Procurement Plan. The Procurement Plan wil l be updated at least annually or as required to reflect actual project implementation needs and improvements in institutional capacity.

2. Procurement of Works. Works procured under this project would include investment subprojects to increase access to water and sanitation services through construction o f rainwater harvesting systems, spring catchments, boreholes with hand pumps, piped systems feeding mult i family standpipes and/or household connections, dry pit latrines, ventilated improved pit (VIP) latrines, and elevated latrines, among others. Due to the expected size o f subprojects, no International Competitive Bidding (ICB) processes are expected. National Competitive Bidding and Procurement o f Small Works (Shopping) processes will be done using Standard Bidding Documents (SBDs) and simplified formats, respectively, agreed with or satisfactory to the Bank. Said SBDs and simplified formats will be included in the Municipal Project Cycle Management Manual (MACPM).

3. Simple and small investment subprojects with estimated costs under US$30,000 may comprise the participation o f related Communities as labor or local materials providers, Municipalities shall carry out said processes using the Community Participation in Procurement method; all detailed procedures for such method wil l be described in the Operations Manual for Community- Gui ded P r oj ec t s .

4. Procurement of Goods. Goods procured under this project would include vehicles, office equipment and furniture, and specialized software under the institutional strengthening component. The procurement wil l be done using the Bank’s SBDs for all International Competitive Bidding processes, and SBDs and simplified formats agreed with, or satisfactory to, the Bank, w i l l be used for National Competitive Bidding and Shopping procedures, respectively. Said SBDs and simplified formats wi l l be part o f the MACPM.

5. Procurement of Nonconsulting Services. Logistics for capacity-building events, printing o f training materials, media campaigns, and related services for social and institutional strengthening components wil l be procured under this project. The procurement wi l l be done using SBDs and simplified formats agreed with or satisfactory to the Bank for International or National Competitive Bidding and Shopping procedures, respectively. Said SBDs and simplified formats wil l be part o f the M A C P M .

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6. Selection of Consultants. Engineering designs, works supervision, and post-construction technical assistance, as well as social follow-up and capacity-building activities for the subprojects, wil l be contracted with consulting f i r m s and local NGOs when applicable. I t i s also expected that consulting f i r m s will be contracted to carry out monitoring and evaluation (M&E) activities and financial and technical audits when needed. Individual Consultants may be contracted to support technical teams that wil l implement the project. Short-lists o f consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines. Training activities related to the institutional strengthening component may require engaging private or state universities; where applicable, competitive methods for selecting and contracting consultants wil l be used. Regardless o f the method used or the estimated cost o f the contract, selection and contracting o f consultant f i r m s wi l l be done using the Bank’s Standard Request for Proposals (SRfP). Selection and contracting o f Individual Consultants wil l be done using a simplified request for curriculum vitae (CVs) and a contract model agreed with or acceptable to the Bank.

7. Operating Costs. Operating costs refer to reasonable recurrent expenditures that would not have been incurred by FISE in the absence o f the project. They may include operation and maintenance o f office equipment purchased under the project, and nondurable/consumable office materials, as wel l as emoluments paid to incremental support staff hired to assist administrative activities in FISE Department Delegations, as needed for the implementation o f the project. All these activities would be procured using FISE’s administrative procedures, which were reviewed and found acceptable to the Bank.

8. The procurement procedures, SBDs, SRfP, simplified request for quotations, and CVs to be used for each procurement method, as well as model contracts for works, goods, non- consulting services, and consulting services to be procured, are presented in the M A C P M and in the Operations Manual for Community-Guided Projects.

Assessment of the Agency’s Capacity to Implement Procurement

9. All procurement activities but the ones related to the contracting o f works for subprojects under Components 1 and 2 o f the project wi l l be carried out by FISE’s Central Office or Department Delegations. Subproject works contracts wil l be carried out by the participating Municipalities and may involve participation o f related Communities. In any case, FISE will be engaged in the follow-up and supervision o f procurement procedures, and will be responsible for issuing a previous formal approval for each process. FISE has successfully executed various Bank-financed projects, and has proven to be one o f the strongest technical institutions in Nicaragua.

10. An assessment o f FISE’s capacity to implement procurement actions for the project was carried out by the Bank’s procurement specialist for Nicaragua on March 17, 18, and 19, 2008. The assessment reviewed the organizational structure for implementing the project, the quantity and capacity o f relevant staff responsible for procurement, the relationship between the procurement office and the technical, administrative, and financial offices, the administrative and operating manuals and standard procurement documents used, and the filing capacity and the support systems used for supervising and controlling the whole procurement cycle, and

66

concluded that the FISE Central Procurement Office has an overall installed capacity suitable to successfully carry out the procurement function for the project.

11. The main r isks identified include: (a) municipalities, with l imited capacity, wi l l be responsible for contracting works for approved subprojects; and (b) the recently created FISE Department Delegations wil l accompany, supervise, and control part o f the processes delegated to municipalities. To mitigate these risks, the following measures have been agreed: (a) FISE, either through i t s Central Procurement Office or through i t s Department Delegations, wi l l have to issue a formal previous approval to each procurement process carried out directly by municipalities or communities, thus ensuring that all agreed procedures were properly followed; and (b) once the subprojects portfolio i s defined, and taking into account the quantity and level o f complexity o f approved subprojects under certain Department Delegations, and the capacity o f designated Territorial Advisors (Asesores Territoriales) on procurement-related issues, FISE will assess the relevance o f hiring procurement officials to assist the work carried out by the Department Delegations. Said officials wi l l be financed with project resources and wil l be hired under terms o f reference and procedures acceptable to Bank.

12. Other actions that were identified as needed to improve overall FISE capacity to implement procurement, and that should be accomplished by FISE before negotiations o f the CrediVGrant Agreement, were: (a) to include minor changes in the MACPM, the Operations Manual for Community-Guided Projects, and the Standard Bidding Documents to reflect al l agreed institutional arrangements and acceptable procurement procedures; (b) to develop acceptable instruments and simplified formats for procurement o f goods and non-consulting services using Shopping procedures, and form the selection and contracting o f individual consultants; (c) to develop guidelines for record-keeping and filing; (d) to define a formal organizational structure for the Department Delegations; and (e) to implement the Bank’s Procurement Plan Execution System (SEPA) as soon as i t i s available (0 to have an independent firm contracted to perform annual procurement audits under Terms o f Reference previously agreed with the Bank. The Bank wil l support FISE in organizing and carrying out procurement seminars and workshops at various levels (Department Delegations, municipalities, and communities).

13. o f FISE’s Capacity Assessment can be found in the project files.

The overall project risk for procurement was assessed as AVERAGE, and a detailed report

Procurement Plan

14. FISE, at appraisal, developed a Procurement Plan for the f i rs t 18 months o f project implementation that provides the basis for the procurement methods. This plan was agreed between the Recipient and the Project Team o n April 28, 2008 and is available at FISE’s headquarter. I t wi l l also be available in the project’s database and on the Bank’s external website. The Procurement Plan wil l be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

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Frequency of Procurement Supervision

15. In addition to the prior review supervision to be carried out fi-om Bank offices, the capacity assessment o f the Implementing Agency has recommended annual supervision missions to visit the field to carry out post-review o f procurement actions. One out o f every 10 contracts should be post-reviewed when applicable.

Details of the Procurement Arrangements Involving International Competition

16. Bank prior review are given in Table A8.1.

Thresholds for the use the different procurement methods and recommended thresholds for

17. The Procurement plan wil l define the Contracts that are subject to Bank prior review based on the recommended thresholds given in Table A8.1, Such recommended thresholds could be revised at every update o f the Procurement Plan.

18. N o I C B works contracts are expected in this project. Consultant contracts with estimated costs above US$200,000 wil l be identified only when the subprojects portfolio is defined, grouping contracts for technical and social assistance throughout the project cycle (before, during, and after construction).

19. The l i s t o f I C B contracts for procurement o f goods follows:

0 Purchase o f eight vehicle for the implementing unit (FISE) and the departmental agencies (estimated cost US$160,000).

Table A M : Thresholds for Procurement Methods and for Recommended Bank and FISE Review

Works:

>=US$1,500,000

<US$l,SOO,OO = US$150,000

<US$150,000

<US$30,000

Goods and Non-consulting Services:

>=US$150,000

<US$150,00 > = US$50,000

<US$50,000

Consulting Firms:

Any Estimated Cost

>=us$200,000

ICB

NCB

Shopping

Community Part.

ICB

NCB

Shopping

ss QCBS, QBS, FBS, LCS, CQS

All

First Two

First Two

First Two

All (Central)

All (Delegations)

All (Delegations)

Al l

First Two

First Two

All

Al l

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First Two LCS, CQS <us$200,000

Individual Consultants:

Any Estimated Cost ss All

>=US$50,000 I C All

<US$50,000 I C First Two

ICB = International Competitive Bidding. SS = Sole Source. QCS = Quality-Based Selection

N C B = National Competitive Bidding. QCBS = Quality- and Cost-Based Selection FBS = Selection under Fixed Budget

LCS = Least-Cost Selection I C = Individual Consultant.

CQS = Selection Based on the Consultant's qualifications

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Annex 9: Economic and Financial Analysis NICARAGUA: Rural Water Supply and Sanitation Project

1. The project’s development objective i s to increase access to sustainable water and sanitation services to project beneficiaries in rural areas o f Nicaragua. To achieve this result the project will: (a) provide sustainable access to new or rehabilitated drinking water and basic sanitation services to about 50,000 people in rural communities including in rural communities o f the Autonomous Regions o f RAAN and M A S , (b) promote improved household sanitation and hygiene practices to project beneficiaries, (c) strengthen the capacity o f existing and new CAPS to operate and maintain rural water and sanitation systems with long-term technical post- construction support, and (d) test new appropriate technologies and approaches to serve the different segments o f the rural population in Nicaragua. Responsibility for administration, operation and management costs will be assigned to the beneficiaries. The project also includes a pi lot sub-component for improved management models and rehabilitation and expansion o f existing water and sanitation systems denser larger rural areas or small towns, an economic assessment o f these pi lot projects will be part o f their evaluation process.

2. The project requires communities to initiate participation in project activities and to validate their commitment and need for the project via an upfront cash contribution. The self- selected project communities (from those communities that expressed demand in the micro- planning municipal process) in those municipalities with the lowest water and sanitation coverage already identified as eligible, wi l l choose their preferred level o f service from a menu o f options. The selection o f specific investments wi l l be subject to negotiations and selection by municipal prioritization assemblies. The final number and size o f the communities and the level o f service that will be achieved are not known at this point, and would be determined during project implementation. However, the project design ensures that technical solutions would be economically viable. Agreement to project rules regarding cost recovery i s a prerequisite for project participation. In particular, the project rules require that user charges cover operation and maintenance expenses, and that communities confirm and demonstrate their willingness to adopt these charges, by contributing before works can start. To ensure that investments are and remain economically viable, sub-proj ect and CAPS performance will be monitored and information collected on a continuous basis.

Conceptual basis for assessing economic benefits 3. In rural areas, consumers use water for drinking, cooking, bathing, washing and productive uses, such as cooking for sales, construction and so forth. A specific distinction between residential and commercial users i s not made. The water quality required depends on the purpose or use. Brackish water might be acceptable for washing but not for drinking. People in the rural areas rely on a variety o f traditional sources, such as rivers, ponds, springs and rain water. Both the quality and cost (time) o f water from these sources are different, and each water source serves different needs. When alternative sources, such as wells, boreholes, and piped water systems become available, they are potential substitutes for water from other sources. The incremental quantity o f water supplied under a project can be divided into two parts: one part replaces the previous sources and quantity o f water used, the other part i s a net increase in water consumption. In this context, the benefit o f the f i rs t part i s equal to the savings o f economic costs o f consumers who no longer use the former water sources. These include time savings; reduced

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costs for alternative purification methods such as boi l ing the water, substitution o f more costly sources such as bottled water and water distributed by tankers, and reduced costs for health related expenditures due to water-related diseases. The benefit o f the second part i s equal to the area below the demand curve between the with-project and without-project use o f each consumer.

Methodology 4. The team has identified an appropriate methodology for conducting the economic analysis o f the eligible investments during project implementation. In order to test the methodology and have an idea o f the possible economic returns that could be achieved through the implementation o f this proposed project, five types o f water supply schemes were identified and analyzed through a sample o f subprojects: (a) small piped systems using electric pumps (Miniacueducto por Bombeo Elictrico, MABE), (b) small gravity fed piped systems (Miniacueducto por Gravedad, MAG), (c) boreholes with hand pumps, (Pozo Perforado con Bomba de Mano, PPBM), (d) excavated wells with hand pumps (Pozo Excavado con Bomba de Mano, PEBM) and (e) Rehabilitation and Extension o f existing Systems (Sistema de Mejoramiento y Ampliacibn de Acueducto, SIMA).

5. A detailed economic cost benefit analysis was conduced for the five types o f WSS interventions using a sample o f sub-projects that have already been implemented by FISE. Additional benefits are expected from on-site sanitation investments, although these benefits were not quantified in this study. A least cost analysis o f alternatives and cost-effectiveness criteria wil l be used to make investment decisions during project implementation. FISE wil l be responsible for conducting financial and economic feasibility studies, and to ensure that all proposed interventions are economically feasible. The Operational Manual will contain the methodology and detailed information on the development o f the economic analysis o f the investments that wil l be financed by the project. The economic analysis principles to be applied are discussed below.

Key Assumptions 6. Investment Costs. The “with” project scenario includes al l associated investment costs including labor and the necessary equipment, including those not directly financed by the Project, but that are necessary for the expected benefits to materialize (for example, replacement o f the electro-mechanic equipment every 5 years).

7. Operation and Maintenance ( O M ) Costs. The O&M costs for both the “with” and “without” project scenarios include the cost o f labor, chemicals, electricity, and al l recurrent administrative costs. I t i s expected that the incremental recurring costs (O&M costs) in the “with project”scenario wi l l be considerably lower, resulting in reduced use o f resources for the community as a whole.

8. Economic Costs. For the economic cost-benefit analysis, shadow prices wil l be used. During project preparation the team estimated the conversion factors for the main inputs o f the typical sub-projects that will be used for the actual analysis o f eligible business and investment plans. These include: unskilled labor, skilled labor, national and imported goods, and the standard conversion factor. Details o f the calculations can be found in the project files.

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9. Incremental Bene$ts. Incremental benefits identified include: (a) cost savings to the economy associated with time saved related to collecting water, (b) a net increase in water consumption from the project source, and (c) cost savings to the economy due to the reduction o f expenses associated with waterborne diseases.

10. Discount rate. The cash flows are discounted using a 12 percent discount rate which i s estimated to be a proxy o f Nicaragua’s opportunity cost o f capital. The costs and benefits wil l be projected for 15 years.

11, Under Components 1 and 2, additional economic benefits wi l l be generated, including intangible and more difficult-to-measure environmental benefits and increased customer satisfaction. These additional benefits have not been quantified and are not included in the analysis, so the results will be a conservative estimate o f the expected economic impacts o f the financed investments.

Summary o f ERR and NPV Estimates by Technology 12. Economic rates o f return have been calculated for each technology separately and for all o f the subprojects in the sample. Results o f the economic analysis are summarized in the table below. The ERR estimates are downwardly biased since health benefits were not quantified. Based on the sample, the expected project overall ERR will be around 40%. Therefore the expected ERR exceeds the opportunity cost o f capital. Average ERR for the different typologies range from a high o f 73% for PPBM (boreholes with hand pumps) to a l o w o f 15% for MABE (small piped systems using electric pumps) schemes. In fact, with a few exceptions, MABE schemes do not appear to be economically viable under the current assumptions o f costs and benefits used in the analysis. During implementation special attention wil l be given to this type o f systems.

Table A9.1. Summary of ERR and NPV Estimates by Technology

PPBM: boreholes with hand pumps, (Pozo Perforado con Bomba de Mano) PEBM: excavated wells with hand pumps (Pozo Excavado con Bomba de Mano), MABE: small piped systems using pumps (Miniacueducto por Bombeo Electrico. MAG: small gravity fed piped systems (Miniacueducto por Gravedad, MAG), SIMA: Rehabilitation and Extension o f existing Systems (Sistema de Mejoramiento y Ampliacion de acueducto de agua potable y saneamiento).

13. During implementation, the economic viability o f the subprojects will be determined using a simplified model that could be used for simplified systems that would be part o f the Operational Manual, with the objective o f reducing time and preparation costs, and increasing transparency. When subprojects are not feasible, projects should be redesigned to lower the level o f service costs; regional systems could be considered or investments postponed until a larger population could benefit from the project.

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Annex 10: Safeguard Policy Issues NICARAGUA: Rura l Water Supply and Sanitation Project

Environment a1 Safeguards

1. The key environmental safeguard pol icy issues in this project are environmental assessment and physical cultural resources, since works, albeit small, will be constructed. In addition, the disposal o f wastewater effluent, though in small amounts, i s an issue that wil l be easily and appropriately handled by the environmental management plan, which includes procedures that have been used by the Fondu de Inversibn Social de Emergencia (Emergency Social Investment Fund, FISE) for the past 12 years.

2. As mentioned, FISE has drafted an Environmental Management Framework for the project based on its already existing procedures. Since exact projects are not yet known, the framework i s the appropriate level o f environmental analysis and will establish the arrangements under which the environmental aspects o f the project wi l l be managed. The Environmental Management Framework is composed o f both an environmental assessment and an environmental management plan. Since this is a framework, the assessment i s o f the general types o f environmental impacts o f these types o f rural projects, which include small-scale works such as latrines, water connections, wells, and standpipes.

3. There are no significant or important safeguards-related risks, perceived or substantive; however, the project’s Environmental Management Framework will manage the r isks that do exist. N o long-term or cumulative impacts are expected from the proposed project.

4. No alternatives to minimize adverse safeguards-related impacts o f the project are considered at this level. Once works are decided upon, FISE procedures (in the Environmental Framework) and municipal advisors provide guidance (and on-the-ground technical assistance) to municipalities in their siting o f works, to maximize protection o f water resources and to avoid, minimize, and mitigate any potential adverse impacts. This wi l l be prepared in accordance with the provisions o f each safeguard pol icy triggered. The procedures provide for the consideration o f an alternative to the proposed subproject.

5. Consultations on the environmental framework were held April 1, 2008 in Bluefields, April 2, 2008 in Jinotega and April 11, 2008 in Managua. The environmental framework was made available in InfoShop and in-country in March 2008. In-country, the Framework was placed o n the FISE website and hard copies wil l be made available in the 17 territorial offices and Managua. FISE placed their Manual for Environmental Management, the source document for most o f the Environmental Framework for the project, on their website in February o f 2008. Additionally, during the process o f developing each sub-project, the community wi l l be informed o f the impending works. Before any studies are done or final designs made, the communities wil l be consulted in public meetings to determine if there i s demand for a sub-project.

6. Negative safeguards-related impacts are expected to be temporary, including minor displacement o f soils, disposal o f materials, and waste during construction. Increased wastes from latrines wil l be handled through the regular maintenance o f the latrines. N o significant

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cumulative impacts are expected especially since many o f the works will be located in disperse communities.

7. FISE has a high capacity (more than adequate) to implement the environmental safeguards in that they already have well-considered environmental management procedures and instruments in use. In addition, they have a presence in the f ield o f 40 technical specialists throughout their 17 territorial offices. These FISE technical specialists are called municipal advisors since they assist the municipalities in complying with FISE technical guidelines and requirements by providing advice and filling out the required forms such as the site evaluation form. The FISE territorial specialist assistance is extremely helpful in compensating for the lack o f municipal technical and financial capacities. The municipalities find FISE tools so helpful that they use them even for non-FISE-sponsored projects when possible. One proposal to build the capacity o f FISE in the implementation and monitoring o f the project’s environmental management plan i s to hire another technician for the FISE Environment Unit.

8. There wil l be a training workshop on the use and application o f FISE’s environmental instruments directed toward the local FISE technical specialists and the Technical Municipal Units. Accordingly, the Environmental Manual and the project’s Environmental Framework will be distributed. In addition, there wi l l be a fifth Certification in Environmental Management for Infrastructure and Social Projects, also directed toward local FISE technical specialists (in the territories) and the Technical Municipal Units. Municipalities that request assistance wil l also be assisted by FISE in the implementation o f environmental management instruments.

9. The project wil l include adequate funds for implementation o f the environmental management plan found in the Environmental Framework. Since there are no specific subprojects yet, there are no specific plans for implementation. All o f the necessary instruments and procedures to be used are already in place.

10. In terms o f monitoring to verify environmental management arrangements (mitigation measures, impacts, and so forth), desk reviews are conducted during the fol lowing three phases o f the project cycle o f the subprojects:

0 Before Evaluation 0 During Evaluation 0 During Contracting.

11. A field visit i s conducted during follow-up after construction. FISE’s Informatics Office monitors a representative sample o f the subprojects. The environmental technical specialist sends the results from these monitoring exercises to the respective territory with a copy to the Director o f Local Development and Operations. In case o f noncompliance with recommendations, FISE’s Office o f Regulation, Investigation and Development wil l inform the Director o f Local Operations and Development or the Presidencia Ejecutiva so that they may intervene.

12. Significant monitoring reports will be archived for “Lessons Learned.”

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13. The Bank wil l receive the documentation for the riskiest projects prior to, during, and just after construction. Any persistent noncompliance with the Environmental Management Framework wil l result in suspension o f funding to that subproject.

14. The already existing FISE environmental technical specialist will supervise the implementation o f the project’s Environmental Framework. FISE’s locally-based municipal advisors wi l l assist the municipalities in implementing the subprojects in accordance with the project’s Environmental Management Framework on the ground.

15. Finally, the project legal agreement wi l l contain any appropriate covenants and conditionalities to ensure that FISE will undertake any necessary mitigation or environmental protection as dictated by the Environmental Management Framework o f the project. The standard measures to ensure this are sufficient.

Social Safeguards

16. The social analysis confirms that isolated rural areas, and indigenous and Afro-descendant communities throughout the country continue to be excluded from equitable access to water and sanitation subprojects. Despite important FISE efforts to introduce the community-managed modality (Proyecto Guiado por la Comunidad, Community-driven Project, PGC) for indigenous and ethnic groups, the impact evaluation o f the Bank-financed Poverty Reduction and Local Development Project showed a 3 percent increase in water and sanitation (W&S) projects (2000 to 2005), but only in urban areas, not rural. The evaluation did not include a sample o f Atlantic coast communities due to the complexity o f comparing the challenging Atlantic paradigms to those o f the Pacific.

17. The present Rural Water Supply and Sanitation Project has a pro-poor, inclusive, and gender focus targeting the more isolated, indigenous and Afro-descendant communities that have been historically neglected and to ensure women’s needs are included in subproject design. Component 2 will focus exclusively on the Regidn Autdnoma del Atlantico Norte (RAAN) and the Regidn Autdnoma del Atlantico Sur (RAAS) regions and the indigenous territories in the Al to Coco and Bocay area (Wanki, in Miskito) along the Jinotega and Waspan municipalities, which in the last decade have been highly vulnerable to hurricanes (Mitch, Stan) and floods. The project wi l l continue to support the fully participatory micro-planning process o f the municipalities. Moreover, i t wi l l also assist municipalities to revise the eligibility, prioritization, and selection criteria to apply positive discrimination pro-poor and ensure that the extreme poor, isolated, indigenous, and Afro-descendant communities are included in the Multiyear Municipal Investment Plans (PIMM) and actually implemented. In the case o f RAAN and M A S , those preselected subprojects wil l in turn be submitted to a Selection Committee composed o f FISE, the Regional Governments, and the Territory Governments o f RAAN and RAAS, thus consolidating full and transparent participation o f stakeholders in the Atlantic regions.

18. The promotion, technical, and social interventions in the community before, during, and after project completion wil l be culturally adequate to ensure sustainable operation o f the installations, and the adoption o f sustainable hygiene behaviors. Moreover, a gender indicator w i l l be monitored to ensure women do not only participate in the Comitk de Agua Potable y

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Saneamiento (Water and Sanitation Committee, CAPS) (by 40 percent), but occupy prime decision-making positions (president or treasurer).

19. Consistent with Operational Policy 4.10 on Indigenous Peoples, the recipient carried out consultations nationwide, particularly in M A N - M A S and Jinotega, with the largest deficits o f water and sanitation facilities and where the bulk o f the ethnic groups reside. Likewise, the Government o f Nicaragua (GoN) prepared an Indigenous and Afro-Caribbean Peoples Plan (IPP) to ensure: (a) access and participation o f ethnic groups in the project design, implementation, and the ex post sustainability phase o f subprojects; and (b) culturally adequate participatory planning and delivery o f W&S services under the project. The IPP reflects agreement o f FISE with the Regional and Territory Governments and the indigenous organizations o f MAN, M A S , and Central Pacific regions.

1. Consultations

20. Consultations for an Integrated Assessment were carried out by an independent interdisciplinary team in 15 communities nationwide (8 on the Atlantic Coast, 7 in the rest o f the country). The assessed projects were: 10 projects finished/operating for at least one year; 4 under implementation, and 1 in preparation. Those consulted were: W&S committees (CAPS) and nongovernmental organization (NGOs,) groups o f women, groups o f men, municipal governments, regional governments and councils, and traditional indigenous authorities. The methodology included interviews, focus groups, and direct verification.

21. The objective o f the assessment was to collect perceptions o f stakeholders and users o f W&S services on: (a) the efficiency o f the systems installed by FISE in rural areas; (b) the effectiveness o f the social intervention in the communities for organization, participation, and contribution (including financial) to their subprojects before, during, and after completion; (c) users’ involvement in decision-making on service level and technical options presented to them during preinvestment; (d) the cultural pertinence o f FISE’s social and technical processes to promote the culture o f paying for water services received, community training toward hygiene behavior and health practices, and the use o f sanitation and handwashing; (e) community organization for the social, technical, and financial arrangements seeking the sustainability o f the systems; ( f ) the training received by CAPS; (g) monitoring by FISE; and particularly (h) the ex post follow-up by the municipalities.

22. Some results are:

(a) All assessed communities organized and participated in municipal micro-planning, where their W&S project was a priority. During the project cycle, the highest participation was in unpaid manual labor and hauling o f construction materials, but to a lesser extent in selection o f technical options, service level and decision making (particularly the women). Women participate in 78 percent o f CAPS, but only 42% in decision making positions.

(b) Communities have legal ownership o f their water sources. In the case o f indigenous peoples, they have lease documents o f communal lands. Unl ike mestizos, the indigenous prove to be more conscientious in protecting water sources and forests, because they respond to their animistic cosmovision o f water.

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(c) CAPS were successfully createdhatified in all communities, but did not receive further assistance. CAPS are not legally incorporated.

(d) The culture o f paying for W&S services has not been enforced in any o f the communities. Some CAPS do not keep an accounting system. In 60 percent o f the communities water tariffs are not enforced, and there are no sanctions for nonpayment; consequently, there i s l ow bill collection. In some cases where people do pay for water, users subsidize the widows and elders.

(e) In many cases, people connected themselves to the systems after construction, thus reducing service levels. One third o f users (mostly water wells) have water 24 h r s a day, and one hal f (mostly household connections) less than 6 hrs a day. There i s no water quality control, although there i s some chlorination being done.

( f ) There has been no support to CAPS by the municipalities, leaving them on their own, and putting systems sustainability at risk.

(g) There was no monetary contribution o f communities assessed. The in-kind contribution was not quantified in the project costs.

(h) Neither community had an Operations/maintenance Manual for the system. Because CAPS have a high turnover, operational knowledge i s lost.

(i) Most o f the community training was on hygiene education, but not on technical or administrative aspects.

23. Some recommendations to date are:

(a) Capitalize on FISE’s experience working with rural communities and using participatory processes. Systematize some o f their best practices.

(b) Revise FISE’s Project Cycle Operational Manuals to ensure technical, social and financial aspects are clear, easy to apply and enforce, and that they respond to the needs o f the population. Cultural (including linguistic) adaptation o f processes and procedures may be needed particularly for the Atlantic Coast regions.

(c) Include a much stronger social intervention in the communities and their CAPS before, during, and after the W&S subprojects, to ensure the community i s committed to maintaining fully operational systems, paying for services received, and supporting their CAPS for an accountable administrative job.

(d) Induce demand o f water and sanitation in al l communities through promotion mechanisms. For bilingual communities, promotion should be bilingual and demonstrative, in situ.

(e) Assist municipalities in revising criteria for selection o f subprojects to enforce positive discrimination for inclusion o f indigenous communities. Sensitivity training wil l be needed in municipalities o f mixed mestizo-indigenous population.

( f ) Train municipalities to provide technical assistance to CAPS, and ensure that they have adequate training manuals and materials.

(g) A more active role o f traditional/indigenous organizations i s needed to transmit their knowledge and values related to water source and forest preservation.

(h) The administrative aspects o f W&S systems and the role o f the CAPS should be explained to communities more openly. Community in-kind contributions should be quantified. Water meters should be enforced if tariffs will be collected.

(i) After c iv i l works, operation and maintenance manuals/plans for systems and water source should be provided not only to CAPS but also to the community.

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2. Other Assessments

24. An Impact Evaluation3’ o f the World Bank-financed FISE Poverty Reduction and Local Development (2000-05) project was carried out in 2006 by the firm C A B A L S.A. The infrastructure evaluation included a sample o f water and sanitation investments in the Pacific and Central regions only, not on the Atlantic Coast. Some conclusions relevant to the proposed W&S project are: (a) 14 percent o f FISE social infrastructure investments were for W&S; (b) over the years o f the project, there was a 3 percent increase in W&S coverage only in urban areas, not rural; (c) decentralization to municipalities was positive particularly when there was technical support for planning, pol icy issues, and project follow-up; (d) the most significant change in terms o f community participation was in Community-driven Projects (PGC); (e) education, health, and water subprojects would have been more efficient if they had responded to regional strategies; ( f ) information systems to register and follow-up subproject data were poorly managed. For instance, investments in latrines showed a double registry, under health and under water; direct and indirect beneficiaries, and direct and indirect costs were lumped together; therefore an improvement o f the information systems was recommended; (8) sharing o f information among FISE, municipalities, and territory supervisors left much to be desired because they were not electronically connected; there was a large amount o f data generated at the baseline that was not systematized properly for further use.

3. Legal Framework

The National Constitution o f Nicaragua (last revised in 1995) acknowledges the existence of indigenous peoples who enjoy r ights granted to them by the Constitution to maintain and develop their identity and culture, preserve their own forms o f social organization and administration o f local resources, and maintain communal laws o f landownership, use, and usufiuct. I t establishes the Autonomic Regime o f the Atlantic Coast.

25. The Autonomous Regions o f RAAN and RAAS:

Law No. 28 (1987), Art. 8, 11, 49, 89, 90, 91, 121, 180, 181 recognize the right o f the inhabitants o f the Atlantic Coast to preserve their own identity, languages, religions, art, and multiethnic culture; to benefit from the water resources, forests, and communal lands; to preserve their autochthonous organizations; to create special programs for development; and to guarantee the right to organize and live according to their own traditions.

Law No. 162 (1993) decrees the official use o f the languages o f the indigenous peoples and ethnic communities o f the Atlantic Coast (Miskito, Garifuna, Mayangna, Ulwa, Creole, Rama) besides the use o f the Spanish language.

30 CABAL, S.A. “Ex-post Impact Evaluation o f Subprojects o f the Social Emergency Fund (FISE),” Managua, April 2006.

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- Art 23. 3. The Regional Council wi l l participate in the elaboration, planning, implementation, and follow-up o f economic, social, and cultural policies and programs affecting the Region.

0 Law No. 445 (2002), Communal Land Property Law o f Indigenous Peoples and Ethnic Communities o f the Autonomous Regions o f the Atlantic Coast o f Nicaragua and the Bocay, Coco, Indio, and Maiz Rivers.

Law No. 620, General Law o f National Waters (2007), creates the National Water Authority (ANA).

- Regulation. Chapter 1, Art. 5. Water for Indigenous Peoples. “Water use and utilization by indigenous peoples in the national territory and those o f the Caribbean Coast must be approved by the corresponding Regional Autonomous Council, based on criteria for use o f water resources.yy31

4. Regional Institutions Representing Indigenous and Afro-Caribbean Peoples

(a) The Regional Council o f the Central Region o f Nicaragua i s the organization in charge o f overseeing the indigenous peoples o f that region. The Dirianger Coordination i s the Executive Branch o f the Regional Council o f Indigenous Peoples o f the Central Region, including the Chorotega, the Matagalpa, and others.

(b) The Regional and Territory Governments o f RAAN and RAAS. (c) The National Commissions o f Indigenous Peoples and Ethnic Communities.

5. Ethnographic Profile

26. Nicaragua i s a multiethnic, multicultural, and plurilinguistic country. The 2005 census included two questions on ethnic self-identification and autochthonous language spoken, which identified at least 10 ethnic groups in the country totaling approximately 14 percent o f the total Nicaraguan population o f 5.14 mi l l ion people.

27. On the Atlantic Coast, the population o f the RAAN and R A A S (Table A1O.l) i s approximately 700,000 spread over 60,000 square kilometers in 20 municipalities and includes six ethnic groups: the Miskito (200,000), the M a y a n g n a - S ~ m o ~ ~ (Twahkas, Panamakas, Kukras) (20,000), the Garifuna (3,500), the Creole (75,000), the U l w a (2,000), and the Rama (1,500). The indigenous and Afro-Caribbean account for 42 percent o f RAAN and MAS, and the mestizos include the other 58 percent. The Miskito, Mayangna, and Rama are said to be o f Chibcha descent (South American) while the Creole originated in the slave trade o erated by British buccaneers in the 17‘h century, particularly through Jamaica and the Antilles.‘ The Miski to l ive mostly on the territory o f RAAN, which i s an extension o f the Honduran Moskitia, separated only by the Wanki (or Coco) River, and also in the Department o f Jinotega. The migration o f

3 ’ ABCsobre el Recurso Agua y su Situacion en Nicaragua, ENACAL (2007). 32 The use o f the word sumo to refer to the ethnic group i s considered by Mayangnas to be pejorative, because i t was used by Miskitos in the past to mean “lazy, stupid.” 33 Samuel K. Kirkland, Indigenous Cultures in Nicaragua, 1998, pp. 9-27.

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mestizos from the Pacific region seeking land i s o f concern. The aggressive colonization effort continues to expand the agricultural frontiers o f Central Nicaragua toward the East in indiscriminate exploitation o f land, forest depredation, cattle farming, commercial fishing, and unsustainable abuse o f the biodiversity.

Estimates INEC 2004

Table A1O.l: Indigenous and Afro-Caribbean Population in RAAN and R 4 A S

Estimates Carto- Total Comm. Comm Water URACCAN graphic No. Low Coverage

Severe LCI %2005* Low LCI 2004 Update Comm 2004

Municipalities

RAAN

Puerto Cabezas

Waspan

Rosita

2 4 4,9 7 0 308,438 254,873 342 217 83

54,530 57,465 48,709 44 14 12 37.20

37,806 53,028 43,343 89 47 28 21.40

18,811 25,462 21,866 45 32 10 45.05

TOTAL RAAN - R 4 A S

1 615,999 1 737,990 1 626,848 1 804 1 575 I 147 1

R A A S

Paiwas

L a Cruz de Rio Grande

Desembocadura de Rio Grande

Laguna de Perlas

El Tortuguero

El Rama

El Ayote

Muel le de Bueyes

371,029 429,552 371,975 462 358 64

57,222 55,000 5 1,328 30 19 8 4.74

15,975 20,000 2 1,044 31 24 9 4.47

4,112 5,500 4,112 6 4 1 46.45

10,303 10,628 8,658 14 12 - 29.69

11,010 33,844 12,956 26 23 3 7.82

57,071 63,245 55,528 121 101 11 35.75

13,359 15,196 12,468 19 19 - 35.13

25,861 29,590 28,054 49 41 1 30.15

Siuna I 66,698 I 80,387 I 75,086 I 53 1 40 1 8 I 46.76

Prinzapolka I 5,615 I 21,179 I 7,534 I 27 I 15 I 10 I 40.04

Waslala I 46,063 I 47,068 I 42,171 1 65 I 57 I 8 1 6.76

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Municipalities

Kukra Hill

Estimates Estimates Carto- Total Comm. Comm Water INEC URACCAN graphic No. Low Coverage

LCI %2005* 2004 2004 Update Comm Low LCI 2004

8,783 13,200 1 1,095 17 11 6 25.52

Corn Island

Bluefields

28. In the Pacific, Central, and Northern Regions, indigenous population i s calculated by ethnographers at 333,000 people.34 “Mestizaje” i s o f higher proportions, and minimal efforts have been made to preserve autochthonous languages. In those regions, the indigenous currently include 4 groups spread over 9 departments and 29 municipalities. In the Pacific Region, indigenous peoples are found in Rivas, Masaya, Leon, and Chinandega; in the Center, they l ive in the departments o f Matagalpa and Jinotega; and in the North, in the departments o f Nueva Segovia and Madriz. The most numerous are the Chorotegas (approx. 166,000), whose origins have been traced back to the Navajo (USA), who then migrated from Mexico in 800 A.D. and l ive primarily but not exclusively in Masaya and Madriz. The second-largest group i s the Matagalpdcacaopera (approx. 98,000) o f Chibcha (South American) origin, living in Matagalpa. The Sutiaba-Xiu (approx. 49,000) also originated in Mexico, and currently l ive in Leon and Chinandega. The Nahua-Nicarao (approx. 20,000) migrated from Mexico in 1200 A.D. and l ive around Lake Nicaragua and Tipitapa. In the Central Region, the Chontal-Matagalpas suffered incursions from both the Pacific tribes and the Atlantic Sumu Miskitus. The present indigenous population in the Pacific, Center, and North is shown below (Table A 1 0.2).

- - 70.00 7,733 7,500 6,425 -

46,017 47,849 46,724 19 16 2 9.19

Nueva Guinea

34 ILO, the Netherlands, Concejos Regionales de Pueblos Indigenas Pacific0 Centro Norte. (2006) Estudio Base sobre las Condiciones de Vida de 10s Pueblos Indigenas del Pac$co Centro y Norte de Nicaragua.

113,583 128,000 113,583 130 88 20 51.82

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Regions

Department

Total

Chorotega Matagalpas Sutiaba (Xu) Nicarao Total (Nahua) (Cacaopera)

166,000 98,000 49,000 20,000 0

Masaya

Leon

Chinandega

68,000 68,000

37,000 37,000

5,000 12,000 17,000

Regions

Department

Rivas

Chorotega Matagalpas Sutiaba (Xu) Nicarao Total (Nahua)

20,000 20,000

(Cacaopera)

I North 55,500 55,500 I

Jinotega

Matagalpa

I Madriz I 49,000 I I I I 49,000 I

20,000 20,000

17,500 98,000 1 15,500

Segovia I I 6,500 I 6,500 I I I I

6. Profile of Coverage and Access to Water and Sanitation Services by Indigenous and Afro-descendant Peoples

29. Lack o f quality water has been identified as a major cause o f morbidity. Only some municipal capital cities on the Atlantic Coast have piped water connections for part o f their neighborhoods. The percentage o f dwellings connected to a water system i s much lower than in the Pacific region. Whenever piped water i s available, i t i s not potable or adequately treated because o f a lack o f water disinfection facilities.

30. Water for human consumption in rural communities originates in superficial sources, as shown below. I t i s estimated that at least 60 percent o f people in rural areas do not have access to quality water. Rural areas have the largest deficits o f potable water. Several areas with l o w coverage coincide with indigenous regions. The department with the lowest coverage o f rural water is R A A S (36.5 percent), followed by W A N (45.4 percent), Jinotega (49.8 percent), Nueva Segovia (55.4 percent), and Rio San Juan (60.8 percent). In sum, 722,500 people in rural areas do not have coverage o f water countrywide. Although the rest o f the country has better coverage, access in several communities may be as l ow as a few hours o f service during the week, in which case people collect water in barrels or containers prone to water contamination, leading to infectious diseases and diarrhea.

31. As with rural water, coverage o f sanitation facilities in rural regions i s also lowest in RAAN (47.9 percent), RAAS (48.8 percent), and Jinotega (53.6 percent) (Table A10.3). None o f the urban centers has a sewerage system. In rural areas, i t i s estimated that at least 40 percent o f the population defecates out in the open. The municipalities with the lowest coverage in the Central Region are San Jose de Remates (43.3 percent) and Teustepe (51.8 percent) in the department o f Boaco. Although coverage is higher in the rest o f the country, use o f latrines in rural areas i s not guaranteed. They are often located too close to wells, thus contaminating water and rendering i t inadequate for human consumption.

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Source Pacific Region YO R4AN YO R A A S YO

Inside the house

Outside the house

Public well

Public post

Private well

7. Ethno-linguistics and Local Training for Project Sustainability

38.5 11.1 6.6

38.6 5.9 17.4

2.2 10.6 19.1

3.5 3.9 2.3

6.5 32.0 23.7

32. The linguistic profile o f Nicaragua i s important for the delivery o f training and W&S education to communities and stakeholders. Most indigenous communities o f the Pacific are either monolingual in Spanish (because their original language i s extinct) or bilingual. The languages o f the Atlantic Coast, on the other hand, are alive and growing. In fact, the official use o f Miskito, Sumu-Mayangna, Ulwa, Garifuna, Rama, and Creole English was approved under Law 162 (1993). These languages and respective cultures are the backbone o f the Intercultural Bilingual Program o f the Regional Autonomous Education System (SEAR).

River or creek

8. Gender

2.5 9.7 10.6

33. Although water and sanitation services affect the entire family, it is traditionally the women and children who spend a good part o f the day fetching water from river/creeks/wells in rural Nicaragua. Moreover, women were found to be in charge o f children’s health issues. It i s expected that gastrointestinal and waterborne diseases such as diarrhea wil l decrease with the project. I t wil l be important that women’s needs are prioritized for the selection o f the technical option for water or sanitation and for training opportunities. Under the PGC-Indigenous Peoples and Ethnic Groups (PICE), as a rule o f thumb, CAPS included at least 50 percent o f women, although i t was found that they are typically not in administrative positions. The current project includes an indicator o f women’s participation in CAPS leading positions (president, treasurer).

9. FISE’s Social Safeguards Strategies

34. Since 1997, two FISE projects financed with World Bank loans have included Indigenous Peoples and Afro-Caribbean Peoples Plans (IPPs). Under the Social Investment Fund Project (1 997-2000), Participatory Micro-planning was introduced to the Atlantic Coast. Under the Poverty Reduction and Local Development Project (2000-05), the community-managed project modality for Indigenous Peoples and Ethnic Groups (PGC-PICE) was carried out in M A N , R A A S , and Jinotega. A key strategy in the previous and current projects is the inclusion o f beneficiaries in decision-making and social control before, during, and after the works are

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finished, to ensure efficiency o f the infrastructure built or rehabilitated, and ownership and maintenance o f the subproject.

10. Assessment of the Capacity and Commitment of the Institutions Responsible for Implementing and Monitoring the Agreed Plans

35. The decentralized new FISE offices in Bilwi (RAAN) and Bluefields (RAAS) are equipped to implement the project including the IPP. FISE has an umbrella agreement wi th the Regional Governments o f M A N and RAAS, which wil l be revised and updated. The institutional strengthening o f the municipalities and the Regional Governments are included in the IPP and the project.

11. Arrangements for Funding and a Schedule of Implementation of the Plans

36. where the schedule i s also included.

Funding for the IPP i s included in the project components, as described in Table A10.4,

12. Mechanisms to Monitor the Implementation of the Agreed Plans

FISE will s i g n a coordination agreement with the Regional and Territory Governments o f RAAN and R A A S and with indigenous organizations o f the Pacific, Center, and North. For projects in RAAN and RAAS, the above governments wil l be part o f the Program Commission, which wil l guarantee pro-poor subproject selection and implementation by municipalities. For the Al to Coco and Bocay area intervention, the Regional Government will assist the Territorial Government o f the Al to Coco and Bocay area in the implementation o f the intervention.

13. Arrangements, Including Staffing and Resources, for Supervising the Implementation of the Agreed Plans

37. Bank supervision wil l include supervision o f the Indigenous Peoples Plan.

14. Complaints and Grievances

38. Following Law No. 620 (2007), Chapter XXIII, Art. 108. Sanctions. Complaints and grievances in the water sector should be submitted to the Regional or Territory Government, which in turn would address the case to FISE.35

15. Indigenous and Afro-Caribbean Peoples Plan (IPP)

39. An Indigenous and Afro-Caribbean Peoples Plan (IPP) i s being formulated by FISE in consultation with the Regional and Territory Governments o f RAAN, R A A S , and the Pacific, and respective Indigenous organizations. The objective o f the IPP i s to support GoN efforts to ensure that Indigenous and Afro-Caribbean Peoples have equal access to the benefits o f the water and sanitation project and to ensure the services offered by the project are offered and delivered

35 Law No. 620, Regulation. Chapter XXIII, Art. 108, in publication by ENACAL (2007). ABC sobre el Recurso Agua y su Situacidn en Nicaragua, p. 198.

84

in a culturally appropriate manner. Component 2 i s exclusively dedicated to increasing coverage o f water and sanitation in the RAAN and RAAS regions, and the communities in the Al to Coco and Bocay area, where the bulk o f the indigenous and Afro-Caribbean peoples live. However, other distinctive activities are being included in the IPP to ensure adjustments are made to manuals and other FISE instruments to factor in the participation o f beneficiaries bart icularly women) and stakeholders.

40. The Indigenous Peoples Plan includes:

For Component 1: Coverage Increase of Water and Sanitation in Rural Areas of the countries except for Atlantic Coast; and Component 2: Coverage Increase of Water and Sanitation in Rura l Areas of M A N , RAAS, and 60 communities in the Alto Coco and Bocay area.

(a) Capitalize on FISE’s previous experience working with indigenous and Afro-Caribbean peoples

41. The current project wi l l seek to capitalize on FISE’s and other agencies’ experience in the W&S sectors in Nicaragua by carrying out an evaluation o f the different interventions, modalities, service levels, technical options offered, financial policies, social intervention strategies, and so forth to arrive at an intervention strategy for RAAN and R A A S that i s agreed on with the Regional and Territory Governments. On the basis o f the assessment, the project wil l improve the cultural adaptation o f institutional processes, procedures, and methodologies to respond to the needs o f the different ethnic groups o f the country, considering their geographic location and their socioeconomic and linguistic constraints. Manuals and other materials wi l l be revised for bilingual use in indigenous and Afro-descendant areas.

42. (b) Training and Social Intervention in Indigenous Communities

43. For the whole project, the social and technical intervention provided through NGOs to indigenous communities before, during, and after the c iv i l works wi l l preferably be done by human resources hired locally, in the language o f beneficiaries, with user-friendly and culturally adequate materials, and in-situ training (aprender-haciendo).

44. For Component 2, the strategy recommends the use o f two local universities operating in RAAN and R A A S for training activities in situ: the Regional University o f the Caribbean Coast (URACCAN) in Bilwi, and the Bluefields Indian and Caribbean University (BICU) in Bluefields. U R A C C A N has four campuses (Siuna, Bilwi, Bluefields, Nueva Guinea) and six Extension Programs (Rosita, Bonanza, Waslala, Waspan, Laguna de Perlas, and Desembocadura de R io Grande). Their mission i s to strengthen the autonomy o f the Atlantic Coast by training human resources in the region and for the region, by making room for the development o f knowledge, skills, and attitudes in order to preserve natural resources while promoting sustainability and creating local capacity.

45. For the communities in the Al to Coco and Bocay area (Miskito) along Waspan and Jinotega, the project intervention wil l include a substantive social and technical intervention to ensure W&S installations are appropriate to withstand harsh weather conditions.

85

46. It wil l carry out sensitivity training for mayors and Technical Units in Municipalities o f municipalities with larger numbers o f indigenous peoples, to review eligibility and selection criteria o f projects originating in indigenous communities, to avoid neglect due o f lower financial contribution capacity.

47. and train the indigenous in participating communities.

It wi l l prepare a sensitivity training module for NGOs and contractors to include, address,

(c) Inclusion of Indigenous Peoples of the Pacific, Central, and Northern Regions

48. As opposed to previous Bank-financed projects, the current project wi l l take into account the presence o f ethnic groups in the Pacific, Central, and Northern regions o f Nicaragua and ensure the targeting mechanism includes positive discrimination criteria that will prioritize disadvantaged groups.

(d) Project Promotion and Marketing for Indigenous and Afro-Caribbean Communities

49. In indigenous and Afro-Caribbean communities, particularly those with l o w health indicators associated with waterborne diseases (diarrhea, parasitic and gastrointestinal infections) and high child mortality rates, the project wil l use a (bilingual) communications campaign to induce the demand for secure water and/or “improved” sanitation facilities and handwashing. The project promotion will ensure that different technical options are offered to each community (such as latrines and basic sanitary units with shower and washbasin). Also, the marketing strategies wil l be tailored to the culture and cosmovision o f the indigenous and Afro-Caribbean communities. The radio spots and materials to convey concepts and messages regarding water and sanitation use and social values will be created from the point o f view o f the local cosmovision, not as a translation but in a bilingual form, and produced locally.

(e) Targeting Mechanisms at the FISE Level and at the Municipal Level

50. Improve targeting mechanisms o f FISE to transfer resources to municipalities with (a) deficits o f W&S, (b) with larger number o f indigenous people, and (c) organized Technical Unit in Municipalities.

5 1. Likewise, improve targeting mechanisms o f municipalities to select subprojects on the basis o f (a) deficits o f W&S, (b) larger number o f indigenous people, and (c) organized community and contribution (evaluation table).

For Component 4: Institutional Strengthening and Project Management

0 Inclusion o f the “ethnic group” and “native language” variables in the information system o f FISE, ENACAL, INAA, and so forth in order to record access o f indigenous and Afro- descendant groups to water and sanitation subprojects. Technical workshops with the Regional and Territory Governments o f M A N and M A S on the administrative, technical, and social aspects o f the project. Signing o f coordination agreements.

0

86

0 Sign an agreement with the Education Council (Atlantic) and the Ministry o f Education (Pacific) to include hygiene education, handwashing, and waterborne disease awareness in the school curriculum.

Activities

(a) Assessment o f PGC in finished projects in Center and North o f Nicaragua and revision o f manuals and instruments to make necessary changes.

Table A10.4: Nicaragua: Indigenous and Afro-Caribbean Peoples Plan for the Rura l Water and Sanitation Project

Modality

Consultanc y

Component

1. Coverage Increase o f Water and Sanitation in Rural Areas (Pacific, Central, North).

(c) Revision o f Manuals and instruments and necessary adjustments, as recommended by strategy for RAAN-RAAS.

(d) Bilingual promotion

2. Coverage Increase o f Water and Sanitation in Rural Areas o f RAAN and R A A S .

Consultancy

(b) Bilingual promotion communications campaign addressed to indigenous before, during, and after the subprojects (radio, posters).

(c) Production o f manuals and other materials for Pacific, Center, and North.

(d) Sensitivity training o f NGOs, mayors, and FISE teams in indigenous areas o f North, Center, and Pacific.

Consultancy

(a) Component 2. Water and Sanitation Projects in RAAN and R A A S , to respond to demand. Social-technical intervention by local NGOs. Impact Evaluation.

(b) Component 2. Provision o f Water and Sanitation subprojects for communities in the Alto Coco and Bocay area, along the municipalities o f Waspan and Jinotega.

Responsible

FISE

FISE

FISE

Regional Governments

FISE, Regional Governments

FISE, Regional

Budget US$

15,000

15,000

12,000

10,000

(Included in Component

2)

(Included in Component

2)

30,000

60,000

Year

1

1

1

1

87

Component Modality Responsible Year

4.5 - Budget US$ Activities

communications campaign addressed to indigenous and Afro-descendant peoples before, during, and after the subprojects at 12,00O/year.

Governments

Consultanc y FISE (e) Communications campaigns through radio for RAAN and R A A S *

(0 Sensitivity training o f NGOs and mayors in indigenous areas o f RAAN and RAAS, at 10,00O/year.

30,000

40.000 Consultanc y URACCAN- B I C U

(g) Social intervention by NGOs to communities and municipalities at 25,00O/year.

Consultancies URACCAN- B I C U

100,000

4. Institutional Strengthening and Project Management.

(a) Inclusion o f the “ethnic group” and “native language” variables in the information system o f FISE, ENACAL, and INAA.

FISE, ENACAL,

INAA

0

(b) Technical workshops with the Regional and Territory Governments o f RAAN, R A A S and the Alto Coco and Bocay area on the administrative, technical, and social aspects o f the project. Sign agreements.

12 Workshops

(4 m, 4 RAAS, 4 Alto

Coco)

FISE, Regional Governments

60,000

(c) Find agreement with SEAR (Atlantic) and Ministry o f Education (Pacific) to include in school curriculum topics such as hygiene education, handwashing, waterborne disease awareness, etc.

FISE, Education Council

(Ministry o f Education)

20,000 1

88

Annex 11: Project Preparation and Supervision NICARAGUA: Rural Water Supply and Sanitation Project

Planned Actual P C N review 01/15/2007 01 /07/2008 Init ial P ID to PIC Init ial I S D S to PIC Appraisal 04/14/2008 04/14/2008 Negotiations 04/2 9/2 008 04/29/2008 Board/RVP approval 06/17/2008 Planned date o f effectiveness Planned date o f midterm review Planned closing date 03/3 1 /2014

K e y institutions responsible for preparation o f the project:

FISE Ministry o f Finance o f Nicaragua

Bank staff and consultants who worked on the project included:

Name Title Unit Maria Angelica Sotomayor Senior Economist, Co-Task Team Leader LCSUW David Michaud

Mart in Gambrill Augusto Garcia

Nelson Antonio Medina Rosa Ximena Traa-Valarezo Alvaro Larrea Enrique Antonio Roman Pilar Gonzalez Juan Carlos Junca

Nicole Maywah Silvia Delgado Rosa Bellido M ina Lacayo Francisco Carranza

Derko Kopitopoulos Sanna Rautanen

Water and Sanitation Specialist, Co-Task Team Leader Senior Water Engineer Consultant (SDN coordinator in country office) Consultant (water and sanitation specialist- country coordinator WSP) Consultant (anthropologist, social expert) Procurement Specialist Financial Management Specialist Senior Counsel Consultant (economic and financial specialist) Consultant (environmental specialist) Team Assistant Team Assistant Team Assistant Consultant (water and sanitation specialist, WSP) Consultant (sanitation specialist) Consultant (hygiene promotion)

LCSUW

LCSUW LCSSD

ETWAN

L C S H H LCSPT LCSFM LEGLA L C S U W

L C S U W L C S U W L C S U W ETWAN ETWAN

SWATIETWWA SWAT/ETWWA

Sarah Martiny Consultant L C S U W

89

Bank funds expended to date on project preparation: 1. Bank resources: US$129,625 2. Trust funds: US$O 3. Total: US$129,625

Estimated Approval and Supervision costs: 0

0

Remaining costs to approval: US$40,000 Estimated annual supervision cost: US$lOO,OOO

90

Annex 12: Documents in the Project Fi le NICARAGUA: Rural Water Supply and Sanitation Project

Project Preparation Documents

Aide Memoire Identification Mission, February 1 1-16,2008. Aide Memoire Pre-Appraisal Mission, March 12-14,2008. Integrated Safeguards Data Sheet (Concept Stage), Report No. AC3320,2008. Project Concept Note. Project Information Document (Concept Stage), Report No. AB3541 , 2007. MCtodos de Focalizacion en Programas del FISE (Fondo de Inversion Social de Emergencia) en Nicaragua, Reporte Interno para el LAC-WSS Team, Maria Angelica Sotomayor y David S. Michaud, Maria Poli, 2007. Resumen de l a Evaluacion de l a Capacidad de Ejecucion en Adquisiciones de la Agencia Implementadora del Proyecto Fondo de Inversion Social de Emergencia (FISE), Nicaragua: Proyecto de Provision de Agua y Saneamiento Rural, Informe Interno del Banco Mundial, 2008.

Other Bank Documents

Country Partnership Strategy for the Republic o f Nicaragua, Report No. 39637-NI, 2007. The Republic o f Nicaragua Poverty Reduction Strategy and Joint World Bank-IMF Staff Advisory Note, Report No. 34727-NIY World Bank, 2006. International Development Association Program Document for a Proposed Credit in the Amount o f SDR16.83 M i l l i on (US$25 M i l l i on Equivalent) to the Republic o f Nicaragua for a Second Poverty Reduction Support Credit, Report No. 37404-NI, 2006. Project Appraisal Document on a Proposed Credit in the Amount o f SDR22.0 M i l l i o n (US$28.7 M i l l i o n Equivalent) to the Republic o f Nicaragua for a Second Rural Municipal Development Project, Report No. 21536-NIY World Bank, 2001. Implementation Completion and Results Report (IDA-35040 IDA-3504A, TF026597) on a Credit in the Amount o f SDR46.7 M i l l i on (US$60.0 M i l l i on Equivalent) to the Republic o f Nicaragua for a Poverty Reduction and Local Development Project, Report No. ICR0000526, World Bank, 2007. Project Appraisal Document on a Proposed Credit in the Amount o f SDR7.2 Mill ion (US$l 1 M i l l i on Equivalent) to the Republic o f Nicaragua for a Health Services Extension and Modernization Project in Support o f the Second Phase o f the Health Services Extension and Modernization Program, Report No. 3 1 740-NIY World Bank, 2004.

Studies

e “22 Anos de Experiencia Recopilada sobre el Trabajo de Acueductos Rurales,” WSP,

“Cobertura de Agua Potable y Saneamiento en Nicaragua en 2005,” WSP-BM, Managua, Febrero 2008.

GAR-ENACAL, SNV, UNICEF.

91

“Coberturas de Agua Potable y Saneamiento de Nicaragua 2005,” Monitoreo de las Metas del Milenio de las Coberturas de Agua Potable y Saneamiento en Nicaragua, Basado en el Censo 2005 INEC y en el Estudio de Saneamiento de Comunidades Rurales, Pequeiias Localidades y Barrios Periurbanos en Nicaragua PAS-BM, WSP-BM, 2008. “Enfoque Sectorial Amplio para el Sector Agua y Saneamiento en Nicaragua,” Memoria dell Taller SWAP en Agua Potable y Saneamiento, Republica de Nicaragua, WSP, COSUDE, Nicaragua, 2005. “Estudio Base sobre las Condiciones de Vida de 10s Pueblos Indigenas del Pacifico Centro y Norte de Nicaragua,” Concejos Regionales de Pueblos Indigenas Pacifico Centro Norte, ILO, the Netherlands, 2006. “Evaluaci6n del funcionamiento y l a calidad de 10s servicios de agua y saneamiento en pequeiias localidades urbanas en Nicaragua,” Water Group & ESA consultores for the Water and Sanitation Program, Lima, 2007. “Ex-post Impact Evaluation o f Subprojects o f the Social Emergency Fund (FISE),” CABAL, S.A., Mangua, 2006. “Indigenous Cultures in Nicaragua,” Samuel L. Kirkland, 1998. “Sistemas de Informacibn Sectorial de Agua y Saneamiento en Amkrica Central: Avances y hoja de ruta para l a construccion de un sistema sostenible,” Memoria analitica del taller internacional, WSP, RRAS-CA, FOCARD-APS, San Salvador, 2006.

Government Documents

0

0

Estrategia Sectorial de Agua Potable y Saneamiento (2005-201 5), CONAPAS, BID, Gobierno de Nicaragua, 2005. Nicaragua Nacional Censes 197 1 ; 1995; 2005. A B C sobre el Recurso Agua y su Situacion en Nicaragua, ENACAL, 2007.

Laws and Regulations

0

0

L e y General de Aguas Nacionales, Ley No. 620, Republica de Nicaragua, 2007. L e y de Modificacion a l a Ley Anual de Presupuesto General de l a Republica 2007, Ley No. 639, Republica de Nicaragua, 2007.

92

Annex 13: Statement of Loans and Credits NICARAGUA: Rural Water Supply and Sanitation Project

Original Amount in US$ Millions

Difference between expected and actual

disbursements

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d

P108974 PO89989 PO87046 PO83952 PO78991 PO78990 PO78891 PO77826 PO73246 PO560 18 PO649 16

2008 2006 2006 2006 2005 2005 2004 2004 2003 2002 200 1

NI Hurricane Felix Emergency Recovery 0.00 17.00 0.00 0.00 0.00 17.23 0.00 0.00 NI Rural Telecom 0.00 7.00 0.00 0.00 0.00 7.13 2.48 0.00 NI 2nd Agricultural Technology Project 0.00 12.00 0.00 0.00 0.00 6.66 -0.97 0.00 NI (CRL) Roads Rehab & Maintenance N 0.00 60.00 0.00 0.00 0.00 55.19 15.32 0.00 NI - (APL2)HEALTH SECTOR I1 0.00 11.00 0.00 0.00 0.00 3.84 0.94 0.00 NI - EDUCATION 0.00 15.00 0.00 0.00 0.00 8.35 6.76 0.00 NI PUBLIC SECTOR TA 0.00 23.50 0.00 0.00 0.00 2.99 2.65 0.00 NI Broad-Based Access to Finan Services 0.00 7.00 0.00 0.00 0.00 6.30 4.20 0.76 NI Offgrid Rural Electrification (PERZA) 0.00 12.00 0.00 0.00 0.00 5.19 3.33 2.73 NI LAND ADMINISTRATION PROJECT 0.00 32.60 0.00 0.00 0.00 16.39 7.16 -4.58 NI Natural Disaster Vulnerability Reduc 0.00 13.50 0.00 0.00 0.00 1.27 -0.62 -0.62

Total: 0.00 210.60 0.00 0.00 0.00 130.54 41.25 - 1.71

NICARAGUA STATEMENT OF IFC’s

Held and Disbursed Portfolio In Millions o f U S Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Eauitv Quasi Partic. Loan Equity Quasi Partic

2004 Confia 3.50 0.00 0.00 0.00 3.50 0.00 0.00 0.00 2006 FINDESA 2.00 0.00 3 .OO 0.00 0.00 0.00 0.00 0.00

International ... 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 1999 SEF Dicegsa 0.08 0.00 0.00 0.00 0.08 0.00 0.00 0.00

Total portfolio: 15.58 0.00 3.00 0.00 13.58 0.00 0.00 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

Total pending commitment: 0.00 0.00 0.00 0.00

93

Annex 14: Country at a Glance

NICARAGUA: ProiectName

-

POVERTY a n d SOCIAL

Domestic ..I

savings \

L a t h Lower- Arner lca middle-

Nicaragua 8 Carib. I n c o m e

, Capital formation

2006 Population, mid-year (millions) 5.2 GNIpercapita(At1as method, US$j 900 GNI(At1as method, US$ billions) 5.1

Ave rage annual growth, 2000.06

Lab0 r fo rce (%)

M o s t recen t es t lma te ( l a tes t year avai lable, 2000-06)

Po vert y (% o f population below natio nal po verty line) Urban population (%of totalpopulation) 59 Life expectancyat birth (pars) 70 infant mortality(per lOOOlive births) 30 Child malnutrition (%ofchildren under5) m Access to an improved watersource (%ofpopulation) 79 Literacy (% o f population age 15+) 77 Gross primary enrollment (%of school-age population) ll?

Male m Female m

Population (s$l 11 2.3

KEY ECONOM IC RATIOS and LONG-TERM TRENDS

1986 1996

GDP (US$ billionsj 2.9 3.3 Gross capital formation/GDP 19.9 25.0 Exports of goods and services/GDP P.O 20.0 Gross domestic savings/GDP 0.0 6.5 Gross national savings/GDP 6.6 13

Current account balance/GDP -24.5 -24.9 Interest payments/GDP 0.7 2.2 Total debt/GDP 234.6 5'9.5

Present value of debt/GDP Present value of debt/eqorts

Total debt service/exports 14.3 26.4

1986-96 1996-06 2005 (average annual gro wthj GDP 0.0 3.7 4.3 GDP per capita -16 2.3 3.0 worts of goods and sewices 2.4 8.7 9.5

556 4,767 2,650

13 2.1

78 73 26

91 90 rn PO Is

2005

4.9 29.6 29.1 -0.1 14.3

-15.4 0.9

rl5.9 6.7

413 77.5

2,276 2,037 4,635

0.9 14

47 71 31 0 81 09 10 m 114

2006

5.3 29.4 311 -0.5 0.3

-16.1

2006 2006-10

3.7 4.5 17 14

m.5 7.6

i c o n o m i c rat lor .

-Nicaragua Lowr-middle-income u r o ~ ~

STRUCTURE o f t h e E C O N O M Y

(%of GDP) Agriculture Industry

Services

Household final consumption expenditure General gov't final consumption expenditure Imports of goods and services

Manufacturing

(average annualgrowth) Agnculture Industry

Sewices

Household final consumption expenditure General gov't final consumption expenditure Gross capital formation imports of goods and sewices

Manufacturing

1986 1996

26.6 25.0 42.9 27.1 35.4 19.0 50.4 50.5

.. 02.9 912 Q.6 20.0 39.2

1986-96 8 9 6 - 0 6

-0.3 3.0 -2.4 4.5 -3.0 4.7 0.0 4.1

6.6 4.1 .15.1 2.0

12 0.8 17 5.2

2005

8 .1 29.9 18.7 56.1

00.9 112

50.0

2005

3.9 5.7 6.5 3.7

3.5 10 5.6 62

2006

8.7 29.5 16.5 56.3

80.6 119 610

2006

4.2 2.5 5.3 4.6

3.5 5.7

-0.5 6.1

Growth o f expor t s and i m p o r t s ( O h )

20 T

10

0

Note 2005 data are preliminaryestimates This tablewas producedfrom the Development Economics LOB database 'Thediamonds showfourkeyindicators in thecountry(in bo1d)comparedwth its income-group average tfdata are missing,thediamondmll

be incomplete

94

Nicaragua

PRICES a n d G O V E R N M E N T F I N A N C E

D o m e s t l c p r l cea (%change) Consumer prices Implicit GDP deflator

Governmen t f l nence (%of GDP, includes currenf grants) Current revenue Current budget balance Overall SurDlUS/defiCit

T R A D E

(US$ millions) Total exports (fob)

Coffee Shrimp andlobster Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index (20OO=WO) Import price index (2000-00) Terms o f trade (20OO=WO)

B A L A N C E o f P A Y M E N T S

(US$ millions) Exports of goods and services Imports of goods and services Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

M emo: Reserves including gold (US$ millions) Conversion rate (DEC, io cai/US$)

1986

600.0 2815

1986

248 10

9 33

756 98

t27 218

0 0

t36

1986

277 836

-559

-149 0

-708

505 203

3.02E-8

E X T E R N A L D E B T and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

1986

6,771 IBRD 200 IDA 60

Totaldebt service 40 IBRD 0 IDA 0

Composition of net resource flows Official grants 61 Official creditors 766 Private creditors 6 Foreign direct investment (net inflows) 0 Portfolio equity(net inflows) 0

Commitments 0 Disbursements 0 Principal repayments 0 Net flows 0 hterest payments 0 Net transfers 0

World Bank program

1986

116 9.6

7 .2 3.8

-2.4

1996

467 116 75

a 7 1,154 24 1 7 6 290

72 65 nl

I996

723 1375 -652

-324 150

-826

879 -53

8 7 8.4

1986

5,961 44

335

2 8 22 4

6 8 0 5 -4

t20 0

61 69 18 51 8

43

2005

9.4 9.4

18.1 4.4

-5.2

2005

864 t26 86

423 2,623

640 544 509

u 7 156 87

2005

1960 3,404 -1444

-a7 024

-747

793 -46

727 b.7

2005

5,144 0

l a 6

7 2 0 7

468 8 4 7

241 0

11 63 0

63 7

56

2006

0.6

18.8 3.4

-3.9

2006

1027 201 86

490 2.988

735 681 550

152 7 6 86

2006

2.38 3,905 -1586

.P4 856

-855

986 -u2

922 7.6

2006

0 256

0 0

0 52 5

47 5

42

l n f l a t l on ( O h ) I

01 02 03 04 05 OB

-GDP deflator d C P I

1 % T I

01 02 03 04 05

-GDP deflator d C P I

IExpor t and Import l eve l s (US$ mlll.) 1 14 000 1 I 3 000

2.000

1,000

0

I I 00 01 02 03 04 05 06

mExports mlmports

Current a c c o u n t ba lance t o GDP (%)

0

5

.lo

.15

.20

C o m p o t l t l o n o f 2005 deb t (US$ mlll.) r-7-

A - IBRD E - B i l d s a l 8 - I D A D - O t i w r m l t i l ~ s a l F-Private C-IMF G. Short-tefr

Note:This table was producedfrom the Development Economics LDB database. 9/28/07

95

KIPLA SAITTASBAIKA

INDIGENOUSTERRITORY

DE SIKILTAINDIGENOUSTERRITORY

MISKITU INDIANTASBAIKA KUMINDIGENOUSTERRITORY

LI LAMNITASBAIKA KUMINDIGENOUSTERRITORY

MAYANGNA SAUNI ASINDIGENOUS TERRITORY

MAYANGNA SAUNI BUINDIGENOUS TERRITORY

H O N D U R A S

C O S TA R I C A

CayosMiskitosIslands

To Tegucigalpa

To Choluteca

ToCholuteca

To SanJose

PACIFICOCEAN

WaniLagoon

PaharaLagoon

BluefieldsBay

PuntaGorda

Bay

LakeManagua

Lake

Nicaragua

Gulf ofFonseca Caribbean

Sea

PerlasLagoon

83°84°85°86°

87°

83°84°85°86°87°

11°

12°

13°

14°

15°

11°

12°

13°

14°

15°

KarataLagoon

WountaLagoon

Río

Bambana

Río Kurinwás

Río

Boca

y

Río Grande de Matagalpa

Río Tuma

Río Coco (Río Segovia)

Río Wawa

Río Prinzapolca

Río Siquia

Río Mico

Río Escondido

Río San Juan

Rio Punta Gorda

REGIÓN AUTÓNOMA DELATLÁNTICO NORTE

(RAAN)

REGIÓN AUTÓNOMADEL ATLÁNTICO SUR

(RAAS)

JINOTEGA

CHINANDEGA

MADRIZ

ESTELÍ

LEÓN

MATAGALPA

BOACO

MANAGUA

GRANADACARAZO

MA

SAYA

RIVAS

CHONTALES

RIOSAN JUAN

NUEVASEGOVIA

MANAGUA

OCTOCAL

SOMOTO

ESTELÍ

LÉON

JINOTEGA

CHINANDEGA

MATAGALPA

BOACO

JUIGALPA

JINOTEPE

RIVAS

GRANADA

MASAYABLUEFIELDS

SANCARLOS

PUERTO CABEZAS (BILWI)

N I C A R A G U A

RURAL WATER SUPPLY ANDSANITATION PROJECT

PROJECT AREA COMPONENT 1

PROJECT AREA COMPONENT 2

PAN-AMERICAN HIGHWAY

PAVED ROADS

UNPAVED ROADS

MUNICIPALITY CAPITALS

DEPARTMENT CAPITALS

NATIONAL CAPITAL

MUNICIPALITY BOUNDARIES

INDIGENOUS TERRITORY BOUNDARIES

DEPARTMENT AND AUTONOMOUS REGION BOUNDARIES

INTERNATIONAL BOUNDARIES

MAY 2008

IBRD 36093

0 20 40

KILOMETERS

60 80 100

Tisma

Nindirí

MASAYA

La ConcepciónMasatepe

Nandasmo

Niquinohomo

CatarinaSan Juan de OrienteSan Marcos

DiriambaDolores JINOTEPE

El Rosario La Paz de CarazoSanta Teresa

La Conquista

GRANADA

DiríaDiriomo

Nandaime

San Rafael del Sur

MANAGUA

Mateare

C a r i b b e a n

S e a

PA C I F I C

O C E A N

14°

10°

90°

90°

86° 82°

10°

14°

18°18°

86° 82° 78°

MEXICO

GUATEMALA

ELSALVADOR

COSTA RICA

PANAMA

COLOMBIA

BELIZE

HONDURAS

NICARAGUA

JAMAICA

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.