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Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: RES13568

RESTRUCTURING PAPER

ON A

PROPOSED PROJECT RESTRUCTURING

OF

SAO PAULO SUSTAINABLE TRANSPORT PROJECT

LOAN NUMBER 8272 – BR

APPROVED JUNE 14, 2013

TO THE

STATE OF SÃO PAULO

FEBRUARY XX, 2015

GTIDR

LATIN AMERICA AND CARIBBEAN

This document has a restricted distribution and may be used by recipients only in the performance of their

official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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ABBREVIATIONS AND ACRONYMS

BRL Brazilian Real

CETESB Environmental Agency (Companhia Ambiental do Estado de São Paulo)

CREMA Performance Based contracts for rehabilitation and road maintenance

DER-SP Road Agency, Sao Paulo State Government

DRM Disaster Risk Management

EA Environmental Assessment

EEZ Economic and Ecological Zoning

GHG Greenhouse Gas

GoB Government of Brazil

HDM Highway Development and Management Model

IA Implementation Agency

IBRD International Bank for Reconstruction and Development

IG Geologic Institute (Instituto Geológico)

IPPF Indigenous Peoples Planning Framework

IRI International Roughness Index

IRR Internal Rate of Return

LDO Budget Guideline Law (Lei de Diretrizes Orçamentárias)

LOA Annual Budget Law (Lei Orçamentária Anual)

MDB Multilateral Development Bank

MIGA Multilateral Investment Guarantee Agency

NHSFO Non-Honoring of Sovereign Financial Obligations Product

NPV Net Present Value

ORAF Operational Risk Assessment Framework

PPP Private Public Partnership

SEFAZ State Secretariat of Finance, (Secretaria da Fazenda)

SLT Secretariat of Logistics and Transport

SMA Environment Secretariat

SoSP State of São Paulo

SPDR Planning and Regional Development Secretariat

USD United States Dollar

WB World Bank

Regional Vice President: Jorge Familiar

Country Director: Deborah L. Wetzel

Practice Senior Director: Pierre Guislain

Sector Manager: Aurelio Menendez

Task Team Leader: Eric R. Lancelot

iii

Brazil

Sao Paulo Sustainable Transport Project (P127723)

CONTENTS

A. SUMMARY 1

B. PROJECT STATUS 1

C. PROPOSED CHANGES 1

ANNEX 1: RESULTS FRAMEWORK AND MONITORING 4

ANNEX 2: OPERATIONAL RISK ASSESSMENT FRAMEWORK 8

ANNEX 3: LIST OF ROADS 12

ANNEX 4: ECONOMIC APPRAISAL 13

iv

DATA SHEET

Brazil

Sao Paulo Sustainable Transport Project (P127723)

LATIN AMERICA AND CARIBBEAN

LCSTR

Report No: RES13568

Basic Information

Project ID: P127723 Lending Instrument: Investment Project

Financing

Regional Vice President: Jorge Familiar Original EA Category: Partial Assessment (B)

Country Director: Deborah L. Wetzel Current EA Category: Partial Assessment (B)

Senior Practice Director: Pierre Guislain Original Approval Date: 14-Jun-2013

Sector Manager: Aurelio Menendez Current Closing Date: 31-Mar-2019

Team Leader: Eric R. Lancelot

Borrower: State of Sao Paulo

Responsible Agency: Secretariat of Transport and Logistics, Road Agency (DER-SP)

Restructuring Type

Form Type: Full Restructuring Paper Decision Authority: Country Director Approval

Restructuring Level: Level 2 Explanation of

Approval Authority:

Level II Restructuring

Financing ( as of 21-Jan-2014 )

Key Dates

Project Ln/Cr/TF Status Approval

Date Signing Date

Effectiveness

Date

Original

Closing Date

Revised

Closing Date

P127723 IBRD-82720 Effective 14-Jun-2013 24-Sep-2013 18-Dec-2013 31-Mar-2019 31-Mar-2019

Disbursements (in Millions)

Project Ln/Cr/TF Status Currency Original Revised Cancelle

d

Disburse

d

Undisbur

sed

%

Disburse

d

P127723 IBRD-82720 Effective USD 300.00 300.00 0.00 163.48 136.52 54.5

Policy Waivers

Does the project depart from the CAS in content or in other significant

respects? Yes [ ] No [ X ]

Does the project require any policy waiver(s)? Yes [ ] No [ X ]

v

A. Summary of Proposed Changes

The present restructuring aims at introducing a co-financing of US$300 million from the international

private bank Banco Santander, S.A. covered by MIGA under its Non-Honoring of Sovereign Financial

Obligations (NHSFO) guarantee, to scale-up the Sao Paulo Sustainable Transport Project (P127723).

Change in Implementing Agency Yes [ ] No [ X ]

Change in Project's Development Objectives Yes [ ] No [ X ]

Change in Results Framework Yes [ X ] No [ ]

Change in Safeguard Policies Triggered Yes [ ] No [ X ]

Change of EA category Yes [ ] No [ X ]

Other Changes to Safeguards Yes [ ] No [ X ]

Change in Legal Covenants Yes [ ] No [ X ]

Change in Loan Closing Date(s) Yes [ ] No [ X ]

Cancellations Proposed Yes [ ] No [ X ]

Change to Financing Plan Yes [ X ] No [ ]

Change in Disbursement Arrangements Yes [ ] No [ X ]

Reallocation between Disbursement Categories Yes [ ] No [ X ]

Change in Disbursement Estimates Yes [ X ] No [ ]

Change to Components and Cost Yes [ X ] No [ ]

Change in Institutional Arrangements Yes [ ] No [ X ]

Change in Financial Management Yes [ ] No [ X ]

Change in Procurement Yes [ ] No [ X ]

Change in Implementation Schedule Yes [ ] No [ X ]

Other Change(s) Yes [ ] No [ X ]

Appraisal Summary Change in Economic and Financial Analysis Yes [ X ] No [ ]

Appraisal Summary Change in Technical Analysis Yes [ X ] No [ ]

Appraisal Summary Change in Social Analysis Yes [ X ] No [ ]

Appraisal Summary Change in Environmental Analysis Yes [ X ] No [ ]

Appraisal Summary Change in Risk Analysis Yes [ X ] No [ ]

B. Project Status

The Project, approved by the Board on June 14, 2013, was declared effective on December 18, 2013.

Project overall implementation is satisfactory at this early stage of execution with a disbursement rate of

54% and the first set of activities underway, including notably the execution of the first trench of road

rehabilitation works for a total commitment of about US$200 million and the second trench of works in

final stage of bidding.

Development Objectives/Results

Project Development Objectives

Original PDO

vi

Contribute to the improvement of the State’s transport and logistics efficiency and safety while enhancing

the Borrower’s capacity in environmental and disaster risk management.

Change in Project's Development Objectives

Change in Results Framework

Explanation:

Target values of one intermediate indicator will be changed due to increased scope of works with Joint co-

financing under the subcomponent 1.1 on Rehabilitation and upgrading of the State’s transport networks.

Financing

Change to Financing Plan

Explanation:

The Project will benefit from a co-financing from a private loan of US$300 million from the international

bank Banco Santander, S.A. covered by MIGA under its Non-Honoring of Sovereign Financial Obligations

(NHSFO) guarantee. Accordingly, the total amount of the Project costs will increase from US$429 million

to US$729 million.

Source(s) At Approval Current (from AUS) Proposed

BORR 129,000,000.00 129,000,000.00 129,000,000.00

Santander with MIGA

Guarantee 0.00 0.00 300,000,000.00

IBRD 300,000,000.00 300,000,000.00 300,000,000.00

Total 429,000,000.00 429,000,000.00 729,000,000.00

Disbursement Estimates

Change in Disbursement Estimates

Explanation:

Disbursement schedule will be revised to take into account the Government plans to use first the proceeds

from the international private banks to finance the Project’s works with an aim at optimizing the Project

financing costs.

Fiscal Year Current (USD) Proposed (USD)

2013 0.00 0.00

2014 30,000,000.00 40,000,000.00

2015 50,000,000.00 123,000,000.00

2016 70,000,000.00 20,000,000.00

2017 70,000,000.00 20,000,000.00

2018 70,000,000.00 70,000,000.00

2019 10,000,000.00 27,000,000.00

Total 300,000,000.00 300,000,000.00

Components

Change to Components and Cost

Explanation:

vii

The scope of the subcomponent 1.1 of the component 1 (Rehabilitation and Upgrading the State’s transport

networks) will be enlarged to encompass additional selected roads from the State Program. Specifically the

extension of state roads targeted by the Project under the sub-component 1.1 will increase from

approximately 380 km (including approximately 100 km of CREMA) to approximately 750 km (including

approximately 100 km of CREMA). In addition, the bridge reconstruction on the Tiete river will be

replaced by another similar bridge reconstruction upstream on the same Tiete river. While the total costs of

the Project’s sub-component will increase, no change in the costs of the IBRD loan will be triggered.

Current Component

Name

Proposed Component

Name

Current Cost

(US$M)

Proposed

Cost (US$M) Action

Component 1: Improving

transport and logistics

efficiency and safety 394.25 694.25 Revised

Component 2:

Strengthening sustainable

environmental and land

use planning and territorial

management capacity

18.00 18.00 No Change

Component 3: Increasing

State’s resilience to

natural disasters 16.00 16.00 No Change

Total: 428.25 728.25

Change(s) in Appraisal Summary

Appraisal Summary Change in Economic and Financial Analysis

Explanation:

Based on the calculation for the revised physical component, over 20 years, the net present value (NPV), at

a 12% discount rate, and the related internal rate of return (IRR) of the investments in this road

rehabilitation and maintenance subcomponent are respectively estimated as R$1,229 million and 38.7%.

Appraisal Summary Change in Technical Analysis

Explanation:

Under the component 1, the same rehabilitation and construction standards will be applied to the additional

road sections, including a full range of technical solutions such as local repairs, slurry seals, surface

treatment, concrete asphalt overlay, localized base reconstruction, bridge rehabilitation and drainage

systems upgrading, signalization improvements and resolution of dangerous cross-roads and accesses.

Construction of third lanes, duplications on existing roads will include all the above mentioned technical

solutions as well as earthworks, preparation of base courses, construction of bridges and culverts and other

necessary elements for road safety. The reconstruction of the bridges will involve the deconstruction of

actual infrastructures and their replacement by bridges with larger main spans. Designs of the new bridges

have been reviewed and agreed with the Bank.

Appraisal Summary Change in Social Analysis

Explanation:

The Environmental and Social Impact Assessment of the Project was updated by the State of Sao Paulo to

take into account the enlarged scope of the works. It was published on the DER site on January 23, 2014.

There are no new safeguard policy triggered and no major adverse impact is expected from the additional

roads as well as replacement of the bridges.

viii

Appraisal Summary Change in Environmental Analysis

Explanation:

The Environmental and Social Impact Assessment of the Project was updated by the State of Sao Paulo to

take into account the enlarged scope of the works. It was published on the DER site on January 23, 2014.

There are no new safeguard policy triggered and no major adverse impact is expected from the additional

roads as well as replacement of the bridges.

Appraisal Summary Change in Risk Analysis

Explanation:

Abandon of the Project by the private financier will be a new risk resulting from the participation of a Joint

Co-Financier. The Project risk remains Moderate.

1

A. SUMMARY 1. The present restructuring aims at introducing a co-financing of US$300 million

from the international private bank Banco Santander S.A. covered by MIGA under its

Non-Honoring of Sovereign Financial Obligations (NHSFO) guarantee, to scale-up the

Sao Paulo Sustainable Transport Project (P127723).

2. The Sao Paulo Sustainable Transport Project is a US$429 million operation

financed by a US$300 million Bank investment project financing (IPF) (LN8272-BR)

completed by US$129 million counterpart funds. It aims at contributing to the

improvement of the State’s transport and logistics efficiency and safety while enhancing

the State’s capacity in environmental and disaster risk management. It was approved by

the Board on June 14, 2013 and was declared effective on December 18, 2013.

3. So as to respond to the Client’s financial needs in a context of limited lending

space availability, a US$ 300 million co-financing from international private banks

covered by MIGA under its NHSFO instrument was envisaged early at Project

preparation to complement the financing of the road works under the Project’s first

component. This however could not materialize before the Project was presented to the

Board of the Bank due to unexpected delays in assessing and endorsing this innovative

approach by the Federal Government.

4. The Federal Government provided a principled endorsement of this co-financing

in August 2013 and the State initiated the bidding process to select the banks in

December 2013. As a result, the Spanish private bank Banco Santander S.A. was selected

by the State of Sao Paulo and, upon approval of the operation by the Federal Senate, the

loan agreement was signed with the State of Sao Paulo on November 11, 2014.

5. In parallel, the State of Sao Paulo processed a request for restructuring of Bank

Project to the Federal Government (Oficio 306/2014-GS-GCR of April 28, 2014), which

was approved by the Federal Government in December 2014 (Recomendacao 01/0255 of

December 10, 2014) and endorsed by the Federal Office of Attorney’s in January 2015

(Parecer PGFN/COF/No11/2015 of January 8, 2015).

B. PROJECT STATUS

6. Upon 18 months since Board approval and 12 months since effectiveness, Project

overall implementation is satisfactory with a disbursement rate of 54% and the first set of

activities underway, including notably the execution of the first trench of road

rehabilitation works for a total commitment of about US$200 million and the second

trench of works in final stage of bidding.

C. PROPOSED CHANGES

7. The Project Development Objective remains unchanged with the Joint Financing.

8. The proposed change consists in:

2

scaling-up the works under the Project’s component 1. The total extension of

State roads rehabilitated and upgraded with construction of third lanes,

duplications, slope protection and improvement of intersections selected for their

potential contribution to intermodality, will increase from approximately 280 km

to approximately 650 km. The eligible road sections will be selected in the set

listed in annex 3;

replacing the bridge reconstruction planned on the Tiete river by another bridge

reconstruction following the same standards (wider clearance) upstream on the

Tiete river to enhance waterway navigation on the Tiete inland waterway corridor

complex.

9. The road rehabilitation and upgrading works scale-up results from the additional

resources from the co-financing.

10. The reconstruction of the bridge of the road SP191 on the Tiete river by a wider

clearance bridge envisioned at preparation will not be implemented as initially planned

by the State Department of Roads, as alternative solutions are now being envisaged. Such

alternative solutions, yet not fully defined, could include the construction of a by-pass

canal. It will however not be included in the scope of the Project given the expected

horizon of realization, beyond 5 years. Conversely, another bridge reconstruction to

improve the inland waterway navigation standards of the Tiete river had been envisioned

at early stage of preparation to be added to the Project when the Joint Financing would be

available. The reconstruction of this bridge, on the SP 147 over the Tiete river upstream,

will follow similar improved standards and execution process. Preliminary design was

already reviewed and agreed upon by the Bank.

11. The Project appraisal update concludes that:

the Project remains economically viable with the proposed changes, with a net

present value (NPV) and internal rate of return (IRR) respectively estimated at

R$1,229 million and 38.7% (see details on the revised economic evaluation in

Annex 4);

based on an update of the Environmental and Social Impact Assessment of the

Project encompassing the additional road sections and change of bridge, which

was published by the State of Sao Paulo (DER) on its site on January 23, 2014,

there are no new safeguard policy triggered and no major adverse impact is

expected from the additional roads and the replacement of the bridges.

The Project therefore remains a Category B and an updated version of the ISDS

was prepared and published on March 14, 2014.

12. The Bank will be responsible for all fiduciary aspects of the project activities

including civil work contracts on the additional road sections:

Environment and social safeguards: the Bank environmental and social safeguards

will be applied to all the works under the Project;

3

Procurement: the Bank procurement guidelines will be applied to all the works

that will be partially of fully financed by the Bank Loan. All works procured

following Bank procurement guidelines are expected to be prior reviewed;

Disbursement/Financial Management: the pari passu will be monitored quarterly

through reports prepared by the Client in accordance to the revised appendix 6 of

the updated Disbursement Letter. Project annual audit will encompass all

activities co-financed.

13. The proposed changes will trigger the following adaptations:

Costs: the costs of Sub-Component 1.1 will increase from US$385.75 million to

US$685.75 million of which US$269.5 million will remain financed by the IBRD

loan. Accordingly, the revised costs of Component 1 will be US$694.25 million

and the cost of the entire project will be US$729 million. The proposed revised

cost and financing table is provided below.

Table 1 - Project Cost and Financing

Project Components

(US$ millions)

IBRD Financing Counterpart Financing

Sub-

Total

Private Bank(s)

Financing Total

Cost (US$

Million)

% of

Sub-

Total

% of

Total

(US$

Million)

% of

Sub-

Total

% of

Total

(US$

Million)

% of

Total

Cost

Component 1* 275.450 70% 41% 118.800 30% 18% 394.250 300.000 42% 694.250

Component 2* 12.600 70% 70% 5.400 30% 30% 18.000 - 0% 18.000

Component 3 * 11.200 70% 70% 4.800 30% 30% 16.000 - 0% 16.000

Total Project Costs 299.250

129.000

428.250 300.000 728.250

Front-End Fees 0.750

0.750 0.750

Total Financing

Required 300.000 70% 41% 129.000 30% 18% 429.000 300.000 41% 729.000

Note: *the amounts include physical and price contingencies estimated at 10% of the baseline costs.

Result Framework: the intermediate result indicator on the Number of km or

rehabilitated and/or upgraded State paved roads from the Project Result

Framework will be revised to consider the Project widened scope of works with

an end-of-Project target value of 750 km, (see proposed revised result framework

in Annex 1).

Disbursement Schedule: while Disbursement Arrangement will remain, Bank loan

disbursement schedule will be revised to take into account the Government plans

to use first the proceeds from the international private banks to finance the

Project’s works with an aim at optimizing the Project financing costs.

Expected Disbursements (in USD Million)

Fiscal Year 2014 2015 2016 2017 2018 2019

Annual 40 123 20 20 70 27

Cumulative 40 163 183 203 273 300

4

Risk: the ORAF will be updated to take into account the Project new risk resulting

from to participation of a Joint Co-Financier (see revised ORAF in Annex 2). The

Project overall risk however remains Moderate.

5

Annex 1: Results Framework and Monitoring

BRAZIL: Sao Paulo Sustainable Transport Project (P127723)

Project Development Objectives

Contribute to the improvement of the State’s transport and logistics efficiency and safety while enhancing the State’s capacity in

environmental and disaster risk management.

Project Development Objective Indicators

Indicator Name Core Unit of

Measure Baseline

Cumulative Target Values

Frequency Data Source/

Methodology

Responsibility

for Data Collection

YR1 YR2 YR3 YR4 End

Target

Roads in good and fair condition as a share of total

classified roads X % 34 42 48

Baseline, YR 3 and

YR 5

Road condition

surveys. Good and fair

condition roads are

roads with IRI<3. Based on a total paved

State road extension of

20,800 km

Road Agency (DER) and

SLT

Increased intermodality measured by increased

proportion of exported

biofuel transported by

waterway in the State on the

Tiete river

% 0 10 30 Baseline, YR 3 and

YR 5

State waterway

transport data & export

statistics at ports Volume of exported

biofuel transported on

Tiete river / Total

Volume of biofuels

exported From the

main ports in Sao Paulo State

SLT

6

Improved transport

management measured by the increased proportion of

State road network managed

by performance

% 32 40 50 Baseline, YR 3 and

YR 5

Statistics of Road

Administration Contracts include

concession, PPP and

CREMA Based on a total paved

State road extension of

20,800 km

Road Agency (DER) and

SLT

Improved transport

management proactively coping with disaster through

the establishment of

contingency plans in a sample of DER’s local

representations for traffic

management (pilot UBA)

0

Risks

maps for the most

relevant

geographical areas

of 3

UBAs(IG)

Contingen

cy plans

adopted in

3 UBAs which

territories

have been mapped

(DER)

Yearly

Local representations

are the 3 UBAs (Mogi

das Cruzes, Sao

Vicente and

Caraguatatuba) covering the accesses

to the State's main

ports (Santos and Sao Sebastiao) and Sao

Paulo Metropolitan

Area

Road Agency (DER),

SMA/IG

Improved road safety measured by the reduction

in fatalities on the 100 most critical spots of the State

road network

# 124 62 62 62 Yearly

Surveys made by State

100 most critical spots

identified at appraisal as the 1km sections of

the road network with

highest number of accidents with death in

2012. The assessment will be by critical spot

compared to the

average death toll of the past 5 years and

will not take into

account exceptional situations.

Road Agency

(DER) and SLT

Intermediate Results Indicators

Indicator Name Core Unit of

Measure Baseline

Cumulative Target Values

Frequency Data Source/

Methodology

Responsibility

for Data Collection YR1 YR2 YR3 YR4

End Target

Component 1

Km of rehabilitated and/or x Km Original 0 279 377 Twice a Project monitoring DER

7

upgraded State paved roads Revised 0 350 750 year reports. Including

CREMA

# of bridges reconstructed Number 0 2 2

Twice a

year

Project monitoring

reports DER

Improved navigability of the

Tietê-Paraná waterway

system as measured by increased use of Tiete river

for freight

Million

Tonnage per year

1.5 3 6

Baseline,

YR 3 and YR 5

State waterway transport

statistics SLT

Component 2

Strengthened land use planning and territorial

management

No integrated land use

planning and

territorial management

policy

instrument

One integrated

land use

planning and

territorial

management policy

instrument

elaborated

Execution of three

Governm

ent actions

based on

the policy

instrume

nt

Twice a

year

Project Monitoring

Reports SPDR/SMA

Improved environmental

control measured by the

reduction of average delay for licensing transport

works

Days 360 345 330 Twice a

year

Project monitoring

reports

The average time refers to the time spent within the

State agency, from the day the preliminary

license (Licença Previa)

is required until the day the license is issued,

excluding any delays

caused by the requiring entrepreneur

(environmental

assessments, studies, action plans, etc).

SMA/CETES

B

8

Improved environmental

monitoring measured by the expansion of the of

underwater monitoring

capacity in the State territory

number 21 31 57 Twice a

year

Project monitoring

reports Based on the number of

the underground water

stations installed in Aquíferos Bauru and

Guarani Aquifers area.

SMA/CETESB

Component 3

Improved monitoring of

climate risk factors

measured by the number of

automatic monitoring

stations installed in the State

Number 0 20 40 Yearly Project Monitoring

Reports IG/DER

Increased number of

Municipalities in the Sao Paulo Metropolitan region

with a concluded Disaster

Risk mapping

Number of

Municipalities 12 25 39

Twice a

year

Project Monitoring Reports

IG

9

Annex 2: Operational Risk Assessment Framework (ORAF)

BRAZIL: Sao Paulo Sustainable Transport Project

1. Project Stakeholder Risks Rating: Moderate

Description: Project long term success requires buy-in from the

transport sector in achieving transport modal shift.

Risk Management: The State has a range of measures from incentives (facilitating accesses, customizing

particular taxes, etc.) to enforcing measures (increasing tolls, prohibiting particular itineraries etc.) that

might support the modal shift.

Resp: Client Stage: Implementation Due Date: n/a Status: not begun

Risk Management: Some production sectors (e.g. biofuel production) already confirmed interest in inland

waterway transport and indicated possible investment in infrastructures (ports, pipeline).

Resp: --- Stage: Implementation Due Date: n/a Status: not begun

Description: Successful land use planning and territorial

management are highly dependent on the private sector

understanding of the State policy.

Risk Management: The State has or will have of a range of measures from incentives (facilitating

accesses through improved infrastructures, customizing particular taxes, etc.) to enforcing measures

(prohibition of particular activities in particular regions through the EEZ etc.) that might support the

improved land use planning and territorial management.


Risk Management: Activities will be conducted with consultations with the main stakeholders and the

State may undertake sensitization campaigns. Also, environmental and social management instruments

will include appropriate mitigation and compensation measures for managing such risks.


Description: Inhabitants of areas identified as risky areas might

not adhere to risk reduction strategies including possible

resettlement. This issue refers to an activity under the DRM

subcomponent that intends to map vulnerable areas, and

possible recommendations for future resettlement, outside of

this Bank operation. Likewise, increased enforcement of the

environment legislation may trigger cases of discontent for

populations.

Risk Management: Sensitization campaigns. Environmental and social management instruments will

include appropriate mitigation and compensation measures for managing such risks.

Resp: Client Stage: Implementation Due Date : Status: not begun

Risk Management: Bank safeguard policies to be followed.

Resp: Client Stage: Implementation Due Date : Status: In Progress

2. Implementing Agency Risks (including fiduciary)

10

3.1. Capacity Rating: Low

Description: One of the five Participating Entities is unfamiliar

with Bank processes

Risk Management : The Project has been designed to concentrate fiduciary responsibilities in the

implementing agency, which created a dedicated unit staffed with specialists with experience with Bank

Projects and further strengthened by additional specialists, following a model experimented in various

other occasion, including in an ongoing Project with the same Implementing Agency. The Implementing

Agency has a good track record in procurement, financial management, and safeguard policy management

for externally-financed activities, including the WB. Each participating entity will handle the technical

responsibilities of procurement activities for its unit. Each Beneficiary entity will be strengthened by

procurement-specialized units to further improve quality and efficiency of the processes. The IA will

ensure final quality control.

Resp: Client Stage: Preparation Due Date :n/a Status: completed

Risk Management: Continuous training on IBRD procedures and regular missions by team’s specialists.

Resp: Client

Stage: Preparation &

Implementation Due Date : Status: ongoing

Description: The Implementing Agency will manage large scale

investments of about US$5 billion involving various

multilateral and national agencies (IADB, CAF (Development

Bank of Latin America), BNDES (Brazilian Development

Bank), Banco do Brasil). In addition, it will manage the

interlocution of a number of beneficiaries for the Project,

resulting in potential bottleneck management capacity.

Risk Management: The Implementing Agency is experienced with large investments programs and will

benefit from the support of a managing company (Gerenciadora). More precisely on the work, the IA will

gain also support from supervision companies as well as independent environmental supervision

companies.

Resp: Client Stage: Preparation Due Date : Status: In Progress

3.2. Governance Rating: Moderate

Description: Project complexity, notably on activities across

sectors, requires a strong champion. Implementation might be

affected by lack of decision making.

Risk Management: The Government is committed to advance the agenda of Land Use Planning and

Territorial Management. The cooperation agreement shall include, besides all other requirements as stated

in the Loan Agreement, a specific commitment from the participating entities SPDR, SLT and SMA to

support in an integrated fashion the execution of the subcomponent 2.1, Land Use Planning and

Territorial Management.

Resp: Client /Bank

Stage: Preparation

Due Date : by appraisal

Status: ongoing

Risk Management: Control processes in the country (judicial powers, legislation) and Bank projects

(supervision, procurement processes) are well functioning, and will continue to be applied and improved

where possible.

Resp: Client/Bank Stage: Implementation Due Date :n/a Status: In Progress

Risk Management: Systematic prior review of bidding processes.

Resp: Bank Stage: Implementation Due Date : n/a Status: In Progress

11

4. Project Risks

4.1. Design Rating: Moderate

Description: The Project is comprised of three main

components: transport, environment, and DRM, which will be

implemented by five different agencies, potentially affecting

smooth delivery of project outcomes. It may also strain Bank’s

resources for supervision.

Risk Management: appropriate packaging of works contracts should increase efficiency on the physical

component while fostering collaboration between beneficiary entities through steering committee and

inter-sector management teams should help the implementation of the components 1.2, 2 and 3.

Resp: Client Stage: Implementation Due Date: n/a Status: ongoing

Description: Performance-based (CREMA) contract is a new

contract modality for Sao Paulo which needs to be well

prepared and executed.

Risk Management: CREMA specifications have been adapted to SP and CREMA engineering designs

have been lengthy ready by negotiations.

Resp: Client Stage: Preparation Due Date: n/a Status: ongoing

Risk Management: experience shows that the CREMA approach generally brings benefits (Sustainability

of improved roads, quality of road maintenance, low costs) provided it is well implemented. The team

will closely follow-up contract preparation and execution.

Resp: Bank Stage: Implementation Due Date: n/a Status: In Progress

4.2. Social & Environmental Rating: Moderate

Description: Some of the civil works under component 1 will

require limited land acquisition and/or resettlement. Some

municipal disaster management plans under component 3 may

also assist with resettlement planning for people living in

disaster prone areas. Strengthening enforcement under

components 2 may result in restrictions on access to natural

resources in legally protected areas.

Risk Management: The SoSP has a sound safeguard framework and the implementing agency has good

experience in handling safeguard requirements of multilateral development banks. Site specific

Resettlement Plans have been prepared to mitigate these particular adverse impacts.

Every works contract is to be followed by the State’s team of environmental management and specialized

environmental supervision companies monitor the State’s management the safeguards.

Resp: Client/Bank Stage: Preparation Due Date: n/a Status: completed

The proposed pilot measures to improve environmental

enforcement and disaster risk management through components

2 and 3, could also – if managed inappropriately – trigger

discontent among the affected populations.

Risk Management: Appropriate safeguards instruments have been prepared and close monitoring of

safeguards during implementation and supervision mission will be undertaken, including field visits by

Bank’s environmental & social specialists.

A Resettlement Policy Framework (RPF) that sets out the guidelines, procedures and criteria to avoid,

minimize, mitigate and/or compensate any additional resettlement impacts that could potentially result

from any eventual design modifications. Although component 3 will not finance the resettlement of any

persons living in natural disaster prone areas, it could potentially support preparation of resettlement plans

for populations living in these high risk areas. In such cases, the RPF will also guide the design of the

resettlement planning activities included in disaster risk management frameworks that will be prepared.

The project will apply operational policy OP 4.10 Indigenous Peoples to ensure that specific actions will

be designed to provide indigenous peoples with appropriate opportunities to participate and voice their

concerns in the regional planning processes. This outcome will be achieved through application of the

Indigenous Peoples Planning Framework (IPPF) prepared by the State.

12

The Process Framework (PF) will ensure that consultations with land users serve to identify any relevant

restrictions and support the design of appropriate mitigation measures to enable preservation of their

socioeconomic conditions, particularly of the most vulnerable populations.

Resp: ---- Stage: Implementation Due Date: n/a Status: not begun

4.3. Program & Donor Rating: Low

Description: Part of the success of the Project relies on

counterpart financing. Risk Management: Strong commitment of the SoSP to the Project

Resp: Client Stage: Implementation Due Date: n/a Status: In Progress

Description: Given the large portion of the project budget relies

on commercial financing, an abandon of the Project by private

bank(s) may affect the capacity of the Project to reach the

revised targets.

Risk Management: The bidding process for the selection of international private banks triggered strong

interest from various competitors, illustrating the appetite of international private banks for such an

operation in the State of Sao Paulo. Voluntary abandon of the Project is thus considered unlikely. Should

this however happen and no substitutive financing is found, the private bank financing is expected to

contribute only to the works under the transport component, thus consequences on the Project capacity to

reach its objective limited.

Resp: Bank and Client Stage: Implementation Due Date: n/a Status: In Progress

4.4. Delivery Monitoring & Sustainability Rating: Low

Description: Delays in payment of counterpart funds to

contractors could derail project implementation

Risk Management: A flexible approach towards rate of disbursement has been taken under the work

component and the Project will finance 100% of part of the activities under the institutional strengthening

components while the Government will finance 100% of the remaining activities. All activities under the

Project are priority for the SoSP.

Resp: Bank and Client Stage: Implementation Due Date: n/a Status: In Progress

5. Overall Risk MODERATE

13

Annex 3: List of roads


# Road No. Section Extension (km) Remarks

Original Sections

1-1 SP 304 Jaú - Bariri - Itaju

Km 302,38 -Km 352,32 49.94 Rehabilitation, additional lane

1-2 SP 304 Ibitinga - Borborema

Km 352,32 -Km 406,70 54.38

Rehabilitation, additional lane, local

improvement

1-3 SP 379 Uchoa - Ibirá - Urupês - Irapuã - Sales

Km 0,000 - Km 51,29 51.29 Rehabilitation, additional lane

1-4 SP 425 Miguelópolis - Guaíra

Km 23,90 - Km 57,60 33.70

Rehabilitation, additional lane, local

improvement

1-5 SP 425 Guaíra - Barretos


1-6 SP 425 Olímpia


2-1 SP 463 Araçatuba - Santo Antônio do

Araranguá - Auriflama (SP 310)

Km 60,900 - Km 121,900

61

Rehabilitation (CREMA) 2-2 SPA 096/463 Auriflama - General Salgado 9.45

2-3 SP 463 Jales - Pontalina - Auriflama (SP 310)

Km 121,000 - Km 149,000 27.1

Sub-Total 376.76

Additional Sections: approximately 375 km of road sections, selected in the following road sections assessed under the

updated ESIA

2-4 SP 419 Penápolis - Alto Alegre - Luiziânia


3-1 SP 129 Km 0,000 a Km 29,85 29.85 Rehabilitation, duplication

3-2 SP 147 Km 149,42 a Km 210,00 60.58 Rehabilitation, additional lane


3-4 SPA570/254 Km 0,000 a 12,80 12.80 Rehabilitation

3-5 SPA 592/294 Km 0,000 a 18,90 18.90 Rehabilitation

3-6 SP 304 Km 198,14 a Km 258,94 60.29 Rehabilitation, additional lanes

3-7 SPA 395/310 Km 0,000 a 13,20 13.20 Conservation




3-11 SP 461 70.56 Rehabilitation, additional lane



3-14 SP 334 Km 421, a Km 454,80 33.70 Rehabilitation, additional lane

Sub-Total 453.61

Grand Total

830.37 In total, about 750 km of roads a

priori selected from the above road

sections will be financed by the

Project.

14

Annex 4: Economic Appraisal


1. The present analysis updates the PAD economic evaluation given the Project expanded

scope as a result of the Joint-Financing. The same methodology was used as at Project appraisal,

focusing on the Project’s physical subcomponents, (i) State roads rehabilitation and upgrading,

and (ii) bridge reconstruction for inland waterway transport on the Tiete river. For each

subcomponent, similar methodologies as at appraisal were applied.

2. This assessment does not consider benefits resulting from road safety improvements as

the selected improvements expected under the Project were not yet defined at the time of the

Restructuring. Initial findings from the iRAP study demonstrate high NPV and IRR for the

potential investments. While this is not expected to substantially change the Project NPV and

IRR given the relatively limited size of the investment compared to the overall investments in

roads, Project NPV and IRR is expected to be slightly hirer than the values below.

Road Rehabilitation and Maintenance Works (including CREMA)

3. For the State road rehabilitation and upgrading and CREMA works, the evaluation

followed a traditional approach assessing benefits and costs of the investments using the

Highway Development and Management Model (HDM-4). The analysis was conducted on all 24

state-road sections identified a candidate to be financed under the Project for a total of 830 km

(see Annex 3).

4. Based on the calculation for the selected sections of 830 km, over 20 years, the net

present value (NPV), at a 12% discount rate, and the related internal rate of return (IRR) of the

investments in this subcomponent are respectively estimated as R$1,318 million and 41.4%.

5. Given that the Project will target about 750 km of selected roads in the candidate roads

(see Annex 3), the NPV is estimated at R$1,191.

Bridge Reconstruction

6. Cost/benefits analysis, resulting from improved conditions of navigability in the Tiete

inland waterway in the State of Sao Paulo assessed reduction in transport costs due to the modal

shift of freight from road to inland waterway transport.

7. Considering that the estimated capital investment is R$107.3 million for reconstructing

the two bridges, and the annual costs on maintenance and rehabilitation are assumed at 1% of the

capital costs, NPV at a 12% discount rate is R$37.4 million and the related IRR of the

investments in this subcomponent is 16.5% over 20 years.

Conclusion

8. Overall, the Project IRR and NPV of the both road rehabilitation/maintenance and bridge

reconstruction works are estimated respectively at 38.7% and R$1,229 million based on the

above analysis.

15

Annex 5: Updated Map of Sao Paulo State - BRAZIL: Sao Paulo Sustainable Transport Project

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