Conformed Copy - L7166 - Cutural Heritage and Urban Development Project - Loan Agreement
Legal Dept of World Bank
The objectives of the Caixa Water Sector Modernization Project were to: (i) contribute to the improvement of the overall efficiency of the water and sanitation sector in Brazil; (ii) within the north, northeast and center-west regions, increase the coverage levels of water supply and sewage collection and treatment services of participating utilities; and (iii) within the north, northeast and center-west regions, improve the quality of water bodies located in states and municipalities served by participating utilities. Though the Ministry of Finance (MoF) agreed that the Bank's Loan Agreement itself pre-dated the Fiscal Responsibility Law (LRF), it argued that the on-lending arrangements to state and municipal water companies contemplated by the project would come into effect after passage of the LRF and could not be grandfathered. As the LRF severely restricted lending by federal authorities to lower tiers of government and to prevent precedents that could undermine the Federal Government's commitment to fiscal austerity, MoF urged that the on-lending arrangements be restructured by upgrading CAIXA and the Banco Nacional de Desenvolvimento Economico e Social (BNDES) from implementing agencies to borrowers.
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