HONDURAS

NATIONAL OBA FACILITY FOR WATER AND SANITATION SERVICES

OPERATIONS MANUAL

Volume 1

Date: August 6, 2007

E1724 v1

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TABLE OF CONTENTS VOLUME 1

1 INTRODUCTION ................................................................................................................................ 6 1.1 Project Objectives ........................................................................................................................ 6 1.2 Target Area .................................................................................................................................. 6 1.3 Structure of the Project Operations Manual ................................................................................. 6

2 PROJECT DESCRIPTION.................................................................................................................. 7 2.1 Project Design Principles ............................................................................................................. 7 2.2 Project Components .................................................................................................................... 7 2.3 Project Institutional and Contractual Arrangements ..................................................................... 8 2.4 Disbursement of Subsidies and Payment Indicators ..................................................................... 8 2.5 Implementation Schedule ............................................................................................................. 9

3 OVERVIEW OF OPERATIONS ....................................................................................................... 10 3.1 Functioning of the OBA Facility ................................................................................................ 10 3.2 Stage 1: Subproject Application and Pre-Identification ............................................................... 10 3.3 Stage 2: Subproject Assessment.................................................................................................. 10 3.4 Stage 3: Subproject Appraisal, Subsidy Determination and Ranking ........................................... 13

3.4.1 Subproject Appraisal and Subsidy Calculation ............................................................................. 13 3.4.2 Subproject Ranking ................................................................................................................ 14 3.4.3 Preparation of Tender Documents and Performance Agreement ........................................................ 14 3.4.4 Environmental and Social Safeguards Compliance......................................................................... 15 3.4.5 Construction Period................................................................................................................. 15 3.4.6 Eligible Implementers .............................................................................................................. 16 3.4.7 Eligibility of Subprojects .......................................................................................................... 16

3.5 Baseline Assessment and Output Verification ............................................................................ 16 4 IMPLEMENTATION ARRANGEMENTS..................................................................................... 17

4.1 Project Accounting and Financial Management .......................................................................... 17 4.2 GPOBA Advances and Disbursement of Funds ........................................................................ 17

4.2.1 Initial Request for Advance ...................................................................................................... 18 4.2.2 Replenishment Requests ........................................................................................................... 18 4.2.3 Funds and Disbursement of GPOBA Funds............................................................................... 18

4.3 Audit Arrangements – Financial & Technical ............................................................................. 19 4.4 Procedure for Payments from the OBA Facility to the Implementers......................................... 20 4.5 Monitoring Indicators ................................................................................................................ 21 4.6 Procurement .............................................................................................................................. 22

4.6.1 Procurement Plan ................................................................................................................... 22 4.6.2 Procurement of Subproject Implementers ...................................................................................... 22 4.6.3 Procurement Processing ............................................................................................................ 23 4.6.4 Consultants' Services ............................................................................................................... 23

4.7 Reporting Obligations ................................................................................................................ 24 ANNEX A: PERFORMANCE AGREEMENT MODEL .................................................................... 25

ANNEX B: FHIS ELIGIBILITY CRITERIA........................................................................................ 31

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ANNEX C: GPOBA SUBSIDY CALCULATION, ELIGIBILITY AND RANKING METHODOLOGY ................................................................................................................................... 33

ANNEX D: IMPLEMENTER OUTPUT VERIFICATION REPORT ............................................. 38

ANNEX E: IVA OUTPUT VERIFICATION REPORT ...................................................................... 39

ANNEX F: QUARTERLY REPORT FORMAT TO BE SUBMITTED BY FHIS TO GPOBA ..... 41

ANNEX G: TERMS AND CONDITIONS FOR THE BRIDGE LOANS......................................... 42

ANNEX H: TOR FOR THE INDEPENDENT VERIFICATION AGENT .................................... 44

ANNEX I: TOR FOR THE CONSTRUCTION SUPERVISION OFFICER ................................... 46

ANNEX J: MONITORING AND VERIFICATION INDICATORS TO BE USED AS PART OF THE COMPLETION AND POST PROJECT COMPLETION REPORTS..................................... 48

ANNEX K: INITIAL PROJECT LIST .................................................................................................. 50

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ABBREVIATIONS

CQ Consultant Qualification Selection

CSO Construction Supervision Officer

EA Environmental Assessment

EIRR Economic Internal Rate of Return

ENPV Economic Net Present Value

ERSAPS Water and Sanitation Service Regulator

FHIS Honduran Fund for Social Investment

FM Financial Management

FNPV Financial Net Present Value

GOH Government of Honduras

GPOBA Global Partnership on Output-Based Aid

hh Households

IADB- BID Inter American Development Bank

IBRD International Bank for Reconstruction and Development

IFC International Finance Corporation

IFR Interim Financial Reports

IHAH Honduran Institute of Archeology and History

INE National Statistics Institute

IPSAS International Public Sector Accounting Standard

IVA Independent Verification Agent

JAS Water and Sanitation Boards

MI Monitoring Indicators

NCB National Competitive Bidding

NGO Non Governmental Organization

NPV Net Present Value

OBA Output-Based Aid

OBA Facility Output-Based Grant Facility for Water and Sanitation Infrastructure Development

OVR Output Verification Report

PA Performance Agreement

PEC Projects Executed by the Community

PI Payments Indicators

PM Project Manager

PPIAF Public-Private Infrastructure Advisory Facility

SANAA National Autonomous Water and Sewers Service

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SEFIN Honduras Financial Secretary of Finance

WHO World Health Organization

WB World Bank

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1 INTRODUCTION 1.1 Project Objectives This project builds upon the Strategic Plan for Modernization of the Potable Water and Sanitation Sector, developed by the Government of Honduras (GOH) with World Bank and PPIAF assistance, as the basic foundation and context for its activities. The Strategic Plan aims to meet Millennium Development Goals by implementing fundamental transformations of the sector designed to promote societal well-being, economic growth and sustainable development. The central problem of the potable water and sanitation sector is intimately linked with the lack of financial resources. Investment needs exceed the GOH’s financial capacity, thereby requiring additional support which may come in the form of donations, diverse subsidies and loans. The project aims at improving access to water and sanitation services to about 40,000 low income households (hh). The Output Based Aid (OBA) project envisages to: (i) increase the number of domestic water connections with meters, yard taps, public points (stand posts), water availability (quantity); and (ii) increase water quality and household connections to sewer systems in selected peri-urban and rural communities.

The project will test the viability of an OBA approach to funding water and sanitation services being implemented by national and municipal institutions including SANAA, rural water boards (“juntas de agua”), community groups in developing neighbourhoods (“barrios en desarrollo”), NGO’s and the private sector (where appropriate). To be eligible for funding by the OBA Facility, each subproject implementer must fulfill the FHIS and OBA Eligibility criteria.

1.2 Target Area The project targets peri-urban and rural poor communities and households whose income is on average less than $46 per month or US$2 per day. 1.3 Structure of the Project Operations Manual This project operations manual (Operations Manual) sets out the arrangements agreed by the signatories to the Grant Agreement and related institutions, for the implementation of this Project. It presents the project cycle and presents relevant details for each phase of the project. Additionally the manual sets out the procurement, financial management, disbursement and monitoring arrangements in Volume 1 and includes arrangements for social and environmental management of the project in Volume 2. This Operations Manual is intended to be a reference document for project partners, documenting the key steps and requirements at each stage of the project. Any changes to the Operations Manual during the course of implementing the project will need to be approved by the World Bank.

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2 PROJECT DESCRIPTION 2.1 Project Design Principles This project’s development objective is to establish an efficient and transparent mechanism for financing water and sanitation infrastructure subprojects in Honduras (the OBA Facility) which will improve access and quality to water and sanitation services for low income households in rural and peri-urban communities. The project will test the viability of an OBA approach to fund water and sanitation services. The project envisages two types of implementers. Public Implementers are national and municipal institutions including FHIS, SANAA, rural water boards (“juntas de agua”), community groups in developing neighborhoods (“barrios en desarrollo”) and NGOs. Private Implementers are those entities which have a portion of private shareholding which grants the private shareholder responsibility for management, operations and capital planning. To be eligible for funding by the OBA Facility, each subproject Implementer must fulfill the FHIS and OBA Eligibility criteria. Notably the project will ensure that:

• Subsidies are one-off unit cost subsidies, and not consumption subsidies. • Disbursement of subsidies is on pre-specified outputs to be verified by an independent verification

agent. • Tariffs for each subproject will cover at least operation and maintenance costs. • Pre-financing is done with funds from the Private Implementers themselves either through their own

revenues or local commercial banks. • Pre-financing for Public Implementers is made available through bridge loans to be provided by the

OBA Facility through a FHIS contribution (an aggregate amount of US$1 million). • Bridge loan funds are to be repaid to the OBA Facility1. These funds are to be used at a latter date

for pre-financing other subprojects. • Subprojects with Private Implementers may be funded with the IFC portion of the GPOBA funds.

Projects that have Public Implementers will not be eligible to receive IFC derived funds2. 2.2 Project Components The Project has three components: COMPONENT 1: SUBSIDIES. The OBA Facility will provide four million dollars in subsidies for the financing of eligible water and sanitation infrastructure subprojects. Each subproject will define specific outputs mainly final working connections (either domestic water or sewerage connections or yard taps). COMPONENT 2: TECHNICAL ASSISTANCE. Technical Assistance funds have been allocated in the amount of US$150,000 to help local authorities, water boards, municipalities, SANAA, NGOs and private operators (the subproject Implementers) formulate viable and eligible proposals for funding by the OBA facility as well as to support public Implementers, as necessary during subproject implementation. The Technical Assistance activities supported include: (a) to ensure that basic conditions related to the OBA Facility and the proposed subsidy are eligible for funding by the OBA Facility and are sustainable in the short, medium and long term; (b) to provide technical guidance and advice to enable a subproject Implementers to provide the OBA Facility with specific information related to the proposed scheme; (c) to define the outputs against which the OBA Facility would make payments to a subproject Implementer; and (d) as appropriate, support public subproject Implementers during construction through a Construction Supervision Officer (See Annex I). COMPONENT 3: PROJECT MANAGEMENT & INDEPENDENT VERIFICATION. Project Management support in the amount of $240,000 to assist FHIS in the management of the OBA Facility. FHIS management capabilities will be augmented through specialized management consultants including a financial management specialist, Construction Supervision Officer, procurement specialist, technical specialist 1 The funds provided as ‘bridge funds’ to public implementers will be secured against each Municipality’s future infrastructure transfers. In the event a public implementer fails to deliver the agreed outputs as specified in the Performance Agreement, the OBA Facility will make no payments and FHIS (who is responsible for the transfer of the infrastructure transfers) will deduct the corresponding amount of the bridge loan. 2 IFC, DFID and DGIS are providing US$1.48 million each to GPOBA for this Honduras OBA Facility for WSS for public operators.

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and support staff. The scope of work for these specialists includes the following main tasks to be carried out: (a) Manage the OBA Facility, provide input to the entire process and organize the administrative functions in order to guarantee the efficient operation of the OBA Facility, (b) Review, support and ultimately recommend subprojects for funding by the OBA Facility; and (c) Oversee subproject Implementers, support the Verification Process and compile Progress Reports. An additional amount of US$50,000 for the selection of a specialist consultant (either an individual or a firm) to undertake the activities of the Independent Verification Agent as described in Annex H. 2.3 Project Institutional and Contractual Arrangements The following institutional and contractual relationships are envisaged for this project:

1. The creation of a specialist OBA Facility housed within FHIS and supported by consultants funded by GPOBA (Component 3), which identifies, evaluates and implements water and sanitation projects to be funded by the OBA Facility. GPOBA technical assistance monies (Component 2) are allocated to the OBA Facility to help improve subproject design so as to make them eligible for funding. These funds will also be available, as appropriate, during implementation of subprojects.

2. Establishment of a segregated Designated Account, as per the terms of the Disbursement Letter, to be administered by FHIS into which GPOBA funds will be transferred according to project needs. As specified by the terms of the Disbursement Letter and the World Bank’s Disbursement Guidelines for Projects (dated May 2006), the Designated Account will only contain Grant proceeds and will not contain funds from any other source. FHIS will also contribute to the OBA Facility by paying into an Operating Account, as a condition of Grant effectiveness, funds on the order of US$1,000,000 (one million dollars) to be used as ‘bridge funds’ for the purpose of pre-financing public subproject Implementers. FHIS will deposit and maintain at all times on a revolving basis and for the duration of the project, an aggregate amount of US$1,000,000 in the Operating Account.

3. A Grant Agreement will outline the roles and responsibilities of FHIS and GPOBA. The signatory to the Grant Agreement will be the IBRD acting as Administrator of the GPOBA and the Republic of Honduras through the SEFIN (Secretaria de Finanzas) and FHIS.

4. Performance Agreements (PAs) describe and monitor the roles and responsibilities of the beneficiaries. A proposed model of PAs is annexed to this Operational Manual (Annex A). After signing the Grant Agreement, the PAs will be signed between FHIS and each subproject Implementer. FHIS will guarantee to GPOBA that all appropriate procedures, safeguards and fiduciary issues have been completed or are to be completed as part of the obligations of the PA in respect of each subproject. A no objection from GPOBA will be required prior to effectiveness of each subproject PA.

5. PA Regulation and oversight: FHIS will bear full responsibility for overseeing compliance of the execution of the project including all fiduciary responsibility vis a vis GPOBA. Respective PAs will be negotiated between FHIS and the subproject Implementer.

6. Monitoring and evaluation of output: To provide for an independent verification of outputs, the national water and sanitation regulator (ERSAPS) will be responsible for the contracting of an Independent Verification Agent that will conduct ex post reviews of the completeness, accuracy and authenticity of documentation provided by the Implementers as well as undertake ex post physical spot checks for a meaningful and random sample of connections. Such technical audits would be conducted upon receiving notice of completion by Implementers in conformity with the respective PA. The Independent Verification Agent shall be selected from a list of consultants previously submitted to the Bank for no objection.

2.4 Disbursement of Subsidies and Payment Indicators Payment by the OBA Facility to the subproject Implementers will be project specific. However, an initial 10% will be paid upon signature of the PA between the OBA Facility and the respective Implementer. After the initial disbursement, all other payments will be done against Payment Indicators (PIs), specific to each subproject. Each PI corresponds to outputs under two categories as described in section 4.4.

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2.5 Implementation Schedule Table 1 below gives in overview form the estimated implementation plan for the key activities and milestones of the OBA scheme. Chapters 3 and 4 detail the content of these and other activities to be carried out for successful implementation. Table 1 – Implementation Schedule

2007 2008 2009 2010 Activities and Milestones 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q GPOBA Grant Agreement signed US$1,000,000 from FHIS for ‘bridge loans’ Set up & recruitment of OBA Facility Subproject Eligibility Stage 1 & 2 (use of TA as appropriate) Subprojects become eligible Baseline assessment Performance Agreement signed with Impl’s Extensions/construction begins OBA Facility subsidy disbursement Cycle for project appraisal every four months

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3 OVERVIEW OF OPERATIONS 3.1 Functioning of the OBA Facility The OBA Facility will be housed within FHIS. This unit will have specialized consultants including a financial management specialist, procurement specialist, technical specialist and support staff to be funded by GPOBA Component 3 funds. FHIS, through a specially designated unit, will bear full responsibility for overseeing compliance of the execution of the project including all fiduciary, environmental and safeguard compliance issues. The OBA Facility will fund subprojects responding to specific requests by potential Implementers which include but are not limited to private operators, SANAA, NGOs, water boards (juntas de agua) and or municipalities. Each subproject Implementer will make a request to FHIS for a one-time subsidy represented by a unit cost per connection, which will be payable against pre-specified outputs for each of the subproject according to the disbursement scheme established in 4.1. The OBA Facility will operate on a four month cycle. Projects will be evaluated as they are received and ranked against other subproject applications for that corresponding period. At the end of each four monthly period projects that are eligible will proceed to implementation. Projects which have been pre-identified and listed in Annex K, may be deemed eligible by FHIS and the Bank on the date of Grant effectiveness or any time thereafter without waiting for a four month planning cycle provided that these projects meet the selection criteria as outlined in this Operations Manual. The following items provide a detailed description of the process which each subproject will undergo in order to be funded by the OBA Facility. The diagram in Figure 1 shows how the OBA Facility will operate. 3.2 Stage 1: Subproject Application and Pre-Identification As per Figure 1 below, the subproject scheme cycle will start when a project application is received by the OBA Facility. In this stage the following aspects will be determined:

• Confirmation of ownership or right of usage of water resources • Water resources reliability • Willingness of the population to connect to proposed services • General characteristics of the implementer (local Junta de Agua, Municipality, NGOs, or private

operator). The OBA Facility will not finance any dams or projects that require present or future or resettlement as defined by the World Bank. The Bank defines resettlement as a) the involuntary taking of land resulting in (i) relocation or loss of shelter; (ii) lost of assets or access to assets; or (iii) loss of income sources or means of livelihood, whether or not the affected persons must move to another location; or (b) the involuntary restriction of access to legally designated parks and protected areas resulting in adverse impacts on the livelihoods of the displaced persons. The subproject must meet each of the FHIS Eligibility Criteria (Annex B) in order to be eligible to pass to Stage 2 Assessment. 3.3 Stage 2: Subproject Assessment During this phase the OBA Facility undertakes a review of each subproject to determine whether it is feasible and reasonable to proceed to Stage 3: Subproject Appraisal, Subsidy Determination and Ranking. This review will analyze all subproject documentation and may also involve field visits. Key activities by the OBA Facility during the assessment phase are to scrutinise the technical design and proposed solution including:

• Review of preliminary project design (e.g. efficiency, completeness of technical details, drawings and Bills of Quantities),

• Appropriateness and sustainability of proposed (or identified) technical solution (for example a project may have been approved by FHIS Eligibility Criteria but the technical solution proposed may not be considered appropriate for GPOBA funding)

• Reasonableness of proposed subproject costing, • Subproject Implementer’s capacity to implement the proposed project.

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At this stage the OBA Facility determines whether the information received is appropriate and if there is a need (and indeed it is justified) to make use of the OBA Facility’s own technical assistance resources under Component 2 to obtain or refine further information on the relevant subproject.

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Figure 1 – Functioning of the OBA Facility

1: Application & Pre‐Identification:  Initial project request by subproject implementer to OBA Facility 

Project fulfils basic FHIS eligibility criteria 

2: Subproject Assessment   Review of quality of existing project documentation eg. includes preliminary project design, costing, specifications, etc 

OBA Facility preliminary assessment 

3: Project Appraisal & Ranking (OBA Facility Eligibility Criteria)  

Facility appraises subsidy requirement (cannot exceed WHO reference value)  

OBA Facility undertakes ranking of project viz a viz other projects in existing project portfolio 

Project formally included in Facility’s project portfolio 

Verification of subsidy need and calculation:   Subsidy = gap between total investment need minus other contributions (operator + donors + community) 

Technical and Environmental Feasibility  Appropriateness and sustainability of proposed (or identified) technical solution  

Socio‐economic Feasibility   User contribution to the proposed connection charge (willingness to pay) 

Financial Feasibility   Cost recovery (tariff covers at least operation and basic maintenance costs) 

Implementation Feasibility   Quality of subproject implementer (in terms of unit cost, collection efficiency, access to financing, management capacity)

4: Project Implementation  Performance Agreement negotiated & signed (must also be approved by the World Bank) 

OBA subsidy payment on verification by Independent Verification Agent  

Role of OBA Facility  Typical Subproject Cycle 

Sub project is considered as part of the preliminary list of sub projects for 

consideration for funding by the Facility 

Info deemed adequate /sufficient 

Info deemed inadequate 

Facility undertakes assessment (technical, fin, mgt) of subprojects to determine:  Ownership of water resource/ availability of water resource  

Willingness of the population to connect to proposed services 

Existence and quality of implementer (or community support to project if rural) 

Current or future implementer willing and able to provide service to project area. 

Info deemed inadequate 

Facility undertakes field visit / assigns TA to 

assists implementer to complete all info 

PROJECT REJECTED 

Ranking criteria applied – see section 3.4.2 

PASS  Ranking Criteria 

NO PASS Ranking Criteria 

Technical support including project management of subproject as required to subproject implementers 

YES 

E NPV + F NPV ‐ 

NO  NO  NO

E NPV ‐ F NPV ‐ 

E NPV + F NPV + 

E NPV ‐F NPV + 

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3.4 Stage 3: Subproject Appraisal, Subsidy Determination and Ranking In this stage the OBA Facility reviews two key aspects. Firstly, it undertakes a full technical, socio-economic, environmental and financial feasibility review. It also determines the maximum subsidy requirement for each subproject. Secondly, the OBA Facility undertakes a ranking exercise to compare subprojects against each other in order to best allocate its limited resources against a universe of competing subprojects that could potentially be eligible (Annex C). 3.4.1 Subproject Appraisal and Subsidy Calculation For each candidate subproject, the OBA Facility undertakes a full technical, socio-economic, environmental and financial feasibility assessment. The OBA facility also determines whether the proposed Implementer has the capacity to manage the subproject. The financial feasibility evaluation will include an assessment of the required subsidy based on the subproject’s costs and tariffs and as detailed in Annex C. All subprojects must have tariffs that cover at least operations and maintenance costs. The proposed OBA subsidy will be equal to the subproject’s total investment minus the different contributions to be deducted from the total investment in the following order: community contributions (e.g. land, in-kind labour, etc), municipal contributions, other donor’s contributions and, as appropriate, any contributions from the tariff over and above covering operation and maintenance expenses. For those projects where the Implementer is public, the total community contribution will be at least 20% of the each subproject cost. The community contribution may be composed of:

• Cash contribution – This contribution will be accounted for by the subproject Implementer and subject to audit and verification by the IVA.

• In-kind contribution – In-kind contributions may include materials and labour contributed by the community during construction. The estimated value of labour will be based on the detailed technical design documents and will be subject to verification by the OBA Facility through the Construction Supervision Officer.

OBA subsidy cap: In no instance will the proposed OBA subsidy be greater than US$90 per person for water services and US$96 per person for sanitation services. In order to assess economic and financial feasibility, the Economic Net Present Value (ENPV) and the Financial Net Present Value (FNPV) of the subprojects’ cash flows will be calculated as detailed in Annex C. For subprojects to be eligible for further consideration, ENPV must be positive and FNPV must be negative. This effectively implies that only subprojects with clear social benefits, where the Implementer is not financially able to execute the subproject would be considered. In summary, the key issues which will be reviewed at this stage include:

a) Technical and Environmental Feasibility • Quality of existing project documentation • Appropriateness and sustainability of proposed (or identified) technical solution • Ownership of water resource/availability of water resource

b) Socio-economic Feasibility • Willingness of the population to connect to proposed services • User contribution to the proposed connection charge (willingness to pay) • Unit cost per connection and amount of subsidy required to access safe water or adequate

sanitation • ENPV of subproject

c) Implementation Feasibility

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• Existence and capacity of Implementer (or community support to project if rural) in terms of collection efficiency, access to financing, management capacity, etc.

• Implementer willingness and ability to provide service to project area d) Financial and Economic Feasibility

• Cost recovery (tariff covers at least operation and basic maintenance costs) • FNPV and ENPV of subproject

3.4.2 Subproject Ranking Detailed procedure for subsidy calculation is contained in Annex C. Once each subproject has been appraised, the OBA Facility will determine how the relevant subproject compares against other subprojects in its current portfolio in order to best allocate its limited resources against a universe of competing subprojects that could potentially be eligible. Ranking will be based on:

• Lowest subsidy amount providing the greatest number of beneficiary households (measured in subsidy amount per number of hh)

• Two comparison indices: (a) is based on a comparison of investment, operation and subsidy per capita against equivalent per capita reference costs as provided by the World Health Organization (WHO) and (b) relating economic NPV of cash flows to total OBA subsidy required per capita. Both indices will provide a basis for comparing subprojects in the portfolio (see Annex C).

Figure 2 – Typical Ranking of Subprojects

3.4.3 Preparation of Tender Documents and Performance Agreement The Tender documents will be prepared by the Implementers on the basis of the project design documents. Tender documents will include project technical design, bills of quantities, specifications, and instructions to tenderers along with draft contracts and related forms. They will reflect the choice of appropriate technology and appropriate contract options for the particular subproject. This choice will be made by the Implementers with technical advice from the OBA Facility.

1: Pre‐Identification: 

2: Sub‐Project Assessment/ Applications

3: Project Appraisal & Ranking

Insert 1 ‐ Typical Ranking of Sub‐projects

• Subsidy amount ceiling is WHO reference per capita value 

• Discount rate for NPV calculation = 12% 

• Project horizon / life = 20 years 

• O&M cost not to exceed 30% of total investment 

Using per capita subsidy Amount, ENPV 

Ranking 3: Investment Efficiency index 

Index is based on relating financial NPV of cash flows to total investment  

Ranking 2: Unit Cost Efficiency Index

Index is based on a comparison of investment, operation and subsidy per capita against maximum ceiling of US$90 for water and US$96 for sanitation 

Ranking 1:  US$ subsidy per number of people benefiting 

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The different contract options that can be considered, individually or in combination, are: • All in contract. The Contractor provides all materials and labour; • Material and Skilled Labour. The Implementer undertakes all non-skilled labour as part of the

community contribution to the value of the project; • Labour Only. The Implementer provide skilled and unskilled labour; • Direct Hire for Specific Tasks. The project is broken down into component parts and each

component is issued to a separate contractor; • Materials only. The Implementers decide to source the materials itself.

In addition, the Implementer, with the concurrence of the OBA Facility, will combine the construction contract with and a contract to operate the scheme after construction. The Performance Agreement between FHIS (through the OBA Facility) and the subproject Implementers will reflect whatever contract option is chosen. However, the subproject Implementer is wholly responsible to the OBA Facility for the obligations set out in the Performance Agreement and corresponding payment will be done only to the Implementers. 3.4.4 Environmental and Social Safeguards Compliance The OBA Facility will ensure that the subprojects eligible for funding are in compliance with any environmental and social regulations and safeguards, as set out in the paragraph below. The OBA Facility will verify that the definition and scope of the individual subprojects are not in conflict with environmental regulations and requirements and will provide mitigation as necessary. The Implementer (or FHIS or a contractor) will conduct an environmental assessment for each subproject selected for OBA funding to determine what possible harms may occur and how to prevent or mitigate them. If an ethnic community is the primary or sole beneficiary or will be significantly affected by said project, the Implementer (or FHIS as necessary) will prepare an Indigenous Peoples Plan including consultation with the affected community throughout development and implementation of the project. All environmental and social safeguard specifications as prescribed in the Environmental and Social Management Framework (ESMF) (Annex L) and Indigenous Peoples Planning Framework (Annex M) found in Volume 2 of this Operational Manual will be adhered to and included in relevant subproject documentation, including construction guidelines. 3.4.5 Construction Period The Implementer will either undertake the construction itself or outsource the construction. In either case, the OBA Facility may provide technical supervision during the construction stage, through the Construction Supervision Officer according to the terms defined in Annex I. In either event, the Implementer will provide all necessary progress reports to the OBA Facility, and will handle any design changes that may be required. Minor environmental impacts (proper disposal of construction waste, erosion control, protection of spring catchments, etc.) will be addressed by appropriate guidelines incorporated into the technical specifications governing the work of construction contractors. If Physical Cultural Resources (i.e. archeologically or culturally significant objects) are found during construction, “chance find procedures” or their equivalent in accord with the FHIS and Honduran Institute of Archaeology and History provisions will be followed to ensure that these items are handled appropriately. These chance find procedures or their equivalent will also be incorporated into the technical specifications governing the work of construction contractors. Defects Liability Period: The OBA Facility, through the terms of the Performance Agreement, will require that the Implementer, or in the case where the Implementer has contracted out construction services to a third party, the appropriate the third party, make good any defects in the workmanship at the end of the defects liability period which for any given subproject will be six months. Implementers and/or as appropriate, the OBA Facility will identify any defects that need to be fixed.

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3.4.6 Eligible Implementers As described above the Implementers shall (i) submit proposals for a GPOBA subsidy for a sub-project to the OBA Facility; and (ii) in the case of Public Sector Implementers (if necessary) submit requests to the OBA Facility for a bridge loan to pre-finance the sub-project costs. The OBA Facility shall (i) identify if the sub-project is eligible based on the FHIS Eligibility Criteria, the OBA Eligibility Criteria and the Ranking Methodology; and (ii) in the event of Public Sector Implementers, determine if they are eligible for a bridge loan.

An entity which has been deemed as an Eligible Implementer can submit other applications to the OBA Facility at any time.

3.4.7 Eligibility of Subprojects Subprojects to be reviewed by the OBA Facility should not already be in construction. Any such projects will be deemed ineligible. 3.5 Baseline Assessment and Output Verification OBA targets will be determined by the OBA Facility for each subproject as a result of its assessment under Stages 1, 2 and 3. Outputs will be clearly stated in the Performance Agreement signed by the OBA Facility and the Implementers. Before the start of construction, the OBA Facility will arrange to have the community visit together with the Independent Verification Agent contracted by ERSAPS to determine and document the baseline situation related to the specific outputs for the each subproject, including the number of connections that already exist if it be the case, and to confirm the eligible project cost and related cost per capita and resulting OBA subsidy. After the end of construction, the Implementers will commence operations either as a new scheme or with the new facilities delivered. The objective of the output verification stage is for the Independent Verification Agent to prepare an Outputs Verification Report (OVR) for submission to GPOBA. Annex D contains the OVR model that the Implementer will prepare and submit to FHIS. Annex E contains a model of how an IVA’s OVR could be structured based on the OVR submitted by a given Implementer. Annex H includes the Terms of Reference for the Independent Verification Agent.

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4 IMPLEMENTATION ARRANGEMENTS The FHIS through the OBA Facility is the entity responsible for the project and will perform the following functions:

• Manage the OBA Facility, • Carry out budget formulation and monitoring, cash flow management (including processing

payments and submitting grant withdrawal applications to the Bank), • Maintenance of accounting records, preparation of in-year and year-end financial reports, • Administration of underlying information systems for project administration, to be shared with

GPOBA, for verification of outputs and monitoring, • Arranging for the contracting of the Independent Verification Agent for verification of outputs

through the ERSAPS. 4.1 Project Accounting and Financial Management When the grant agreement has been signed, FHIS will set up the accounting and financial management systems for the GPOBA funding of subprojects and consultants' services. Documentation on the systems will be forwarded to GPOBA for comments and approval within 20 (twenty) business days of grant signing. On a semestral basis, as part of project progress reporting, FHIS will prepare and submit to the WB an un-audited interim financial report (IFR) containing:

(i) a statement of sources and uses of funds and cash balances (with expenditures classified by subcomponent);

(ii) a statement of budget execution per subcomponent (with expenditures classified by the major budgetary accounts);

The interim reports will be submitted not later than 45 days after the end of each calendar semester covering the semester, in form and substance satisfactory to the World Bank and will be used for monitoring and disbursement purposes. On an annual basis, FHIS will prepare project financial statements (also known as interim financial reports or IFRs) including cumulative figures, for the year and as of the end of that year, of the financial statements cited in the previous paragraph. The financial statements will also include explanatory notes in accordance with the Cash Basis International Public Sector Accounting Standard (IPSAS), and FHIS’s assertion that grant funds were used in accordance with the intended purposes as specified in the Grant Agreement. These financial statements, once audited, will be submitted to the WB not later than six months after the end of the Government’s fiscal year (which equals the calendar year). The supporting documentation of the quarterly and annual financial statements will be maintained on FHIS’s premises, and made easily accessible to WB supervision missions and to external auditors. 4.2 GPOBA Advances and Disbursement of Funds FHIS will open a Designated Account in the Central Bank of Honduras in US dollars. The Designated Account will be a segregated account, which may only contain Grant proceeds. FHIS will also open an Operating Account at a financial institution acceptable to the World Bank, which will contain funds used to issue Bridge Loans to public implementers. Grant proceeds will be withdrawn by FHIS using the advance method supported by documentation based on Statement of Expenditures (SOEs). During implementation, FHIS will: (i) maintain satisfactory FM arrangements; (ii) submit SOEs consistent with the agreed form, content and due date; and (iii) submit acceptable audited financial statements by their due date. The project may also use the Direct Payment and Reimbursement methods of disbursements.

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Support

Contract Agreement

1 FaciliSFacilitation

Other Procedures. No need has been identified for the use of special commitment procedures. Should the need arise during implementation, the Bank will evaluate it and if granted, agree to their use via an amendment to the Disbursement Letter. The overall financing and fund flow arrangements under the project are shown in Figure 3. Figure 3: Financing and Fund Flow Arrangements

4.2.1 Initial Request for Advance The OBA Facility will submit a request to GPOBA for an initial advance necessary to cover project expenditures for the first six months of the project life. This request will be supported by the first withdrawal application. The withdrawal application should clearly state the estimated funds required for the consulting services for Category 1: GPOBA Subsidy, and Category 2: Consultant Services. 4.2.2 Replenishment Requests Further replenishments will be requested with each subsequent quarterly SOEs. These requests will be in the agreed SOE format. The SOE format for Category 1 will include the following for disbursement purposes: (i) OBA subsidy amount equal to the project total investment minus the different contributions, (ii) maximum level of subsidy ; (iii) output costs in US$ value for the quarter plus disbursements thus far; (iv) expected disbursements per subproject – i.e. expected outputs and related US$ value to be achieved and outputs to be reached, as defined in the Grant Agreement and Operations Manual; and (v) date of output verification by an independent agent. At any time, undocumented advances from the Designated Account cannot exceed the US$400,000 ceiling specified in the WB’s Disbursement Letter. 4.2.3 Funds and Disbursement of GPOBA Funds The funds assigned to the OBA Facility will be financed by the:

• International Finance Corporation, • Government of Netherlands Ministry of Development Cooperation and • the United Kingdom’s Department for International Development

OBA Facility (Includes FHIS funds for bridge loans)  

Fondo Hondureño de Inversion Social 

Upfront capital contribution

Public Implementer 

GPOBA 

Independent Verification Agent 

Upfront funds for ‘bridge loans’ to Public Implementers

Dedicated Staff 

Technical Consultants & Suppliers 

2. (b) Funds to support project prep

Private Implementer 

3. Subsidy payment

Loan re payment

Verifies and issues opinion

on outputs reached

4. Disbursement application (including initial application)

1. Disbursement

2 (a). Payments to third parties

Key of flow of funds: Subsidy payment Other funds

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Public Implementers may be funded through Government of Netherlands Ministry of Development Cooperation (TF058263-DGIS) and or the Department for International Development (TF058265-DFID) up to a maximum amount of USD 2,960,000. Funds from the International Finance Corporation (TF058264-IFC) may only go to Private Implementers up to a maximum amount of USD 1,480,000. Disbursements for each subproject will be made in accordance with the provisions of the Performance Agreement signed between FHIS and the Implementer. Advance payments will be no more than 10% of the relevant OBA total award. Subsequent payments will be made based on verified outputs by the Independent Verification Agent. In the event an Implementer does not meet its outputs, no payments will be made. The costing mechanism documented in the Operational Manual may be reviewed on an annual basis. A monitoring system will be established by the OBA Facility to ensure that program participants comply with the terms of their contracts. The advances received will be used for payments to the subproject Implementers, to GPOBA appointed consultants under Component 2 and 3 respectively including for remuneration to the Independent Verification Agent. The OBA Facility will disburse funds to the Implementers based on the following procedure:

• Outputs will be verified by the Independent Verification Agent, through a two-stage ex post subproject audit to assess the level of outputs attained against baseline information collected prior to the start of construction.

• Upon the submission of an OVR by the Implementers, the Independent Verification Agent will audit outputs and submit the audited OVR to the OBA Facility, ERSAPS and GPOBA simultaneously.

• The audited OVR must be submitted according to the outputs to be achieved for each subproject, namely (a) upon a verified working connection, and (b) after 6 (six) months of operation and to be done between 2 and 6 months after project commissioning. In no instance will the OVR be submitted in a period to exceed 12 months from project commissioning.

• FHIS will submit this to GPOBA after written confirmation of no objection by the OBA Facility via both fax and e-mail within 5 (five) working days from the received audited OVR. The OVR will specify the successful outputs achieved for the relevant subproject.

• Clearance of the OVR by GPOBA, will trigger release of the GPOBA subsidy to FHIS, and will take no more than 10 (ten) working days for payment from the date it is submitted. The OBA Facility will submit single requests for disbursement that will reference the three account numbers mentioned in the disbursement letter which are: TF058263-DGIS, TF058265-DFID and TF058264-IFC.

For those subprojects where FHIS has provided pre-financing through a ‘bridge loan’ to the subproject implementer, loan repayments may be made with the GPOBA payments (Annex G). If the implementer fails to pay its bridge loan to FHIS, these funds will be recovered through retentions to sector transfers for infrastructure projects from FHIS to the respective municipality.

4.3 Audit Arrangements – Financial & Technical ERSAPS will draw up terms of reference for the Independent Verification Agent and submit them to GPOBA for approval. The audit engagement is expected to cover at least two years. The auditor will perform the following services:

1. Annual financial audit of project accounts due no later than 4 months after the end of the fiscal year. 2. Semi-annual technical audit of output deliveries to include:

a. verification of new connections b. billing records for new connections

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3. Ex-post review of the contracts for the subprojects and their respective adherence to this Operation Manual (the audit opinion covering project financial statements will contain a reference to the eligibility of expenditures. The scope of the audit will also include a sample review of subproject expenditures and procurement processes).

4. Ex-post review of the contracts for consultancy services developed and entered into by the OBA Facility

The financial audit will be conducted in accordance with established practice under similar GPOBA financed projects and in accordance with International Standards on Auditing (ISA). Subject to GPOBA approval the audit may be undertaken by the Controller General of Accounts. The audit opinion covering project financial statements will contain a reference to the eligibility of expenditures. The scope of the audit will also include a sample review of subproject expenditures and procurement processes. In addition, memoranda on internal controls (“management letters”) will be produced on a semi-annual basis. 4.4 Procedure for Payments from the OBA Facility to the Implementers Performance Payment indicators (“PIs” or “Payment Indicators”), specific to each of the groups of subprojects, will be used to verify results attained in each subproject prior to the second OBA disbursement. These PIs correspond to outputs under Category A. A second set of PIs (Category B) are included to verify O&M efficiency in the provision of services (e.g. O&M cost recovery with tariffs). These PIs will be measured six months after the subproject becomes operational and will be used to verify results attained in each subproject prior to the last OBA disbursement, which is focused on the sustainability of the system. The OBA Facility will determine whether the implementer is public or private. For private implementers it will only have funds up to a maximum amount of USD 1,480,000. In determining whether an implementer is private it will consider Private Implementers those entities which have a majority portion of private shareholding which assigns the private shareholder full responsibility for management, operations and capital planning. The following disbursement is envisaged:

• 10% of the total subsidy requirement upon signature of the PA between the OBA Facility and the Implementer

• Fulfillment of all Category A indicators: 65% upon verification by the IVA (ERSAPS) of the corresponding outputs achieved

• Fulfillment of all Category B indicators: 25% after verification of six months of bills being sent and paid for the new connections

Table 2 – Performance Payment Indicators

Performance Payment Indicators Category Unit Expected

output

Water Subprojects

Total # of households connected and receiving potable water A hh TBE3 Total # of micro-meters in operation A micro-

meters TBE

% of collection with 180 days of invoicing B % > 80 % Operating efficiency (Operating revenue/Operating costs) B - > 1

3 TBE: To be established for each specific subproject

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Sanitation Subprojects

# of new sewer connections (households connected). A hh TBE # of new micro-meters installed and in operation (if applicable) A micro-

meters TBE

# of collections with 180 days of invoicing B % > 80 % Operating efficiency (Operating revenue/Operating costs) B - > 1

Public Water Kiosks Subprojects

# of new water tanks installed A tanks TBE # of public taps installed A taps TBE # of public taps operating after 180 days B % > 80 %

4.5 Monitoring Indicators In addition to the verification of actual outputs for certification and subsidy disbursement, measured as PIs, a series of monitoring indicators (MIs) will be collected before subproject commencement to establish a baseline. These MIs will be copied to GPOBA for use in ex-post monitoring.4 Annex J contains a list of both monitoring and payment indicators. Table 3– Monitoring Indicators

Monitoring Indicators Baseline @

Subproject Completion

n years after Subproject Completion

Total # of households benefiting from increased access due to OBA element of the subproject 0 Subsidy per hh (USD/hh) Total investment cost per hh (USD/hh) Average monthly consumption per OBA household benefiting from this subproject (m3/month) Average monthly expenditure on service by household benefiting from subproject (USD/month) Average expenditure on service by OBA beneficiaries expressed as percentage of total household income (%) Average hours per day with access to service (hours/day) Average monthly tarrif for new service (USD/month) Local Contribution as a % of total investment costs (%) % of community served by new services (%) # of new jobs created in subproject communities Percent reduction in the instances of waterborne disease among households benefiting from the OBA subproject

4 Most of the proposed MIs are established as part of subproject selection criteria.

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4.6 Procurement 4.6.1 Procurement Plan FHIS developed a procurement plan for project implementation lifetime, which provides the basis for contract grouping and identification of procurement methods (per Table 4). The procurement and consultant selection methods, estimated costs, prior review requirements, and time frame have been agreed upon between FHIS and the Bank in the Procurement Plan (see, Table 4 below). This plan has been prepared during project preparation by FHIS, and was reviewed and cleared by the project procurement specialist at appraisal and is available in the GPOBA project files. The Procurement Plan will be updated in agreement with the Bank as required to reflect the actual project implementation needs. Table 4 – Procurement Plan Project Component No. &

Type Total US$.

Method Preparation & Invitation

Evaluation Award & Signing

Consulting services for both OBA Facility permanent staff, technical support and Project Management support

W (3) $240,000 (although no single contract will exceed $50,000)

CQs Through project’s life

Through project’s life

Through project’s life

TA funding for subprojects

W(1) $150,000 CQs ICs

Through project’s life

Through project’s life

Through project’s life

Monitoring, Verification & Financial Audit

W (3) 50,000 CQs May-June 07 July 07 Aug. 07

During project implementation, FHIS and the Bank will meet periodically to review and assess progress achieved on the execution of the procurement plan. This plan will be updated and submitted to the Bank for prior review and no objection every six months of each year of project implementation. Upon delivery of no objection, FHIS shall advertise the agreed plan in Development Business, newspapers and other publishing sources, as the case may be. 4.6.2 Procurement of Subproject Implementers Each sub-project will be regulated by a Performance Agreement between FHIS and the selected subproject Implementer. FHIS will bear full responsibility for overseeing compliance of the execution of each Performance Agreement. The Performance Agreements will be prepared by FHIS on the basis of the project design documents provided by the interested subproject implementer. Supporting documents will include project technical design, bills of quantities, specifications, along with draft contracts and related forms. The requests will detail the choice of appropriate technology and as appropriate contract options for the particular sub-project. This choice will be made by the Implementers with technical advice from the OBA Facility. Procurement of works, goods and services for each of the subprojects will be conducted as follows: If the implementer is a private entity under a contract with the municipality to operate the water and/or sanitation services, FHIS may allow that it use their existing procurement practices agreed upon in the respective contract. This will require prior review by the Bank to ensure that those procurement practices are consistent with Bank procurement guidelines. If the implementer is a public entity, it will follow FHIS’s operational guidelines for project procurement. This will require prior review by the Bank to ensure that those

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procurement practices are consistent with Bank procurement guidelines. In addition, the Implementer, with the concurrence of FHIS, may choose to combine the construction contract with a contract to operate the scheme after construction. This will require prior review by the Bank. For the assessment of the implementer’s procurement procedures, the following methods may be used for procurement of goods and works for the execution of the subprojects:(a) Shopping; (b) Direct Contracting; (c) Force Account; (d) established practices of the selected performance agreement implementers, which have been found acceptable to the Bank following the selection criteria set up in the Operational Manual; and (j) Community Participation procedures which have been found acceptable to the World Bank. Different contract options that may be considered, individually or in combination are: • All in contract. The Contractor provides all materials and labour; • Material and Skilled Labour. The Implementer undertakes all non-skilled labour as part of the community

contribution to the value of the project; • Labour Only. The Implementer provide skilled and unskilled labour; • Direct Hire for Specific Tasks. The project is broken down into component parts and each component is

issued to a separate contractor; • Materials only. The Implementers decide to source the materials itself. The Performance Agreement between FHIS and the subproject Implementers will reflect the chosen contractual option. However, the subproject Implementer is wholly responsible to the OBA Facility for the obligations set out in the Performance Agreement and corresponding payment will be done only to the Implementers against pre-defined outputs and in the manner specified in the OM. 4.6.3 Procurement Processing All procurement packages will be prepared by FHIS directly, and will be carried out in accordance with the Procurement Plan as agreed with the Bank. FHIS will forward the procurement packages to the Bank for prior review and no objection. FHIS will be responsible for the Terms of Reference for the consultants needed as permanent staff to the OBA Facility, as well as consultants for technical support (including subproject Construction Supervision Officer (s) if applicable) and for consultants required for contract supervision and monitoring and verification of outputs. The technical specifications for the Performance Agreement for each implementer detailing the output-based components will be written by appropriate FHIS Specialists that the OBA Facility will employ and which will be housed in the FHIS. 4.6.4 Consultants' Services The following selection procedures would be used for Consultants’ Services: • Quality- and Cost-based Selection. Except as otherwise provided in the paragraph below, consultants’

services shall be procured under contracts awarded on the basis of Quality and Cost-based Selection. • Other Methods of Procurement of Consultants’ Services The following methods, other than Quality and

Cost-based Selection, may be used for procurement of consultants’ services for those assignments which are specified in the Procurement Plan; (a) Quality-based Selection; (b) Selection under a Fixed Budget; (c) Least Cost Selection; (d) Selection based on Consultants’ Qualifications; (e) Single-source Selection; (f) Established Private or Commercial Practices which have been found acceptable to the World Bank; (g) Selection of Individual Consultants; and (h) Sole Source Procedures for the Selection of Individual Consultants.

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4.7 Reporting Obligations FHIS through the OBA Facility will report on project progress to directly to GPOBA. Each subproject Implementer will be required to provide the OBA Facility with regular reports on its activities. The information and data to be supplied comprise: 1. BASELINE REPORT Before the beginning of works the OBA Facility will present in coordination with the subproject Implementer a detailed report of the subproject’s condition. This baseline report will be verified by the IVA. 2. PROGRESS REPORTS To be submitted by the subproject Implementers to the OBA Facility every quarter as contained in the Performance Agreement. The IVA will use these as part of the verification of outputs for each subproject. 3. SEMESTRAL REPORT To be submitted by the FHIS to GPOBA on a semestral basis as part of OBA Facility project progress reporting. These reports will also contain summaries of each subproject status, as well as unaudited interim financial report containing a statement of sources and uses of funds and cash balances (with expenditures classified by subcomponent); a statement of budget execution per subcomponent (with expenditures classified by the major budgetary accounts); and both Designated Account and Operating Account activity statements including details of expenditures.

4. FINANCIAL REPORTS On an annual basis, FHIS will prepare project financial statements (essentially the IFRs). 5. OUTPUTS VERIFICATION REPORT The objective of the output verification stage is for the Independent Verification Agent to prepare an Outputs Verification Report (OVR) for submission to GPOBA.

6. COMPLETION REPORT & POST PROJECT COMPLETION REPORTS The FHIS, through the OBA Facility, shall furnish GPOBA with a Project Completion Report including details on the execution of the subprojects and the overall use of funds no later than six months after the Closing Date. For the preparation of this report the OBA Facility and or FHIS may use the IVA’s OVR and will also ensure the completion of the GPOBA data sheet for Monitoring and Verification Indicators attached as Annex I, which the IVA should help to prepare. At the end of the Grant period, FHIS will prepare two additional Post Project Completion Reports to GPOBA no later than one month after the first and second anniversaries of the Closing Date, respectively.

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ANNEX A: PERFORMANCE AGREEMENT MODEL

ACUERDO DE IMPLEMENTACIÓN Y DESEMPEÑO PARA LA INVERSION EN PROYECTOS DE INFRAESTRUCTURA A EFECTUARSE DE ACUERDO A LA MODALIDAD DE AYUDA EN FUNCIÓN DE RESULTADOS ENTRE EL FONDO HONDUREÑO DE INVERSION SOCIAL (FHIS) Y……… (EJECUTOR[1][1]), CON SUBSIDIO DEL BANCO MUNDIAL (GPOBA).

Nosotros, CESAR ARNULFO SALGADO SAUCEDA, mayor de edad, casado, hondureño, Ingeniero Civil, con domicilio en la Ciudad de Tegucigalpa, M.D.C., Departamento de Francisco Morazán, quien actuando en su condición de Ministro y Representante Legal del Fondo Hondureño de Inversión Social (FHIS), según Acuerdo Ejecutivo No. 04-2007 de fecha 15 de Enero 2007, Institución desconcentrada de la Presidencia de la República, creada mediante Decreto No. 12- 90 de fecha 2 de marzo de 1990, denominado de aquí en adelante El FHIS y el señor.________________, mayor de edad, (estado civil) _______, hondureño(a), con domicilio en __________, Municipio de ____________, Departamento de_______________, quien actúa en su condición de ___________[2][2] según _____________[3][3], estando por lo tanto facultado para ejercer la representación legal de _____________ y para celebrar toda clase de actos y contratos, quien en adelante se denominará EL EJECUTOR; hemos acordado celebrar el presente Acuerdo de Implementación y Desempeño, el cual se regirá por las cláusulas y condiciones siguientes: CLÁUSULA PRIMERA: DEFINICIONES E INTERPRETACIONES. Siempre que se empleen en este acuerdo los términos que se describen a continuación, tendrán el siguiente significado:

1.- GOBIERNO: El Gobierno de la República de Honduras

2.- GRANT AGREEMENT Acuerdo de Donación

3.- GPOBA La Sociedad Global para la Ayuda en Función de Resultados

4.- OBA

Ayuda basada en resultados

5.- ERSAPS

Ente Regulador de los Sistemas de Agua Potable y Saneamiento Financiera Comercial Hondureña S.A. Tasa Financiera de Retorno

6.-INDEPENDENT/VERIFICATION AGENT

Agente de verificación Independiente (IVA)

7.- FHIS

Entidad desconcentrada, dotada de su ley constitutiva, patrimonio propio y autonomía administrativa, técnica y financiera, con competencia para promover y financiar obras y proyectos que servirán como medio para contribuir a la descentralización, al desarrollo local, y a propiciar y desarrollar las sinergias

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necesarias para crear una corresponsabilidad de los diferentes actores del Estado y la sociedad civil.

8.- CRÉDITO PUENTE

Préstamo efectuado a los implementadores de proyectos para que puedan ejecutarlos, mientras se verifican los resultados y se paga el subsidio.

9.- EL EJECUTOR

Es el organismo responsable de la ejecución de las obras de infraestructura descritas en el presente acuerdo y que se rige por este Acuerdo.

10.- CONTRAPARTE Aporte de las comunidades o municipalidades beneficiadas.

11.- ENTIDAD CONTRATANTE

Fondo Hondureño de Inversión Social (FHIS). Representada por el Señor Ministro del FHIS. También denominada Agencia Contratante.

12.- AUDITOR TÉCNICO

Es el Ente Regulador de los Servicios de Agua Potable y Saneamiento (ERSAPS) designado para la verificación y certificación de los resultados del proyecto, quien podrá ejercer estas funciones directamente o a través de consultores contratados

13.-PROYECTO: Nombre del Proyecto elegido

14.- SERVICIOS: 15.- EXPEDIENTE DEL PROYECTO 16.- MODALIDAD DESCENTRALIZADA

Es el trabajo que el Consultor deberá realizar conforme a este Acuerdo. Es la carpeta oficial del FHIS que contiene la documentación técnica, ambiental y legal que respalda todas las actuaciones relacionadas con un proyecto, desde que se presenta el proyecto para su aprobación hasta la conclusión del mismo. En la medida en que el proyecto avanza en el ciclo, se van incorporando los documentos legales y técnicos que validan los procesos realizados Significa que el FHIS transferirá al EJECUTOR las competencias relacionadas con el proyecto; los fondos del crédito puente, si corresponde; los procesos y decisiones para contratar a los sub-contratistas.

SEGUNDA: OBJETO DEL ACUERDO. Establecer roles y responsabilidades de las partes para la administración de los fondos de subsidios basados en resultados (OBA) de los proyectos de infraestructura de agua y/o saneamiento descritos en el presente documento según lo estipulado en el “Grant Agreement” firmado entre el FHIS y el GPOBA. TERCERA: MONTO TOTAL DEL PROYECTO: El monto total de la inversión estimada para el presente proyecto es de (cantidad en letras) __________________________ (cantidad en números) _____________ Lempiras). CUARTA: ASIGNACIÓN DE RECURSOS OBA. Los fondos OBA, que totalizan la suma máxima de (cantidad en letras) __________________________

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(cantidad en números) _____________ Lempiras, que sean depositados en la cuenta especial del FHIS, serán transferidos al EJECUTOR de la siguiente manera: 1) diez por ciento (10%) a los quince días de la firma del presente acuerdo, para lo cual EL EJECUTOR deberá rendir una garantía que cubra la suma recibida, 2) sesenta y cinco por ciento (65%) contra verificación de resultados. Por este concepto se transferirá a razón de (cantidad en letras) __________________________ (cantidad en números) _____________ Lps/por conexión habilitada verificada por inspección del ERSAPS, 3) veinticinco por ciento (25%) a los 6 (seis) meses de concluido el proyecto y contra verificación que se ha estado facturando y cobrando a cada una de las conexiones domiciliarias verificadas en el punto 2). QUINTA: CRÉDITO PUENTE DEL FHIS. En el caso en que se acuerde que el FHIS otorga un crédito puente al EJECUTOR utilizando fondos propios del FHIS a tal efecto, el monto del crédito puente no podrá exceder el monto de subsidio OBA asignado al proyecto. Si el Crédito Puente se hace efectivo con fondos del FHIS el Ejecutor deberá rendir una Garantía equivalente al 100% del monto entregado como Crédito Puente, los desembolsos siguientes se realizaran de acuerdo con el avance de obra especificado en el ANEXO 2 del Manual de Operaciones,. SEXTA: CONDICIONES DE REINTEGRO: a) Para aquéllos proyectos dónde el financiamiento se ha proporcionado como “crédito puente” a través de los fondos FHIS, el EJECUTOR hará el reintegro del préstamo con los fondos del subsidio, para lo cual debe firmar a favor del FHIS una cesión de sus derechos sobre esos fondos del Subsidio GPOBA, los que una vez liberados serán depositados en la cuenta especial del FHIS. b) En el caso en que el EJECUTOR no alcance los resultados requeridos, no se harán los pagos subsiguientes GPOBA y el FHIS deberá recuperar los fondos del “crédito puente” y/o el 10% de la transferencia realizada de GPOBA ejecutando las garantías rendidas al efecto por EL EJECUTOR para los proyectos de infraestructura de dicha municipalidad c). Para aquellos proyectos en que el EJECUTOR utilice fondos propios o un crédito (puente) bancario para el financiamiento de las obras, los fondos OBA serán liberados de la cuenta especial del FHIS a una cuenta del EJECUTOR en las tres etapas indicadas en la Cláusula Cuarta y con los mismos requisitos estipulados para el desembolso. SÉPTIMA: TRANSFERENCIA DE FONDOS. Los fondos, para la ejecución de las obras, serán administrados a través de una cuenta específica y separada a nombre del EJECUTOR, cuenta No ________, del Banco ___________, del Departamento ___________. OCTAVA: APORTES DE CONTRAPARTE: Los aportes de contraparte podrán ser en efectivo, materiales y/o mano de obra comunitaria y deben estar claramente descritos (en monto, especie, cronograma y aportante) y demás aportes descritas en la cláusula Décima Primera. NOVENA: MODALIDAD DE ADQUISICIÓN: Para los efectos de este Acuerdo, el EJECUTOR se encargará y responsabilizará de la contratación de obras, bienes y servicios. En el caso que sea privado, usará sus prácticas aceptadas de adquisición. En el caso que sea público, seguirá los lineamientos operacionales del FHIS y los propios. En ambos casos, las prácticas serán aceptables para el Banco Mundial, si son enmarcados en la Leyes del País. [5][5] DÉCIMA: OBLIGACIONES DEL FHIS: 1) Transferir a la cuenta especial y separada que el EJECUTOR haya abierto para tal fin, la ayuda comprometida en este acuerdo, de manera oportuna y conforme se hayan verificado las etapas y los resultados pactados en el presente ACUERDO. 2) Inspeccionar el Subproyecto financiado bajo el programa, para controlar y asegurar que el mismo se está ejecutando conforme al convenio firmado entre el FHIS y la Municipalidad 3) Certificar formalmente que el proyecto ha sido terminado y recibido por la Municipalidad, quien proporcionara copia del Acta de Recepción definitiva al FHIS. DÉCIMA PRIMERA: OBLIGACIONES DEL EJECUTOR: 1) Presentar al FHIS, para su aprobación, un cronograma de ejecución y desembolso, en función del avance de obra, que será adjuntado como anexo al presente acuerdo. 2) Aportar en forma oportuna los recursos de contraparte establecidos para completar los recursos totales requeridos de la obra 3) Presentar las pruebas de no haber ningún problema de tenencia de tierra en donde se va a construir el proyecto. Asimismo la Municipalidad se compromete a proporcionar la servidumbre de los terrenos donde se construirán tuberías de colectores, estación elevadora y las servidumbres de paso para las tuberías en la línea de impulsión, si fuera el caso. 4) Asegurar y supervisar la participación de las comunidades (cuando se trate de otra entidad a cargo del proyecto) y otros factores en los aportes comprometidos para obras (mano de obra o materiales); 5) Asumir responsabilidad fiduciaria, administrativa, técnica y legal para el desarrollo del proyecto; 6) Ejercer la contratación de obras y adquisiciones de bienes y servicios; 7) Mantener un sistema contable y financiero actualizado para el manejo de los recursos del proyecto que permita auditar el uso de los fondos

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según categorías de gastos elegibles establecidas 8) En los casos de subcontratos de obra, La Municipalidad deberá hacer una retención del 10 % de cada pago el que será liberado una vez cumplido el periodo de garantía estipulado. En los casos de subcontratos de obra, La Municipalidad deberá hacer una retención del 10 % de cada pago el que será liberado una vez cumplido el periodo de garantía estipulado. 9) Resguardar en forma ordenada toda la documentación original del proyecto organizada en un expediente de proyecto y custodiar la documentación hasta por un período de diez años; 10) Rendir cuenta al FHIS mensualmente de la administración, ejecución y avance del Proyecto, conforme a los contenidos y alcances que establezcan los procedimientos del FHIS, que deberán incluir los indicadores de pago y monitoreo del Anexo 1 del presente acuerdo; 11) Asumir las responsabilidades derivadas del manejo de las garantías y seguros requeridos por la ley, las decisiones para la ejecución de las garantías en caso de incumplimiento de contratos; el control y ampliación a los vencimientos de las garantías, cuando corresponda; la liberación de las mismas cuando esté finalizado el proyecto a satisfacción del FHIS 12) Realizar el cierre técnico, administrativo y financiero del proyecto en un plazo no mayor de 15 días posteriores a la recepción provisional del mismo 13) Asegurar la operación y el mantenimiento de las obras; 14) Recepcionar las obras y sistemas como patrimonio municipal[6][6] 15) Someterse a auditoría del FHIS (y del ERSAPS en el caso de certificaciones y verificaciones) durante o después de ejecutado el proyecto, Además la Municipalidad o el ente a cargo del proyecto se compromete a: 16) Proporcionar el personal de enlace, durante la construcción del Subproyecto, quién, será responsable de informar a la Comunidad sobre los costos del Subproyecto, los beneficios adquiridos, implicaciones, tarifas, etc., y resolver cualquier inquietud que la comunidad tenga.- 16) Mantener una Unidad de Obras y Servicios Públicos, capaz de operar el sistema una vez que sea terminado, y proceder a administrarlo, mantenerlo y mejorarlo según sea necesario.- 17) Aportar las cantidades adicionales que eventualmente fueran necesarias para cubrir otros gastos del Subproyecto no previstos. 18) Deberá regirse por las normas y Leyes aplicables en la Licitación y adjudicación del subproyecto. 19) Rendir al FHIS informes del seguimiento y construcción de las obras. DÉCIMA SEGUNDA: VERIFICACIÓN DE RESULTADOS:. Con el propósito de verificar y certificar el cumplimiento de los resultados pactados, el ERSAPS a través del Independent Verification Agent y según los términos acordados con el Banco Mundial, certificará el número de conexiones habilitadas como parte del proyecto objeto del presente acuerdo. Dichas conexiones deberán cumplir con la normativa técnica y las regulaciones aplicables al sector agua y saneamiento de Honduras. La verificación incluirá la evaluación del grado de cumplimiento de los objetivos fijados, según la tabla de indicadores de pago del Anexo 1. Esta verificación no se limitará a la revisión de la documentación a ser provista por el EJECUTOR, sino que también incluirá auditorias de campo que deberán realizarse según metodología estadística de muestreo a ser desarrollada, acordada e incluida como anexo al presente acuerdo por las partes. La auditoría del ERSAPS, o su consultor seleccionado, se llevará a cabo una vez que se reciba del EJECUTOR el aviso de finalización de los trabajos pactados. DÉCIMA TERCERA: IMPACTO AMBIENTAL: Con el propósito de minimizar el impacto ambiental negativo que causa u origina la ejecución de proyectos, el EJECUTOR se compromete a cumplir con todas las recomendaciones relacionadas con la parte ambiental que sobre el proyecto emita la Unidad de Gestión Ambiental del FHIS en cumplimiento a los aspectos de Seguridad y Ambiente, en aplicación a la Legislación que en materia de ambiente se encuentra vigente, las cuales también formarán parte de las especificaciones técnicas de los proyectos ejecutados bajo este acuerdo. Además el EJECUTOR se obliga a cumplir con los lineamientos y salvaguardas del Banco Mundial, así como desarrollar acciones de mitigación, especialmente a no cometer ni permitir que se comentan los siguientes actos: incinerar, enterrar en áreas cuyo nivel freático sea superficial (menor de seis metros), arrojar en manantiales y fuentes de agua los desperdicios que resultaren de la ejecución de la obra o quedaren al finalizar la misma; tampoco podrá depositar materiales provenientes del proyecto en áreas de cultivo o en otros lugares que ponga en peligro o riesgo la salud de la comunidad o el ambiente. Si el lugar de la obra fuese de superficie polvorienta y los materiales a utilizarse desprendieran componentes químicos, el EJECUTOR estará obligado a aplicar métodos temporales como rociado de agua, el uso de cubierta de material plástico u otro similar con el fin de controlar el levantamiento excesivo de polvo. El EJECUTOR estará además en la obligación de reemplazar toda planta, mata o árbol que retire durante la ejecución de la obra, para proteger la cubierta vegetal. Tampoco podrá talar ni derribar, bajo ningún concepto, aquellos árboles mayores de veinticinco años o que sean de las especies que están en peligro de extinción. DÉCIMA CUARTA: SALVAGUARDAS SOCIALES. El EJECUTOR se compromete a cumplir con toda la legislación vigente relacionada con los

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aspectos sociales, étnicos, indígenas y de patrimonio cultural, además se obliga a cumplir con los lineamientos y salvaguardas del FHIS y del Banco Mundial en estos aspectos. Este proyecto no va a provocar el reasentamiento involuntario de activos, actividades productivas o personas. DÉCIMA QUINTA: RESPONSABILIDAD LABORAL. El EJECUTOR como responsable de la ejecución de la obra, se asegurará que se cumplan las obligaciones laborales que se deriven de la contratación del personal para la ejecución del proyecto; será responsabilidad del EJECUTOR afrontar y solucionar todos los problemas de tipo laboral que se presentaren durante y después de la ejecución del proyecto. Por consiguiente, el EJECUTOR libera al FHIS, GPOBA y al Banco Mundial de toda responsabilidad en caso de acciones entabladas por daños a terceros, en razón de transgresiones de sus derechos como consecuencia o derivadas de los trabajos realizados en los sitios y colindancias de los proyectos. DECIMA SEXTA: GARANTÍA DE CUMPLIMIENTO DE EJECUCIÓN DE LAS OBRAS. El Ejecutor deberá presentar a favor del FHIS dentro de los cinco (5) días calendario a la fecha de firma del Acuerdo, una Garantía Bancaria por un valor equivalente al quince por ciento (15%) del monto de ejecución de la Obra. Esta Garantía se presentará en la misma moneda de pago que se establezca en el contrato y tendrá una vigencia desde el inicio del proyecto hasta tres (3) meses después del plazo establecido para finalizar la ejecución del proyecto. En caso de una ampliación de plazo y/o de monto del Acuerdo, aprobada por el FHIS, esta garantía debe ser ampliada de manera que siempre cubra el nuevo plazo de ejecución más los tres meses antes mencionados y/o el nuevo monto del Acuerdo, según el caso. GARANTÍA DE CALIDAD DE OBRA .- El Ejecutor/ Constructor o subcontratista, según sea el caso, será responsable por cualquier defecto o vicio de construcción, que sea detectado en la puesta en marcha del sistema o durante un periodo de operación no menor de 180 días corridos, para lo cual deberá presentar una garantía bancaria, aceptable por el FHIS/GPOBA por un monto equivalente al cinco por ciento (5%) del monto total de ejecución de la obra, con un período de vigencia de un (1) año, Una vez que se haya efectuado la recepción final de la obra ejecutada.- La Garantía deberá contener el nombre completo del FHIS como beneficiario.- DECIMA SÉPTIMA: DOCUMENTOS DEL ACUERDO. Forman parte de este acuerdo y se aplicarán con igual fuerza legal los documentos contenidos en los ANEXOS, adendum, ampliaciones, modificaciones o actualizaciones de este Acuerdo. DECIMA OCTAVA: SUSPENSION O RESCISIÓN DEL ACUERDO. El FHIS podrá suspender las transferencias o desembolsos y rescindir este Acuerdo según sea el caso, cuando ocurra cualquiera de los siguientes causales: a) incumplimiento de cualquiera de las obligaciones estipuladas en el presente acuerdo; b) uso indebido de los fondos transferidos al EJECUTOR de acuerdo con los resultados de los informes que al efecto haya emitido el FHIS (o el ERSAPS), de lo cual se pueda presumir que existe el riesgo de que se malogre o distorsione el objeto del presente acuerdo; c) a requerimiento del EJECUTOR o del FHIS cuando las condiciones prevalecientes no hicieran posible la terminación de este acuerdo, incluyendo el caso fortuito o fuerza mayor o la suspensión al FHIS de los desembolsos por parte de la fuente (GPOBA). DÉCIMA NOVENA: SOLUCIÓN DE CONFLICTOS. Cualquier controversia relacionada directa o indirectamente con la interpretación o implementación de este ACUERDO, las partes involucradas se comprometen a solucionarla en el menor tiempo posible y en términos amigables, imperando sobre todo el ánimo por el bienestar de los beneficiarios. No obstante, en caso de que las diferencias no puedan solucionarse satisfactoriamente entre las partes, ya sean éstas de la naturaleza, interpretación, cumplimiento, ejecución o terminación del mismo, el asunto será sometido a los Tribunales de Justicia de la República a cuyo efecto EL EJECUTOR renuncia a su domicilio y se somete al domicilio del FHIS. El Contratista deberá proceder diligentemente con respecto al cumplimiento de este contrato, sujeto a la resolución final. VIGÉSIMA: VIGENCIA. La duración del presente acuerdo es de ______________ meses a partir de la fecha de suscripción. VIGÉSIMA PRIMERA:: MODIFICACIONES AL ACUERDO: Este acuerdo podrá ser modificado total o parcialmente, mediante adendum que deberá ser acordado por escrito entre las partes. VIGÉSIMA SEGUNDA: ACEPTACIÓN. Ambas partes manifestamos estar de acuerdo con el contenido de todas y cada una de las cláusulas, obligándonos a su fiel cumplimiento, en fe de lo cual y de común acuerdo, firmamos el presente Acuerdo en tres originales de igual contenido, en la Ciudad de______________, Municipio de_____________, a los_______ días del mes de ________ del dos mil ____.

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CESAR ARNULFO SALGADO SAUCEDA ALCALDE MUNICIPAL MINISTRO DIRECTOR FHIS

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ANNEX B: FHIS ELIGIBILITY CRITERIA This FHIS check-list has been reinforced to meet project sustainability criteria. The following table represents a sample of some criteria that FHIS requires. Other criteria important to the project but not listed here include: community financial contribution, waterborne disease data, and the like.

FHIS Eligibility Criteria PROFORMA to Evaluate Water and Sanitation Subprojects

COMMUNITY _____________, MUNICIPALITY ____________

No ACTIVITY YES NO OBSERVATIONS

1 Budget per activity FHIS form

2 Unit prices FHIS form

3 List of equipment FHIS form

4 Codified activities FHIS form

5 Total budget per contributor FHIS form

6 General information on the subproject FHIS form

7 Technical pre-factibility FHIS form

9 Ex-ante evaluation FHIS form

10 Descriptive memory FHIS form

11 Application form for financial assistance FHIS form

12 Land-use authorization Signed by land owners

13 Commitment to subproject from municipality Signed by Mayor

14 Community meeting minutes Signed by beneficiaries

15 Recognition of the water junta by municipality Signed by Mayor

16 Acceptance of technical solution Signed by beneficiaries

17 Commitment to community contributions Signed by members of the water junta (junta de agua)

18 Commitment to tariff