75629 February 2012 PPIAF Assistance in Honduras PPIAF has supported the government of Honduras since 2000 through a total of five activities worth $1.6 million. PPIAF assistance in Honduras has focused on enabling environment reform, the water sector, and support to sub-national entities through PPIAF’s Sub-National Technical Assistance (SNTA) program. Technical Assistance for Enabling Environment Reform in Honduras In 1998 Hurricane Mitch caused widespread damage to Honduras’ infrastructure, destroying 70–80% of the transportation network. As Honduras rebuilt from the hurricane, the government wanted to review its strategy for infrastructure development and the respective roles of the public and private sector. PPIAF assistance was requested in 2000 to analyze the key challenges in access, efficiency, and quality of the main infrastructure sectors, outline the major investments required, and propose options to increase private sector participation. The resulting country framework report (CFR) analyzed the effect of Hurricane Mitch on Honduras’ infrastructure and the state of the transportation, water and sanitation, electricity, and telecommunications sectors. The CFR also examined the legal and regulatory framework of these sectors and the progress of private participation in infrastructure. A workshop was held in July 2001 to validate the analysis of the CFR and review the report’s recommendations. The report’s proposals included strengthening the regulatory framework, establishing a multi-sector regulator, and establishing transparent processes to increase the legitimacy of infrastructure policies. The CFR also identified the urgent need for a national water and sanitation plan that lays out coverage and service quality goals, as well as a transparent allocation of public funds. A national strategy for water supply and sanitation (WSS) services was completed as part of a follow-up PPIAF activity. Results of PPIAF’s Activities for Enabling Environment Reform in Honduras Category Outputs Enabling environment reform Analyses/assessments prepared  Private Solutions for Infrastructure in Honduras, 2003 Capacity and awareness building Workshops/seminars  Consultation and dissemination workshop, July 2001 Category Outcomes Enabling environment reform Institutions created or  Government of Honduras strengthened, October 2003 strengthened Technical Assistance for the Water Sector in Honduras Access to WSS services improved in Honduras in the 1990s, in both rural and urban areas. However, the sector’s weak institutional framework and competition between national, state, and municipal actors led to a lack of planning, inadequate regulation of operators, and poorly-defined policies. In 2003 the government of Honduras passed the Drinking Water and Sanitation Sector Framework Law, which created a central policy-making council (CONASA) and an independent regulatory agency (ERSAPS). The law also decentralized WSS services, shifting the responsibility for operations from the national water and sewerage agency (SANAA) to municipalities. In 2004 the government requested PPIAF assistance to implement CONASA and help the agency fulfill its mandate. An organizational structure and operational rules for CONASA were produced, as well as the 1 2005 Annual Operational Plan. A consultation workshop was held with sector officials in September 2004 to discuss key issues. PPIAF also provided assistance to draft decentralization strategies and restructure SANAA into a technical assistance agency that provides technical assistance to municipal utilities. PPIAF also supported the development of a national strategic plan for modernizing WSS service delivery. A series of consultative workshops were held with stakeholders from February 21 –28, 2005, to receive feedback on the draft plan. The final strategic plan was adopted by the government in 2006. PPIAF assistance was requested again in 2008 to support a non-revenue water (NRW) performance- based management contract for SANAA’s operations in Honduras’ capital city, Tegucigalpa Metropolitan District. The contract was piloted by a World Bank project to demonstrate how the private sector can be used as an efficient means to achieve significant improvements in operational and financial performance. PPIAF funded several elements to ensure the contract design reflected international best practice in NRW management, including training for SANAA staff on management and NRW contracts and a report on the lessons learned from the design and bidding process. The $6.5 million NRW contract went into effect July 1, 2011, and was awarded to a consortium made up of ACC Ingenieria SAS, Radian Colombia SAS, and Veritec Consulting Inc. The consortium’s obligations under the contract include: assessing the current conditions of the water supply; implementing minimum cost interventions to improve service reliability and hours of service; and reducing both physical and commercial losses to improve the utility’s income. This activity is still ongoing. Results of PPIAF’s Activities in Honduras’ Water Sector Category Outputs Enabling environment reform  Organization and internal bylaws for CONASA, 2005 Analyses/assessments prepared  SANAA re-engineering analysis, 2005  Plan Estratégico de Modernización del Sector Agua Potable y Plans/strategies prepared Saneamiento, 2005 Capacity and awareness building  Workshop with sector authorities, September 2004  Stakeholder consultations, February 21–28, 2005 Workshops/seminars  Training for SANAA staff on management and NRW contracts, May 2009 Knowledge products  Lessons learned from NRW contract bidding process in disseminated English and Spanish, 2011 Category Outcomes Enabling environment reform Institutions created or  CONASA strengthened, 2005–2007 strengthened  SANAA strengthened, 2005–2007  Strategic plan to modernize water supply and sanitation Plans/strategies adopted adopted, 2006 Project cycle-related assistance  $6.5 million NRW performance management contract awarded Transactions facilitated to Consorcio Unión Temporal Gestón de Perdidas. The contract came into effect on July 1, 2011 2 Capacity and awareness building Technical capacity enhanced  Technical capacity of SANAA staff enhanced, 2011 Technical Assistance through the SNTA Program In 2008 the Honduran government requested assistance from PPIAF’s SNTA program to analyze the country’s legal and regulatory framework for municipal financing. Urbanization was straining the infrastructure of Honduran cities, and the government did not have sufficient resources to finance infrastructure projects in large urban areas. The objective of this SNTA activity was to provide the analytical base for a country-wide strategy to develop a municipal finance market that would permit long- term municipal borrowing for infrastructure projects. PPIAF funding was requested to help three municipal governments access market-based financing for infrastructure projects, provide training to municipal authorities on how to structure municipal borrowing, and analyze the legal and regulatory framework for municipal borrowing in Honduras. The first component of the activity analyzed the ability of banks, bond markets, and other financial institutions to provide long- term financing to local governments to fund infrastructure projects. The current practices in municipal finance were also summarized in the report, providing the first overview of financial innovations carried out by individual municipal governments. The resulting report has become an important document for the national government, local governments, commercial banks, and other financial institutions. The second component focused on the three largest Honduran cities: Tegucigalpa, La Ceiba, and San Pedro Sula. The transaction support aimed to overcome the municipalities’ weakness in preparing public- private partnership projects and provided technical, economic, and financial analysis for priority projects. A pipeline of projects was identified for each municipality, and support was provided to prepare: 1) data rooms for a toll highway project in La Ceiba; 2) a technical and feasibility analysis for Bethlehem market and road widening projects in Tegucigalpa; and 3) a regional waste facility in San Pedro Sula. The International Finance Corporation became the transaction advisor for the La Ceiba highway project in 2009 and is working with the municipality and the Honduran government to prepare a concession for the road. The La Ceiba highway project will be the first public-private partnership under the government’s new public-private partnership program. Results of SNTA Program’s Activities in Honduras Category Outputs Enabling environment reform Analyses/assessments prepared  Municipal Credit Markets in Honduras, 2009 Project cycle-related assistance  Technical and feasibility analysis for Bethlehem market improvement and road widening projects in Tegucigalpa, 2009 Transaction support  Preparation of data rooms for the municipalities of La Ceiba and San Pedro Sula, 2009 Category Outcomes Enabling environment reform Institutions created or  The municipalities of Tegucigalpa, La Ceiba, and San Pedro strengthened Sula strengthened, 2009 3