[Federal Register Volume 79, Number 201 (Friday, October 17, 2014)]
[Notices]
[Pages 62469-62472]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-24773]
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MILLENNIUM CHALLENGE CORPORATION
[MCC FR 14-08]
Notice of Entering Into a Compact With the Republic of El
Salvador
AGENCY: Millennium Challenge Corporation.
ACTION: Notice.
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SUMMARY: In accordance with Section 610(b)(2) of the Millennium
Challenge Act of 2003 (22 U.S.C. 7701-7718), the Millennium Challenge
Corporation (MCC) is publishing a summary of the Millennium Challenge
Compact between the United States of America, acting through the
Millennium Challenge Corporation, and the Republic of El Salvador.
Representatives of the United States Government and El Salvador
executed the Compact documents on September 30, 2014. The complete text
of the Compact has been posted at http://www.mcc.gov/documents/agreements/compact-112906-elsalvador.pdf.
Dated: October 14, 2014.
Thomas G. Hohenthaner,
Acting Vice President and General Counsel, Millennium Challenge
Corporation.
Summary of Millennium Challenge Compact With the Republic of El
Salvador
1. Overview
The Millennium Challenge Corporation (``MCC'') has signed a five-
year, $277 million compact with the Republic of El Salvador aimed at
reducing poverty and accelerating economic growth (the ``Compact'').
The Compact is intended to assist the Government of El Salvador
(``GoES'') to strengthen the investment climate, enhance the role of
public-private partnerships in delivering key services, and improve the
country's productivity and competitiveness in international markets.
Through intensive policy reforms and an integrated set of investments
in the institutional capital, human capital, and physical capital of El
Salvador, MCC expects that the Compact will help set the foundation for
lasting economic growth and poverty reduction.
2. Background
This Compact will build on GoES reforms and initiatives and is
informed by consultations with over 200 businesses. First, the Compact
will invest in the institutional capital of El Salvador in order to
enhance the investment climate by streamlining the regulatory
environment and supporting the implementation of public-private
partnerships. Second, the Compact will support policy reforms and
invest in human capital to improve education quality and better match
workforce skills with the demands of the labor market. Third, the
Compact will invest in physical capital to reduce logistics and
transportation costs by improving key road segments and border
infrastructure in major transport corridors.
The Compact's three projects represent a total investment of $365.2
million, of which MCC will contribute $277 million, and the GoES will
commit $88.2 million--a 32 percent matching contribution that is well
above the 15 percent country contribution required for second compacts
with lower-middle income countries.
3. Program Overview and Budget
Below is a summary describing the components of the Compact. The
budget and expected impacts are preliminary based on due diligence and
project appraisal.
Compact Budget Overview
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Portion of
Project MCC Funding GoES Funding Total budget
investment (percent)
----------------------------------------------------------------------------------------------------------------
Millions of US$
----------------------------------------------------------------------------------------------------------------
Investment Climate Project...................... 42.4 50.0 92.4 25.3
Human Capital Project........................... 100.7 15.0 115.7 31.7
Logistical Infrastructure Project............... 109.6 15.7 125.3 34.3
Monitoring and Evaluation....................... 4.3 .............. 4.3 1.2
Program Administration.......................... 20.0 7.5 27.5 7.5
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Total....................................... $277.0 $88.2 $365.2 100
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4. Summary of Projects and Activities
Investment Climate Project
The constraints to economic growth analysis and consultations with
investors identified excessive ``red tape'' and discretionary
application of rules as negatively affecting the investment climate in
El Salvador. Firms also identified the need for key public
infrastructure to increase productivity, but tight fiscal constraints
and weak institutional capacity limit the ability of the GoES to
provide such infrastructure. The Investment Climate Project seeks to
address these deficiencies in El Salvador's investment climate by
improving the regulatory environment and the GoES's capacity to provide
key public services in partnership with the private sector through the
following two activities:
The Regulatory Improvement Activity will prioritize and
promote investment climate reforms with the goal of creating a more
efficient and profitable business environment. MCC will support the
development of an institutional framework and system, including an
independent institution
[[Page 62470]]
focused on continuous regulatory improvement and the prioritization and
implementation of a select set of reforms. The reforms will focus on
areas critical to El Salvador's competitiveness in international
markets and may include trade facilitation, border crossing and customs
procedures, environmental permitting, and harmonization of municipal
and national regulations. The regulatory improvement institution will
also consider the extent to which regulations can be improved to reduce
the potential for corruption. In designing and implementing reforms,
the institution will ensure that the proposed reforms are consistent
with the GoES's obligations under international trade and investment
agreements, including the Dominican Republic-Central America Free Trade
Agreement. As part of the activity, the GoES will commit to review,
simplify and potentially eliminate regulations early in the Compact
implementation process. Such concrete demonstrations of high level
commitment to the reform process will be necessary to achieve a
dramatic change in the perceptions of the business climate in El
Salvador.
The Partnership Development Activity seeks to enable the
GoES to partner with private enterprise in innovative ways to provide
critical public services in the face of tight fiscal constraints. The
GoES has recently passed several laws to facilitate private investment
and trade. Most notably, the GoES legislature unanimously passed a law
in May 2013 and subsequent reforms in May 2014 to facilitate public-
private partnerships (``PPPs'') in the provision of key public
services. MCC will invest in capacity building to properly develop,
implement, and monitor such partnerships under this law. MCC will make
available funding for transaction advisory services to develop and
tender PPPs for two key infrastructure projects. Projects currently
under review are the expansion of the El Salvador International Airport
and a wind farm. MCC and the GoES are also sponsoring the El Salvador
Investment Challenge (``ESIC''), a program to more efficiently and
transparently allocate limited GoES resources to public goods needed to
support private investment in the international trade of goods and
services. The ESIC generated 74 investment project proposals in its
initial call for proposals, of which 13 are being evaluated for the
next phase of development. The GoES plans to institutionalize the ESIC
as an instrument for attracting private investment and will contribute
up to $50 million to the ESIC during the term of the Compact.
The estimated economic rate of return (``ERR'') for the Investment
Climate Project is 18.56 percent, using a weighted estimate of the
calculated ERRs for each activity.
Human Capital Project
The quality of education in El Salvador is below what the country
requires to be competitive in world markets. The Human Capital Project
is designed to improve the quality of education and to better match the
supply of skills of students coming out of secondary school with the
demand of a labor market oriented towards international trade. The
project consists of the following two activities:
The Education Quality Activity supports complementary
interventions to provide Salvadoran students the benefits of
competency-based education, increased classroom time, teachers trained
in requisite subject-matters and pedagogical skills, and an
institutional and physical environment conducive to learning. MCC's
investment will strengthen the national education system by reforming
the laws, policies, and operations that govern continuous professional
development for teachers, student assessment, and information systems.
The activity will strengthen and expand the implementation of the full-
time inclusive school model, which increases classroom time from 25 to
40 hours per week, in an estimated 400 schools grouped in 45-55
clusters, focusing resources on grades 7-12. The curriculum improvement
component will focus on English, mathematics, science and information
technology, and other 21st century skills.
The Technical, Vocational Education and Training
(``TVET'') System Reform Activity seeks to harmonize the skills
supplied by private and public TVET providers with the skills demanded
by the labor market. The activity will strengthen the national TVET
governance system by supporting legal, policy, and operational reforms
within the system. MCC will support the establishment of a public
entity governed by a board comprised of an equal number of public and
private sector representatives to provide the legal and institutional
framework for an integrated TVET system. The activity will also fund
TVET curricula development with participation from the private sector,
career counseling, and job-matching services. It will also fund the
establishment of a framework and standards for accreditation of TVET
training organizations and certification of teachers and students. The
activity will also strengthen the capacity of the TVET system for
identifying labor market trends that will inform the strategic
direction of the TVET system, including the establishment of a
monitoring and evaluation (``M&E'') framework and a labor market
observatory.
The estimated ERR for the Human Capital Project is 11.35 percent.
Logistical Infrastructure Project
The constraints analysis identified transportation and logistics as
main factors contributing to the productivity and competitiveness of
Salvadoran exports. Consultations with businesses during Compact
development also highlighted certain transportation and logistics
deficiencies, including the need to expand and rehabilitate key road
segments in the coastal zone of El Salvador. The Logistical
Infrastructure Project is comprised of two activities designed to
reduce logistical and transportation costs and relieve bottlenecks at
critical sections along the logistical corridor that connects the main
border crossing with Honduras at El Amatillo, the Ports of La Union and
Acajutla, and the international airport:
The Coastal Highway Expansion Activity seeks to relieve
congestion at the most transited segment (27 kilometers) of El
Salvador's coastal highway by expanding this road from two to four
lanes. The coastal highway is one of the two most important logistical
corridors in the country and connects the country's major logistical
nodes along the Southern coastal zone of the country, including its two
sea ports (La Union and Acajutla) and the international airport.
The Border Crossing Infrastructure Activity seeks to
relieve the freight and passenger traffic congestion at the border
crossing into Honduras at El Amatillo by improving a 5.7 kilometer road
leading to the border and modernizing the border-crossing facilities on
the Salvadoran side. MCC will invest in the construction of control
stations at the border, including buildings, internal access and
connecting roads, parking areas, water and sanitation, and other
infrastructure components that may be necessary for the effective
functioning of these stations.
The estimated ERR for the Logistical Infrastructure Project is
20.31 percent, using a weighted estimate of the calculated ERRs for
each activity.
[[Page 62471]]
5. Program Logic, Expected Results, and Beneficiaries
In order for El Salvador to be competitive and raise productivity
in internationally-traded goods and services, the factors of production
in El Salvador must be competitive on world markets. Those factors
include human capital, physical capital, and often logistics/
transportation. The institutional environment can also affect
productivity. As a result, the Compact takes a multi-pronged approach
to enhance El Salvador's competitiveness in these factors of
productivity.
By streamlining the business environment, improving the quality of
education, and reducing transportation and logistics costs, MCC's
investments are intended to increase the productivity of current firms
involved in the trade of international goods and services, which is
expected to increase current production (and subsequently, employment).
Firms are then expected to invest new revenues in more productive
technology to realize greater returns on future production. Higher
employment and output are expected over time through this self-
reinforcing feedback loop which is enabled by greater productivity in
traded goods and services.
The expected beneficiaries of the Regulatory Improvement Activity
are the firms operating in El Salvador (currently more than 25,000)
that will experience cost savings as a result of regulatory reforms.
The potential expansion of the El Salvador International Airport under
the Partnership Development Activity is expected to decrease delays and
travel costs for travelers, while the wind farm project would increase
the GoES's ability to attract investment for renewable energy. The
beneficiaries of the ESIC are expected to be those firms whose
proposals are selected for grant funding, workers who realize net
income gains associated with employment as a result of the projects,
and third parties who benefit from the public investment.
MCC expects the Human Capital Project to directly benefit students
in grades 7-12 in general and technical education, who realize higher
incomes as a result of more years of education. In particular, the
project is expected to contribute to preventing or postponing the
dropout of approximately 176,000 students. Direct beneficiaries of the
TVET System Reform Activity are expected to be TVET students who
receive higher incomes as a result of receiving skills that are better
matched to labor market needs. Additional beneficiaries of the project
include students who do not attend a full-time inclusive school but
receive increased incomes as a result of improved quality of education
that result from the implementation of reforms at the national level.
Communities may also experience reductions in crime as a result of the
full-time inclusive school model, due to increased permanence in school
and lowered social vulnerability of students.
The beneficiaries for the Logistical Infrastructure Project are the
estimated 171,159 individuals living within five kilometers of either
side of the project sites. Because of the nature of the activities as
key logistical thoroughfares, benefits in the form of reduced vehicle
operating costs and travel time are expected to accrue to individuals
and firms that travel along those corridors.
6. 2006 El Salvador Compact Update and Sustainability Information
In November 2006, the Millennium Challenge Corporation signed a
five-year, $460.94 million compact (the ``2006 Compact'') with the GoES
to improve the economic opportunities of Salvadorans through strategic
investments in agricultural production, rural business development,
education, and transportation infrastructure. The 2006 Compact
consisted of the following three projects:
1. The Connectivity Project, to reduce travel cost and time within
the Northern Zone,
2. The Human Development Project, to increase the human and
physical capital of residents of the Northern Zone and further
employment and business opportunities, and
3. The Productive Development Project, to increase production and
employment through technical assistance, credit guarantees, and capital
investments.
The 2006 Compact entered into force on September 20, 2007 and
closed on September 20, 2012.
Key Achievements of the Compact are as follows:
Connectivity Project: A total of 223.32 kilometers of
road, including three large bridges, and 20 smaller bridges were
constructed in northern El Salvador to help improve connectivity for
farmers and local producers with the rest of the country. This east-
west road in the north stretches close to the borders with Guatemala to
the west and Honduras to the east, and the improvements have reduced
travel time across the Northern Zone from 12 hours to 6.5 hours.
Human Development Project:
Electrification: An estimated 35,412 households now have
electricity in their homes, thanks to the installation of new power
lines and solar power systems, helping to increase the percentage of
households with electricity connections in the Northern Zone from 78
percent in 2007 to 90 percent in 2011.
Water and Sanitation: MCC funded about 272 kilometers of water
pipes as part of the 2006 Compact's investment in water and basic
sanitation that helped connect 7,624 households to potable water.
Education: MCC funded the construction of a new technical community
college, improvements to a teacher training center, and the expansion
and rehabilitation of 20 high schools. The rehabilitation of the high
schools alone is expected to benefit more than 9,700 students every
year.
Productive Development Project: MCC funding assisted an
estimated 17,500 producers through the provision of training, seeds,
equipment, and technical assistance. The project provided 30 loans to
small and medium-sized businesses in the Northern Zone to develop new
or expand investments in the agriculture, tourism and handicrafts value
chains. These loans totaled $5.7 million, of which approximately 20
percent went to women-owned businesses.
Sustainability:
Although no contribution was required from El Salvador during the
implementation of the 2006 Compact, the GoES contributed substantially
in parallel to the Compact to enhance the success of the program.
The Connectivity Project: In the final year of compact
implementation (2012), the GoES also carried out two road maintenance
reforms, increasing annual road maintenance funding by about $26
million (~37% increase). At the end of the five years, the GoES
allocated an additional $13 million to complete two remaining segments
of the Northern Transnational Highway. During the four-month closure
period, all activities under the 2006 Compact were successfully
completed.
The Human Development Project's activities were extensions of
existing GoES programs, built on the National Plan for Education 2021
and designed to strengthen and install permanent capacities in key
Salvadoran ministries and institutions. In addition, the Ministry of
Education agreed to fund infrastructure and equipment maintenance and
continued an agreement with the Gloria de Kriete Foundation to fund
scholarship for secondary education through 2014.
[[Page 62472]]
The Productive Development Project was designed to transition
producers to higher-profit activities, generate new investment, expand
markets and sales, and create new jobs in ways that stimulate
sustainable economic growth and poverty reduction. Actions accomplished
to ensure sustainability of investments made under the Productive
Development Project included the establishment of contracts between
beneficiaries and supported cooperatives and major retailers for the
purchase of horticulture and dairy products. The Ministry of
Agriculture also incorporated the project's beneficiaries into its
national Family Agriculture Plan, its signature agriculture extension
service aimed at improving the profitability of individual and small
and medium-sized producers.
Environmental and Social Sustainability:
As part of an effort to ensure environmental and social
sustainability, all Projects included consultations with the public
regarding various aspects of their implementation. The design of the
Projects, including their major activities, was included in a strategic
environmental assessment that was completed prior to implementation.
The sustainability of the projects was also enhanced by the
institutional capacity building and training in environmental
management acquired through the close cooperation among the
environmental units of the implementing agencies, the Millennium
Challenge Account (MCA), and MCC. The Salvadoran Ministry of
Environment (MARN) received Compact funding support to offset the
additional regulatory costs associated with the Projects. Over the
course of the Compact, collaboration improved between MARN and the
environment units of the implementing agencies.
The GoES and private sector and civil society organizations have
consistently worked to ensure the sustainability of the 2006 Compact
and we expect them to continue to support these investments going
forward.
[FR Doc. 2014-24773 Filed 10-16-14; 8:45 am]
BILLING CODE 9211-03-P