[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
----------------------------------------------------------------------------------------------------------------
                                                                                                    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
                                                 ---------------------------------------------------------------
    Total.......................................          $277.0           $88.2          $365.2             100
----------------------------------------------------------------------------------------------------------------

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