The basin is divided into the upper, middle, lower middle, and lower sub-basins, plus the oceanic end point, each with distinct environmental and socioeconomic characteristics. The estuarine wetlands located at the debouchment of the river into the South West Atlantic form a particularly important and environmentally sensitive habitat. The ecological structure and function of this habitat, as well as its physical integrity, is currently under threat due to unsustainable hydrological management and land use practices within the basin. Some 13 million people are resident in this basin, principally concentrated in the upper sub-basin.

The Master Plan for the Development of the São Francisco River Valley (PLANVASF) was completed in 1989, with the assistance of the GS/OAS, and was designed to provide incentives to the public and private sectors for the development of the basin. This plan included proposals for the development of natural and water resources, increased food production through irrigated agriculture, increased power generation supplying the National Network, increased water and sanitation services, improved river navigation, and enhanced environmental protection.

A coastal zone inventory and macrodiagnostic, including the Rio Sao Francisco estuary, was completed in 1996 by the Government of Brazil with support from The World Bank. This study identified in a mapping format the major human uses of the coastal zone of Brazil, environmentally sensitive sites, and conservation units and reserves, which, in the Rio Sao Francisco coastal zone, are related primarily to agricultural use and conservation of endangered species, including sea turtles.

Subsequently, the Federal Government passed Law 9433/97, creating the National Policy on Water Resources and establishing public institutions such as the basin committees. Presently, the States of Bahia, Pernambuco and Sergipe, within the Rio São Francisco Basin (SFRB), have passed legislation implementing federal law 9433/97 and are creating institutions to implement the new law at the State level, and the States of Minas Gerais and Alagoas are modifying or creating water legislation in order to comply with federal regulations.

The priority environmental concerns in the SFRB are thought to include soil loss, and contamination by organic pollutants and heavy metals which will be systematically identified and quantified through the activities of this project. The SFRB is a very complex area, in which development has occurred in an historically haphazard and sectoral manner, with relatively little integrated planning, and within a relatively weak institutional framework. This has resulted in a less than optimal use of its water resources and degradation of the coastal zone, the root causes of which will be identified during the conduct of this project.

Serious environmental problems identified in the Upper sub-basin include the direct discharge of untreated municipal effluents and industrial and mining effluents containing heavy metals and cyanides. In addition, there is widespread use of agro-chemicals, and deforestation is occurring on a large scale due to the demand for charcoal and the clearing of land for agricultural use and mining. River contamination, and the existence of large and medium size dams further impact fish and aquatic fauna in this sub-basin. In the Middle sub-basin, environmental problems, while limited in comparison to the other sub-basins, include water quality problems, land degradation, and accelerating erosion and desertification. Environmental problems in the Lower-middle sub-basin include water quality problems, contaminant deposition in reservoirs, impaired fish migration, high rates of soil erosion due to agricultural activities, contamination of surface and ground waters by runoff from irrigated lands, and modification of river basin and estuarine geomorphology due to the presence of flow regulation structures.

All of these upstream problems contribute to, or are related to, environmental problems in the lower sub-basin and coastal zone which include: sedimentation; eutrophication in the reservoirs; and oligotrophication of coastal waters; alteration of river flow regimes; reductions in numbers and diversity of fish populations and populations of threatened and endangered species such as the sea turtle which nests along the coast; and increased incidence of endemic diseases.

Building upon previous studies, the primary objective of this project is to conduct planning and feasibility studies required to formulate a Watershed Management Program (WMP) that will promote environmentally sustainable development of the basin as a means of managing environmental degradation of the coastal zone. The WMP will include the identification and implementation of appropriate economic instruments, required to incorporate land-based environmental concerns affecting the coastal zone into the future development policies, plans and programs of the riparian states.

The objective of this Component, comprising the river basin and coastal zone diagnostic study, is to provide the sound scientific and technical basis for the strategic remedial actions for the protection of the marine environment from land-based activities.

The outputs of the activities will include an inventory of the aquatic fauna, flora and hydroclimate in the lower SFRB and historic changes in its composition; an evaluation of the environmental impacts of the river on the coastal zone; an analysis of the floods and the use of artificial floods as an hydrological management mechanism; and an assessment of different scenarios for reservoir operation to minimize environmental impacts on the estuary and coastal zone.

The objective of this component is to provide for the practical, hands on-type involvement of communities in the identification and field testing of remedial measures, as well as the establishment of a dialogue process between persons and agencies with economic interests in the basin.

The outputs of this component will contribute to the establishment of a water use allocation system and to the rational allocation of water and water charges. The strengthened community-based and governmental initiatives resulting from the project activities will contribute to the determination of water use and its impact on the hydrology of the system, and facilitate implementation of water use charges and pilot-scale demonstration projects.

This component strengthens and improves institutional and staffing capabilities to implement new laws, regulations, and procedures. The institutional strengthening and capacity building will contribute to the longer-term success of the watershed management measures identified in the WMP. This component also supports the development of an effective and integrated Rio Sao Francisco Basin Committee structure, as provided for under federal law 9433/97..

The outputs of this component will include a framework for the creation of a financially-sustainable basin management agency, the establishment of an integrated river basin committee consistent with the spirit of Federal Law 9433/07, a framework for inter-agency discussions through the creation of a forum for the interaction of sub-basin committees and water agencies, and public and stakeholders participating in the decision-making process.

Component IV: Formulation of a Watershed Management Program

This component provides for the cooperative development of a comprehensive WMP by both the public and private sectors, based on a multi-sectoral, holistic approach to environmental management and economic development in this Basin and its coastal zone, as provided for in Chapters 18 and 21 of Agenda 21. The activities are based on four main elements: Information Sharing and Dissemination, Quantification of Water Use, Use Conflicts and Hydrological Management, Financial Mechanisms, and Formulation of the Watershed Management Program, leading to a documented strategy and program of action for the integrated management of the SFRB and its coastal zone.

The present project is designed to support an integrated approach in the planning and management of the SFRB and its coastal zone. Integrated sustainable management and development of the basin will generate significant environmental benefits to the region and potential global benefits through demonstration of integrated approaches to freshwater basin and coastal zone management.