world bank document€¦ · contact: marcos alegre title: viceministro de gestion ambiental...

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: PAD1148

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$40 MILLION

TO THE

REPUBLIC OF PERU

FOR AN

ENHANCEMENT OF ENVIRONMENTAL QUALITY SERVICES PROJECT

December 9, 2016

Environment and Natural Resources Global Practice

Latin American and Caribbean Region

This document has a restricted distribution and may be used by recipients only in the

performance of their official duties. Its contents may not otherwise be disclosed without World

Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective as of October 14, 2016)

Currency Unit = Peruvian Sol

3.3199 = US$1

US$ = SDR 1

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ANA National Water Authority (Autoridad Nacional del Agua)

AO Administrative Office

CPS Country Partnership Strategy

CAM Municipal Environmental Commissions (Comisiones Ambientales Municipales)

DGCA Department of Environmental Quality (Dirección General de Calidad

Ambiental)

DIGESA Department of Environmental Health (Dirección General de Salud Ambiental)

DGIIA Department of Environmental Information and Research (Dirección General de

Investigación e Información Ambiental)

DGPNIGA Department of Environmental Management Policy, Standards and Instruments

(Dirección General de Políticas, Normas e Instrumentos de Gestión Ambiental)

ECA

EPR

Environmental Quality Standards (Estándares de Calidad Ambiental)

Environmental Performance Review

EVAP Preliminary Environmental Assessment (Evaluación Ambiental Preliminar)

GESTA Technical Study Groups on Air Quality (Grupos de Estudio Técnico Ambiental

de La Calidad del Aire)

GLP Good Laboratory Practice

GoP Government of Peru

IBRD

INACAL

International Bank for Reconstruction and Development

National Institute of Quality (Instituto Nacional de Calidad)

IPF Investment Project Financing

LEED Leadership in Energy and Environmental Design

LMP Maximum Allowed Limits (límites máximos permisibles)

MEF Ministry of Economy and Finance (Ministerio de Economía y Finanzas)

MEM Ministry of Energy and Mining (Ministerio de Energía y Minas)

MINAM Ministry of Environment (Ministerio del Ambiente)

MVCS Ministry of Housing, Construction and Sanitation (Ministerio de Vivienda,

Construcción y Saneamiento)

M&E Monitoring and Evaluation

OA Office of Administration

OECD Organisation for Economic Cooperation and Development

OEFA Agency for Environmental Assessment and Enforcement (Organismo de

Evaluación y Fiscalización Ambiental)

OCI Internal Control Office (Órgano de Control Institucional)

PCU Project Coordinating Unit

PIU Project Implementation Unit

POM Project Operational Manual

PRTR Pollutant Release and Transfer Register

PSC

RSA

Project Steering Committee

Regional Safeguards Advisor

SEIA National System of Environmental Impact Assessment (Sistema Nacional de

Evaluación de Impacto Ambiental)

SENACE National Service of Environmental Certification for Sustainable Investments

(Servicio Nacional de Certificación Ambiental para las Inversiones Sostenibles)

SENAMHI National Meteorology and Hydrology Service (Servicio Nacional de

Meteorología e Hidrología)

SIAF Integrated System for Financial Administration (Sistema Integrado de

Administración Financiera)

SINADA National System of Environmental Grievances (Servicio de Información

Nacional de Denuncias Ambientales)

SINIA National Environmental Information System (Sistema Nacional de Información

Ambiental)

SNGA National System for Environmental Management (Sistema Nacional de Gestión

Ambiental)

SNIP National Public Investment System (Sistema Nacional de Inversión Pública)

Regional Vice President: Jorge Familiar

Country Director: Alberto Rodriguez

Acting Senior Global Practice Director: Julia Bucknall

Practice Manager: Raul Ivan Alfaro-Pelico

Task Team Leader: Ismael Fernando Loayza Careaga, Ernesto

Sanchez-Triana

PERU

Enhancement of Environmental Quality Services (P147342)

TABLE OF CONTENTS

Page

I. STRATEGIC CONTEXT .................................................................................................1

A. Country Context ............................................................................................................ 1

B. Sectoral and Institutional Context ................................................................................. 2

C. Higher Level Objectives to which the Project Contributes .......................................... 6

II. PROJECT DEVELOPMENT OBJECTIVES ................................................................6

A. PDO............................................................................................................................... 6

B. Project Beneficiaries ..................................................................................................... 7

C. PDO Level Results Indicators ....................................................................................... 7

III. PROJECT DESCRIPTION ..............................................................................................8

A. Project Components ...................................................................................................... 8

B. Project Financing .......................................................................................................... 9

C. Project Cost and Financing ........................................................................................... 9

D. Lessons Learned and Reflected in the Project Design .................................................. 9

IV. IMPLEMENTATION .....................................................................................................10

A. Institutional and Implementation Arrangements ........................................................ 10

B. Results Monitoring and Evaluation ............................................................................ 11

C. Sustainability............................................................................................................... 11

V. KEY RISKS ......................................................................................................................12

A. Overall Risk Rating and Explanation of Key Risks.................................................... 12

VI. APPRAISAL SUMMARY ..............................................................................................14

A. Economic and Financial Analysis ............................................................................... 14

B. Technical ..................................................................................................................... 14

C. Financial Management ................................................................................................ 14

D. Procurement ................................................................................................................ 15

E. Social (including Safeguards) ..................................................................................... 15

F. Environment (including Safeguards) .......................................................................... 16

G. World Bank Grievance Redress .................................................................................. 17

Annex 1: Results Framework and Monitoring .........................................................................19

Annex 2: Detailed Project Description .......................................................................................26

Annex 3: Implementation Arrangements ..................................................................................32

Annex 4: Implementation Support Plan ....................................................................................47

Annex 5: Economic Analysis .......................................................................................................50

Annex 6. Map of Project – MAP IBRD 33465R ........................................................................57

i

PAD DATA SHEET

Peru

Peru: Enhancement of Environmental Quality Services (P147342)

PROJECT APPRAISAL DOCUMENT

LATIN AMERICA AND CARIBBEAN

Environment and Natural Resources Global Practice

Report No.: PAD1148

Basic Information

Project ID EA Category Team Leader(s)

P147342 B - Partial Assessment Ismael Fernando Loayza Careaga,

Ernesto Sanchez-Triana

Lending Instrument Fragile and/or Capacity Constraints [ ]

Investment Project Financing Financial Intermediaries [ ]

Series of Projects [ ]

Project Implementation Start Date Project Implementation End Date

01-Mar-2017 01-Jun-2022

Expected Effectiveness Date Expected Closing Date

01-Jun-2017 01-Jun-2022

Joint IFC

No

Practice

Manager/Manager

Senior Global Practice

Director Country Director Regional Vice President

Raul Ivan Alfaro Pelico Julia Bucknall Alberto Rodriguez Jorge Familiar

Borrower: REPUBLIC OF PERU

Responsible Agency: Ministry of Environment

Contact: Marcos Alegre Title: Viceministro de Gestion Ambiental

Telephone No.: 511-611-6019 Email: [email protected]

Responsible Agency: Organismo de Evaluacion y Fiscalizacion Ambiental

Contact: Tessy Torres Title: Executive President

Telephone No.: 51-1-2049900 Email: [email protected]

Project Financing Data(in USD Million)

[ X ] Loan [ ] IDA Grant [

Guarantee

ii

]

[ ] Credit [ ] Grant [

]

Other

Total Project Cost: 70.41 Total Bank Financing: 40.00

Financing Gap: 0.00

Financing Source Amount

Borrower 30.41

International Bank for Reconstruction and

Development

40.00

Total 70.41

Expected Disbursements (in USD Million)

Fiscal Year 2017 2018 2019 2020 2021 2022

Annual 0.00 3.14 20.18 16.64 0.04 0.00

Cumulative 0.00 3.14 23.32 39.96 40.00 40.00

Institutional Data

Practice Area (Lead)

Environment & Natural Resources

Contributing Practice Areas

Proposed Development Objective(s)

The objective of this project is to generate and share information for environmental quality control at the

national level, by supporting the Government of Peru to improve its environmental monitoring and

analytical capacity, increase public access to environmental quality information, and promote informed

public participation in environmental quality management.

Components

Component Name Cost (USD Millions)

Improve Environmental Quality Control 61.42

Information Disclosure and Public Participation for

Environmental Quality Control

4.83

Project Management 4.16

Systematic Operations Risk- Rating Tool (SORT)

Risk Category Rating

iii

1. Political and Governance Low

2. Macroeconomic Low

3. Sector Strategies and Policies Low

4. Technical Design of Project or Program Moderate

5. Institutional Capacity for Implementation and Sustainability Moderate

6. Fiduciary Substantial

7. Environment and Social Low

8. Stakeholders Low

9. Other

OVERALL Moderate

Compliance

Policy

Does the project depart from the CAS in content or in other significant

respects?

Yes [ ] No [ X ]

Does the project require any waivers of Bank policies? Yes [ ] No [ X ]

Have these been approved by Bank management? Yes [ ] No [ X ]

Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ]

Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ]

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 X

Natural Habitats OP/BP 4.04 X

Forests OP/BP 4.36 X

Pest Management OP 4.09 X

Physical Cultural Resources OP/BP 4.11 X

Indigenous Peoples OP/BP 4.10 X

Involuntary Resettlement OP/BP 4.12 X

Safety of Dams OP/BP 4.37 X

Projects on International Waterways OP/BP 7.50 X

Projects in Disputed Areas OP/BP 7.60 X

Legal Covenants

Name Recurrent Due Date Frequency

Operation and Management expenses

covenant X CONTINUOUS

Description of Covenant

iv

Schedule 2, Section V of the Legal Agreement. The Borrower, through MINAM, shall: (a) ensure that

the funds required to operate and maintain the equipment and facilities under Parts 1.2, 1.3 and 2.2 of the

Project are available, promptly as needed; and (b) shall cause OEFA to ensure that the equipment and

facilities referred to in (a) herein shall at all times during Project implementation be properly operated

and maintained.


SENAMHI Cooperation Agreement 01-Jun-2018


Schedule 2, Section I.B, para 3(a) of the Legal Agreement. For purposes of governing the assistance to

be provided by SENAMHI under Parts 1.2 and 2.1 of the Project, the Borrower through MINAM shall,

and shall cause OEFA to, not later than one (1) year after the Effective Date, enter into a tripartite

agreement with SENAMHI and MINAM (the SENAMHI Cooperation Agreement) under terms and

conditions acceptable to the Bank including, inter alia, SENAMHI’s responsibilities and obligations in

providing assistance to MINAM and OEFA under said Parts of the Project in accordance with the

relevant provisions of the Legal Agreement


ANA Cooperation Agreement 01-Jun-2018


Schedule 2, Section I.B, para. 4(a) of the Legal Agreement. For purposes of governing the assistance to

be provided by ANA to MINAM under Part 2.1 of the Project, the Borrower through MINAM shall, not

later than one (1) year after the Effective Date, enter into an agreement with ANA (the ANA

Cooperation Agreement) under terms and conditions acceptable to the Bank including, inter alia, ANA’s

responsibilities and obligations in providing said assistance under said Part of the Project in accordance

with the relevant provisions of the Legal Agreement.

Conditions

Source Of Fund Name Type

IBRD Operational Manual Effectiveness

Description of Condition

Schedule 2, Section I.A, para. 3 of the Legal Agreement. The Borrower, through MINAM shall cause

OEFA to carry out the Project in accordance with a manual (the Operational Manual), satisfactory to the

Bank, which shall include the rules, methods, guidelines, standard documents and procedures for the

carrying out of the relevant Parts of the Project, including, inter alia, the following: (i) the detailed

description of Project activities and the detailed institutional arrangements of the Project; (ii) the Project

administrative, accounting, auditing, reporting, financial (including cash flow aspects in relation thereto),

procurement and disbursement procedures; (iii) the monitoring indicators for the Project; and (iv) the

Environmental and Social Management Framework (ESMF).


IBRD OEFA Cooperation Agreement Effectiveness


Schedule 2, Section I.B, para. 2(a) of the Legal Agreement. To facilitate the carrying out of the Project,

the Borrower, through MINAM, shall enter into an agreement with OEFA (the OEFA Cooperation

Agreement) under terms and conditions acceptable to the Bank including, inter alia, MINAM and OEFA

v

responsibilities in Project execution, and MINAM’s and OEFA’s obligations to carry out the activities of

the Project in accordance with the relevant provisions of the Legal Agreement.


IBRD Project Coordination Unit (PCU) Effectiveness


Schedule 2, Section I.A, para. 1(a) of the Legal Agreement. The Borrower through MINAM shall cause

OEFA to (i) create, and thereafter operate and maintain until the completion of the Project, a unit (the

PCU) responsible for the management, coordination, supervision, monitoring and evaluation of the

Project, including the carrying out of procurement, financial management and safeguards aspects of the

Project; and (ii) ensure that the PCU is, at all times during Project implementation, headed by a Project

coordinator and assisted by two technical coordinators to assist OEFA in the implementation of Parts 1.2

and 1.3 of the Project, and two technical coordinators to assist MINAM in providing the assistance to

OEFA under Parts 1.1. and 2 of the Project.


IBRD Project Steering Committee (PSC) Effectiveness


Schedule 2, Section I.A, para. 2 of the Legal Agreement. The Borrower, through MINAM, shall

establish, and thereafter maintain throughout the implementation of the Project, a Project Steering

Committee (PSC) with functions, powers, resources and competencies acceptable to the Bank, as defined

in the Operation Manual, including overseeing Project implementation, and providing general policy

guidance.

Team Composition

Bank Staff

Name Role Title Specialization Unit

Ismael Fernando Loayza

Careaga

Team Leader

(ADM

Responsible)

Senior

Environmental

Economist

Environmental

Economics

GEN04

Ernesto Sanchez-Triana Team Leader Lead

Environmental

Specialist

Environmental

Management

GENDR

Selene del Rocio La

Vera

Procurement

Specialist (ADM

Responsible)

Procurement

Specialist

Procurement GGO04

Nelly Ikeda Financial

Management

Specialist

Financial

Management

Specialist

Financial

Management

GGO22

Alonso Zarzar Casis Safeguards

Specialist

Sr Social Scientist Senior Social

Scientist

GSU04

Ana Luisa Gomes Lima Team Member Environmental

Specialist GEN04

Bjorn-Soren Gigler Team Member Senior Governance

GGOII

vi

Specialist

Catarina Isabel Portelo Counsel Senior Counsel LEGLE

Cecilia Belita Team Member Operations Analyst Operations

Analyst

GWA09

Cesar Augusto Tapia Team Member Consultant GWA04

Jiang Ru Team Member Senior

Environmental

Specialist

Environmental

Management

GEN06

Juan Carlos Enriquez

Uria

Safeguards

Specialist

Senior

Environmental

Specialist

Environmental

Engineering

GEN04

Juan Jose Miranda

Montero

Team Member Environmental

Economist

Economist GENGE

Maria Luisa Castro Leon Team Member Consultant GENDR

Maria Virginia

Hormazabal

Team Member Finance Officer WFALA

Mariana Margarita

Montiel

Counsel Senior Counsel LEGAM

Momoe Kanada Team Member Consultant Environmental

Management

GENGE

Oswaldo Patino Team Member Project Management

GTIDR

Sylvia Michele Diez Team Member Environmental

Specialist GEN04

William Reuben Team Member Consultant Consultant GSU04

Extended Team

Name Title Office Phone Location

Locations

Country First

Administrative

Division

Location Planned Actual Comments

Peru Lima Lima X

Consultants (Will be disclosed in the Monthly Operational Summary)

1

I. STRATEGIC CONTEXT

A. Country Context

1. Peru achieved annual GDP growth rates of 6.4 percent between 2006 and 2015 while experiencing low inflation (3.06 percent on average). Growth helped Peru reduce poverty from

54.8 percent to 25.8 percent of the population between 2001 and 2012. Between 2005 and 2014,

the extreme poverty rate reduced from 15.8 percent to 4.3 percent. While inequality remains high

in the country, access to infrastructure, water, sanitation and electricity has increased

substantially due to increasing public investments.

2. Strong macroeconomic and structural reforms over the last 20 years have driven these successes. Macroeconomic stabilization in the 1990s included the introduction of a more flexible

exchange rate regime, inflation-targeting, fiscal discipline, and continued public debt reduction.

Structural reforms covered areas such as financial liberalization, trade, and product and factor

market regulations. As a commodity exporter, Peru also benefited significantly from the

commodity boom, particularly between 2004 and 2013. Relative to other countries in LAC, Peru

used a significant part of the commodity boom for capital accumulation. Together with the

demographic dividend, this provided Peru with enough inputs to fuel growth. Total factor

productivity also contributed about a third of growth over the past 15 years.

3. In spite of this progress, Peru lags in the quality and quantity of its infrastructure. In 2015-2016, Peru ranked 69

th in the Global Competiveness Index, but only 89

th out of 140

economies in terms of infrastructure quality.1 Economic growth has also slowed, since 2014,

because of adverse external conditions and a corresponding decline in domestic confidence and

investments. However, the Government of Peru (GoP) has been proactive in their response to

these challenges undertaking structural reforms and applying a countercyclical fiscal policy to

support aggregate demand.

4. Since December 2014, Peru has had an OECD Country Program2. Through this program, the Government of Peru (GoP) has participated in several of the OECD’s Specialized

Committees and undertaken policy and capacity reviews. One of these was the Environmental

Performance Review of Peru, which provided recommendations for enhancing Peru’s

environmental policy and management. The administration inaugurated on July 28, 2016 aims

for Peru to join the OECD by 2021. The proposed Project will contribute to generate an enabling

environment for enhanced environmental quality control and improved access to environmental

data and information that will help the nation in achieving this goal.

1 World Economic Forum, 2015, Global Competitiveness Report 2015-2016.

http://www3.weforum.org/docs/gcr/2015-2016/Global_Competitiveness_Report_2015-2016.pdf (last accessed on

September 11, 2016). 2 http://www.oecd.org/latin-america/countries/peru/ (last accessed on September 11, 2016).

http://www3.weforum.org/docs/gcr/2015-2016/Global_Competitiveness_Report_2015-2016.pdfhttp://www.oecd.org/latin-america/countries/peru/

2

B. Sectoral and Institutional Context

5. In 2012, the estimated annual cost of environmental degradation in Peru amounted to 4.1 percent of its GDP.

3 Most of this cost came from morbidity and mortality as a result of polluted

air and water. Peru’s cost of environmental degradation is in the regional average (i.e., in 2014

these costs for Colombia were 3.7 percent of GDP). The GoP has attempted to address these

costs, and oftentimes has had significant success. For example, since 2001 the GoP has promoted

conversion of vehicles to natural gas in Lima and supplied clean diesel (with a sulfur content less

than 50 ppm) in areas affected by high levels of air pollution, such as Lima-Callao, Arequipa,

Puno, Cuzco, and Madre de Dios. The GoP has also strengthened its vehicle inspection system,

and prohibited the import of low-quality used vehicles. As a result, population exposure to

outdoor PM2.5 in Lima-Callao has declined by 15 percent over the 2001-2012 period4, in spite

of a 27 percent increase in population.5 The country’s successful phase-out of lead in gasoline

substantially contributed to a reduced risk of lead poisoning in the country. Peru has also made

strides in providing water supply and sanitation: between 2000 and 2012, the population’s access

to improved drinking water sources went from 81 percent to 88 percent, with an increase from

approximately 64 percent to 77 percent in rural areas alone. During the same period, the GoP

expanded the coverage of improved sanitation from around 58 percent to 67 percent of the total

population, primarily in rural areas.

6. However, the development of the Peru's general framework for pollution management and control has been less successful. Pollution control is handled using environmental quality

standards (estándares de calidad ambiental, ECAs) to monitor and evaluate environmental

quality and maximum permissible limits (limites maximos permisibles, LMPs) to control

environmental discharges and emissions from regulated entities. The Department of

Environmental Quality (Dirección General de Calidad Ambiental, DGCA) of the Ministry of

Environment (el Ministerio del Ambiente, MINAM) is responsible for the development of ECAs

and LMPs. Several other ministries develop their own ECAs and LMPs to manage emissions in

their sectors.6 Responsibility for enforcement of these limits is handled by the Agency for

Environmental Assessment and Enforcement (Organismo de Evaluación y Fiscalización

Ambiental, OEFA). These institutions and the system for environmental quality control have

some weaknesses, which are discussed below, and the proposed Project’s primary objective is to

3 World Bank, 2016, Perú: Como reducir la contaminación y ampliar los servicios de control de calidad ambiental,

Notas De Política. http://documents.worldbank.org/curated/en/928271476428971072/pdf/109077-BRI-P160939-

Series-Perú-Notas-de-Política-2016-PUBLIC-

Cmoreducirlacontaminacinyampliarlosserviciosdecontroldelacalidadambiental.pdf, accessed on December 13, 2016. 4 Particulate matter, or PM, is the term for particles found in the air, including dust, dirt, soot, smoke, and liquid

droplets. Many manmade and natural sources emit PM directly or emit other pollutants that react in the atmosphere

to form PM. These solid and liquid particles come in a wide range of sizes. Particles less than 10 micrometers in

diameter (PM10) pose a health concern because they can be inhaled into and accumulate in the respiratory system.

Particles less than 2.5 micrometers in diameter (PM2.5) are referred to as "fine" particles and are believed to pose

the greatest health risks. Because of their small size, fine particles can lodge deeply into the lungs. 5 World Bank, Implementation Completion and Results Report (IBRD-76740/IBRD-78100/IBRD-79500) on

Programmatic Loans in the Amount of US$455 Million to the Republic of Peru for the First, Second, and Third

Environmental Development Policy Loans. Report No: ICR00001921. September 30, 2016. 6 In addition to MINAM, three other ministries have established LMPs for their own sectors: Ministries of Energy

and Mining (Ministerio de Energia y Minas, MEM), Production (Ministerio de Produccion), and Housing,

Construction and Sanitation (Ministerio de Vivienda, Construccion y Saneamiento, MVCS).

http://documents.worldbank.org/curated/en/928271476428971072/pdf/109077-BRI-P160939-Series-Perú-Notas-de-Política-2016-PUBLIC-Cmoreducirlacontaminacinyampliarlosserviciosdecontroldelacalidadambiental.pdfhttp://documents.worldbank.org/curated/en/928271476428971072/pdf/109077-BRI-P160939-Series-Perú-Notas-de-Política-2016-PUBLIC-Cmoreducirlacontaminacinyampliarlosserviciosdecontroldelacalidadambiental.pdfhttp://documents.worldbank.org/curated/en/928271476428971072/pdf/109077-BRI-P160939-Series-Perú-Notas-de-Política-2016-PUBLIC-Cmoreducirlacontaminacinyampliarlosserviciosdecontroldelacalidadambiental.pdf

3

address critical gaps affecting the effectiveness of the Peru’s environmental quality control

system.

7. External observers have called attention to the country's limited environmental quality control capacity: as a World Economic Forum report points out, Peru is positioned higher among

the Latin American countries in terms of aggregate environmental sustainability, but performs

poorer on indicators related to the stringency and enforcement of the country’s environmental

regulations.7 The report specifically highlights that “enforcement of environmental regulations is

quite lax, to the detriment of efforts to preserve the environment” and “pollution of water

resources, especially in areas with strong mining development … has recently spurred several

local protests in the country.”8

8. There are several areas in which Peru's environmental quality control is lacking: (a) some environmental quality and compliance standards are absent or inadequate; (b) environmental

monitoring and analysis capacities are insufficient; (c) key environmental monitoring agencies

do not share information; (d) disclosure of environmental information is limited, and (e) there are

few channels for public participation.

9. The ECAs and LMPs are still evolving and they are incomplete to manage the country’s environmental quality. Furthermore, the currently regulated values of ECAs and LMPs do not

adequately take into account the uncertainty associated to different measurement systems and

time coverages. As a result, ECAs and LMPs need to be expanded and, in some cases, revised to

control effectively the country’s environmental quality.

10. Another deficit is the lack of environmental monitoring networks for air and water. According to OEFA, regular air quality monitoring is limited to major urban centers, such as

Lima-Callao, and water quality monitoring is performed only in the country's main river basins.9

In addition, monitoring practices are not consistent across different monitoring stations.10

As a

result, OEFA and MINAM have not been able to establish good baselines and trends for air and

water quality in priority areas of the country. The selection of sites for setting monitoring stations

also has been influenced by hotspots where a large number of environmental complaints are

registered, which leaves priority areas uncovered.

11. In addition, problems in the use of statistical methods used for sampling, including the uncertainty level associated with the sampling results have affected the validity and

representativeness of the environmental data. Due to these analytical shortcomings, the

aggregate results of environmental quality data in air and watersheds are not always reliable and,

therefore, of little usefulness for environmental policy at the local, regional and national levels.

7 Global Competitiveness Report (2013-2014). Environmental sustainability is defined as “the institutions, policies

and factors that ensure an efficient management of resources to enable prosperity for present and future

generations”. (http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2013-14.pdf, last accessed on

September 11, 2016) 8 ibid.

9 Clean Air Institute (2015), Peru: Air Quality Monitoring Under Mining Driven Development. Final report prepared

for the World Bank. Unpublished. 10

ibid.

http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2013-14.pdf

4

12. Monitoring efforts are also hampered by poor analysis. In Peru, third party laboratories undertake most of the analysis of samples, and the authorities do not maintain rigorous quality

control amongst the labs. According to OEFA, nationwide only 35 out of 200 laboratories

providing environmental analytical services are accredited, and many of them do not cover all of

the parameters they ought to.11

Existing laboratories can only analyze up to 53 out of the 105

legally required parameters related to water ECAs, and only a few laboratories are capable of

measuring air quality parameters.

13. As a result of these weaknesses, the available environmental quality data has not satisfied the public's demand for knowledge. Environmental contingency plans are rendered useless

because there is not enough data to tell when they ought to be triggered, and the lack of data on

the sources of pollution hampers evidence-based environmental quality control. The public's

distrust of the government, especially when it comes to decisions regarding the mining industry,

is exacerbated whenever the government is unable to provide data on the source and magnitude

of pollution issues. And, this distrust in turn leads to environment-related conflicts that have

adverse effects on economic growth.

14. Even when information does exist, it cannot easily be shared across agencies involved in different aspects of environmental quality control. While the GoP has established norms for

inter-operational processes to facilitate information exchange among the agencies, the

implementation of these norms is lagging behind. For air quality monitoring, the Department of

Environmental Health (Dirección General de Salud Ambiental, DIGESA) of the Ministry of

Health manages five air quality monitoring stations in Lima and Callao, while the National

Meteorology and Hydrology Service (Servicio Nacional de Meteorología e Hidrología,

SENAMHI) manages ten air quality monitoring stations focusing on monitoring atmospheric

pollutants; and a municipal transport company Protransporte has three monitoring stations to

monitor air pollution emissions from the Bus Rapid Transit services in the same metropolitan

area. However, the GoP has not been able to combine the data from all these stations into one

coherent and standardized system.

15. To organize the country's disparate environmental information systems, the GoP developed, in 2010, a National Environmental Information System (Sistema Nacional de

Información Ambiental, SINIA, http://sinia.minam.gob.pe) with the purpose of collecting

environmental management information from related authorities12

, performing data processing

and analyses13

, and enabling data access and dissemination.14

However, SINIA is plagued by

inadequate monitoring equipment and field recording devices, teams with low technical capacity,

11

OEFA (2016), Estudio de Preinversion a Nivel de Factibilidad del Proyecto de Inversión Pública: Mejoramiento

y Ampliación del Servicio de Control de la Calidad Ambiental a Nivel Nacional. Unpublished report. Lima. 12

Such information includes: (a) administrative records; (b) data from monitoring sensors; (c) inventories, censuses

and surveys; (d) remote sensing data; and (e) environmental monitoring data. 13

Data processing and analyses include (a) data quality control; (b) indicator development; (c) geospatial analysis;

and (d) environmental modeling. Currently, main environmental reports in Peru include: (a) National State of the

Environment Report; (b) Annual Solid Waste Report; (c) Environmental Performance Report; (d) Sectoral

Ecological Footprints; (e) ILAC: Series Sustainable Development Indicators; (f) Climate Change Communications;

(g) National Environmental Agenda; (h) Environmental Figures (pocket); and (i) Sector Reports. 14

Data access and dissemination are expected to be achieved through (a) web portals; (b) virtual library; (c)

environmental reports; (d) map catalogues; and (e) social networks.

http://sinia.minam.gob.pe/

5

outdated technical equipment, and incomplete procedures and protocols for data recording and

inputs. MINAM also has limited capacity to perform information analysis, and the SINIA portal

does not have sufficient processing capacity to collect, store and share the environmental quality

information generated by all agencies as per the requirements of government regulations. For

these reasons, SINIA has yet to achieve its mandate of sharing environmental quality information

across agencies and supporting sound decision making for sustainable economic development

activities.

16. The last key issue is the lack of informed and active public participation. Peru is a country facing more frequent, and more intense, social conflicts linked to perceived

environmental impacts and degradation.15

In addition to the information availability issues

mentioned above, there are two additional constraints. One constraint is the limited channels for

the public to voice their environmental concerns and grievances. Another constraint pertains to

technological/geographical barriers such as rural populations’ limited access to the prevailing

internet-based platforms as well as the lack of user-friendly formats of the existing system.

MINAM acknowledges that the environmental complaints and grievance mechanisms in practice

involve cumbersome and inflexible processes with limited transparency, which inevitably

discourages public participation, particularly by the rural poor.

17. MINAM has promoted information disclosure through its SINIA portal, which has documented over 750,000 visits from 2010 to 2014. But MINAM hasn't been able to move past

SINIA and find other ways to engage with the public. The absence of a multimodal information

platform has constrained SINIA’s capacity to reach out to a diverse range of potential users, in

particular those living in rural areas. The current SINIA system is designed as a one-way

communication platform and provides no interface for the public to provide inputs on

environmental management issues. This lack of interactivity has severely limited SINIA's

effectiveness as a public disclosure instrument.

18. The GoP recognizes that it faces issues at all levels of its environmental quality control system. At the top level, it lacks emissions limits in some areas, and in other areas the values of

these limits must be adjusted. However, this cannot be done, because there is not enough data.

Knowledge on sources of pollution and how bad is the pollution is insufficient. This knowledge

gap is the result of deficiencies in the monitoring network, both in terms of the quality of the

network and in terms of number and placement of the monitoring networks, and deficiencies in

analysis—even when samples exist, they must be analyzed by labs that are unable to run all the

necessary tests. However, even when regulators can circumvent these problems and produce

some data, institutional barriers prevent them from disseminating the data across agencies, which

means the data cannot get to the planners who need it. Nor have they proven successful in

collecting and disseminating the data to the public.

19. Acknowledging this situation that impairs transparent, accountable and participatory environmental quality control, the GoP has requested a World Bank financed project to support

its efforts to systematically address the regulatory, monitoring, and information challenges for

15

Ombudsman monthly reports on social conflicts (Reporte de Conflictos Sociales). For example, in the

Ombudsman database between October 2013 (report number 116) and October 2016 (report number 152)

socioenvironmental conflicts increased from 66.0 to 70.3 percent of all registered conflicts.

6

effective environmental quality control in order to enhance environmental management and

develop an evidence-based environmental policy.

C. Higher Level Objectives to which the Project Contributes

20. The Project is in line with the Country Partnership Strategy (CPS) for the Republic of Peru for FY12-FY16 (Report No. 66187-PE), discussed by the Executive Directors on February

1, 2012, by supporting two of its four strategic objectives: the sustainable growth and improved

public sector performance objectives. Given the fact that environmental degradation

disproportionately affects the health and productivity of the poor and hinders sustainable

economic development, the proposed Project, to the extent that it improves Peru's ability to

recognize and mitigate environmental health risks, will also contribute to the Bank’s twin goals

of ending extreme poverty and promoting shared prosperity.

21. The proposed Project is also directly aligned with the priorities of the new Government to develop indicators, baselines, evidence-based policymaking and measuring impacts of

environmental policies. The GoP has expressed interest in joining the OECD. The main

contribution of the Project to the Peru’s OECD country program is creating an enabling

environment for a more robust environmental management that will facilitate the implementation

of OECD recommendations in Peru. This Project will also directly implement some of the

OECD's recommendations, such as the strengthening of SINIA through the investments

supported by component 216

. Other components will indirectly contribute to the implementation

of the Peru OECD country program. For example, Peru seeks to establish the Pollutants Release

and Transfer Registry (PRTR) that is required under the OECD standards. But if this registry is

going to be effective, Peru needs a reliable environmental quality monitoring system.

II. PROJECT DEVELOPMENT OBJECTIVES

A. PDO

22. The objective of the proposed Project is to generate and share information for environmental quality control at the national level, by supporting the Government of Peru to

improve its environmental monitoring and analytical capacity, increase public access to

environmental quality information and promote informed public participation in environmental

quality management.

23. To achieve this objective the Project will (i) improve the regulatory framework for controlling environmental quality, (ii) increase environmental monitoring and analytical capacity

and practice, (iii) enhance quality assurance and quality control of environmental monitoring

systems, (iv) modernize information disclosure and interactive services with the public, and (v)

provide free access to reliable environmental quality data. As noted, successful implementation

of this proposed Project will lay a solid foundation for the country’s accession to the OECD and

for the country to move into the next stage with follow-up actions to reduce costs of

16

Recommendation 7 of the “Plan de acción para la implementación de las recomendaciones de la Evaluación de

Desempeño Ambiental (EDA) elaborado por la OCDE/CEPAL” approved under the legal umbrela of Supreme

Resolution N° 04-2016-MINAM.

7

environmental degradation through an empowered civil society, improved decision making in

environmental policy and management, and better enforcement of environmental regulations.

B. Project Beneficiaries

24. This Project’s primary beneficiaries will be OEFA and MINAM. OEFA will receive Project support to strengthen its human and technical capacity in environmental monitoring and

analysis; MINAM will strengthen its regulatory capacity, information collection and disclosure,

and ability to mobilize public participation. After the platform is upgraded, SINIA's

environmental data will benefit all national, regional and local agencies in charge of

environmental management. This would include dissemination of data on greenhouse gases as it

becomes available. For example, concentrations of nitrous oxides and ozone will be measured in

the cities where the project will support the establishment of air monitoring networks.

Furthermore, SINIA's new information disclosure and public participation platforms will benefit

concerned private sector entities, civil society and the general public by providing them with

access to the tools they need to influence environmental policy. In addition, SENAMHI will

receive radiosonde equipment for weather studies in Lima-Callao and hardware for upgrading its

data center capacity to share information with SINIA.

C. PDO Level Results Indicators

25. The following indicators will measure the Project’s achievements on the PDO.

(a) Validated air quality monitoring networks in operation supported by the Project. This

indicator measures the Project’s impact on improved air quality monitoring services and

Project’s contribution to recommendation 25.1 of the Action Plan for the implementation

of the recommendations of OECD Environmental Performance Review (EPR) of Peru.17

(b) Validated surface water quality monitoring networks in operation supported by the

Project. This indicator measures the Project’s impact on improved water quality

monitoring services.

(c) Analytical parameters accredited for the OEFA laboratory. This indicator measures the

progress of the Project-financed laboratory in achieving its designed analytical capacity.

(d) Environmental quality information disclosed through SINIA. This indicator measures

how much of the available environmental quality monitoring data SINIA will be able to

collect and disclose to the public. This indicator is aligned with recommendation 7 of the

OECD Environmental Performance Review of Peru, 2016.18

(e) Average user satisfaction score of SINIA. This indicator measures how effectively the

new system satisfies public demand for environmental quality information and facilitates

17

Recommendation 25.1 of the Action Plan for the implementation of the recommendations of OECD EPR of Peru,

approved under Supreme Resolution 04-2016-MINAM, requires implementation of 31 prioritized air monitoring

networks, six of which will be implemented with support from project. The existing Lima-Callao air quality

monitoring network will be enhanced and validated by the project. 18

Recommendation 7 of the OECD’s Environmental Performance Review of Peru suggests continue strengthening

the environmental information system and its use in public policy. This requires ensuring “the continuous,

representative and obligatory reporting of basic environmental information with adequate and internally

standardized coverage”. ENV/EPOC/WPEP(2006)3, Environment Directorate, OECD.

8

participation in environmental quality management. The indicator will be disaggregated

by sex to identify potential variations in average user satisfaction.

III. PROJECT DESCRIPTION

A. Project Components

26. Component 1: Improve Environmental Quality Control (US$ 61.42 million, of which US$ 37.28 million financed by the Bank Loan). This component will support MINAM and OEFA to

carry out their responsibilities in air, water and soil monitoring and analysis based on an improved regulatory framework, the development of capacities and infrastructure for effective

environmental monitoring, and the strengthening of analytical and quality control and quality

assurance capacities. The component has three subcomponents: (1.1) Environmental Quality

Standards and Guidelines; (1.2) Monitoring and Analytical Capacity Building; and (1.3)

Monitoring and Analysis.

27. More specifically, subcomponent 1.1: ‘Environmental Quality Standards and Guidelines’ will support DGCA of MINAM to strengthen the regulatory framework. It will also support the

preparation of technical standards, protocols and guidance for ambient monitoring and analytical

activities, baselines and pollution sources studies for supporting evidence based policy making

and environmental quality control. Subcomponent 1.2: Monitoring and Analytical Capacity

Building will support OEFA to better monitor air and water quality in priority air sheds and

watersheds of the country. Subcomponent 1.3 Monitoring and Analysis will support OEFA to

design, construct, equip and operate a state-of-art national environmental analysis laboratory to

be accredited with ISO/IEC 17025:2006 (General requirements for the competence of testing and

calibration laboratories). This laboratory will have two separated sections. The section that will

cover the analytical demand of OEFA and another section, the validation and settlement

laboratory, that will cover the need for quality control of public and private laboratories. This

section will perform the functions of a reference laboratory. OEFA will also promote the

adoption of Laboratory Good Practices and oversee compliance with these practices. It

periodically will publish the list of the laboratories with good practices and the associated risks

of using data generated in laboratories that do not have good practices to induce a gradual

upgrade of the validity and reliability of environmental data in Peru.

28. Component 2: Improve Information and Public Participation for Environmental Quality

Control (US$ 4.83 million, of which US$ 2.72 million will be financed by the Bank Loan). This

component will support (2.1) interconnection of existing environmental quality databases; (2.2)

improvement of SINIA’s capacity to manage environmental quality data; (2.3) development and

deployment of user-friendly IT platforms accessible to the public but tailored to the information

needs of different stakeholders/audiences; (2.4) development and deployment of communication

tools for public inputs on environmental quality management issues; and (2.5) improvement of

stakeholders’ capacity to use the new environmental information tools. As a result, this

component will improve SINIA’s capacity to: (i) collect, store and share environmental quality

information generated by various agencies at the national and local levels; and (ii) facilitate the

9

dissemination of environmental quality information and public participation in environmental

quality management.19

29. Component 3: Project Management (US$ 4.16 million, fully financed with counterpart

contributions). This component will support MINAM and OEFA's efforts to implement the

project activities, through provision of technical assistance, goods, consultants' services and

operating costs. Special attention will be given to the close coordination of project activities

under Components 1 and 2 to generate the synergies needed to effectively achieve the PDO.

30. A detailed description of the proposed Project’s components is provided in Annex 2.

B. Project Financing

31. The selected lending instrument is Investment Project Financing (IPF). An IBRD loan will be provided to the Republic of Peru, which will allocate the loan proceeds to OEFA.

C. Project Cost and Financing

32. The proposed Project cost will be US$ 70.41 million, of which US$ 40 million would be financed by the IBRD loan. The counterpart funding will be provided through the government’s

budget allocations for public investment resources to OEFA and MINAM and OEFA’s own

revenues.

Project Components Project cost* IBRD Financing % Financing

1. Improve Environmental Quality Control

2. Improve Environmental Information and Public

Participation for Environmental Quality Control 3. Project Management

Total Costs

61,418,150

4,829,837 4,159,319

37,277,479

2,722,521 0

60.69

56.37 0

Total Project Costs

Total Financing Required

70,407,306

40,000,000

40,000,000

56.81

* Including tax

D. Lessons Learned and Reflected in the Project Design

33. Although Peru has made considerable progress in developing an institutional framework for environmental management, reforms have also revealed a number of capacity gaps. In its

initial talks with the Bank regarding a possible Project, MINAM set forth an ambitious agenda

that covered from strengthening environmental impact assessments systems, improving

environmental quality control, developing environmental information systems and promoting

public participation in environmental management. By attempting to respond to this agenda, the

main lessons learned were the need for matching aspirations with capacity and setting goals that

are achievable within the Project timeframe. This required reaching in the environment sector for

19

Although the Project will not monitor emissions of air pollutants, the air monitoring stations supported by the

Project will track concentrations of nitrous oxide and ozone, which are greenhouse gases, in priority air sheds. The

measuring of concentrations of PM2.5, which the project will support, may provide a proxy for concentrations in the

air of black carbon, which is an aerosol that significantly contributes to climate change.

10

institutional and technical capacities for Project preparation additional to MINAM’s capacity as

well as narrowing down the Project’s focus to one or two strategic issues.

34. As a result, OEFA was invited by MINAM to join the project due to its focus on environmental quality control and enforcement. Also, the Bank and MINAM's initial focuses,

which involved strengthening environmental impact assessment systems through support for the

National Agency for Environmental Certification (SENACE), was eventually dropped from the

project, because discussions had revealed that the gaps in environmental quality control were a

larger priority. Another initial focus was on increasing the in-person public participation in

decision-making, but as discussions continued, the government began to focus on the potential

opened by the Web: the new focus was on generating high quality environmental information

and broadly sharing this information with the civil society. This was conceived as a first stage,

which could be followed with more ambitious and direct ways of involving the civil society in

environmental management.

35. Another key lesson has been recognizing the need for only one head of the Project to ensure close coordination between MINAM and OEFA. This resulted in the creation of the PSC

to provide overarching vision but managerial responsibility and oversight is ensured through the

PCU to be based in OEFA. This unit will manage and coordinate project implementation with

different units within MINAM and OEFA. During project preparation, the possibility of creating

two separate project coordinating units, one within MINAM and one within OEFA was

considered, and clearly dividing tasks between the two. However, this would have increased the

risk of management fragmentation and insufficient coordination for Project implementation.

Ultimately, this suggestion was decided against because there are major synergies between the

objectives of the two agencies that the GoP and the Bank wanted the Project to reap. More

specifically, MINAM, which is responsible for quality control regulations, and OEFA, which is

responsible for the actual quality control, ought to coordinate closely when designing and

implementing the environmental information systems that will be a key input into both of their

tasks.

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

36. Following Project approval, MINAM will establish a project steering committee (PSC) to oversee project implementation and give the project strategic direction. This committee will

include the Vice Minister of Environment Management, who will chair the PSC, the President of

OEFA, the General Director of Public Investment from MEF, a representative of the Planning

and Budget Office of MINAM, the General Director of Environmental Information and Research

of MINAM and the Project Coordinator. The PSC will approve the Project Operations Manual

(POM), which is a condition of effectiveness.

37. The Project executing agency is OEFA, which is an agency with an independent budget status under MINAM. OEFA will manage the loan proceeds through a Special Account to be

established in the Banco de la Nación. For implementing the Project, OEFA will establish a

Project Coordination Unit (PCU), which will coordinate with related OEFA’s and MINAM’s

departments and other national agencies. Also, OEFA will hire the PCU’s key staff including the

11

PCU coordinator, the legal, financial and procurements specialists. Both actions the creation of

the PCU and hiring of its key staff are conditions of effectiveness. After effectiveness, OEFA

will hire additional staff for the PCU prioritizing on the four Project technical coordinators who

will assist in the implementation of subcomponents 1.1, 1.2, 1.3 and component 2. OEFA’s

Administrative Office (AO) will perform financial management and disbursement activities for

Project implementation with support from the PCU.

38. While OEFA will be responsible for the Project’s management, it will closely cooperate with MINAM in performing this activity. MINAM will approve ToRs and clear the goods and

services provided by the contractors for the implementation of subcomponent 1.1 and component

2. The PCU will put in place in MINAM a team of technical, financial/procurement and

administrative specialists to assist in this coordination process. OEFA and MINAM will establish

a cooperation agreement to define in detail their roles and responsibilities in Project

implementation that is a condition of effectiveness. In addition, SENAMHI and ANA will

provide information on environmental quality to MINAM through SINIA. SENAMHI will

receive IT equipment and a radiosonde funded by the Project from OEFA. Cooperation

agreements between OEFA, SENAMHI and MINAM; and MINAM and ANA will be

established to reflect the different responsibilities between the parties.

39. MINAM and OEFA jointly developed a POM to define (a) the roles and responsibilities of all agencies involved in Project implementation; (b) financial management, disbursement,

procurement and safeguard arrangements; (c) procedures and processes to carry out Project

implementation; and (d) monitoring and evaluation (M&E), reporting and information disclosure

arrangements. MINAM and OEFA submitted the POM to the Bank prior to negotiations. More

detailed Project institutional and implementation arrangements can be found in Annex 3.

B. Results Monitoring and Evaluation

40. The results framework has been developed in close discussion with MINAM and OEFA. The overall responsibility for Project M&E will lie with the OEFA PCU. The PCU will

consolidate the data at the Project level, monitor Project implementation progress, including the

execution of all activities, procurement and contractual activities, accounting and financial

records, and other operational and administrative matters, and produce semi-annual reports

describing this progress. The POM specifies M&E responsibilities, including data requirements,

responsible parties, frequency and timing of information collection, and reporting arrangements.

The proposed Project's results framework can be found in Annex 1. During implementation, the

Bank will monitor and evaluate implementation results through regular implementation support

missions and review meetings.

C. Sustainability

41. This proposed Project supports critical elements of the country’s environmental strategy and action plans by supporting MINAM and OEFA in their efforts to collect, analyze and

disseminate environmental quality information. The government plans to fund these expenses

12

during implementation and operation from OEFA’s own resources.20

A covenant to cover O&M

costs, during Project implementation, of the laboratory and air and water monitoring networks

supported by the Project was included in the legal agreement. Moreover, the government holds

this Project as a high priority. Not only does the GoP wish to achieve transparent, accountable

and inclusive governance, it also wants to improve Peru's environmental management practices

in order to meet OECD requirements. Finally, the public’s demand for sound and timely

environmental quality information will help motivate the GoP to sustain and scale up Project

results.

V. KEY RISKS

A. Overall Risk Rating and Explanation of Key Risks

42. The overall risk rating of the proposed Project is assessed as Moderate. Key risks arise from fiduciary management and technical design.

43. The fiduciary risks are Substantial due to OEFA’s lack of experience in procuring and managing both Bank-financed projects and large investment projects. Project delays may also

result from difficulties in procuring specialized equipment for the OEFA’s laboratory and the

possibility of slow mobilization of the counterpart budget funds to support the PCU. Risk

mitigation measures include establishing of the PCU, project management training for PCU staff,

overall strengthening of financial management and procurement functions at OEFA, and the

establishment of systematic inter-agency procedures that are included in the POM. Highly

qualified technical and procurement specialists will be recruited to support the PCU, including a

specialist with experience in procurement for large projects and preferably knowledge of

environmental laboratory equipment and technology. As a result, the OEFA’s residual risk of

institutional capacity for implementation and sustainability is moderate.

44. OEFA will also hire a specialized firm to build its laboratory. Because of the size of this contract, which will include both the construction of the lab and procurement of equipment,

OEFA will look for firms that are experienced in setting up laboratories. This would lower the

risk of issues and delays. In addition, specialized consultancies will increase OEFA’s capacity

for managing and supervising the implementation of the subcomponents “Monitoring and

Analytical Capacity Building” and “Monitoring and Analysis”. Finally, the Bank’s regular

implementation support missions will also help the PCU identify implementation issues at early

stages and take corrective actions as needed.

45. Technical design risks for the proposed Project are rated Moderate on three fronts: (a) possible delays in the procurement of the land plot by OEFA; (b) institutional capacity for

implementation and sustainability; and, (c) difficulties that may arise because Project

management is funded solely by counterpart funding.

20

OEFA will save resources that currently uses to pay for analytical services from third party laboratories. OEFA

has estimated that these savings cover the O&M expenses of the laboratory whose construction and equipment will

be supported by this project.

13

46. For mitigating the risks with regard to the procurement of land OEFA carried out a market study to identify the best technical and economic options for the laboratory site. The

study included publication through newspapers of a request for proposals. OEFA received fifty-

two proposals and evaluated their compliance with municipal regulations for the construction of

laboratories, availability of public utilities, safety, and absence of physical and legal liabilities.

From the evaluation of proposals, OEFA identified two possible plots; of these the least cost

option is located in the province of Callao. However, during Project implementation OEFA may

select another land plot that offers better technical conditions or price. OEFA cannot progress

further in the acquisition of the land until Project approval. Thus, Project implementation could

be delayed, if the selected land lot becomes unavailable after the Project’s approval. However,

this risk is moderate because alternative land plots are available.

47. Potential institutional frictions and coordination problems between OEFA and MINAM create a risk for Project implementation and sustainability. This risk was substantial during

preparation when both MINAM and OEFA wanted to have separate PCUs for implementation.

In that situation, which did not materialize, OEFA would have had to transfer directly billed

revenues to MINAM and coordination and fine-tuning between policy makers (MINAM) and

regulators (OEFA) of environmental quality control was not ensured. Mitigation measures of

these risks have been (i) the creation of only one PCU and (ii) vesting in OEFA the main

responsibility of Project implementation because OEFA has stronger Project implementing

capacity than MINAM and it is less vulnerable to political interferences. Moreover, because

MINAM has (i) the control of the critical policy and technical processes for the implementation

of component 2 and subcomponent 1.1 and (ii) the defining voice in the PSC, a system of checks

and balances has been built in the institutional arrangements for Project implementation. This

system avoids undue influence of OEFA on the policy, regulatory and information sharing

aspects of the Project at the same time that encourages coordination between MINAM and

OEFA. As a result, the residual risk of the institutional capacity for implementation and

sustainability is moderate.

48. Another risk faced by the proposed Project would be insufficient counterpart funding to support Project management. This risk is created by the government policy of not allowing the

use of loan proceeds for Project management. However, this risk is moderate because OEFA can

and will use the resources from its directly billed revenues to cover their financial obligations for

the Project21.

In 2017, OEFA will entirely cover the expenses for the Project from this source22.

Between 2018 and 2022, these resources, along with ordinary revenues from the Treasury, will

cover the cost of operating the PCU. The Bank will monitor these technical risks closely and

support MINAM and OEFA to take necessary actions to minimize the impact of these risks on

Project implementation.

21

The report No 022-2016-EF/63-01 of the Ministry of Environment and Finance that gives the project viability

(viabilidad del programa) establishes that OEFA will cover at least 45.20 percent of the project management costs

from its directly billed revenues. 22

October 26, 2016, e-mail confirmation message from OEFA’s Head of the Planning and Budget Office.

14

VI. APPRAISAL SUMMARY

A. Economic and Financial Analysis

49. In all areas of the proposed Project there are classic market failures that justify public funding, as long as delivery is well designed and cost effective. The proposed Project aims to

strengthen public institutions (MINAM and OEFA for Component 1; and SINIA for Component

2), which provide public goods to Peruvian society. The production of comprehensive, and

publicly-accessible environmental data deserves public funding because markets cannot function

efficiently if they don't have information about the potential impacts of various measures.

Environmental data are a key part of mitigating impacts, promoting better environmental

management, increasing regulatory oversight, and improving enforcement and compliance.

Consequently, the proposed Project justification is clear: this is a situation where a medium-sized

investment from the Bank can catalyze further action on the part of the government and the

public.

50. Following a cost-benefit approach, the benefits and costs were monetized by estimating the benefits of lower air and water pollution in future mortality and morbidity rates in relation to the

Project’s component 1. For component 2, estimated monetary benefits are related to time saved

while searching information at SINIA’s website. The ex-ante economic analysis suggests that

Project-supported investments will generate substantial benefits for beneficiaries in areas served

by the Project, as well as substantial benefits for Peruvian society as a whole (Annex 5). Overall,

the net present value (NPV) is projected to at between US$ 40 million (low case scenario) and

US$ 84 million (high case scenario), while the internal rate of return (IRR) to this investment is

estimated at between 20 and 30 percent. Results are robust to adverse changes in the key

parameters.

B. Technical

51. This proposed Project supports the GoP in developing its capacity to better manage environmental quality. For Component 1, the current Project design will help ensure that

recognized international practices in environmental quality control are used in the review and

revision of ECAs and LMPs as well as in the procurement, construction and operation of the

Project sponsored laboratory, monitoring and analytical equipment, and monitoring stations for

air and water. For Component 2, the proposed investments will support the upgrade of SINIA's

existing technical infrastructure, but the Project will avoid duplicating investments or

unnecessarily retiring existing equipment and systems. The proposed system to openly

disseminate environmental quality data and foster public participation through web-based

platforms fully incorporates international good practices and the latest technology developments.

Annex 2 provides a more detailed account of Project activities.

C. Financial Management

52. OEFA’s administration office will manage the fiduciary aspects of Project implementation, but the technical aspects of component 2 and subcomponent 1.1 will be under

MINAM’s responsibility. Therefore, OEFA will work in close coordination with MINAM for the

implementation of these components. The Bank funds will be disbursed to a designated bank

15

account opened at Banco de la Nación. Project implementation will comply with the national

laws governing budget and financial management, including the adoption of the Integrated

System for Financial Administration (Sistema Integrado de Administración Financiera, SIAF)

and the General Chart of Accounts established under SIAF. The National General Comptroller’s

Office will be responsible for selecting an audit firm for the Project. In addition, OEFA has been

able to define adequate financial management arrangements to implement the proposed Project.

Those arrangements have been reflected in the POM (Financial Management chapter). Annex 3

presents in detail the financial management of the Project in response to the findings from the

financial assessment undertaken of OEFA by the Bank.

53. As a result of the Financial Management Assessment performed, the Project's risk rating is substantial. However, once the mitigating measures are put in place and the pending activities

described in Annex 3 are accomplished, the FM arrangements will meet the Bank´s minimum

fiduciary requirements. The following actions are conditions of effectiveness: (i) approval of the

POM; (ii) hiring of fiduciary key staff (FM Specialist and Procurement Specialist); and (iii) the

creation of an inter-institutional agreement between OEFA and MINAM in a manner satisfactory

to the Bank.

D. Procurement

54. An assessment of OEFA’s capacity to implement procurement actions for the Project was carried out. The assessment identified potential risks that could affect achievement of Project’s

objectives. These risks are mainly related to OEFA’s lack of prior experience with large

investment Projects, the lack of skilled staff to implement Bank-financed Projects, and the

complexity of the activities, especially those involving the laboratory infrastructure. The risk

mitigations measures, during implementation of the Project, include: (i) to adopt and implement

POM satisfactory to the Bank, (ii) to hire skilled procurement staff, and (iii) to manage the

procurement plan through STEP (Systematic Tracking of Exchanges in Procurement). The

details of the assessment, as well as the mitigation measures for the identified risks, are in Annex

3.

E. Social (including Safeguards)

55. The construction of the Laboratory which is one of the proposed Project’s investment activities will require acquisition of a vacant commercial lot of 6,000 m

2 (approximately 1.5

acres) from a private owner. The Involuntary Resettlement safeguard policy, OP/BP 4.12, was

not triggered because this is a “willing buyer/willing seller” situation, where preliminary

proposals for supplying the land were publically invited and submitted. 23

Through this process a

preliminary selection of a site was conducted. The team’s social specialist visited the possible

site to be acquired by OEFA during Project preparation and found no resettlement issues.

However, because at this stage there is no guarantee that the preliminary identified area for the

construction of the laboratory will be purchased, the Borrower has agreed with the Bank that no

land will be purchased if there are third party interests involved, such as disputed property rights,

or if illegal occupants are present. In addition, this site is not the only one that can be used:

23

The Regional Safeguards Advisor (RSA) for the Latin American and Caribbean Region was consulted and

confirmed that OP 4.12 does not to be triggered.

16

alternatives are available, and will be sought, if for any reason the land is not available when

needed. There is no prospect of any land being appropriated for Project purposes if the owner

chose not to sell, as the client committed to follow the same principles should a different plot be

selected.24

Further, a covenant that no resettlement will be involved during land acquisition is

included in the loan agreement.

56. The installation of air quality and hydrometeorology stations in Lima, Trujillo, Chiclayo, Piura, Iquitos, Huancayo and Cusco will require small areas (5 to 8 m

2 per each station), likely in

public lands. Because information from updated emissions inventories and dispersion models in

these cities will be available during Project implementation, MINAM held off on identifying a

definitive location for the air stations during Project preparation. However, given the small

amount of land required, it will not be difficult to find unoccupied areas where the stations will

not have any negative impacts. In addition, OEFA will not consider sites that could involve

involuntary resettlement. As such, the Project does not trigger the Bank’s OP 4.12 Involuntary

Resettlement Policy.

F. Environment (including Safeguards)

57. By promoting transparent, effective and inclusive governance of environmental quality control, this Project will bring positive environmental benefits. The investment activities –

construction and operation of the national environmental laboratory – may however generate

negative environmental impacts that are local to the surrounding environment. Consequently, the

proposed Project triggers the Bank’s OP/BP 4.01 Environmental Assessment policy. In addition,

due to potential chance finds of physical cultural resources, especially those of archaeological

significance, which could be identified during the installation of air quality monitoring networks,

construction of the national environmental laboratory and minor remodeling works, the proposed

Project also triggers OP/ BP 4.11 Physical Cultural Resources. Because the impacts of these

activities are expected to be small in scale, short-term, reversible and mitigable, the proposed

Project has been identified “ as category B” (see Annex 3). Because the Project will not

intervene in sensitive habitats or forests, the Bank’s policy safeguards on Natural Habitats

(OP/BP 4.04) and Forests (OP/BP 4.36) are not triggered. In spite of this, in the subheading

7.1.7.1 of the ESMF damaging environmental activities, which are considered environmental

crimes by the Peruvian Legislation, and those included in the Bank’s category A are listed (i.e.,

environmental and landscape alteration, and destruction, burning, cutting or damaging in all or

part forests). The Project cannot fund these activities.

58. Because the land for the construction of the laboratory will be acquired after Project approval with counterpart funds, the location of the laboratory was not known during Project

preparation. Nor is there yet a definitive location for the air quality monitoring stations.

Therefore, OEFA in coordination with MINAM prepared an Environmental and Social

Management Framework (ESMF) to guide management of potential environmental and social

issues during Project implementation. The Bank approved the ESMF, which was disclosed on 26

September 2016 in the country through the websites of OEFA and MINAM and through the

Bank’s external website the same date. OEFA and MINAM consulted the Project and the ESMF

24

As long as the client is committed to follow the same principles to select the land plot for the laboratory, should a

different plot be selected in the future, the RSA confirmed that policy 4.12 does not need to be triggered.

17

through a public hearing held in Lima on October 7, 2016. Approximately 700 people was

invited to the public hearing and 90 attended from the public sector (Ministries and

Superintendences), Ombudsman, non-governmental organizations, academic organizations

(universities and research centers), private companies (mining and oil) and consultants. The

participants at the hearing have not requested changes or expressed objections to the Project’s

ESMF.

59. The ESMF identifies the following preventive actions for the construction phase, to ensure minimum adverse impacts:

- Locate the laboratory in an industrial area

- Comply with the ECAs and LMPs

- Laboratory design to meet the national building standards

- Follow the LEED standards

- Obtain archaeological certification (CIRA in Spanish) to prevent negative impacts on

physical cultural resources

- Build green areas within the site

In addition, it sets the following actions as important measures to reduce adverse impacts:

- Prohibit the use of lead paint

- Promote efficient use of natural light

- Promote efficient use of wind

- Promote efficient use of water and recycled water

- Appropriate treatment of wastewater

- Promote use of natural gas for operation including shower and baths

- Promote use of clean energy including solar power and other energy efficient

technologies

During implementation, the Environmental Management Plan (EMP) will include protocols and

guidelines to properly manage wastewater and solid waste during the operation stage, including

the following:

- Promote responsible handling of chemicals

- Promote use of organic products

- Promote recycling of materials and equipment and reducing overconsumption

- Avoid purchase of obsolescent products

60. Since June 2015, OEFA has established a grievance redress mechanism that will cover potential grievances or complaints about the Project (www.oefa.gob.pe/portada/libro-de-

reclamaciones-virtual). The General Secretariat Resolution No 033-2015-OEFA sets the specific

procedures for the registry, processing and redress of grievances made by users of OEFA’s

Grievance Book (www.oefa.gob.pe/?wpfb_dl=14516). The Resolution also specifies that OEFA

should provide a response within 15 days. www.oefa.gob.pe/portada/libro-de-reclamaciones-

virtual

G. World Bank Grievance Redress

http://www.oefa.gob.pe/portada/libro-de-reclamaciones-virtualhttp://www.oefa.gob.pe/portada/libro-de-reclamaciones-virtualhttp://www.oefa.gob.pe/?wpfb_dl=14516)http://www.oefa.gob.pe/portada/libro-de-reclamaciones-virtualhttp://www.oefa.gob.pe/portada/libro-de-reclamaciones-virtual

18

61. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported Project may submit complaints to existing project-level grievance redress

mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints

received are promptly reviewed in order to address project-related concerns. Project affected

communities and individuals may submit their complaint to the WB’s independent Inspection

Panel, which determines whether harm occurred, or could occur, as a result of WB non-

compliance with its policies and procedures. Complaints may be submitted at any time after

concerns have been brought directly to the World Bank's attention, and Bank Management has

been given an opportunity to respond. For information on how to submit complaints to the

World Bank’s corporate Grievance Redress Service (GRS), please visit

http://www.worldbank.org/GRS. For information on how to submit complaints to the World

Bank Inspection Panel, please visit www.inspectionpanel.org.

http://www.worldbank.org/GRMhttp://www.inspectionpanel.org/

19

Annex 1: Results Framework and Monitoring

Country: Peru

Project Name: Enhancement of Environmental Quality Services (P147342)

Results Framework

Project Development Objectives

PDO Statement

The objective of this project is to generate and share information for environmental quality control at the national level, by supporting the

Government of Peru to improve its environmental monitoring and analytical capacity, increase public access to environmental quality information,

and promote informed public participation in environmental quality management.

These results are at Project Level

Project Development Objective Indicators

Cumulative Target Values

Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End

Target

Validated air quality monitoring networks in operation supported by

the project (recommendation 25.1 of the Action Plan for the

implementation of the recommendations of the OECD EPR of Peru)

(Number)

0.00 0.00 1.00 3.00 7.00 7.00 7.00

Validated surface water quality monitoring networks in operation

supported by the project

(Number)

0.00 0.00 0.00 0.00 1.00 1.00 1.00

Analytical parameters accredited for the OEFA laboratory

(Percentage) 0.00 0.00 0.00 0.00 30.00 70.00 70.00

Environmental quality information disclosed through SINIA (aligned to

recommendation 7 of the OECD Environmental Performance Review

of Peru, 2016) (Percentage)

5.00 5.00 5.00 40.00 70.00 100.00 100.00

20

Average user satisfaction score of the National Environmental

Information System (SINIA) (disaggregated by sex)

(Number)

2.00 2.00 2.00 3.00 4.00 4.00 4.00

Intermediate Results Indicators

Cumulative Target Values

Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End

Target

Functioning air quality monitoring stations established by the project

(Number) 0.00 0.00 6.00 16.00 16.00 16.00 16.00

Functioning water quality monitoring station established by the project

(Number) 0.00 0.00 0.00 12.00 19.00 19.00 19.00

OEFA Lab Established

(Number) 0.00 0.00 0.00 0.00 1.00 1.00 1.00

Accredited laboratories with Good Laboratory Practice compliance

(Percentage) 0.00 0.00 0.00 0.00 0.00 10.00 10.00

Samples analyzed by OEFA laboratory

(Number in thousand) 0.00 0.00 0.00 0.00 70.00 150.00 150.00

ECAs established or revised supported by the project

(Number) 0.00 0.00 0.00 1.00 1.00 1.00 1.00

LMPs established or revised supported by the project (recommendation

26.2 of the Action Plan for the implementation of the recommendations

of OECD EPR of Peru).

(Number)

0.00 0.00 2.00 3.00 5.00 5.00 5.00

National entities submitting environmental qualit

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