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World Bank Document Document of The World Bank Public Disclosure Authorized Report No. 14939-PE STAFF APPRAISAL REPORT PERU Public Disclosure Authorized RURAL ROAD REHABILITATION AND MAINTENANCEPROJECT NOVEMBER 6, 1995 Public Disclosure Authorized Infrastructure and Operations Division Country Department III Public Disclosure Authorized Latin America and the Caribbean Regional Office CURRENCY EQUIVALENTS (as of October 23, 1995) Exchange rate used in this study: Current Unit = Nuevo Sol (S/.) US$ 1 = S/. 2.26 FISCAL YEAR OF GOVERNMENT OF PERU January 1 - December 31 ACRONYMS and ABBREVIATIONS CORPAC Peruvian Airport and Commercial Aviation Corporation (Corporacion Peruana de A eropuertos y A viaci6n Commercial) CTAR Regional Temporary Administrative Council (Consejo Transitorio Administrativo Regional) DGC General Directorate of Roads (Direcci6n General de Caminos) ENAFER National Railway Company (Empresa Nacional de Ferrocarriles) FONCODES Social Development and Compensation Fund (Fondo Nacional de Compensacion y Desarrollo Social) FCM Fondo Compensaci6n Municipal GDP Gross Domestic Product ICB International Competitive Bidding fDB Inter-American Development Bank IERR Internal Economic Rate of Return INADE National Institute of Development (Instituto Nacional de Desarrollo) NCB National Competitive Bidding MEF Ministry of Economy and Finance (Ministerio de Economiay Fin2anzas) MTC Ministry of Transport, Communications, Housing and Construction (Ministerio de Transporfes, Comunicaciones, Vivienda y Construcci6n) NGO Non-Governmental Organization NMT Non-Motorized Transport PERT-PCR Project Implementation Unit (Proyecto Especial Rehabilitaci6n Transporte-Programa Caminos Rurales) PERT Project Coordination Unit for Ln.3717-PE (Proyecto Especial de Rehabilitaci6n de Infraestructura de Transporte) SIMAC National Highway Maintenance System (Sistema Nacional de Mantenimiento de Carreteras) SOE Statement of Expenditures CAPECO Peruvian Chamber of Construction (Camara Peruana de la Construcci6n) PERU RURAL ROAD REHABILITATION AND MAINTENANCE PROJECT Table of Contents 1. RURAL DEVELOPMENT AND THE TRANSPORT SECTOR ..................................................... 1 A. THE ECONOMIC SETTrNG .............. 1.......................... B. RuRAL DEVELOPMENT AND POVERTY IN PERUh ............................................ .... 1..............................................1 C. GOVERNMENT STRATEGY FOR RURAL DEVELOPMENT AND POVERTY ERADICATION ............... ............................... 3 D. TRANSPORTSECTOR OVERVIEW ........................................................... 4..............................4 E. THE ROAD TRANSPORTSECTOR ...... 5 F. RURAL ROAD SECTOR ISSUES ...... 11 G. PREvious BANK INVOLVEMENT IN THE TRANSPORT SECTOR .16 2. THE PROJECT.17 A. ORIGINOF THEPROJECT .17 B. RATIONALEFOR BANKINVOLVEMENT .17 C. PROJECTOBJECTIVES .18 D. PROJECTDESCRIPTION .18 E. ENVIRONMENTALAsSESSMENT .27 F. PROJECT COSTSAND FINANCING ... 277................................. G. PROJECT BENEFITS ........................................... 28..........................................................................................28 3. PROJECT IMPLEMENTATION .31 A. PROJECTORGANIZATION AND MANAGEMENT .31 B. SELECTIONAND PROGRAMMING OF INVESTMENTS................................................................................... 34 C. IMPLEMENTATIONSTRATEGY .37 D. MONITORING,REPORTING AND BANK SUPERVISION .41 E. PROCUREMENT.45 F. DISBURSEMENTS,ACCOUNTING AND AUDITS ................ 48...................................................................................48 . PROJECTRISKS AND SAFEGUARDS.51 4. AGREEMENTS TO BE REACHED AND RECOMMENDATION .52 This report is based on the findings of a joint IDB-IBRD appraisal mission that visited Perd from May 25 to June 9, 1995. The World Bank team comprised Messrs. /Mmes Jose Luis Irigoyen (Task Manager), Aurelio Menendez, Sally Burningham (all of LA31N), Janet Entwistle (LA3C1), Juan Quintero (LATEN), Paul Guitink (TWUTD), Oswaldo Patifio (Resident Mission), Nora Femenia and Eduardo Beteta (Consultants). The IDB team comprised Messrs. Rodolfo Huici (Task Manager), Hernan Welsh (RE3FI3) and Felix Leyton (Resident Mission), and Jacob Greenstein (RE3FI3) and Ricardo Bellver (Consultant) in a follow-up mission. Mr. Peter Ludwig is the responsible Division Chief. Messrs. Henri Beenhakker and John Riverson are peer reviewers. The Projects Advisor is Mr. Robert Crown. Mr. Yoshiaki Abe was the Department Director until Octojer 1, 1995. Mr. Paul Isenman is the present Department Director. i PERU RURAL ROAD REEIABILITATIONAND MAINTENANCE PROJECT LOAN AND PROJECT SUMMARY Borrower: Republic of Peru Implementing Agency: Ministry of Transport, Communications, Housing and Construction Poverty Category: Program of Targeted Interventions. The project's intends to: (a) improve access of rural areas to markets and services, encompassing about 2.7 million people living in the initial six departments, and about 4.5 million or 20 percent of the population of Peru once the project is expanded to 12 departments; (b) form and strengthen small and medium size enterprises and community groups that will be involved in the execution of works financed by the project, and spur the creation of more than 250 micro- enterprises participating in routine maintenance contracts; and (c) bring benefits to about 100 provincial municipalities as a consequence of the investment and institutional strengthening components included in the project. About 35,000 one-year equivalent of non-skilled seasonal jobs would be generated by road rehabilitation works and more than 4,000 of non-skilled permanent jobs would be generated by road maintenance works contracted out to micro-enterprises. Loan Amount: US$90 million equivalent, including up to US$9 million in retroactive financing. Terms: LIBOR-based floating rate single currency loan in US dollars, payable in 17 years, including five years of grace. The loan will be amortized in level payments of principal. Commitment Fee: 0.75 percent on undisbursed loan balances, beginning 60 days after signing, less any waiver. Net Present Value: All sub-projects will meet eligibilitycriteria that assess institutional, environmental and technical factors (including the sustainability of the investments) as well as social and economic benefits. Social criteria based solely on prevailing poverty indicators would be applied to sub-projects with costs below a certain threshold. The economic criterion establishes a benchmark minimum rate of return of 10 percent, based on a net increase in agricultural and livestock output. The economic analyses of 76 percent of ii the road rehabilitation sub-projects in terms of kilometers (70 percent in terns of costs) under the pilot yields a net present value of almost US$25 million and a prorated internal economic rate of return of 44 percent. Financing Plan: See Paragraph 2.36 Environmental Classification: B Staff Appraisal Report: 14939-PE Map: IBRD No. 27276 - 1 - PERU RURAL ROADS REHABILiTATION AND MAINTENANCE PROJECT 1. RURAL DEVELOPMENT AND THE TRANSPORT SECTOR A. The Economic Setting 1.1 Peri has undergone a remarkable recovery since the inauguration of the Fujimori administration in July 1990 which saw the implementation of the most comprehensive program of economic reforms in the history of the country. While Peru has a generous supply of minerals, fish and hydrocarbons, the country had seen vast fluctuations in its economy in its previous 40 years and poverty has been a long-standing problem. The reforms aimed at reducing inflation, stabilizing the economy and radically changing the state-dominated economy into a market- orientated one. The reforms were in large part embodied in the Constitution ratified by a close margin in an October 1993 popular referendum. There has been a steady drop in the rate of inflation (from 7,600 percent in 1990 to 15 percent in 1994); the economy has recovered strongly growing by 10% in 1994; and there has been enormous progress in reducing terrorism and establishing public order. 1.2 The economic recovery has resulted in welfare increases for the vast majority of Peruvians. In the short term, however, the benefits have not reached the poor to a sufficient degree. Government priorities have increasingly shifted towards enhancing the access of poor communities to mainstream economic activities by reversing the deterioration of basic infrastructure after years of neglect. The Government is rehabilitating basic infrastructure concentrating on areas with the highest prevalence of extreme poverty, the rural sierra and the urban pueblos j6venes. B. Rural Development and Poverty in Peru 1.3 After several years of slow agricultural growth, including negative growth from 1990- 1992, real agricultural GDP grew by over 6 percent in 1993 and by 13 percent in the first half of 1994. Better climatic conditions and increased rural security seem to be underlying factors for the recovery. However, although production recovered in 1993 the levels of production were still below average for 1986-1989 for most crops. In 1993, agriculture represented 12.3 percent of GDP and industry (including fishing, mining and manufacturing) represented 34.1 percent of GDP. About 40 percent of the economically active population work in the agricultural sector. This percentage is higher in departments of the rural sierra like Huancavelica where about 60 percent work in the agricultural sector. GDP growth in the sector has been uneven while the productivity of agricultural labor has also remained
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