7-A-I // /-J-/'- / Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 12309-PE

STAFF APPRAISAL REPORT Public Disclosure Authorized

TRANSPORTREHABILITATION PROJECT

FEBRUARY17, 1994 Public Disclosure Authorized

MICROGRAPHI CS

Report No: 12309 PE Type: SAR

InfrastructureOperations Division Country DepartmentI Latin America and the CaribbeanRegional Office Public Disclosure Authorized

This document has a restrcted distibution and may be used by recipients only in the performance of their officiadduties. Its contents may not otherwise be disclosed without World Bank authoriztion. CURRENCYEOUIALENTS

Currency Unit = Sol US$1 = 2.15 Soles (October 15, 1993)

WEIGHTSAND MEASURES

Metic System

FISCALYEAR

January 1 - December31

ABBREVIATIONSAND ACRONYMS

CEPRI - SpecialPrivatization Committee (Comite Especial de Privatdzaci6n) CMCPL - MunicipalBank for Popular Credit (CajaMunicipal de CreditoPopular de Lfrna) COPRI - Commissionfor the Promotion of Private Investment (Comisi6nde Promoci6n de la InversidnPrivada) CORPAC - Peruvian Airport and CommercialAviation Corporation(Corporaci6n Peruana de Aeropuertosy Aviaci6n Comercial) DGC - General Directorateof Roads (Dlreccffn Generalde Caminos) DGTA - General Directorateof Air Transport (DirecciOnGeneral de TransporteAereo) ECLAC - U.N. EconomicCommission for Latin America and the Caribbean ENAFER - NationalRailway Company(Empresa Nacional de Ferrocarriles) FCC - Central Railway (Ferrocarrildel Centro) FCS - SouthernRailway (Ferrocarrildel Sur) FCSO - South-easternRailway (Ferrocarrildel Sur Oriente) GDP - Gross Domestic Product GTZ - German Agency for Technical Assistance (Gesellschaft fir Technische Zusammenarbeit) ICAO - InternationalCivil AviationOrganization ICB - InternationalCompetitive Bidding IDB - Inter-AmericanDevelopment Bank ]ERR - Internal EconomicRate of Return w - MetropolitanPlanning Institute(Instituo Metropolitanode Planificaci4n) IRI - InternationalRoughness Index KfW - German DevelopmentBank (Kreditanstaltfr Wiederaujbau) LCB - Local CompetitiveBidding LIB - LimitedInternational Bidding MEF - Ministry of Economy and Finance (Ministeriode Economfay Finanzas) MLM - Municipalityof MetropolitanLima (Municipalidadde IUmaMetropolitana) MTCC - Ministry of Transport, Communications,Housing and Construction(Ministerlo de Transportes,Comunicaciones, Vivienda y Construccidn) NGO - Non-GovernmentalOrganization NMT - Non-motorizedTransport PCU - Project Coordination Unit (Unidad de Rehabilitaci6n de Infraestructurade Transporte- URK) PPF - Project PreparationFacility SINMAC - National HighwayMaintenance System (Sistema Nacional de Mantenimientode Carreteras) SOE - Statementof Expenditures UCPP - Loan Coordinationand PreparationUnit (Unidadde Coordinaci6nyPreparacion del Pr'stamo) FOROMCAL USEONLY

TRANSPORT RENABTUrATONYRS TableofCnU=

LoaoanddPtojectSummary ...... Hi I. THE ANSPRTSECRANDTREECONOR ...... I

A. IheeCoumtryandits EconomicSeuing. .... , 1 B.TheTransportSector . . . 2 C. Road Transport ...... 4 D. Raiways .... 6 E. irTrasport ...... 10 F. TransportintheL mMetropolitanRegion ...... 11 G. Sectorad Policy sues ...... 12 H. PreviousBank Experience in the TransportSector ...... 13 ii. THEPRQI ...... 14

A. Rationalefor BankInvolvemet ...... 14 B. ProjectObjectives ...... 14 C. ProjectDescription ...... 15 D. ProjectCosts and Financing ...... 19 E. Projectlementaon ...... 21 F. Procurement ...... 23 0. Dioursements,Acco ting and Audits...... 26 H. Reportng, Monitoringand Superiion ...... 27 T. FinancIsAndysis ...... 28 J. EconomicJustification.. 31 K. EnviromentalAqspc .. 34 L. ProjectRisksand Safepa .. 35

IIIL AGfE.EM REACE AND REWUMMA= . .. 37

Maisreport is bad on th finding of an appraia misio wh vistd Pau in Juneand July 1993. Tb missioncomprised Mess./ines. GethardMwkhoff ClaskManage). losd Beia (alway EBner), Pa Gudnk Crapspcii), FrannieHumuplick(Eonomist),Gardsiutad (ighway Eng Moz MMdka(FnlAnalyst, Norna Rodrd (Opions Astnt), JuanDavid Qro (ionmel Spoeis), andJaime Crmllana, Leif looes, SergloPMan, Pet Schefes andUlbe van Loon(Conulan). Mudi of do prjet wu prepaed by consua washingin the Loan Coordinion and Ppaaon Uni (UCPP), inchdWi Mart Julia Guan (Coordinor), NStOr Ps, Ro Garots, Sara Ball, AmandoRivera Enges). RotAo PIas, Luas ibadott, Maoelorac, EsheVadivis ( omist), andHenia ArisizibAl,Anoni Clve, Wiledo Gutnz, andJos Ris (uvuom Spel). T pcer w em e Mess. Sephe Star nspotSpecalis) adl Rebeloa Plan). Mes Aifai, Orvie Grm and Rainer St hanarerespectrvly managingDin ClefP4ojeAdviser, adDepamDie rothwopeon Ms. Glria Berneo aisted in t production of tis report.

This document has a restrctod distributionand may be used by recipients onl in the performance of their officialduties. Its contents may no otherwie be disclosedwithout Wodd Bankauthorization. ii ANNE=

1. AnCOvehewofTransportConditions andlBues ...... 40 2. PolicyObjecdves, Stratees and Priorities, and Refoms in the>rKSport Ser ...... 55 3. PreviousBanExpeeer ie elthTra.sp. te.t.r.... 59 4. Road Rehabilitadonand Mainteance ...... 63 5. Road Administration andFinance ...... 74 6. PivatioionandRhailitaonoftheRiawas ...... 80 7. RehabilitationofLimaAlrportRnway.. 96 8. PiotProjectforNon-MotorizedTransportnLima. . . . .104 9. TechnicalAssistance ...... 110 10.TrdingProgrm . .. 113 11.DeaDledProjectCostsand Fnancng ...... 116 12. 1Iementation Schedule,Monitoring Indicators and ProjectSuperido .... 118 13.EstimatedScheduleofBankLoanDisbusements . . . . 127 14. EcononicEvaluaton ...... 128 15. EnvionmentAqlAspes. . .. 136 16. SelectedDocuments andDataAvailable lntheProject F.....142 TABLES

Tablel ModalDistributionofDomeslc FreigtTrafficc ...... 4 Table2 ENAFER-SelectedFinancialData,1990-92 ...... 9 Table3 Project Cost Summary ...... 19 Table4 FinancingPlan..... 20 Table5 ProcurementArrangements ...... 24 Table 6 E ed Disbusement ...... 26 Table7 LoanDisbursementsbyCategory ...... 27 Table8 TrendsinRaiwayTraffic,1987-1M ...... 29 Table9 FianiPojecdonforRallways...... 30 Table10 EconomcEvaluation ofRoad RAiationSh Schemes ...... 33

MAPS NationaTransport System: MD 25544 Pilot Projec for Non-MotrizedTranspo in Lima: IBRD25105 In PERU

TRANSPORT R 1HAJITATIONPROJECT

Loan and Project Sun_nary

Borrower: Republic of Peru.

mplauen-Ing Agendes: Minwtryof Trprt, Com cations, Housing and Construction NationalRailway Company(ENAFER) Municipalityof MetropolitanLima.

Amount: US$150 million equivalent

Tom: Repayment in 20 years, including five years of grace, at the Banks standard variable iterest rate.

Project Objectves: The main objectives of the project are to: (i) rehabilitate eential nsport infrastructre which, primily because of insufflcient maintennce, has fallen into disrepair; Qi) assist Governmentin Lmplementg institutionalreforms in the road and raflway subsectors, aimingat improvedresource use and sustnable development;and (I) lay the ground work for future projects focussingon strengthenedroad management,increased private participation in the tansport sector, and improvedmobility of the poor. Project Descipdon: TMeproject would consistof five components,the most importan concerning ma reabi1=ittannd maintnance. Six roadstotaling 725 km wouldbe rehabilitatedunder the project. Of these, 307 km wereincluded in the Wodd Bank'sprevious highway loan, but could not be completed. In addiio tis componentwould include (i) a bridgeprogram Involving the acquisitionand recovery of Baileybridges and the reoostructionof derelictold bridges;(Ui) a pilot maintenan programfocussing on 620 km of roadin a specifiedcorridor, and Ol a traffic safety program. In parallel, the project would support govemmentefforts to rebuild an intitona structure capableof maintainingtheroad system. The secondcomponent would help to patizeand rebabilitatethe UaDway.by (I) reducingstaff redundancy, (u) rationalizingraiway debt,(iii) closing down or receivingbudgetary transfes from the Government for unprofitable services, and (iv) ilitating tracks, telecom cons and locomodvesto keep the railway in operating condiion whfle the privtzaton process is underway. The third componentconcerns the reabiliadon of Lima's aiXort tunway which, acrding to ICAO and some major airlines, is in urgent need of repair, before it becomes a danger to viation. The fourth componentwould be a piot poject for nonmtotized tansr iv inLimato test methodsof promotingthe use of bicyclesby low- incomeresidents. The fifth component,technicl asistne and aningwould (I strenen the suonal capacityfor magng roads and bridges,and to supportthe creation and fosteringof au autnomousagency reponsible for planing, opeat, fiancing, and the highwaynetwork; (11) build capacity In the MCC to mae enron l Isues; and (li) assist the railway in its pVzaton and imprving its manement Project Bendits: The mainproject benefit would be a more efficientand cost effective transportsystem that will stimulate a higherlevel of economicacdvity in the county. lbe project would contnue to remove physical constis i transportinfrastructure, reduce tauport costsfor goods and passengers,anmd would support expors, farmproduction, and the mobilityof people.It wouldhelp alleviaterural poverty in the poorest areas of Peru, throughprovision of improvedroads and employment generationthroughlabor-based road works. Thein economicrate of returnfor te ovall projectis 27 pernt, rangingbetween 22 and 39 percentfor the road rehabilitatonschemes, 15 percent for the ralwa rehbilitation,and 25 percentfor the runwayrehabilitation at Limaairport Projet Ris: Possiblerisks include: (J) inadequate provision of counterpartfunds for projectimplementaion; (I) insufficientbudgetary resources for road maintenanceduring and after the project; (ii) inefective project managemIIt,especiy arisingfrom a lack of insttional capacityof the imlementg agencies;(iv) Isfficent absorptivecapacity of the domesticcouction indtry; (v) lack of sustainedcommitment in reformingthe railway;and (vi) mishapsor inordiate delaysin the high-visibilityairport nuway rehabilitation.Finally, a risk thatcannot be discountedis the possibilityof armed terworismagainst the contacors duringthe executionof the works.

Rate of Retun: 27 per

Pot Catego: Not applicable.

FAtmated b (U$ million): ___ _.__l______-_'- r * L ______1994 1995 I 1996 1997 1998 1999 Annual 15.0 30.0 48.0 36.0 18.0 3.0 Cumulat 15 5.0 f 93.0 129.0 147.0 150.0 V Esmated Project Costs (US$milion):

ProjedComnpon Lal Fo Tam Totl % Foeg RoadRehaiite (il. Deigp and&"pv.) 53.0 28.6 6.8 88.4 32 &lUg. RhbIliaon (md.leaip andSupev.) 11.6 7.9 27 222 36 RoadM8 nane (mol Desip n Supaviuon) 5.1 2.8 0.7 8.6 33 Eqimet for RoadLbot 0.0 0.2 0.1 0.3 67 ,afUM Safdey?MM 0.3 0Q 0.2 1.0 50 Dei of Puto RoadReilitaio Schemes 2.2 1.2 0.6 4.0 30 RailwayPrivatiation and Rdehbilion 5.9 21.0 8.1 35.0 60 RunwayRehbiiton at Lim Aipost 8.9 13.8 2.0 24.7 56 PilotPoject for Non-MotorizedTapt in Lima 2.0 1.1 0.3 3.4 32 Technial Anoe and Tmuin 2.0 2.8 0.9 5.7 49 projetmanag t 4.1 0 0 4.1 0 Subtotak lDeCst 95.1 79.9 22.4 197.A PIW*d C"Sngmda 14.0 11.8 3.3 29.1

PxioeContin s 7.5 6.3 1.7 15.5 _ GRANDTOTAL 116.6 98.0 27.4 ze.0 41

Projec Ftmadng S$ miion):

ProjeI. Compe oank KEW ToWal RoadRehabilitation (mcI. Design and Superv.) 18.1 52.2 38.0 108.3 BridgeRehabilitation (mcl. Design and Superv.) 5.6 22.2 27.8 RoadMantenance (mcl. Design and Superv.) 2.1 8.7 10.8 Equipmentfor RoadLaboratory 0.1 0.3 0.4 TrafficSafety Program 0.2 1.0 1.2 Designof FutureRoad Rebabilitation Schemes 0.7 4.1 4.8 Railway Privatizationand Rehabilkation 10.5 31.7 42.2 RunwayRehabilitation at LimaAirport 8.6t 21.6 30.2 PilotProject for Non-MotorizedTrspt in Lima 1.0 3.1 4.1 TechmicalAssistance and Training 2.1t 5.0 7.1 ProjectMnagement 5.0 0.1 5.1 GRAND TOTAL 54.0 .0 38.0 242.0 t Inling $5 mmlionc ton fium OPEC Pund * Vahw4dd tauan hpan teohnial suiatan grnt ($1.1 mMiin). L THETRANSPORT SECTOR AND TIlE ECONOMY

A. The Coutry and ItsEconomic Set

1.1 Peru, with an area of 1.3 millionkin 2, is a latd of great physical contrasts. The , running the lengthof the country,constitute a toweringbarrier to counications betweenthe narrowcoastal plainsin the west and the Amazonlowlands in the east, and presenta chalenge to the provisionof traport irastrmcture and the conductof economicand social activities. According to the 1993census, Peru has a populationof 22 million,which is growingby 2.2 percenta year. Urbancenters with more than2,000 people now account for 70 percentof thetotal population. The Lima-{allao metpolitan area with6.5 mfllionpeople accounts for 29 percentof the country'spopulation, or 42 percentof the total urbanpopulation. 1.2 Peru's economy, which is based on the exploitationof its vast natural resources, is underdeveloped.It is the world's secondlargest silver producer,fifth largest copperproducer, has abundantfishing and hydrocarbonresources, yet only3 percentof its mineralwealth is tapped. Peru has a comparativeadvantage in value-addedtextile actring which transformshigh-quality Puvian inputs - Pima and Tanguiscotton, Andeanllama, alpaca, and vicufia- into sports and fashion garments. Additionally,Peru has a promisingagro-industrial base which could trn its coastalvalleys intohigh-production zones for agriculturalexports (asparagus, melon, grape, tomato, coilla, mango, and fresh flowers). The accessibility,retiability, and cost of transportare key fictors deteminingthe successof these activities. In 1990,manufacturing contrbuted about 22 percentto GDP,followed by agricultureand livestockat 13 pert, and miningand quarryingat l1 percent. IThegovernment share of GDP wasabout 8 percent,construction about 6 percent,and fisheriesabout 1 percent. 1.3 For the last three decades,Peruvian politics and economicpolicies have been marked by instability,elected goverments altening with miltary adminons. Duringthese decades,Peru developeda legal structureand policyenvionment inimical to economicdevelopment. A state-led developmentstrategy created a complexnetwork of controlsand large, inefficient state-owned enterprises. Heavy goverment intrvention in economicactivity led to a waste of resourcesand deteriorating economicperformarce. 1.4 The first BelaiSndeadministration (1963-1968) placed high priority on the developwentof transportinfrastrucure (especially highways) to systematicallyintegrate the Siera (the mountainous roon) andthe Selva(the Amazonic plains of easternPem) into the nationalfabric. Theseprojects were carriedout tirough a mix of large publicworks programs and thousads of smallself-help projects. Duringthe next twelveyears of militarymle (1968-1980),the Goverment dramaticallyincreased its direct participationin the economythrough large-scale expropriations of foreign-ownedcompanies inolved in sategic aspectsof the economy.Government terventionbecame more pervasive during the secondBelinde (19801985)and the subsequentGarcfa (1985-1990) administrations. 1.5 Underthe expansionaryfiscal policies of the 1980s,large expenditureswere undertakenin the trart sector. Resourceswere used to fnance uneconomicinvestments for prematureor over-designed projects,such as Lima's partially-builtrapid transitline, tren eldctrco. Policiesto expanddemand followedby the Garca adminion, suchas directsubsidies and rigidly-controlled public sector prices, -2- initiallycontributed to economicgrowdt. This also resuted, however,in an increasedfiscal deficit, higherinflation, and a deelinein the efficiencyof the transportsector. Availableresources were used inefficientlyand publicsector agencies responsible for the maintenanceof ifrastructurewere starved of funds. Ihis has resultedin a large infrastructurerehabilitadon backdog. 1.6 In July 1990,the Fujimoriadministion inheritedan economyon the brink of collapse. The bankruptand disintegratingState had no moneyto proprly maintainits infrastructure,and its authority wasconstantly challenged by subversiveactivities. The deterioratedtransport system was unable to serve its intendedfunction. This administrationlamuched a sweepingprogram of reformsto stabilizethe economyand restorefinancial relationships with multilateral agencies. A numberof measurestaken by the Governmenthad a direct impacton the transportsector, including: (i) drasticadjustments of public sectorprices and tariffs(e.g., the price of gasolinewas raised32-fld in August1990 to US$1.50per gallon);(i) stringentcontrols on publicspending; and Ciii) elimination of importlicenses and streamlining and simplificationof importtariffs. The Statebegan to disengageitself from activities bettvr handled by the privatesector. 1.7 Withinthe transportsector, the reformprogram has the followingobjectives: (i) to rehabilitate transportinfrastructure; (ii) to provide efficientand economictransort services; (iii) to establish competitionin the transportsector markets; and (iv) to transferto the privatesector those functions Inappropriatefor the publicsector in its new role. 1.8 Transportefficiency has been improvedby reformsintroduced since July 1990. Nearlyall ransportregulations were abolished,including the tariff-settingCondsmin Reguladora de Tarifasde 7Tansporte,the CREIT commission. The result has been a generaldecrease in transporttariffs, especiallyfor freight(rail, trucking,and shipping). Urban transport tariffs have increased at a rate lower than inflation,despite the drasticincrease in fuel prices. A mnuberof publicenterprises have been privaized(urban bus, airine andshipping companies) or are undergoinga restrucuringprocess to permit increasedprivate sector participation (airport, port andrailway companies). Private contractors can now executemaintenance and rehabilitationacdvities, and enablinglegiation for even more privatesector participationis in place. The privatesector is now directlyinvolved in port and airportoperations, and privateoperators and transshipmentcenters in the hinwtelandcan make use of multi-modalshipments. In air transport,the Governmentretains authority over all traffic controloperations; preparations for privatizinglandside operations at Limaasiport as well as awardingconcessions for managingregional airports are currenty underway. The decentralizationof responsibilityfor financing,building, and maintainingihfrstucture projectsto localgovernments is,currently being considered. Decentralization of responsibilitiesfor the provisionand naintenanceof infrastructureto localgovernments is also under consideration.Annex 2 givesa detaied summaryof the Government'spolicy objectives, strategies and priorities,as well as the statusof reformsin the ransportsector.

B. The Tanport Sector

ihe Peruan Thnspo system 1.9 Thereare four disdncttransport zones in Peru: (i) the centralcorridor (-Lima-- );(ii) the southerncorridor ---);(iii) the coastalregion from Talarain the north to Ilo in the south;and (iv) the AmazonicSelva. The cental corridorserves an economicfunction, transporting mostly minerals from the minesand smeltersat La Oroyato the port at Callao. Rai and truckingcarry about equal shares of the mineraland concentratecargo in this corridor, whiletrucking has a largershare of all otherproducts. In t'hesouthern corridor, where product markets -3- are morevaried, rail andtrucddng are eqaly important.Wifitinthese corridors, there are segmentsthat relysolely on rail (e.g., Huancayo-).The coastal region involves some compeNtion between truckingand coastalshipping for long- and short-haulcargo. The Pan-AmericanHighway carries passengersand freightalong the coast and servesas a conduitfor exporttraffic to Peru's Pacificcoast ports. The AmazonicSelva is servedby a systemof river ports withaccess to the Atlantic. Cargois collectedin barges frompoints on the Ucayaliand Maafidnrivers, throughthe port of Iquitoson the Amazonriver to Brazilianand overseasports. Dlueto Peru's ruggedterrain, airports serve the imporant functionof integratingthe fourzones. Most air trafficeither originates or termines in Lima, withfew directtraffic movements among regional airports. 1.10 The Peruviantrmsportsystemcomprises: (i) a classifiedroad netwok of nearly70,000 km. of whichabout 11 percentis paved;(ii) a systemof 24 maritimeand river ports; (Mii)a railwaynetwork (2,074kn) madeup of sevenseparate systems, with litte physicalor operationalintegration; (iv) 300 airportsand landing strips, only 16 of whichhave paved runways; and (v)a systemof pipelines,the most importa of whichis the 900 kanNorth Peruvian pipeline from the oilfieldsin the Selvato the coastat Bayovar.Annex 1 presentsa detaileddescription of the transportsystem in Peru. 1.11 Transportplays a crucialrole in Peru'sdomestic trade, conmunications, and national integration becauseof the country'sgeographic and demographicsetting. Communiteson oppositesides cf the Andesare barely accessibleto one anotherwithout air travel, and the few highwaysand railwaysth penetratethe mountainsare periodicallyravaged by floodsand slides- the CentralCofridor route is closedto trafficfor as manyas sevendays a year. Neitherare the urbanareas of Peru servedby efficient and reliabletransport systems. Thepoor in urbanareas mostly live in low-incomesettlements (pueblos Jdvenes)on the outskirtsof the cityand travel to the centerfor workand socialpurposes; in Lima,many poor also live in the center. The city centersare congestd due to poor traffic managementand ill- defineduse of space. Mostroads in thepueblos jdvenes are unpavedand oftenpoorly maintained. Insthu*on Framework 1.12 The transportsector operates through a mixof centraland local governmentbodies, public and privateenterprises, and formaland informalsectors. The exten andscale of privatesector participation snd decentralizationof servicesin the transportsector has greatlyincreased following the recent privaizationand restructuringof sta-owned enteprises. Tnaddition to the alreadyprivatized public enterprisesin the transportsector - ENATRU,Aeroperd, and CPV - the Goverment intendsto privatize ENAFER, ENAPU, and CORPAC. Privatizationcommittees (Com}its Especdalesde Prtvadzacidn- CEPRIs)uader thk aegisof COPRI(ComisIdn de Promocidnde la InversldnPrivada) havebeen set up for these companies. 1.13 The Ministryof Transport,Comcations, Housingand Construction(MTCC) has overall chargeof the transportsector. TheVice-Minstry of Transporthas fourGeneral Directorates responsible for: Roads(DGC), Land Transport, Waterborne ransport,and Air Transport(DGTA). It alsooversees the three state-ownedenterprises which are not yet privadzed: CORPAC,which operates and manages publicairports and landing strips as well as the air trafficcontrol system; ENAPU, in chargeof operating and managingPeru's maritimeports andioland waterways; and ENAPER,the nationalraiway company. 1.14 Followinga successionof decentralizationmeasures with respect to provisionof transport infrastructure(maWy roads), Peru's departmentalauthorities and municipalgovernments exercise road maintenanceand trafficmanagement responsibilities. Regional directorates and municipalitieshave the responsibilityof maintainingand rehailitatg about54,300 km (78 percent)of the totalroad network. However,they are limitedin resourcessuch as finances,staff, and equipment.Several municipalities -4 havejoined together to coordinatemunicipal efforts in large metolitan areas One such case is the Municipalityof MetopolitanLima (MLM), which is a groupingof 42 municipalities,jointly mangg the transportsystem in the Lima-Callaometroitan area. MLMhas five main rponsibflides: (@ plannint; (ii) construction;(iii) maintenanceof primaryand Inter-districtroads - someresponsibiities for malvmenancesdill remain In the handsof districtmunicipalities; (iv) traffic operations and control; and (v) provisionof limitedbus service.

Rol of PrivateSedor 1.15 Privatesector puticipation in the sectorincludes: (i) several private mining rai lines;(ii) several priWaeairports and landig strips; and ffii)associations of multi-modalcargo shippers(CONUDFI), formaltrucking companies (ANATEC), and urbanbus operators (CETU). There is an extensivenetwork of informalservice providerswho operatewithout permits and licenses,thus avoidingpayment of corporatetaxes and feespaid by the fonnaloperats. Ihese Minformals"serv a significat part of the passengerand goodsmarket in urban and inter-urbantansport, handlingfor exampleabout 30 percent of all domesticfruit and vegetable transport Priorto the liquidationof ENATRU,informal bus opeators were makingabout 90 percentof all dailytrips in the capital. Most intercitypassenger road trasport is handledby owner-operatorand informalbus operators. 1.16 In 1992,road transportaccounted for about71 percentof all demestic reight,as indicatedin Table1. Tneuse of truckinghas grownsubstantially following the eliminationof Importrestrictions and the deregulaionof the road transportindusty. The truckingfleet is increasing,resulting in a rising marketshare vis-l-vis river and coastalshipping and railuways.

Table 1: MODALDISIBUTION OF DOMESIC FREGHTTRAFFIC

(ercenae dilru*on of tonage) Year Total 11*31 Road Air Shipping 1983 100 8 33 0.31 59 1988 100 6 36 0.20 57 1992 100 4 71 0.06 25

C. Road Tnsport

TheRoad Sym 1.17 Road Network. About22 percent(15,700kbm) of the roadsystem forms the nationalnetwork, comprising:(i) tree north-southaxes: the 3,050km IongPan-American Highway stretching along the coast from Ecuadorto Chile, the 3,500 km long Inca Highwayin the Andes, and the parly-built CarreteraMarginal de la Selva(1,733 km); and (ii)twenty transversal links totalling 7,410 km in lengh. Only about 37 percen (5,740 km) of the nationalroads are paved. The fully-pavedPan-American Highwayaccounts for two-thirdsof the totalnational paved roads. Thedepartmental network (14,443 kcm,21 percentof the overallsystem) consists of mostlyengineered gravel and some(1I066 kn) paved roads. Theremaning 57 percentof the roadsystem are classifiedas feederroads and consistprimaily of earthtracks. The. c Id networkdeteriorated badly in the 1980s.Ihis trendhas been receady reversed 'I -5- as a resultof centralgovanment Investm rehliadon andmatena. ByDecember 1992, about 29 percentof the natdo networkwas raed Oporo, nary 54 percen f , andonly 17 prce rgood". 1.18 TraMcVolumes and RoadSety. Pu hadabout 600,000 regstrd motorveicles in 1990, the latestye for wich dat ae avaiable. About40 pen of dhs wer bus and goodsvhides, andthe remainder primariy autmobiles. The higes nonurbantraffi volumeoccur nea Lima,with about6,000 vehicles per day(vpd) on thePan-Anm Hghwayand over 2,000 vpd on the Cad Highway.Farther away fo LUa, thoPan-Amcan Highway carris 1,S00-3,000vpd in itsnother sectlonsand 700-2,500vpd in the sou. On the rmgag 60 pert of th pavednational road network,volumes are between 500 and800 vpd. Thevolumes on upaved rads ammuch lower, wit 80 percentof theseads carr le tasm200 vpd. Thes unved rads, however,play an Ipo4an role Inlinkng dffet regions. TheIsue of safetyin theroad sector needs attenon. ithereare about 53 annal fatities per 10,000vehicles, raking Peruamong the worst in thewodd with regard to traffic safety. 1.19 n worki largelydentralized, wih MCC etainingresnsiblity for thenational road nw At preet, about50 peet of o n thenaiona networkX carrid outby forceaccount; 40 percentby pivae taor andthe remainig10 percet by labory basedprogms. Due to sever neglect,about 50 pect of the nationalnetwork needs etnive stregthnn and ovelay, whie another40 peret neds facng and sealingto minz deroration. Localand departmental goven.ents gneraly lackthe Qm to maintn equipmentwhich I thusnea the endof its usefife. As a result, abor-basedt ni bavebeen relied upon wit somemeasure of succes. ilon r ead pv sectorpricipation In roadmainteace b beingconsderd, includingthe use of concession-typeconts. Otherimportant measures hve also beentake In 1993to impwvethe pefomance of maitenanceacdvities on the naIon oadnetwrk, such as the creaton of a road fuid and the setnup ofanatlonal systemof road m (SNMAC:Stm Nadonl denMlmleo 4* adnCWe).Annex4providesfrther detailsonthat issue. 1.20 Elnandngand A tio. Fing Is providedthrough centrl govemen budget allocatons. Ihe Govermentcolects taxes from vehide ownes on purchaes of fuel and on th registrationof thevehicles. At present, revenues from these sources exceed the funding required for road maintenaceby a fao of five. Governmenthas flrmedat loannegotiaons tha It inteds to contnuo Its policyof taxit road ue for at least the amountspent on routne and peiodic road mainteance. May toll collectonstat wereset up in 199 on the Pan-Americanbighway and dsewhere,opeatd by a varietyof loca autorities. As a resultof theapprent disorder and misuse in toll collection,t'he Govenmt abolised mosttoi staDonsand, In August1993, gave flC the exclusiveright to collecttolls on thenationa road network Tll revnes willbe put intoa roadfund (FondoVl) and ae to be usedexclusively for roadmaintenance. Alternaive mecham for toad funnarwe alsobeing considered, indclig the ollecto of excie taxeson vehides,licenes, and fae. In 1990,the sourcesof reve weremtly fromfud taes (95perceat), with the remaindercoming fromliens, registrationfees, and Imt taxeson vehicles. Theproportonal allocation of central govermentfuds to the roadsubsector has declinedsteadily from a high of about87 pecent of all cent goverametexpenditures for transportin 1981to a lowof about 19percent in 1989. bi trend has recty beenreversd wit theproportional allocadon to the roadsub-sector in 1991increasg to 60 pecent of all transportfunding. AnnexS providesa detaileddiscion of road administai and fiancingissues. 2he Road 1)mpoit Indus"

1.21 Trudkng. The trucking industry has a US$2 billion annual rnover, employs over 300,000 persons, and is completelyderegulated except for the emergencyauthority vested in the Ministry of Economyand Finance(MEF) to limit inflationaryrises in the price of transportservices. Peru's fleet is estimatedat between70,000 and 80,000trucks, of which10,000 to 15,000are inoperable,and another 20,000 to 25,000 are very old. Thisleaves Peru with an active fleet of 40,000 to 45,000 trucks in good operatingcondition. The averagefleet ageis sevemyears. 1.22 TIe liftingof importrestrictions and deregulationof transporttariffs have resultedin intense competitionwithin the truckingindustry and betweentrucking and rail. The result has been: (i) a significantlowering of tansport costs (by about 50 percentin the centralcorridor between 1990 and 1992);(ii) a restrucuringof the truckingindustry with a higherpercentage of owner-operatorsthan large truckingcompanies; and Qii) an increaseof truckingin marketstraditionally dominated by rail and shipping. The mainbenefits of thesepolicy reforms have been reducedtransport tariffs and increased reliabilityof transport. 1.23 Import liberaizationhas allowedthe entry of trucks which, whenfully loaded, exceedthe capacityof Peru'shighways and bridges.The central government has defactolegalized such importation but has set up a scheduleof finesfor excessaxle weightsranging from US$360 for an excessof 5 tons to a maximumof US$520for an excessof 15 tons or more. However,due to financialand resource constraintsthese regulations are notbeing enforced. The existing schedule of fineswas based on outdated pavementand bridgedesigns and needsto be revised,along with gross axle load and vehicledimension regulations.The issuesrelated to axde-loadregulations will be addressedin a stL;, fundedunder a loan of the Inter-AmericanDevelopment Bank (IDB). 1.24 Inte-urban PassengerServie. In 1991,it wasestimated that inter-urbanbus passenger trips originatingor termintng in the Lima-Callaoarea wereon the orderof 18,000per day. Formalinter- urban buses representa US$8 millionindustry, served endrelyby the privatesector, with services affordableto the lowerincome groups. For example,the 1992fare for the 1,000kn tripfrom Arequipa to Limawas only US$8. Theraare no Inter-urbanbus or truckterminals in the Limametropolitan area; busestherefore drop passengersalongside major roads, creatinpg congestion as they enterthe citycenter. Likewise,passengers are pickedup by the roadside,thereby affecting the flow and safetyof traffic.

D. Rilways 1.25 Railwaysplay an importanteconomic role in Peru, transportingminerals, petroleum products, and otherbulk commoditieswhich represent a substantialpart of totalPeruvian exports. Railwaysalso providean essentialsocal service,being the onlymode of transportavailable for passengerand freight servicesin certaincorridors (e.g., partsof the Huancayo-Huancavelicaand Cuzco-Quillabambalines) or duringperiods of heavyra1i. Peru'srailway network, comprising seven separate systems, is currently managedby three differententities. The nationalrailway company, ENAFER, owns and operatesfive of thesesystems: 0i Central(FCC - 346kin of standard-gaugemain line) linkingthe port of Callaoto the CentralSierra; (ii) Huancayo-Huancavelica(FCHH - 129 km of narrow-gaugemain line) linking thesetwo importantcities; (iii) Southern(FCS - 855 km of standard-gaugemain line) connectingthe port of Mataraniwith Cuzco, and withBolivia via Punoby ferryover ; (iv) South-Eatern (FCSO- 172 km of narrow-gauemain line) fromCuzco to MachuPicchu and Quillabamba;and (v) the -Aricaline (60km of standard-gaugemain line) at the borderwith Chile. Centomin,the State- -7- owned mining company, owns and opera two lines (272 kIn) and the pdrvate mining company, SouthermPeru Copper,also ownsand oeates a 240-kmai line. 1.26 Institutional Framwork. ENAFERhas a six-memberBoard of Directorsheaded by a president,who is appointedby MITCC.The administrativeand operatingresponsibilities for ENAFER are vested in the GeneralManager, who is appointedby the Board. ENAFERhas two opeaional headquarters,In Lima and Arequipa;FCC and Huancayo-Huancavelicaoperations are maged out of Lima, whichalso servesas a headquartersfor ENAFER;and the southemroutes are underthe control of the Arequipaoffice. 1.27 The declinein ENAFER'straffic and finances,and the deterioratin of its In ctur and rollingstock, startedin early 1985and has been acutesince 1990. Theseproblems are partly due to decliningmineral exports, diversion of rail trafficto roads,oversafg, politicalintrence, and the Inabilityof managementto adaptthe companyto the changingeconomic envronmen ENAFERneeds a radicalreorganization including Its physicaloperations and financialprocedures. More speciicaly, it needs: (I) clear delineationof managementresponsibilities; (ii) rationalizationof the role of the GovernmentIn ENAFER'smanagement; (iii) a stresmlinedset of adnive and legalprocedures; and (lv) greateraccountability and efficiency,including a drasticreduction in its staff. 1.28 Tramffcand Operatons. ENAFERhas experienceda steadydecline in its marketshare of the transportindustry durig 1985-1993,from about 8 percentof totaldomestic freight in 1985to just over 4 percentin 1993. Duringthe period1987-1992, freight traffic dropped by 47 percentfor FCC (from 1.5to 0.8 mIlliontons) andby 45 percentfor FCS (from1.1 to 0.5 milliontons). The generaleconomic recessionand securiyconcerns, especially trorist acdvitiesin the cenral corridor,have fturther reduced the demandfor railwayservices.

Raway Traffic, 987-992

2,000 1,800- FCC ) 1,600 \CS (raw) 1,400 FCS) 1,200 .CS l l x

400 200 0 1987 1988 1989 1990 1991 1992 4-8 1.29 Inefficientoperaig practiceshave also contributedto ENAFPEs decline. In the cm of FCC, the railwayclimbs from sea level to 4,829 metersover 182 kmnrahing the use of doubleeading locomotiveson the Callao-Huancayoline, whereswitchbacks make it Ipossibleto accommodatea trai of more than ten cars and one locomotive.Maiine locomotvestravel less tham44,0CO km per year, and freightcars less dtha9,000 km on FCC. Locomotivepower and rollingstock I bet deployedon FCS, which has a more faorable topographyand longer avra baul dita . Is locomotve utiizationis about 120,000km per year, withfreight cars averagig 14,000kim, stll lowby intnatinl standards. The averag freightcar tunaru timeis 9 days on FCC and 18 days on FCS. IThese figurescould be halvedby improvedscheduling. 1.30 ENAFER'slocomotive and wagonfleet deterioratedsignificay betweea1985 amd1992, as finial constraintsmade it difficultto carryout necssary maintece. Locomotiveavailability remains around27 percenton FCC and 42 percenton FCS, comparedto Internationlstandards of 80 to 90 percent Freightcar availabilityis also low:68 percenton FCC and 79 percenton FCS (the industy standardis 90-95percent). Mechanicalworkshops are old, lackspare part, and are poorlylocated. Ihe resultinghigher maint ce cost result in loss of business. 1.31 A similarproblem has occurredwith the tracks. Speedrestricdom had to be Imposd on several sectionsfor safetyreasons. It hasbeen difficult to put on longerbut less frequenttrains to accommodate the reductionsin speedbecause of the low hauing capacityof its poorly-m ined locomotives.A recentsurvey of tracksindicates an urgentneed for track mateialson ciical sectionsof the line. Ihis Is prfculy true of FCS. There is lo an overal sge of tack equlpmnt, and maintenancehas been further affected by the staffreduction program. The proposed investment progrm includesemergency funds for track,telecommunications, locomotives, and roilingstock to afrestfurther deteriorationof railwayservices. 1.32 Staffing. ENAFERis renegotatingits laboragreements and, through a staffreduction progm saed in December1992, has reducedits staff from5,440 to 4,068 (Decmb 1993);however, the presentratio of 2.61 employeesper lkmof track is stll high. A studyof manpowerrequrements showed at about2,200 further employees are to retireby December1994, provkIed fnds are avaiale to make the legallyrequired redundancy payments. This wil reducetotal ENAFER employment by 54 percen to 1,857,or 1.19 employeesper km of trackt As this target is beingachieved, ENAFER will improve its operationaland financial performace. The actionstrategy for the railwas requirs the Governmen to provideENAFER with about US$9.4 million to implementthe stff reductionprogram. 1.33 ThmnaelPerformance. In 1990-1992there was a seriousdeterioration of the railway'sfinancial position,caused by a loss in revenueswith no correspondingdecrease in costs. The loss was mainy causedby a 21 percentdecrease in freighthauled in 1992 as comparedto 1990 twms of ton- kilomete). Passengertraffic decreased even more sharply, by nearly52 percent Furtherdrops during the first half of 1993have broughtthe total reductionin passengertraffc to 71 percent Table 2 demonstras that, during the period 1990-1992,operating revenues dropped by S1 pecent whilethe decreasein the operatig expenseswas only 22 percent. Operatingexpenses have remained high mainly due to highlabor costs,which accounted for morethan onehalf the total 1992opatig expes. 1.34 Operatinglosses during the reviewperiod 1990-1992 were financed by acmulating liabilities - by not servicingthe railway'sdebt and by deferringpayments for personnel-reled contributionsto socialsecity, pension,and health plans. Thisfuther weakeneENAFE's fincial position,as delays In the servicingof debt and short-tem financialobligatons resulted in interestcapitalization and late paymet charges. As a resut, 1992non-operating expeses exceededthe opaing expenses,and tot expenseswere nearly three times total revenues; the total outtanding debt at the endof 1992was US$132 -9-

Table 2: ENAFER- SELECTEDFINANCIAL DATA, 1990-92

(743 VnMwa4g) 1990' 1991' 1992 OperatingReee 54,017 43,935 26,269 OperatingExpenses 49,822 60,200 38,776 Net OperatingInome 4 194 (16,264) (12,507) Net Income (69,422) (49.846) (52,785) WorkingRatio 76% 113% 125% OperaingRatio 92% 137% 148% Debt-EquityRado 127% 195%

FCC WorkingRatio 79% 131% 150% OperatingRaio 110% 161% 183% FCS WorkingRadio 64% 97% 113% OperatingRaio 71% 116% 130% FCSO WorkingRatio 112% 135% 108% OperatngRatio 126% 171% 133%

gOpagRatio: Operatingexpee dividedby opertig rves Woing Rato: Oprating exponses datonas dved by opeting revenues t Exchange esployed in conoerng Solesto Dollars:0.21 (1990);0.73 (1991); and 1.24(1992). * Negatve equty.

milion1. These inome losse togetherwith etensive exchangerate depreiion, led to a drastic redution in totaleqity: from US$380milliom at dte begining of 1990to -US$9million at the end of 1992. 1.35 PrIvateSector Paticipation. Privatzationof state-owned entprises is a key elementof the Govermen's programfor prvate sectordevelopment and public sector reform. The privatization programalms to p mostpublic sector enterpdses by mid-1995. To this end, the Government initiatedin early 1993the pdvatzatlonof ENAFER,and has formeda specialprivatzation committee - ComiE4pedaldePfvazacd6n(CEPRI-ENAFER). CEPRI-ENAFER has contracted an internaional advisorto: assess the viabilityof ENAFERs variousroutes and services;recommend options for

' Debtouttng includes:acouns pay"bl wbichare overue by morethan ane year (US$46miion), ahorterm pordon of to bog-Wmdet (US$27miion), ngntemdbt (US$37million), and provisionfor socialbefeits (US$22million). -10- restucturing and prnvatzaton; prepare a privatizaton straegy; provide advice to CEPRI on the privatiation process; and help CEPRI-ENAFERin engaging qualified privatizationconsulats. The privatizationconsultancy, expected to start In July 1994, will evaluateENAFER and will be responsible for issuing the sales memorandumand the tender documentsby the end of 1994. Ihe consultantswiJl be financedunder the Bank's PrivatizationTechnical Assistance Loan, 3540-PE.

1.36 At present ENAFER's main attractionto potentid buyers rests in its real-estateholdings and the scrap value of htsoperating assets. An Action Strategy has been prepared to acceleratethe administative and operational reforms of the railways deemed necessary for a successfulprivaizatlon. The Action Strategy envisagesENAFER's resolutionof its fiancial obligationswith governmenthelp and entailsin addition: (i) the executionof a voluntary staff retirementplan; (H) the sale of selected non-operating assets; (iii) renegotation of the collectiveunion agreements; (iv) organizationadrestructuing into cost centers, including separation of management and operations for the non-profitable lines; and (v) rehabilitation of railway infastructure and rolling stock to maintain railway operations during the privaization process.

1.37 The ActionStrate also includesimprovements in train operations,and workshopand permanent way maenance. It also provides for the critical emergencyinvestments needed to keep the railways operational. Major capital investmentswould be left for fuatre private owners of the railways to make. This stat which aims to transfer a restrucured and functioningrailway to the private sector should: (1) reduce labor redundancyand remove excessive financial obligations; CH)assess the viabilityof the variousrailway lines and services; (il) analyze structuraloptions for privatizingENAFER; Civ)evaluate the company and its respective operating units; (v) prepare the tender documents for the sale of ENAFER;(vi) process the tenders, and (vii) transfer the railwaylines and operationsto their new private owner(s).

E. Air Trasport

1.38 Ihere are about 300 airports and landing strips in Peru. About 130 of these are privatelyowned, and more than 110 are under the control of Per's regional governments. ITe CorporacldnPeruana de Aertos y Avicn Corda (CORPAC)is in chargeof the country's airports, landing strips, and air traffic control as well as en-route navigationsystems. It is responsiblefor 59 facilities,all of which have a single runway, includingthe internationalairport in Lima. Aircraft can refuel at only 12 of CORPAC's 59 airports and at 27 of its landing strips. In terms of navigationalaids, 11 airports have directionalequipment, three arports provide instrumentlandings, 20 providevoice radio contact, and 29 have only radio directionalbeacons. Only 12 airports are linked to the regionalair traffic control system.

1.39 Peru's airport system is not equippedto meet the challengesof an export economy and support aional integration. The reasons for its poor performanceinclude lack of resources,poor planning and management, minimal maintenance, and obsolete navigation equipment Lima airport, the primary aviationhub and the country's only airport with foreign airline services, Is badly in need of rehabilitation. The runway pavement, which has not been upgraded since its original constructionin about 1960, is showingsigns of severe deterioration(cracking and spalling) and is rated 'of concern" ty international airlines.

1.40 Traffic Composition and Trends. In 1993, Lima airport was used by 33 airlines seving 38 internationaland 29 domesticdesdnations. In the same year, Lima accountedfor 26 percent of aircraft operations, 41 percent of passengertravel, and 70 percet of freight tonnage at the CORPAC-managed aiports. Domestic traffic, which accounts for two-hirds of all aircraft operationsat Lima, peaked in -11- 1987 and declinedin the followingfive years due to depressedeconomic conditions; data for 1992 and 1993 indicatea reversal of that downwardtrend. Internationaltraffic has shownerratic Increasesin both passengerand freightvolumec. The rehabilitationof Lima airport is a high priority for the aviationsector and for economic activity in Pen.

1.41 CORPAC. CORPACis a public enterptise which is supposedto be fimanciallyself-sufficient, but since 1989 it has operated at a signficant loss equivalentto US$24 million in 1989, US$13 million in 1991, and US$4 million in 1992. However,with the sale of Aerperd - which owed CORPAClarge debts for services rendered as far badc as May 1985 - opeating results are expected to improve. CORPAChas reduced its labor force by one-third which should impwve its financial performance. In order to reduce operating costs, CORPAC is proceeding with a privaization program to contract out some of its aiport services.

1.42 There were ten domestic carriers in 1993: Faucett, Americana, Aeropern, Aeronaves, Aereo Tumi, Adreo Continente, Adreo Condor, Adreo Sata, Imperial, and Expreso Adreo, in order of market share. Aeroperd carriedabout 12 percentof domestictraffic and a significantpart of internationaltrsffic; it caried a total of 400,000 passengersand 3,800 tons of freight, of which domestictransport accounted for 66 percent and 31 percent respectively. Faucettand Americanahad 44 percent and 39 percent of the domesticmarket share, respectively. Te- domesticcarriers competein most marketsegments except for the specalized cargo airlines such as Expreso Adreo. Smaller carriers supply tourist services, such as Adreo Condor wbich providessight-seeing trips from Lima to Nazca.

F. Trsport In the L3ua Metropolitan Region

1.43 The Municipalityof MetropolitanLima (MLM), which is run by a provincial govemnment,is headed by an elected coundl which sets policy for the metropolitanarea with assistance from the municipalcoordination assembly cnstiting 42 district mayors. The province does not includethe port of Callao, which is independent,with specialprovincial status. The chief executiveofficer is the MLM mayor, elected every three years, who also serves as the mayor of Lima Cercado, the historic center of the city. Because of the high degree of administrativeindependence of the metropolitan districts, coordinationwithin MLM remains difficult.

1.44 Traffic and Safety. AUurban tansport in Lima is by road. In 1988, about 6.4 million trips were made by Lima residentsusing motorizedmeans; about 81 percentof these were by public transport. ousesare the main means of transport for low-incomegroups. The public transport fleet in 1992 comprised about 2,000 buses and 10,000 microbuses. While cars and taxis are the principal cause of traffic congestion,trucks and buses contributesignificanty to congestion, accidents, and air pollution. Accident rates are high, with about 70 percent of fatal accidents resulting from vehicle-pedestrian incidents. These problems are caused by poor traffic management, inefficient use of road space, malfunctioningsignals, bad sign postng, inadequatepedestrian walkways, and unsafe driving behavior.

1.45 Non-Motorzed Trmport. A municipalprogram for non-motorizedtransport was established In 1990 to promote the use of bicyclesin Lima. Tbis program aims to: (1)provide transport for people who curently walklong distances;(ii) reduce tranWortcosts for low-incomeresidents now usingthe bus, as well as save them time and improvetheir health; and (rii) reduce air pollutionby divetng passengers from buses and minibusesto bicycles. Recandy built bicyclewaysand experimentsrun by this program have shown early promise. Annex 8 describes a pilot project componentfor non-motorizedtransport in Lima. -12- G. Secor and Poilcy asues 1.46 The overalleconomic dedline and civilstrife have exacerbated the majorissues in the transport sector,which arise frominappropriate policies such as: O)ill-advised investment policies and decisions; (it) chronicdeferral of mainta leadingto a staggeringmaintenance backlog; (ii inefficientpublic sectoragencies; (iv) regulatory and administrativefailure; and (v) unclearand overlappingallocation of responsibilitiesamong national and localgovernments, community organizations, and the privatesector. Reformsmade since July 1990(Annex 2) have addressedsome of these shortcomings;however, much remainsto be done. Ihe increasein privatesector participation has itselfraised new issuessuch as the scope and rationaleof interiminvestments in publicsector enterprisestargeted for privatization,and appropriateregulation of privateservices.

1.47 Maintenance. Thetransport infrastructure is disintegratingdue to sheerneglect over the last 10 years. Only17 percentof the nationalroad network is in goodcondition; locomotive availability is down to 37 percent;and Lima'sairport faces the riskof beingclosed to trafficif no significantaction is taken soon. Transportservices to peripheralurban areas are limited by the poor state of roads. The Inadequacyof secondaryand rural roadshas beena majorobstacle to ruraltransport and has hampered agricuural production.The main objective of this projectis to financeemergency rehabilittion works to correctthe extrememaintenance backlog, and to initiatereliable and stablemaintenance practices. 1.48 Weak Pubgc Instiutions. The capacityof sectoralministries and associatedpublic sector agencieshas been eroded due to (i) loss of qualifiedpersonnel seeking higher salaries,as well as voluntaryand mandatorylay-offs, and (ii) the lack of formaltraining of personnelin the publicsector becauseof fmancialconstraints. Overstaffing,common in many public sector agencies,has been drasticallyreduced following their restructuringor saleto the privatesector. Similardrastic reductions weremade in MTCC'sstaff. Mostagencies are nowbarely able to conductday-to-day operations. Low publicsector wages also hamper attempts to retaincapable employees, particularly technical staff. The trainingcomponent of the projectwill provide MTCC and its affiliatesassistance to expandtheir technical capacitiesduring the restructuringprocess. As describedin Annex9, the projectalso includespolicy studieson highwayissues and organizational reform of MTCC,and provides advisory services to MTCC, ENAFER,and MLM.

1.49 Enviromnentaland SafetyIssues. MTCCis currendyunable to addressenvironmea Issues associatedwith transport projects. Responsibilities for enviromnentaland safety regulations are scattered among agencies,and little environmentlregulation and enforcementexist. Urban environmental concernscenter on autmotive pollutionand high accidentrates in large cities. In rral areas, exisdng roadsshow evidence of increasederosion, slope instability, and poor drainagecaused by inferiorroad design,construcon and maintenance.Ihe principalenvironmental concerns about railway operations are the collectionand treatmentof wastewater, and the disposalof solid waste from workshopsand mntenn ce units. Existingworkshops have no run-offcollection systems, or oil and greasetraps; however,oil recyclingis a standardpractice. Solidwaste is disposedof in opendumps along railroad tracks. Theproject proposes strengthening the environmentalcapacity of MTCC(Annex 15) to address the foregoingissues. Theproject also promotes the use of bicyclesin Lima, thuspartially addressing the issueof automotivepollution. It firther includesa road safetycomponent to stemthe growthof traffic accidents,which exert a heavytoll throughout the country.In the railwaysub-sector, the projectsupports an envirorunentalaudit of the permanentway, stations,and workshops,to be financedunder the Bank PrivatzationTechnical Assistance Loan 3540-PE. -13- IL PreviousBank Experieoe In the rnhport Sector 1.50 As detalledIn Annex3, the Bankhas made ;7 loam to Peru in the tmsport sectortotalling US$491mMion. However,only twothirds of this m haveboon disbursed. Of the total, 41 percet wa for highways,21 percentfor urban projecs (a largepart of whichhad urbantsport components), 16 percentfor mli-modal projes, 12 percentfor aviaon, 6 percentfor riways, and 4 percentfo pors. kmlemetio of these projectshas been difficut due to the technicalproblems caused by extme physicalconditions, inadequate engineering designs, lack of counterar funds,and weakproject w aavatd by low salarylevels for professionalsin the execudtg agencies,which have resud in difficultesIn recruitmentand retentionof qualifiedmanagers and engineers. 1.51 bewmaroeonomicconditions which beset the country om 1983eventually led the Government to defaulton its debtservice payments to the Bank,resulting in the supensionof all Bankdisbursemens to Peu In May 1987. Lackof countepa fundsand istional weaknesseswere the mainreasons for the unsatsfary performce and delaysin transportprojects. Other Bankprojects faced the same difficulties,which suggest ht ition building (themain aim of the EighthHighway Project, Loan 2091-PE),regrdless of how well-intentoned,should not be limitedto selectedministries in Isolation from the generd coutry context 1.52 Otherdonors are activein the transportsector in Peru. Ihe Governmenthas obtained a US$210 milion roadrehabilition loanfrm IDB,US$30 milion fromthe US, and grs fromJapan for project preparadonand locomotiverehabiitaton for ENAFER. KfW and the OPECFund are also assstingPeru hough cofinancingof the Bankproject, as describedin the followingchapter. -14

I. Tim PROJECT A. Ratoale for Bank nvolvemt

2.1 Untilthe mid-1980s,the WorldBank played a majorrole in Peru'sdevelopment. To the transport sectr alone,It lt nearlyUS$500 million drough 17 projectloans, of whichtre were activewhen the previous GovernmentInsted is debt moratoriumleading to ttie suspensionand evena cancelladonof thoseloans. The Fujimoriadministraon, on asumig officein July 1990,lnwhed a programof stabilizationand structua rerm. Ths Bankhas sported the Governmes economic refbrmprogram through four adjustment loans siped in 1992and 1993,economic and sector work, and crical techical asAtance. 'he proposedproject wold be one of the first investmentloans to Peru since 1986,and wouldaddress needs which are criticalto rnewed economicand socialdevelopment 2.2 The goals of Bankassistance to Peru are to: (i) sustainstabilization and consolidatestructural reforms;(i) fost pra devlopment and publicsector reform; (i) alleviatepoverty and promote humanresource developmen; and (rv)rehabilitate key infrastcture and redefinepolicies related to its operation,maitce, an finance.

B. Project Objetives 2.3 Thepwposed project emphasizes the fortht of the abovestegic goalsbut also supportsthe otherthree. The mainproject objectives are to: * rehabilItat essental transportinastructure which,primarily because of insufficient mainenance,has falleninto diseair; * assistGoverment in implementinginstitutional reforms in the road and ralway sub- sectors,aming at impved resou use and sustnable development;and

* layithe groundworkfor futre projectsfocussing on strengthenedroad management, inresed prvte pardcipationin the transportsector, and improvedmobility of the poor. 2.4 Theproject ft intothe Bankstrategy in seval ways. Firs, it addressesthe core istrucre deficienciesthrough rehbiitaton, com nents in the road, raglwayand airport sub-sectors. Second, throughthe priatzation of sport sectorentities and the strengtheningof restructuredpublic sector agenciesremaining after pr on, the BDankwill influence policy reforms with regard to pivtzaton. Someof the policyareas addrssed by the projectconcern user chargesand financingof infrastructure Ilvestmentsunder mixedownesp ublic/private)and decentraizedresponsibilities for maintenace and rehabilitation.Third, the projectwill help alleviatepoverty through: ) supportto labor-based programsfor road maitenance; () provisionof low-costmobility through a non-motorizedtransport component;and (Iii)improvement of ruralaccess as mostof the roadcomponents are In agriculturalareas poorly servedby transport. Finally,with respectto concerns,the projectwill (i) by promotingthe use of bicycles,help to containair and noisepollution generated by motorvehidles, ii) reducesoil ersio and pevet landdidesby mrovingrad drinage and stabilizingthe bed of the raiway, (1i) establishnew en m t cria for road constucdon and maintenace, and (lv) strengten MA C's capacityto set and controlenvronmental stdards in the trasport sector. -15-

C. Project Desaiption 2.5 In view of the dilapidatedstate of Peru's transportsystem, the projectemphasizes the urgent rehabilitationof key road, railway,and airportfacilities. In addition,it supportsthe privatizationof ENAFER,the state railwaycompany. To preparea basisfor fiture physicaland policy improemens in the transportsector, the projectalso includestechnical assistance as well as a pilot projectto support non-motorizedtransport. The five project componentsare summaized on the followingpages and are describedin greaterdetail in the Annex. ILRoad Rehblo andHaiWtewaOe 2.6 The projectincludes the rebabilitationof six nationalroad sections,totalling 725 km in length. As describedin Annex4, theyare key roadslinking agricultural areas in northernand centralPeru with the coast. The coastaland centralhighways are beingrehabilitated under a US$210million loan of the Inter-AmericanDevelopment Bank (IDB) 1. Theroads to be rehabilitatedare: 1. Tarma-LaMerced 72 km 2. La Merced-Satipo 122kn 3. Hugnuco-rgo Marfa 120ka 4. Tarapoto-Rioja 135km 5. Rioja-RIoNieva 100 km 6. RIo Nieva-Coral Quemado 176Ikm 725 km 2.7 The roadslinkdng Tingo Marfa with (256 kIm) and PuenteChanchamayo (Reiter) wih VillaRica (38 kIn)had also beenconsiered for inclusionin the project,but weresubsequently deleted in view of overallfunding constraints. Nevertheless, detailec engineeing will be carriedout for both of them(and additional roads yet to be identified)under the project,so theycan be implementedas soon as fundingis available.

2.8 The road componentalso includesthe acquisitionand recoveryof Baileybridges, renewal of derelictbridges, a pilotroad maintenace program focusing on roadslinked to the CorralQuemado-Rioja- RfoNieva-Tarapoto axis, and a trafficsafety program. The bridge rehabiitation programinvolves the acquisitionof a minimumstock of Baileybridges (tewmporary structures), the recoveryof preiously installedBailey bridges and theirreplacement with permanent sttuctures, and the replacementof derelict bridges. Most of the latter group will be identifiedthrough a generalbridge study includingthe inspectionof existingstructures and identificationof rehabilitationpriorities.Asies. loan noiationm for the replacementof derelictbridges, an internaleconomic rate of returnover 20 percent will need to be demonstratedfor all bridgesestimated to cost more that US$500,000.Altogether, and excludingthe 16 permanentbridges to be built under the road rehabilitationprogram, the bridge componentinvolves the constructionof about44 new reinforcedconcrete structures. The pilotroad maintenanceprogram focusseson 620 km of roads feedingdirectly into the Tarapoto-Rioja-Corral Quemadocorridor. Thispilot programalms to: (i) providea basefor estimatingunit coststo perform typicaln teance activitiesby contract;(ii) test and promotethe use of micro-enterpisesfor road maintenance;(iii) examinethe deteriorationpatterns of variousroad surfacetypes under altnative maintenancestrategies; (iv) provide a focus for field training; and (v) lay the foundationfor a

'Irhuy Rq and Maance Poject appwed in Jamnary1992. -16- entralizedroad ma_tace sta and the stren ing of local Insions. lhe trafc safety progam consistsof the acqubitionof sone urgentlyneoded mateials (suchas guardrails) and a study to developa comprehsive trafficsafety strategy, followed by urgentinestments to startimplementng the strtegy. 2.9 Paallel to the physicalroad investm , the projectwil supportgoverment for to rebuild an insdttionalstructure capable of maiaining the natioes roadsystem, at the nationa andlocal level. Recen reformshave led to the emasculationof roadmaintenance agencies and a near-chaoticimposition of decentrized road tolls, the mere collectionof which is esimated to consume2040 percentof revenues. The more promisingways to taclde this problemrevolve around the creadon and/or sngthening of decerized agencieswith clearly defined responsibilities and sources of income.on posile solutionpursued by the WorldBank in Africa,and promotedby ECLAC for LatinAmerica, involvesthe creationof auonomousetees responsiblefor roadmanagement, similar in funion to publicuilities responsiblefor electricityor water supplyservices. In collaborationwith the Germa Ageq yfr TechnicalAsistac (IZ), a progrm of echnicalassistance and an action plan was fomulted for iutional and policyrefom in the roadssub-sector. Through a progr of technical assistance the projectwill sWort the processof improvingroad adminion and fince. With uning from the IDB - supportedhighway project, MICC with soon itiate analysesof road user carges and road administratonissues. A&reementwas reachedat loan nefftiationsthat MICC will keepthe Bankiformed on the progressof and issuesconsidered by thoseanalyses, and that MTCC's acdonplan withregard to road financeand n wll be submittedto the Bankno later than Deember 31, 1994. 2.10 Excludig the rehabilitaonand maina opert-ionsto be carriedout underthe MDB-financed progm (3,450 kn) and under this project(725 km of road rehabilitationplus 620 km of the road ma*int ce pilotprogram), the Gov eent willstill have to copewith the reguar maintenanceof about 11,300km of priay road. As shownin Annex4, at least US$50million are requiredannually to adely mainai those roas. CovermnentDmdded a ces at loan neotiations that, for the duraion of the project,an annualallocation of not less than US$50million, to be updatedand agreed withthe Bankbetween July and Octoberof eachyear, wouldbe madein the budgetfor the mantenace of atio roadsother t thosecovered directly under extnly financedprojects, and that these funds wouldbe releasedin a thiely manner. 2.11 In the meantm and peing the implemeon of an agreednew inshtionra structre, the projectincludes a mnmberof immediateactions to improvethe capacityof the Genera Directorateof Roads areccnGeweTal de Cam os- DMC)for moreadequate plannig, costing,execution and control of the programto be caried out in the nextseveral years on the primay roadnetwork, and for providingtechnical advice to local govnments. Theseactions include: (i) the carryingout of a ntwork inventorycomping a pavementsurface conditon survey and trafficvolume counts over the nationalroad system; (ii) the settingup of departmentaagencies responsible for the detailedd.esign, budgetg, implemenion and monitoringof the mainenanceacties fallingwithin their respective geographicalterritories; this measureinvolves either the reassignmentof the engineerswho were formerly agen of the DGCbut were lat trnsfred to the Regionsor the containg of engineersfrom the privatesector; and (Iff)the strengtheningof the NationalRoad Laboratoy, in tems of bothequipment and stg, thu enablingthi Instion to beter playits rolein datacollection, technical advice, quality control,standard aon, d research. The actionsunder Oi and (ii) were initiatedin late 1993, in

2 Untd NaWo=B9onom Comnllu forLAtn ica ad theCaibbem (ECLAC),Cmbo, ax nw auqe pare1¢ gat cymwetc16n de ro15 vias, Siago, 1992. .17- particular with the creationof SINMAC(Sistema Nacional de Mantenimlentode Carreteras)as an almost autonomousentity responsiblefor the planming,management and (through its departmentalagencies) control of maintenanceactivities over the nationalroad network.

1. Ralway Wvaizadon and Rehabilataon

2.12 The overridingobjective of this componentis to assist the Governmentin privatizingits nstional railway company ENAPER. As part of project preparation, several strategic actions were agreed In principle, which would be needed to prepare the companyfor privatization. This action strateg which was conirmed during loan negotiatiorL Involvesthe organizationalrestructuring of ENAFERinto at least three separate entities, a significantreduction in personnel, the sale of assets not required fbr railway operation, the payment of ENAFER's arrears to utility companies, and the preparation of tender documentsto sell the restructuredrailway companies. It is expectedthat tender documentswill be issued in late 1994, with the sale to private intereststaking place in 1995. Basedon current operatioall trends, most railway operations would come to a halt in 1995 due to the dilapidatedstate of track and rolling stock and lack of spare parts, unless an emergencyrehabilitation program is undertaken. Accordingly, the physical aspects of this componentaim to keep the railwaysoperating through 1996, by whichtime the new private operators will be startng to make their own investments.

2.13 As described in Annex 6, the componentincludes: track rehabilitation;locomotive and wagon rehabiliation; lengthening of switchbacks; workshop and track maintenance equipment; telecommunicationsworks; and an environmental and safety study of FCSO near Cuzco. These investments address the most urgent needs and aim at keeping the ralways operational while the prvatzation process is still underway. Technical assistanceto define structural options and conduct additionalfinancial evaluations of ENAFERis beingsupported by a separateBank loan.3 The investment package is directly linked to the privaization process shown In the action strategy. The Government's stategy to privatize ENAFERwas confrmed during loan negotiadons including: (X)the preparationof a timed action plan to restucture and privatize ENAFER; (ii) assumptionof ENAFEVs accumulated debts and other liabilities; (Iii) a staff reatructuringand traiiningprogram to improve labor productivity; (Iv) definition of a financial and operational policy with regard to non-profitablerailway lines; (v) commitmentthat ENAFER will not undertakeinvestments over US$5 million per year withoutthe prior agreement of the Bank; and (vi) preparation of tender documents to sell the restructured railway companies. As a conditionof disbursementfor the railway component,the Governmentwill submit a timed action plan acceptableto the Bank to restructure and privatize ENAFER. This plan would also address the possibilityof selling FCC to the new owners of Centromin, the mining company to be ptivatized in early 1994.

IH. Runway Rehabilitationat Lima Airpod

2.14 As described in Annex7, urgendy neededrepairs will be made to the badly deterioratedrunway- taxiway system which was built more than 30 years ago. The technicaldesigns for its rehabilitation, which were prepared with assistancefrom the Internaional Civil AviationOrganization (ICAO), specify a new asphalt-concreteoverlay of about 230 mm thicknesson top of the existingcement-concrete runway slabs. The rehabilitationwill be carried out by prequalifiedspecialized contractors. Their work will be done in 8-hour periods every night, during which all aircraft operations will be suspended; these

'Prvaadon Tehkcal4stAnce Loan3540-PB, approved i Dorber 1992. -18- restdons wil last about 6 monthsand requiteappropriate consultations with the airlinesusing the airport A secondperiod of about9 monthswill be neededto completethe works,including txiway rebabilitationand Installationof lightingand instrumentlanding systems.

IV. PilotProjedt for Non-motor*dThmrot (NM2)In Liaa 2.15 As detiled In Anne 8, this componentIncludes the constuctionof four bicycleways and associatedbicyle lanes,which will connect the Lima-CallaoIndustial area withlow and middleincome residentialareas. In addition,a revolvingfund willbe establishedwith the C4a Munidcpalde CrOdito Popularde Lima (CMCPL)to providecredits for the purchaseof low-costbicycles, parking will be provided,and pomtional andeducational campaigns will be coaducted.'Me resultsof this component will be closelymonitored to help in developinga city-wideNMT masterplan. It Is expectedthat this pilotproject and possiblefiture worksof a similarnature will bring significant benefits to the urbanpoor In the fomal and informalsectors.

V. Tee ncaAssivtaw aNd Trnag 2.16 In addi to consuc servicesdirectly related to projectimplemention, suchas the design f road rh tion schemes and the constuction supervisionof individual components, the project Lncludesteuchnical assisace to strengthenthe institutionalcapacity for managingroads and bddges,and to supportthe creationand fosteringof an autonomousagency responsible for plannng, operating, controng andfinancing the highwaysystemL The principal objective of this componentis to strengthen MTCC'sinstittional capacityso it can adequatelyperform its functionas the key governmentagency coernd withthe transportsector. Thetechnical assistance component also supports the railwayagency in its restrucuing andprivatization efforts and in operationand management during the transitionperiod. Annex9 deibes the objectivesand basicscope of technicalassistance and thosestudies which are in additionto projectdesign and implementionitself (e.g., fia road designsand a traffic safetystudy which are groupedwith the road component). Annex 10 describesthe training activitiesprovided under the project The followngsummarizes the activitiesdescribed in thoseannexes. PolicySupport * Improvemento roadaistration and finance * Organiion reformof MTCC

Projedt Preparation and Jmplementaton * Preparationof futureprojects * Technicalassistance to MTCC,including financial project audits, support to roadagency, and adviceon airportrunway rehabilitation * Technicalassistance to ProjectCoordination Unit * Technicalassistance to ENAI * Techical assistanceto MLM Capaity Bulding * Training cours in Peru and visits to overseasseminars * Coursesand mateials in roadmanagement * Taing in railwaymanagement and privatiaon.

2.17 Under the IDB-supportedHghwa Repair and MalmenanceProject, policy studies are programmedto examine:Q) the policy,technology and fiacing of roadmaintenance and rehabilitation, incudig the responaibilitIesof the centraland regional governments; (i) ade loadcontrol and pavement -19- design standards; (iii)the need to strengthenhighway administon and management;and (Iv) crila to prioritize future highway investments. To avoid unnecessary duplicaton of effort. the tm of reference of the World Bank-supportedstudies will take Int CCOuntthe sOcpe of the IDB-support studies,which are expectedto commenceduring the first halfof 1994.

D. Project Costsand Ilnandng

2.18 Project Cos. Tot1Wproject costs are estmated at US$242million, with a foreignexcbnge componentof aboutUS$98 million (41 percent). Projectcosts are shownon a year-by-yearbasis In Annex11 and are summarizedin Table3. Basecosts are in June 1993prices. Physicalcontlencles were calculatedat 15percent of base costs. Price contngencies were calcted at an annal rate of 2.8 percent. This escalationrate is for localand internationalprices, which implies that the exchangerate is periodicallyadjusted to reflectthe differencetween internalinflation and the evohltionof world prices. The cost estimateincludes US$27.4 million (11 percent) for taxes and duties.

Table 3: PROJECTCOTr SUMMARY (S$Mmillion)

Projet Coponet Loa Taxes Total s Foeig Roa Rhaiaion (td. Desip a_d SuparX) 53.0 28.6 6.8 88A 32 BridgeRehabtation Den and sup.) 11.6 7.9 2.7 22.2 36 RoadMainenane (l Desip and Surii) 5.1 2.8 0.7 8.6 33 Equipmer for RoadLaboitory 0.0 02 0.1 0.3 67 Trfic SafetyPmru 0.3 0.5 02 1.0 50 Designof Futn RoadReabitai Schmes 2.2 1.2 0.6 4.0 30 RailwayPiatiat and Rehabilittion 5.9 21.0 8.1 35.0 60 RunwayRR_bilitation at LimaAirctt 8.9 13.8 2.0 24.7 56 Pilat P?ijec for Non-Motodrd Trpt In Lins 2.0 1.1 0.3 3.4 32 TechnicalAmaiatance and Tning 2.0 2.8 0.9 5.7 49 Projet Ma _agaen 4.1 0 0 4.1 0 Sbt:tah Base Costs 95.1 79.9 22A 19A Phy Caicaontingmenies 14.0 11.8 3.3 29.1 PriceConingencies 7.5 6.3 1.7 15.5 GRANDTrAL 116.6 98.0 27.4 me.O 41

2.19 The costsof civilworks are basedon work quantitiescalculated from preliminary designs and unitprices used by MTCC. Theseare slightlyhigher than those received in recentbids for similarwork being carriedout under an 1DB-supportedproject, as an increaseof unit costssems likelywith thfe accelerationof constructionactivity. -20- 2.20 Project Tlnandn;. TheBank loan of US$150milion, combinedwith parallel cofinancing by KfW(see para 2.21 below),would finance all foreip exchangecosts and 63 percentof localcosts. It wouldhave a term of 20 years,Including five years of grace,at the Bankcsstandard variable Interest rate. 'he financingplan, whichis shownIn Table4, wasconfirMed during loan negotiations.The Bank loan wouldbe madeto the Government,and mostof it wouldbe utilizedthrough MTCC. Theremainder of the proceedswould be onlentto ENAFER(UJS$31.7 million or 21 percent)and to MLM(US$3 million or 2 percent)on the sameterms and conditions as the Bankloan. Thesigning of the respectivesubsidiary loan agreementswill be conditionsof disbursementfor the railwayand NMTcomponents of the project.

Table 4: FINANCING PLAN (US$nillion)

Pect Co-mposait Government B.k K.W Total RoadRehabilitation (mcl. Design and Superv.) 18.1 52.2 38.0 108.3 BridgeRehabilitation (mcl. Design and Superv.) 5.6 22.2 27.8 RoadMait ce (mcl.Design and Superv.) 2.1 8.7 10.8 Equipmentfor RoadLaboratory 0.1 0.3 0.4 TrafficSafety Program 0.2 1.0 1.2 Design of Future Road RehabilitationSchemes 0.7 4.1 _ 4.8 Railway Privaizationand Rehabilitation 10.5 31.7 42.2 RunwayRehabilitation at LimaAirport 8.6t 21.6 30.2 PilotProject for Non-MotrizedTrspt in Lhna 1.0 3.1 4.1 Technical Assistanceand Training 2.1t 5.0 7.1 ProjectMagement 5.0 0.1 5.1 GRANDTOTAL 54.0 150.0 38.0 242.0

t bJlsing US$ ;ll;n cO tbon fromOPEC Fund for nternaionalDevelopment $ Valu..addedti and Japanisetechnia assiane gant (USS1.lmillion).

2.21 Coflmancig.The fiacn planincorporates bilateral contributions from the followingsources: (O OPEC Fund for Interational Development;Cii) a Japanesegrant facility; and (iii) the German Kreditanstaltfir Wiederaufbau(KfW). The OPECFund in November1993 approved a US$5million loanto supportthe runwayrehbilitation at LimaAirport. A US$1.1mfllion Japanese Policy and Human ResourcesDevelopment Grant was approvedIn Jume1993 for the preparationof a secondTransport RehabilitatonProject; this grantwill be executedby the Governmentwithin the contextof this project KfW in September1993 confirmed its intentionto lendDM65 (about US$38 million) in supportof the rehabilitationof the Rioja-RfoNieva road link (parallelcofinancing). -21- E. ProjectImplementation

2.22 Ihe Ministry of Transport, Communications,Housing and Costruction (MTCC)will have overallresponsibility for projectcoordination, and willalso be implementingagency for morethan thre quartersof project investments. There will be two additionalimplementing agencies: the raiway company(ENAFER) for the prvation and rehabilitationof the railway,and the Municipalityof MetropolitanLima (MLM)for the pilot NMTproject. All projectactivities wil be coordinatedby a ProjectCoordination Unit (PCU) establisjhed by and reportingto MTCC. ThePCU is incor ed into a "SpecialPtojectw, which was established by SupremeDecree In February1994, and willbudget-wise be treated as an MTCCprogram. The arrangementsfor projectimplementation were nim ne .

2.23 Functionsof the PCU. ThePCU will have two primary functions. dst, it willbe responble for overallproject coordination, including preparation of progressreports, processing of disbursement requests,and managementof the SpecialAccount (see below). Second,it willbe the implementingam of MTCCand be responsiblefor: (i)the processingof tenderdocuments; (ii) the contractingof suppliers, constructionfirms and consultants;(ii) monitoringof progress;(iv) supervisionand paymentsto the contra"tors;and (v) managementof MTC's project account. This secondfunction is similarto the role currentlyperformed by the ProjectExecuting Unit which coordintes the IDB-supportedHighway Repai and MaintenanceProject. 2.24 The PCU will includea Project Director(who would also act as advisorto the MWisterof Tasport), six engineers,an economist,a legaladvisor, an institutionalspecialist, a financialanalyst, a treasurer,and supportstaff. It will also contractthree railway specialists to be secondedto ENAFER (see para 2.28 below). Tnispersonnel will be engagedby MTCCat private-sectorsalaries and willbe paid from localcounterpart funds. As needed,the PCU will be complementedby consultantsengaged underthe project'stechnical assistance component. Ihe formalestablishment of the PCU (UhldWde Rehabilitacinde I*festrowr de nasportes- UR?)and the appointmentof its Directorsasfactory to the Bankwere accomplished prior to lgannegotiations: its functionswere confimed at AUgodWoM Thedetailed definition of staffingrequirements and of the generalfunctioning of the PCUa a condit foresenard tgsmtion. which was satisfiedin February 1994. The appointmentof additionalstaff satisfactoryto the Bankare a conditionof loan effectiveness. 2.25 Road Component.Except for certan emergencyworks, the PCU will implement this component on behalfof MTCC. Roadrehabilitation works will be let by internaionalcompetitve bidding (ICB) in aboutnine construction lots, ranging in sizefrom US$6 million to US$10million. In addition,the Rbo Nieva-CorralQuemado section (US$40 million) will be let by ICBunder the proceduresof the paralel cofinancingagency (KfW). Finaldesigns and constuctionsupervision will be carriedout by consulting firms. Similarly,road mainnanc contractsand bridgeconstruction will be let on a competitivebasis and supervisedby consultingfims.

2.26 Throughoutproject implementaion, close coordination will be maintainedbetween the PCU,th GeneralDirectorate of Roads,the EnvironmentalUnit and other MTCCofficials, as wellas militaryand civilianagencies from the regionsserved by the projectroads. Monthlycoordination meeigs chaired by the Mmisteror Vice-Mister of Transportwill be held to ensuresmooth project execution. When MTCC'sroad administration funtions havebeen restructured and strengthened, some responsibilities for project implementationcould be transferredto a new RoadsDirectorate; this possibilitywould be consideredat the Mid-TermReview of the project(see para 2.52 below). -22-

2.27 Consultant will be contrcted by the PCU to develop a traffic safety strategy. The responsibilitiesfor Implementingthat strategywill be agreed at the Mid-TermReview, taking into account the strengthenedcapacity of the Roads Directorate.

2.28 Ra1lwayPriratizatlion and Rehabilitation. Theprivatization process is being definedby a three- person committee (CEPRI-ENAFER)reporting to COPRI, the Government's Commission for the Promotionof PrivateInvestment. The railway companyENAFER, whichwill implementthis component, will receive policy directives from the privatizadoncommittee and from the Transport Minister who belongs to COPRI's five-persongoverning body. For the physical implementationof this component, the PCU will second to ENAFER a coordinator,in addWionto a mechanicaland a track engineer, who will managethe tenderingprocess for equipmentand materialsand bi: responsiblefor the quality checks of the goods delivered,for their installation,and for paymentto the supplier. These three specialistswitl report to the Presidentof ENAFERfor managementguidance. It Is expectedthat ENAFERwill let about 23 goods contcs rangingup to US$5million in value. Track rehabilitationand other civilworls under the project will be tendered by local competitivebidding.

2.29 Runway Rehabilitation at Lima Airport. The civil works will be carried out by an interationally experiencedcontractor, supervisedby consultantswith demonstratedexperience in this field. On behalf of MTCCas owner of the airport, the PCU wilHbe responsiblefor the tenderingprocess and all contractu aspects of this component. Ihe technical and operational control of the runway rehabilitation, however, will lie with the airport authority CORPAC to ensure that the works are harmonizedwith aircraft movementsand other requirementsof airport operations. The executionof this high-visibilitycomponent requires particular care to avoid accidentsand undue delaysto flightoperations. Therefore, a coordinatingcommittee chaired by the Ministeror Vice-Ministerof Transportwill meet at frequent intervalsduring the preparatory and exemion phase to ensure smooth implementationof this component. The hiring of consultantsfor constructionsupervision and of an independentexpert to advise the Ministeror Vice-Ministerof Transportare prerequisitesfor signinga contractwith constructionfirms to rehabilitatethe runway. These arrangementswere confirmedat loan negotiations. The independent expert and other technical assistancein the air transportsector will be contractedthrough ICAO, which has already been responsiblefor the final des.gns of the rehabilitationscheme.

2.30 Pilot Project for Non-MotorizedTransport In 1Lma.It was nflmed at loanngQiations that MLM will implementthis componentunder the direction of a coordinator appointedfor this purpose. Civil works will be let by local competitivetender. A revolvingfund to provide credits for the purchase of low-cost bicycles will be established at the Lima MunicipalBank for Popular Credit (CMCPL). Consultantsand/or Non-GovernmentalOrganizations (NGOs) will be engagedto monitorthis component, using quantifiedmeasures of progress.

2.31 Technical Assistance and Training. The PCU will implementmost parts of this componenton behalf of MTCC. I will be responsible4or drafing the terms of reference and other documentswhich are subject to Bank review, for settingup steering committeesthat wfll be needed for the larger studies. and for consultantsupervision and payment. ENAFER will be responsiblefor any tedcnical assistance and trainingrelated to the railways, and MLM for those related to transport in Lima.

2.32 Implementation Schedule and Monitoring Indicators. Due to the large numberof components as well as the scale, speed and mix of sectoral reforms going on in Peru, the implementationand monitoring of the project Is quite complex. Indicators were defined for each project componentto monitor implementationperformance and progress in achievingpolicy objectives; they are presented in Annex 12. At loan negotiations,the componentsand dates containedin Tables 12-1 and 12-2 of that -23- annex were confirmed,and it was agreed that, during project implemetton, the implemenaon indiscatoswill be annuallyreviewed and updatedin cosultadonwith and satisfactoryto the Bank. 2.33 Project Prepaon. Due to the severefinancial and peonnel costrait under whichthe Goverment currendyhas to operate,the projecthas been prepaed prmary with the assistanceof bilateraldonors. A Japanesegrant fundeda ProjectCoordinton and Preaation Unit (JCPP) from Janury until December1993. The UCPPconsutas workedwihin MTCCand wereresponsible for overall project formulation,the technicalpreparation of the road component,the environmental asessment, and some adviceon the railwaycomponeatL Teo UCPP was dissolvedfollowing loan negotiations,and its fucions weretransferred to the PCU.

2.34 Alsounder the Japanesegrant, a consultingfirm was contracted to prepar detaileddesigns and tenderdocuments for the Tarapoto-Riojaand Tasma-La Merced road rehabilitation schemes. Engineers conhtactedby ICAO prepared the design of the airport rway rehabilitation. Germanassistance supportedthe definitionof the traffic safet and road administrationaspects of the projectand the appraisalof the airportrunway component. Danish fimding provided assistance in appraisingthe bridge rehabilitationprogram. Canadianassistance fimded the preparationof the raiwaycomponent, and Dutch ssistancesupported the preparationof the NMTpilot project.

F. 2.35 Bankprocurement guines willbe followedfor the proposedproject, and the Banks standard biddingdocuments will be usedfor biddingand prequalification. For the procurementof civi worksand goodsunder Local Competiive Bidding (LCB), standard bidding docuents wil be preparedand agreed withthe Bank. All prouement aspectswere cnfed atIpan egotiain. Civilworks are esmated to acount for about 65 percent of totl projectcosts, equipmentand materialsabout 19 perceZ; consultingservices about 14 percent,and projectmanagement about 2 percent. Table5 psents the ested projectcost breakdownby procurementmethod. 2.36 A recent reviewby the Bankof the proement proceduresfollowed by both the publicand privatesector in Peru showthat these are generallyacceptable. 'he procurementprocedures followed by the publicsector are largelybased upon competition, with only minor exceptions of directcontcting whichare compatiblewith Bank guidelines. 2.37 CMI Works. Contrac exceedingthe equivalentof US$3.0million each will be procuredon the basisof ICB. In additon to the RboNieva-Corral Quemado road whichwill be rehabilitatedwith fundingfrom KfW, 12 contactswith an aggregatevalue of aboutUS$93 mfllion are eeed to fall into this categoy. Smallercontras estimatedto cost US$3million or less, withan aggregatevalue of about US$23million, will be awardedfollowing LCB procedures acceptable to the Bank;foreign bidders will be allowedto participatein the LCB bids. Smallworks and road maintenance,with contractvalues belowUS$100,000 up to an aggrega totalof US$2.0milion, may be procuredby localsbhpping based on price quotationsfrom at leastthree suppliers.Formal preqWlification of contractorswill be carried outfor all conDtra estimatedto cestover US$10 miflion, as wellas for somesmaller works agreed with the Bank.

2.38 Equipmentand Matrial. Contractsestimad t cost moreth US$200,000equivalent each willbe procuredon the basisof ICB. Ibis will Ilude the tendersfor Baileybridges and vaius tpes of railwayequipment. For specized equipmentwherethe numberof suppliersis small,such as some raiway andtrffic safetyequipment, limited international bidding (LIB) may be followed,in an aggegate -24- Tabl 5: PROCURIMENTARRANGEMENTS aUSSmillon)

_"*d emt lcD LCB Olber NAY. 1btaI Cvi Waft RoadWo*a 66.1 19.0 1.7* 40.1t 126. (52.6 (15.2) (1.) (0.0) (0.2) Airpot Woib 26.7 26.7 (18.7) (18.7)

Ra4iwayRhbIltai 1.6 1.6 (1.3) (13)

Coasbuctionof Dilewva and Aaocided Woia 2.6 0.3* 29 (1.8) (0.2) (2.0) Eqol_pmmd MMerb Mqulu of non-RiwayEuaw & Mdaidl 3.6 0.7 0.* 4.8 (2.7) (0.5) (0.4) (3-6) Ac ion of RailwaySq ait &Maea 31.8 68 2.0 40.6 M3.8) (5.1) (1.5) (30.4) Bzoh undwSubA 0.61 0.6 I ______._ _ _ _ (0.6) (06) C _algSevices ma TraJin 29.7w 3.1t 32.8 ______O(24.1) (0.0) (24.1) P&*d _magem0 Q* 5.0* 5.1 ______~~~~~~ ~(0-0) ~~(0.1) (0.1) T(YEAL 1282 30.7 34S9 48.2 242.0 ______. ____r ____._____._ (97.8) (23.9) (28.3) (0.0) (100)

* I--1--

$ PsuoansldPw4enc.oidalhaUuf t PidedbyKiWami boil osi__ON I Bkyopadamsby m,_ed rbne dmvd puts nJ_.5 8 amountnot exceedingUS$2.0 million It is epected that goodscosting a tota of US$38million (3 percentof aUgods prored underthfe proect) wil fail intothe ICB and L1Bcategories. Contract estimatedto costUS$200,000 or lesseach, up to an togregtal of US$7.5 mfllion, will be procred followingLCB procedum nationally adverised and saiSfctory to theBan Contact equipme andmatels cosdngless tbaD US$25,000 each may be procured ftrough local or internsionalshoppg, up to an agrega totalof US$500,000.Domestic m competingunder ICB will be eligble for a 15 percentmargin of prefeence in the comparisonof bids, or the prevailingcutom dudes, w1hicheveris less.

2.39 Consultng Servies and Traing. Thisproject element will be contractedin acrdan with WorldBank guiddines for the use of consltants, datedAugust 1981. Thse servicesInclude sudis, technicalassismce, trai , egineering designs,and constructionsupeviso Except for the employmentof individuaconsulat acceabe to the Bankl,pwposas willgeneraly be requestedfrom -25- thre, to six shordistedfirms; in exceptionalcircumstances, direct contractingof consultingfirms may be considered. For example, it is emnisagedto contract GTZ for reviewing the results of the road policy studies and for assisting in the implementationof their recommendations,thereby utilizing GrZ's experience in this area (para 2.9). It is also planned to engage IMP for the final designs of the bicycleways,because IP is the most experiencedin the dess-n of trffic schemes in Lima and because it has alreadyprepared the preliminarydesigns. The total estimatedexpendiures of US$29.7 millionfor technical assistamcefal into the followingclasses:

- Design, supervisionand other Implementationsupport US$ 25.9 million (87%) - Policy support US$ 1.7 million (6%) - Institutionaldevelopment US$ 2.1 million(7%).

2.40 Procurement Review. All biddingpackages of US$1.0 million or higher for civil works and all bidding packagesof US$200,000or higher for equipmentand materialswill be subjectto the Bank'sprior review of advertising,bidding documents, bid evaluation and contract award. The first LCB bidding packages prepared by each implementingagency for civil works and for goods, irrespective of the amount, will also be subject to the Bank's prior review. These reviews will cover more than 85 percent of the estimated total costs for civil works, equipment nd materials. For consultingfirms, services of $100,000 or higher and all single-sourceassignments will be subject to the prior review in accordance with the Bank's Consultants Guidelines;for individual consultants, services of $50,000 or higher are subject to prior review. For consultingfirms' contractsunder US$100,000,up to an aggregate total of US$500,000,and for individualconsultants' contracts under US$50,000,only the terms of referencewi)l be subject to the Bank's prior review. Other procurementaction wIll be subject to selective ex-post review; the PCU will retain documentationfor these contractsfor periodic examinationby Bank staff.

2.41 Implementing Agendes. As describedin SectionE of this Chapter, the PCU will be responsible for most procurement. Its proposed composition includes a legal adviser and several engineers experienced in international and local tendering and in the selection of consultants. The railway componentwill be implementedby ENAFERwith the assistanceof three specialistsseconded from the PCU and short-term experts engagedwith project finds as necessay. When the PCU is fully staffed, both MTCC and ENAFERwill have adequatecapacity to carry out procurementeffectively. With re,&-d to the non-motorizedtransport component,the civil works envisagedare relativelysmall and well within MLM's recent procurementexperience.

2.42 AdvanceProcurement Action and Retroactive ncing. Specialemphasis was placedduring project preparationto advancekey procurementsteps, with the objectiveof initiadng road works quicldy after loan approval. Accordingly, the internationalprequalification notice for road contractors was published in September 1993. A similar prequalificationnotice for airport runway contractorsand the General ProcurementNotice were publishedin December 1993. With funding from a Japanese grant, consultantshave producedfinal designsand tender documentsfor two road rehabilitationschemes. Under the terms of a Project Preparation Facility signed in September 1993, consulting firms have been contracted for the design of three additional road rehabilitationschemes. It is also planned to select supervisionconsultants for road and airport rehabilitationworks shordy after loan approval. During loan ngotainsg, retro-active financingup to US$700,000 was agreed for initial railway works and up to US$500,000for technical assistanceto project preparation. As part of the latter item, final design is about to start on the bicyclewaysof the NMT component. -26-

G. Disbursements,Accounting and Audits

2.43 Disbursements. lbe proposedloan is expectedto be flly disbursedby June 30, 1999,and the closingdate wouldbe December31, 1999. The disbursementschedule is shownin Table 6 and, in greaterdetail, in Annex 13. It correspondsto the standarddisbursment profile for Bankprojecs in Peru. Table 6: ESTIMATEDDISBURSEMENrS (US$million)

______1 994 199 5 199 199 199 199 j Annua 15.0 30.0 48.0 36.0 18.0 3.0 Cumuaive 15.0 45,0 93.0 129.0 147.0 150.0

2.44 Paymentsfrom loan proceeds will be administeredby the PCUfrom a specialaccount (see pars 2.46 below). Disbursementrequests in respectof chvilwodrs contracts over US$1.0million, goods contractsover US$200,000,consulting contracts over US$100,000,and all single-sourceconsulting contractswill be fullydocumented. In all othercases, disements willbe madeaginst samets of expenditure(SOB). Documentaionsupporting the SOEswill be retaine4.by the implemeing agencies and madeavailable for eaminationby Bankstaff during review missions. 2.45 Disb ts of up to US$1.5million are expectedprior to loan effectivenessftrough a Project PreparationFacility (PF) signedin September1993. Table7 showsthe basisof loan disbursements afterloan effectiveness. Ihe first itemin thattable includes civil works expenditrs on: Q)rehabilitation of nationalroads; CiH) replacment of Baileybridges with pemanent structures; (Iii) construction of other bridges; and Qiv)works under the traffic safetyand pilot road maiteance programs. Consulting Servicesand Trainingincludes expenditures for flnaldesigns, construction suevision, studies,advisory services,course fees and othertraining-related costs. Ihe PPF, whichwill be used almostexclusively for designconsultants and other forms of technicalaistance, has a 100 percentdisburment rate. Submissionof a timedaction plan for the restructuringand prvaization of ENAPER,acceptable to the Bank,is a conditin of disbursemeinhfor the railwaycomponent. The isuan of operatinginstuctions by CMCPL,acweptable to the Bank,is a cndition of disbursemientsfor bicyclesunder subloans.

2.46 Specal Acomunt. A SpecialAccount will be opened and maintainedin US Dollars, in a commercialbank acceptableto the WorldBank. Ihe authorizedalocation, sufficientfor about four months'of financeableexpenditures, will be US$5million. TheBank will repleni the SpecialAccount uponreceipt of disbursementrequests from the Borrower.Ihe PCU willcontrol the use of the Special Accountand be responsiblefor preparingthe disbursementrequests on behalfof the Borrower.These requestsshould be submittedevery month,or whenthe specal accounthas been drawndown to 67 percentof its Inidaldeposit, whichever comes first The establishmentand operatingaragements for the Specia Accountwere ageed at loannegotiations. -27- Table 7: LOANDISBURSEMENS BY CATEGORY (US$million)

Cateor Amount DlsbursamnetRate Civil Wordsfor Road Rdabilta 63.0 80% of xpeis CivilWork for Aiport Reabilit 17.0 70% of e _pedu Civi Work for RaiwaypRsabihtin 80% of _penitue Constucto of BicycleWs, ad Asoiaed Works 1.7 70% of exenditus Acquison of Non-RailwayEquipt and Matal 3.1 100%of forign expeue (net of tas) 75%of local ependir Acqisdon of Railway p ad Materiab 29.0 100%of foreign vpde (nat of ta) .______75% of l edue_o Biccle unde Sublos 0.6 100%of eped_r Coutig Serie and Tring 21.0 100%of expediur_ At Oftu PPF 1.5 Unalloeated 12.0 TO,TAL , , l,150.0.,

2.47 Aftera longlapse of Bankinvestment lending to Peru,the conceptof Specia AccounsIs being reintroducedin this project. It is thus possiblethat administave problemscould delay the start-upof disbursements. A special accountmanaged by MTCC is to be set up under the PPF mentionedabove. Dependingon the initialexperience with thdt account,the Bank will providetechnical assistance to overcomepossible problems with special accounts and disbursementprocedures in general. 2.48 Lcal CurrencyAccoumts. in additionto the SpecialAccount in USDollars, each implementng agencywill establish separate local currency accounts for itsparticular components. It wa dat!n flatiQons that the Govermentwill deposit counterpart funds intothe MTCCand ENAFERaccounts at the beginningof each monthto cover all paymentsanticipated for that month. All projectaccounts will be managed in accordancewith generallyaccepted Inteatonal accountingstandards. The establishmentof local currencyaccounts for the three implementingagencies is a conditionof Ia effetivness. 2.49 Audits. At loan negotations.it was agreedthat annualaudits of projectexpenditures will be carriedout by independentauditors acceptable to the Bankand in accordae withterms of referenceto be ap ed by the Bank. Auditreports wil be furnishedto the Bankwithin six monthsafter the close of the Government'sfiscal year.

H. Reporting,Monitoring and Supervision 2.50 Reports. The PCU will preparequarterly progress reports for all componentsof the project, includingthose implmented by ENAFERand MLM. Thesewill be sent to the Bankwithin one month after the end of each quarterand will describe(a) progressachived againstagreed implementation -28- indicatorsand disbursementschedules, (b) updated implementation and disbursementschedules for the remainderof the project, (c) status of compliancewith the legal covenantscontained in the Loan and ProjectAgreements, and (d) detailedwork progrms and actionplans for the comingtwo quarters. Ihe mainpurpose of these reportsis to providetimely and updatedinformation on projectimplementaton, highlightingissues and problemareas, recommending actions and commentngon progressIn exeg previousrecommendations. The Borrowerwill also submitto the Banka Project CompletionReport withinsix monthsfrom the loan closingdate. Reportingrequirements and key monitoringindicators on physicalprogress and financialand operational performance (Annex 12) weragre at loanNotats. 2.51 AnnualReviews. At yearlyintervals, starting not laterthan six monftsafter loan apprval, the Bankand the Governmentwill conduct a formaljoint reviewof the progressmade in reachingthe project objectivesand in implementingproject components. In the case of unaisfactory progress, the Governmentwill prepare remedial action plans within one monthof the review. The annualreviews wil providean opportnityto assess(i) progress in physicalproject implementation, (*d) the performanceof each implementingagency and the PCU, (Iii)the achievementsand soundnessof judgmeatin fieldsof procurementand disbursement,(iv) progressachieved in the restructuringand privatizationof the railwaysand airport authority,and (v) progress in the restucturing and strengtheningof road maintenance,administration and finance. The project implementation schedule and monitoring indicators (seepara. 2.32) will be updatedduring the courseof the annualreview. Cofin agencieswill be invied to participatein the annualreviews. 2.52 Md-Term Review. Thethird annualreview will constitute a Mid-TermRview and providean opporunityfor a more comprehensiveassessment of projectachievements to date, and of the prospects for successfulproject completion. Duringthat review,proposals for restructuringor reorientingthe projectwill be considered,taldng accoumt of all relevantsector and projectissues. Ihe timing and objectivesof the annualand mid-termreviews were confirmed at loannegotiations. 2.53 Project Supervision.The frequency of Bankmissions will be guidedby the progressand special requirementsof projectimplementation. After a longhiatus, this is the first Bankproject suppordng Peru's transportsector, which calls for more intensivereview and assisancethan is usualy the case. As shownin Annex12, Bankmissions are expectedto supervisethe projectabout three timesper year untilthe Mid-TermReview, and two times per yearthereafter. It is estimatedthat about140 staff-weeks willbe requiredfor projectsupervision for the durationof the project,wi the averagedeclining from 40 staff-weeksin the frst yearto 10 staff-weeksin the fifh and 5 staff-weeksin the sixthyear (plus an additionaleffort to preparethe ProjectCompletion Report).

I. Tiandal Analysis

ENAPER 2.54 The railway'sfinancial position has deteriorated in recentyears due to a lossin revenueswithout a correspondingdecrease in costs. Begnningin 1987,ENAFER began to lose trafficfor a numberof reasons including:low economicacivity, increasedcompetition from roads in certainsectors, poor marketingof railwayservices, deteriorating political siation and securityconcerns, and unavaiility of tractionpower and wagons. Consequenldy,freight traffic decreased by 46 percentbetween 1987 and 1992,as shownin Table 8. Whilethis declinein freighttraffic was spreadnearly equaly amongthe regionallines, FCC fiances weremost severelyaffected as fight traffic constitutesthe bulk of its operations.In addition,the traffic declinewas accompaniedby large cuts in freighttariffs. Between 1990and 1992,real tariffsdecreased by 61 percentfor FCC and 28 percentfor FCS. -29- 2.55 Ihe declinet paseger trafficW Ove moreproounced. From tspeak volume in 1989,the taffic decrseod by 66 pecet to 222 mlion panerkn 1992for ENAFERas a whole. The decr waslargest br FCSwhe thedecln wa naly 69pcent; for FCSO( passengertafflc reduct to haf to 1989volm. In 1991,FCC suspended Its pssen sorvices be n Caligoand Huncayo, with the excepti of someecson trainson week-ends. As a rest, pasengStaffic doppedby 60pecet ad nowblon mostlyto theHusacyo-luncavelica line

Table & TINDS IN RAILWAYTIAM1IC, 198719I2

1967 1966 18 1990 1991 1992 Freght (mWkn teA4bn) FCC 292 219 199 189 163 152 FCS 420 378 302 302 270 232 ENAFER 722 606 S07 498 440 389

F_- (- - FCS 359 344 403 277 181 126 FCSO 128 117 124 98 72 61 ENAFER 576 S81 659 469 320 222

2.56 ENAFEIrsfinancial stuctr doesnot allowfor coststo be reducedIn acCordacewih decln in its opert. Duringthe 1990-1992perod, opating revenuesdereaed by 51 perent while ot deacr in theoprt ees wasaly 22 perent m idity in theoperatioa expes was manldythe result of laborcosts, which araged about61 peret of dheta operatingexpenses durn s period. For FCCin 1991-1992and FCSO in 1991,operating reveus werenot ee enoughto coverthek respective labor cos. Opeatingrtos durng 1992wero 183percent, 130 pecent, and 133 pecn for FCC,FCS, ad FCSOresecdvely.

2.57 Theoperatg loss financedby reducn expenditur andby am4 liabilities- by nt servicig theraiw' debt and by defr the paymes for personnel-relted contrutionsto the socse ty agency,pension and heath paymens, and other legally mandaed paWmen.This furhe dated ENAFEs financiaposton, a delaysin the sericeof the o _uKftliabilites rosted in heavyfinc pnides inst h companyby its credio. Asa slt, 1992 ooutlas excee operatingee andtotal exes wen neiy dt tm total nues. By theend of 1992,debt ouhts OqUalOedUS$132 million

2.58 Sine ENAFEtRdoes not undrtae indndet finsnca adit, It difficult to accuraely alaste its networth and oeqt. ENAFER,lie a otherpublic ap , has peidially realued its assetsto taB Into accountthe effec of herinhlatlon has nareasedts reportedeuty, acordingto oneestmat by nery USS300mUili It a aMd at loanneotdato thatENAFER wi nstituteproper accounting practe and,s sta wid 1994, wi1submit anal financialaudi of Itsoperations by _ndedet adior acceptableto te Bankwhhin si monthaer theend of theyea. Submisionof the auditos port and auditedfinancial _er 1993IIl be a cdidon I mmfor e railway -30- 2.59 As discued t Annex6 financialprojections are predicatedon a state towardf1iaa viabilitythat includes iree man components: * minImIngworking expenses, prinipally by contining the rent s reducdon program-toreduce thelabor for byover 50 percent,from 4,068 employees In Dember 1993to 1,8S by end-1994; * eliminatingall non-profbtableservices or, whereconsidered necesary tD mainain such servicesdue to socialreasons, nsurig dst ENAFERso longerbe resposiblefor operaingdeficits; and * undertaig theemegncy hwiesent programto keepthe railways operaing until their privatization.

2.60 'he financialprojections assume that: 0) consistentwith Its practice of undertakinggovernment- guarantedficial liabiltiesof publicente targetedft privation, theGovernme will assume al of the railwap debt (external,internal, final penaties, accruedinterest, etc.) - ENAPERwfll therere not be expectedto makeany debt servicepayme on its existingliabilities; (H) the Governent wil provideENAFER with sufficient fuids to implementits staffreduction program; CiO) the Govermenwi helpENAFER design and implement its privatzaion program; (iv) unvofitable serviceswitl be closedor, altenatively,the Government wil provideexplicit foding to mainainthem in operation; (v) the ailways' opeations will be restructred int eost centers; and (vi) the prposed emergencyeinvestmet program wfll be institutedin a tmely manner.

2.61 Under the above 5mp , the financialposition of ENAFER is expectedto Improvestarting in 1994. While operatig revenue is forecast to remain conot during the 1994-2000period, savings from cos contaimentar expectedto produceimproved fieanial results,as shownin Table 9. Profibilityof FCCis excted to remainmargil unti FCCcan negotiat a morefavorable conact wit Itsmain client Ceatomin. At thecurrent tariff level, ises in freighthmled on thecentral line wud be rquiredto substnially improveFCC's financl healthas fixedcost consftiutea highportion ofFCC's opeations.

Table 9: FINANCIALPROJECTIONS FOR RAILWAYS

194 1995 196 im 1998 1999 200 FCC WodkingRatio(%) 132 110 96 103 103 105 108 operatg Ratio(%) 159 136 110 117 117 119 122 FCS Wolug Ratio(%) 114 89 81 86 87 88 90 Operatn Rstio(%) 136 102 101 106 107 108 111 FCSO Wokng Ralo(S) 84 69 69 74 75 77 79 OpertinglRtio(%) 112 86 96 101 103 104 107 -31- 2.62 SensthvityAnalysi. Ite financialforecast would most likely be afected by chages in operaing revenuedue to changesin the passengerand freighttariff structureand the respecdvetraffic volumes,and/or changes in operatingexpenses due to changesin staffcosts. DelayIn the paymentof end-of-sevicebenefits to staffwould slow down the staffreduction progm andthus affectthe financial forecast. Likewise,reduction in trafficvolume would adversely affect the projectedopeating resuts. This wouldbe especiallytrue of FCC whichis projectedto operatewith high operatingratios while maintainingconstant traffic near 992 volumes. On the other hand, a 20 percentincrease in freight traffic(to the 1990level) in 1995for FCC wouldreduce the workingratio to 99 percent.

CORPAC 2.63 While CORPAChas been operatingat significantlosses, its operatingresults for 1993 are epected to showa markedimprovement as a resultof the recentsale of Aeroperd.The presentpolicy of CORPACis to worktowards operational efficiency so that it mayachieve financial independence and profitability. 2.64 CORPAChas alreadystarted implementing strict financial management controls. In the pasttwo years,it (1)reached agreement with the Govement to clearAeroperd's payments; Ii) reducedits labor forceby abouta third, whichhas positivelyaffected its incomestatement; and (ii) begana progam of ptivatizingsome of its airportservices, especially those which have recenty shownoperating losses. Thesesteps will positively affect CORPAC's finances by strengtheningits cashflow, reducing opeang expenses,and improvingits incomestream.

MLM 2.65 The municipality's1992 expendt exceededrevemnes, resulting in a deicit of US$9.7milion whichwas financedby a reductionin workingcapital. The deficitwas mainlycaused by a declne in revenues:15 percent declinein the municipalityincome and 4 percentdecline in the govermen tansfers. As a result,operational expenses climbed to 96 percentof the revenues,compared to 90 percentin 1991.'T financethese deficits, the municipalityhas increasinglymade use of short-termdebt (an overdraft). While the debt ratio of 15 percentin 12 is consideredlow, the declinein net worldngcapital has reducedMLMWs capacity to meetshort-term liabilities. The overall budgets of MLM amunted to the equivalentof US$291million in 1992,and US$200million in 1993. Ihe costsof the NMTpilot project (US$4 million) are verysmall in comparison.It is expectedthat MLM will easilybe ableto servicethe proposedUS$3 million loan for ihatcomponent and provide the necessarycounterpat funds. On September13,1993, MLM advised the Bankthat it wasbudgeting US$862,000 in counterpart fimdsfor 1994,more thanenough for the first yearof imple on of the NMTcomponent.

J. EoonomicJustification

P?ujedBenef,is 2.66 The main benefitsof the projectwill be a restorationof the currendydeteriorated transport infrastructureleading to a transportsystem that willpermit a higherlevel of economicactivity In the country. Theproject will remove physical constaints in transportand reducetransport costs for goods and passengers. It wfll stimulateexports (mineal, mancui, and agriculturdproducts), farm productionand marketing,and the mobilityof people. These benefitswill bolster the ongoilg -32- sabibaton programand consolidatethe gins in struca reforms. rugh speciflcproject componentaimed at incring the pudcipationof thepdv sctor as we as relianceon mfket meanms, the project will also imp anspoct sector manageme, maily by prmowt a responsiveinstiional stuctre fnctioning on patneshp betwen the publicand privatesectrs.

2.67 Calculationsof tuna eonmmicrt of retu ar basedon quantfiablsbenefits ncudingcost andtm sNdgs to oad user, saving In r mfuturecosts on roadsand theaiport in ima, and improvedreliability and efficiency of transportsystems. In addiWon,the project wiI providesubstan beneft whichar difficultto quanfy, but whichdirecy contrIbuteto conumerwefare and povert alleviation.Some of thesebeneft arediscussed below. 2.68 Ihe roadcomponent of theproect conems the rehbilitation and upgding of unkroads that linkfarming areas o maket. hiscompoent will pardtdarly assist the poor in reducingranwport cost whichare now extremely high due to poorsurface conditions and periodic road closures dug therainy season. Theimpact of higherpasability and more reliable and cheap trsport willdirecty contbute to improvedfarm productivity. Given the recent declines in agriculturalprductivity and the imortce of this sectorto the Pervian economy,such impactsare sigaificlnt. Theroad mainta pilotproJect wil alsoprovide a modelfor long-termmaienanco management, while the various tical asstac componenton roadfinancing, adni , safety,and evironmental managementwill mpo the cpacitYto maintainthe road network, reduce the high ra of roadaccidents and fatalites, and fster an environmentllyresponsible road sector. A pilotproject prmoting non-motorzed tnsport is direcly aimedat tfin the fasibilityof cheapermodes of transportfor thepoor, who are nowpaying high prcentges of theirincome on urbanbus fares and who have low mobility. Ihe railwayprhvztion componentwill provide a replicablemethod of satisfyingthe dualobjectives of maintaininga functioning transportsyem whilertuctring It forprivatizaton. Furthemore, the proje will assiti creatg employmentdircdy, especiallytough thetoad works, ad indirctlytough theexpansion of fming andother economic activites such as mioingand m

EconomcR&Vy 2.69 Theproject yields hig economicreuns as preted In de iln Annex14. lhe overl intemal economicra of reun (IERR)on the road abilitation,road maitnnce, railway,and airport componenis about27 percent. 2.70 RoadRelablitatlon Progm. Theroad rehabilitation program co therehabilitation of six natonalroad sections, tolling 725 km in length. It is estmatedto yieldan overallERR of about 27 percentbased on trafficand road conditiondata the sdectedroad secto. The six sectons Include: ) Tl-La Merced;(ii) La Merced-Satpo;OM Huinuco-¶lgo Mark (Iv)Taapoto-Rioja; (v) Rioja-RioNieva; and (vi) Rio Nieva-Corral Quemado. For purposesof conductngthe economic andysis, roadlinks (v) and (vi) were comb. inO; a link fromCorr Quemadoto Rioja. Ie main quantfiedbenefits are: (i) the veicl ope g costsaveddue to road rehabiitaton; (i) time saing forpassengers; and (iii) savig in rouinemai a followingrehabilitation. The cost benefit analysis is basedon theWorld Bank's Highway Deig audMa _neacModel (HDM M). All roadsecdo Ibtedratesof retun greaterta 20 percent,as swn InTable 10. Thesehigh rateflecthe poor conditionof existingroads and the bigh costs of operatingveles on suchroads. 2.71 Plot Road Ma_intenaceProgram. Becae of the poor historyof road in Peru and the erodedcapacity to manage_nc projectswihin MICC,a pIlotm_ programis icluded in the project I wilgbe conductedon about620 kamof nationa roads,to serve as modelfor -33- Table 10: ECONOMICEVALUATION OF ROADREIABIUTATION SCHEMES

Road Lth FtsinatedCo MR OmNR l (Oin* (% inU) I (% l

Thina-LAMgroed 72 7.1 36.9 38.7

La M0t10d4t-po 122 14.8 30.9 33.5

Hu&=o-Tho Marfa 120 5.8 2S.0 28.9

TampooRioia 135 10.9 25.S 30.8

Coan QumIdo-RiQia 276 49.8 17.1 21.6

Total 72. 88.4 22.6 26.6

NOrTR:PYB = Pit Yew BonefitRat at 12% - IERR = }raan Bonoic PAtsof Retrm. * Ba.s coast,including dea8n andcotutnxtion apeMisa. ture Maintenanceof Peruvianroads. Ite rate of returnfor this programis veayhigh (IERRof 91 prcent), refletg the poor executionof roadmaintece that is the legacyof the 1980s. 2.72 BridgeRehabiltatlon Prgm m. Theproject supports the replacementof 30 bridges,all located on crucial nlnksof the nationalroad network. Thesebridges are currentlyin poor condition.The main benefs fromtis componentrelate to the removalof weightrestrictions on the bridges,resulting in lower opeatg costsfor truckingand the savingsin futuremaintenance and repair costs. The esdmatedIERR for this componentis 103percent.

2.73 Airport Component. Rehabilitatingthe runwayof imaes intenaional airportis expectedto havedirect and indirectbenefits. Directbenefits include: (a) net incometo the Governmentfrom taxes on expendituresby foreignturists while in Peru; (b) benefitsto CORPACfrom savingsin life cycle maintenanc mcostsfollowing the rehabilitation;(c) net incometo CORPACfrom landingand takeoff chargesfor aircrat, and aiport use chages for passengers;(d) benefitsdue to time and cost savings accruingto passengers,cargo, and airlinecompanies; and (e) incesed comfort,convenience, and above all safetyto the airportusers. Additionally,there are indirectbenefits such as employmentand multiplier effts on the economy.The economicanalysis quantifying benefits of types(a) and (c) aboveyielded ratesof returnof 25 percentand 18 percentrespectively.

2.74 RailwayPvatizaton and Rehabiltatlon. A comparativeanalysis of rail and road transport in Peru indicatedthat ralways, if efficiendyoperated, are an economicform of transportin threemajor corridors. To remaincompetitive, however, they willhave to be completelyrestructured and eventually privAized.The projectthus has te objectiveof restructuringENAFER along its maincost centerswith subsequentprivatization. Annex 6 providesa detailedevaluation of the three cost centers:FCC, FCS, andFCSO. Thefirst majorstep of the plannedrestructurng effbrts under the projectis a staffreduction plan for the three entites. Thisplan is aimedat improvingthe operatig and financialefficiency of the ralways. Ihe secondstep of the restucturingefforts includesperforming emergency rehilitation works. Theseworks have been identifiedindependently for eachrailway entiy, and are necessaryto maintainthe railwayin operationduring the restructring process. The benefitsfrom the emergency worksderive from three mainsources: iOoperating efficiency gains from emergency repairs on waysand strucures - track rehabilitationand repair, and extensionof V atchbacks;(ii) gains from improved -34- reMiabiliryof the rolling stock, due to the repair of locomotivesand wagons and to better workshop maintenance; and (Iii) lmp ow operating procedures as well as reductions in labor requirementsat railway stations due to improved communications. Ihe estimated overl iERR for the railway rehabilitationworks is 15 percent.

2.75 Sensitivity Analysis was performed mainly for the road component,since it representsalmost two thirds of total project costs. Sensitivitytests how that even if costs were 20 percnt higher, and benefits 20 percentlower, the overallIERR for the road rehabilitationprogram would stillbe greaterthan 20 percent. For the railway component(17 percent of project costs), It was assumed that 1992 traffic - which was particularlylow in that year - would be maintainedduring the analysisperiod, and that the railways would not recover lost market share even after improvingtheir reliability. This was a conservative assumption,and there is preliminary evidencethat the traffic levels are now increasing. Given the high rates of return obtained, a scenario with decreasingtraffic and market share was not evaluated. Moreover, the project directly supports a restructuringeffort that will guarntee a dynamic and improvedmanagement of the railwayswhich has the potentialto restore customerconfidence and thus maintain market share. Early indicationsshow that the raiways have been able to atact new markets followingpreliminary restructuringefforts.

K. Environmental Aspects

2.76 All pbysical improvementsunder the project concern the rehbilitation of existing facilities, without constructionplanned along new alignments. The project would thus not cause direct impactson the enviromnent,other than those linked to the constructionprocess itself, and these are addressed in a new manual for contrctors (see para 2.79 below). As described in Annex 15, however, several of the road improvementschemes are in the rain forest (Selva) region and thus an extensiveEnvironmental Assessment(EA) was conductedas part of projectpreparation.

2.77 Preliminaryresults of the EA confm that, if properlymanaged, the proposedroad improvemes are unlikely to harm the ecologicaland social environment. However, the Government's capacity to address environmentalissues related to road and other transport projects is weak. Since the overall responsibilityto address environmentalissues in the transport sector rests with MTCC, it is important to strengthen MTCC so it can give the proper attention to environmentalconcerns, in this as well as fuAturetransport projects.

2.78 No governmentunit existed until recendy to carry out the environmentalresponsibilities related to transport. In October 1993, MTCC established a transport-environmentaloffice in its General Directorate of the Environment,which until then was responsibleonly for urban matters. The functions of the new office include: (i) advisingthe Ministeron environmentalconcerns in the transport sector; (ii) establishingenvironmental policies and proceduresfor transportprojects; (iii) incorporatingenvironmental objectives lnto feasibility and design studies; (lv) ensuringcompliance with the EnvironmentalMamnu for Road Desigoers and Contractorsdiscussed below; (v) generaly ensuring that all bidding documents and contractscontain the appropriateenvionmental conditions;and (vi) monitoringemnronmental fictors and maintaininga data base. The functions and adequatestaffing of the transport-enviromental office in MICC were cotffnrmedat g1iin . -35- 2.79 The EA team alsoprepared an Environenal MwalforRoadDesigners and Comractors,which is satisfactoryto the Bank. Agreementwas reached at negotiationsthat the provisionsof this mamnalwiln be observedin the biddingand contractdocuments of road and bridgeschemes let under the project. Topicsincluded in that manualare: * Applicableenvironmenal and naturalresource legislation that contractors have to comply withduring construction and maintenanceactivities; * explicitprohibitions and envionmentalbehavior guidelines for work crews,especially in sensitiveareas; * properselection and managementof quarries,borrow pits, gravel extraction along rivers, and other sourcesof constructionmaterial, and eventualrehabilitation of affectedareas throughsoil replacementand revegetation; * selectionof camp sites, managementof camp wastes, and guidelinesfor camp dismantlingand abandonment; - properdisposal of excavatedearth andspoil material to avoidcontaminating streams and otherunnecessary damage; and * pr-Terdisposal of wastesfrom construction machinery and equipment(burned oils, parts, sem".-solidwastes).

2.80 Withregard to the railway,the mainenvironmental concerns are relatedto wastewatercollection, teatment and disposal,and solidwaste disposa in worlshopsand maintenamceunits. Someof the older workshopswill be closedas part of the railwayrestructuring, while others would be modernizedby the new ownersafter railwayprivatization. The rehabilitationof existingrailway tracks and locomotives wouldnot havean enviromentaleffect, as this acdvitymainly concerns the replacementof existingtrack withno excavationor worksthat will changethe stabilityof surroundingslopes. 2.81 Ihe NMT pilot project to increasebicycle use will have a positiveimpact on the urban envronmentby: (i) helpingto limit the steadyincrease of air pollutioncaused by motorvehicles; (ii) reducingvehicle-generated noise; and (iii) easingtraffic congestionby reducingthe growthof motor vehicleson the roadand by shiftingcyclists to separatepaths.

L. Project Risks and Safeguards

2.82 The projecthces the followingrisks: (i) inadequateprovision of counterpartfunds for project implementation;(ii) procurementproblems and ineffectiveproject management, especially arising from a lack of institutionalcapacity of the implementingagencies; (iii) insufficientabsorptive capacity of the domesticconstruction industry; and (iv) the possibilityof armedterrorism against the contractorsduring the executionof the works. 2.83 To minimizethese risks, the lessonsleamed in previoustransport projects and the initia experiencesacquired in the ongoingIDB-supported highway project have been consideredin project desig In pardcular,the projectwoud providefor: (i anual reviewsof the projectexpenditure programsat the time of budgetpreparation, and advancedeposit of counterpartfuinds into project -36- account, similarto the proceduressuccessfully being employed In the ongoing1DB-project; (0) creation of the PCU with adequatetechnical assistance to assureeffecdve project monitong and contl, and establ ism of monitoringindicators which will be the basisfor projectsupevision and formal annual projectreviews; (di) minimizingthe LCBcontracts to only 14 percentof the totalproject cost; and (v) provisionof armyprotection that may be necessaryfor project execution. Morewver, significant up-ft actionhas beentaken to establishan effectiveProject Coodination Unit. 2.84 Road Component. As detailedin Annex4, at least USSSOmillion per year are requiredto properlymaintain the networkof nationalroads, in additionto thosebeing coveredunder this and the IDB-supportedprojects. Tbe long-termprject objectivescould not be sustaine unless sufficilt resourcesare being providedfor maintainngal nationalroads. To reduce this risk, government assuranceswere obtained that minimumbudget allocations for road maintenancebe agreedannually with the Bankfor the durationof the project. Moreover,the Governmentwill prepare by the end of 1994an ActionPlan to reformhighway admiistation and finance;this plan will be discussedwith the Bank duringthe SecondAnnual Project Review. 2.85 RailwayComponent. Theproposed restrutring andprivatization of ENAFERwill require far- reachingand difficultdecisions by Government,the rigorousdefinition and implementation of an Action Planby ENAFERand, notleast, private sector interest to acquireall or partsof the railways'operatio. In viewof theserisks, severalup-front actions regarding railway reforms were agreed as a conditionof disbursementsfor this component.Despite this, the hill successof the railwaycomponent is doubtful, and Its deletionfrom the projectwas seriously considered. However, a deliberatedecision was taken to support the reform of ENAFERunder the projectto help in acceleratingthe difficultprivaiaton process. It wasalso agreedthat, evenif this componentwere to be delayedor fail, the remainderof the project(83% of esdmatedcosts) could still be consideredsuccessful. 2.86 AirportRunway Rehabilitation. Theprincipal concerns regarding the airportcomponent are possiblemishaps or inordinatedelays in the high-visibilityrunway rehabilitation, which for aboutsix monthswill require closure, during night-time hours, of Peru's main gateway. To guard agaist these risks, intationally experiencedsupervision consultants and an independentadviser (contractedin collaborationwith ICAO) will be engagedbefore the signingof a contractwith the constuctionfirm, whichalso is to be selectedwith particular care. -37-

m. AGREEMENTSREACID ANDRECOMMD ON

3.1 The Wow actionswer tak pior to loannegotiations:

(a) The Govenme confirmedhat ) ountpart fundingwill be madeavailable for this project(para 2.48), 01)sufficient resources will be providedfor routie mainea of the entire nationalroad network(pas 2.10), and (iib)the policywill be continuedof taxingroad user at leastthe amountspen on roadmaintena (para 1.20). (b) MC fnally establishedthe ProjectCoordination Unit (pas 2.24).

(c) MTCCestablished a unitresponsible for eironmental aspecs of the transprt seor (para2.78). (d) MltC supportedthe defintion of a privadzationstra for ENAFER(par 2.13). 3.2 Duringloan negotiations,agreement was reacted on the following: A. Project Man et:

(a) The arrangementsfor project mlementaton s describedin para 2.22. (b) The functionsof the Poject Coornatng Uni (para2.24). (c) Staffingto ens adequaeimple tion of ralway andNMT components (aras 2.28 and 2.30).

(d) Thefunctions and dequatestaffing of the transport-environmentaloffice in MTC (para 2.78).

(e) The pocurementaragements as descRe in paas 2.35 - 2.42.

(M) Obsra of th E o Maal for RoadDesigners and Contractorswill be stplated In all biddingand conta documentslet under the road componentof the project(para 2.79).

(g) Keyincat andtagets for monitorigproject performance and achievementof project objectives(pwara 2.32 and 2.50).

(h) MTCCwill send the Bankquarterly progress reports within one monthfrom the end of each quarter(par 2.50).

(I) MTCCwil sendthe Banka projectcompletion report not later six monthsafter te dosing date of theloan (para2.50).

0I) ADnnalreviews will be carred out to assessprogress; representatives of cofinncing agencie willbe invitedto paripat in the anmualreviews (a 2.51). -38- (k) A midtem projectreview will be carfiedout no later tha 30 monthsafter loan approval,Involving the Bankand the relevantGovemment and cofiancing agencies,to: () assess the overallprogress made in project implementationwith respect to the monitoringindicao mentionedabove; and 00 considerproposals for restructuringor reorientingtie project, respondingto relevantsector and project issues and taking accountof aeed actionplans for policyand/or institutional reforms (para 2.52). D. Finandal and Other equirem ts: O) Theproject financing plan as describedin para 2.20 and Table4. (m) The establishmentand operating arrangements of a separateSpecial Account (para 2.46). (n) Separateproject accounts for local counterpartfimds will be establishedfor MTCC, ENAFERand MLM(par 2.48). (o) By June30 of eachyear, MTCCwill submit to the Bankthe auditor'sreport and audited financialstatements of the SpecialAccount, Project Account and SOEsfor the preceding calendaryear, auditedby independentauditors acceptable to the Bank(para 2.49).

(p) For thoseworks under the bridgereplacement subcomnponent which are estimatedto cost more than US$500,000,MTCC will provide calculationsto show that the IERRis over 20% (para 2.8). (q) Ihe terms of referencefor the generalbridge study (para 2.8).

(r) MTCCwill informthe Bankon the progressof, and issuesconsidered by its analysesof road financeand admiaon and submitits actionplan by December31, 1994(para 2.9). (s) An anmnalallocation of not lessthan US$50 million equivalent, to be agreedby October 31 eachyear, willbe madein the budgetfor the maintenanceof nationalroads other than thosecovered directly under the project;these funds will be releasedin a timelymanner (pa 2.10 and Annex4). In addition,the Governmentconfirmed the assurancegiven prior to loan negotiationsthat k will contnueits policyof levyingroad user chargesin excessof road maintenaceexpendires (para 1.20).

(t) ENAFERwill instituteproper accountingpractices and, startingwith fiscal year 1994, submitthe auditor'sreport and auditedfiacial statementsof its operationsfor each year, within6 monthsfrom the end of that year, auditedby independentauditors acceptableto the Bank(pam 2.58). (u) Establishmentof a coordinationcommittee in MTCC, hiring of consultantsfor constructionsupervision, and engagementof an independent expert to advise the Ministeror Vice-Mister of Transportare prerequisitesfor signinga contractwith constructionfirm to rehabilitatethe runwayat Limas airport(para 2.29).

(v) The Goverment wfll assumeENAFER!s debt (imcludingfiue arrears penaldesand interestsdue), clearENAFERs aras withutiity companies,and providethe funds neededfor the staffresrucuing program(para 2.12 and 2.13). -39- (w) ENAFERwill be diided Intoat least three operadngcompanies (pam 2.12). (x) ENAFERwill not undertakeany investme oeverUS$5 million per y witout the prior agreementof the WorldBank (pam 2.13). (y) ENAFERwill prepe, by December31, 1994,a staff trainingprogram desiged to mprovelabor productity (par 2.13). 3.3 'he followingis a conditionof Board prentfaton: (a) The definitionof staffingrq_ements and the genal fnctdonng of the PCU (parM 2.24); tis condidonwas safied in Febuary 1994. 3.4 The followingare conditdonsof loan efeceus: (a) Adequatesffing of the PCU, Includingthe Directorand personnelwith qualifications and epeience acceptableto the Bank(para 2.24).

(b) Estblishmentof the localaccouns for the respectiveimplemening agencies (para 2.48). 3.5 The followingare conditons of disbursementfor specificproject categories: (a) For raiway work, equipme and materials: O1)the Governmentwi submita timed actionplan, acceptable tO the Bank,to restructureand prhite ENAFER(paras 2.12 and 2.13); (i) the Govement and ENAFER wil sign a subsidiaryloan agreement satisftry to theBank (para 2.20), and (ii) ENAFERwi submitthe audiborsreport and auditedfinancia sament of its oeatons for 1993(para 2.58). (b) For the NMT component the Govement and MLM will sign a subsidiaryloan agreementsatisfaory to the Bank(par 2.20).

(c) For bicyclesunder subloans: CMCPLwfll issue opating istrcons for its staff acceptableto the Bank(para 2.45). 3.6 Rcmdation. Withthe aboveagreements, the project is suitablefor a Bankloan of US$150 milion equivaentfor a periodof 20 years,including five yeas of grace,at the Banik'sstandard variable interestrate. -40- ~~~~ANNEXI

PERU - T prt R b i roject ANO9!UIxNQ R.'OIA)MNSAND

1. Peruvin transportfaciities and servicessuffer from a host of deficiencieswhich will needto be correctedin orderfor the sectorto supportsustainable economic development. The condition of transport into te such as roadsand streets, railway track and equipment,and airportrunways are in various stagesof disintegration:only 17 pecent of te nationalroad netork is in good condition;locomotive availbiity is as low as 32 perent; and Lima's airportmay be closedto trafficif no actionis takento fixthe runway.Lack of maintece and rebabilon of interban roadsis increasingthe cost of, and in somecases precluding, getting products to marketor pointsof shipment.Shipping costs at mostports are muchhigher than in neighboringcountries, and the railwayis costingthe economymoney rather than contribuingto its growth. In urban areas, the poor pay between12 percentand 30 percentof their inome for transportion. 2. Themajor causes of thesedeficiencies, besides the overal economicdecline and civil strife, stem frominappropriate sectoral policies, notably: (i) misdirectedinvestms resultingin over-investmentin capac in somelocations and under-investment in others;CiH) chroic lags and deferralof maintenance

Table 1-1: Modal Disribution of Domesic Fght Traffic

F.,* Ced in Tonne f(ind ) Year Rail Road Air ShipnTotal 1983 3,444 14,379 137 25,900 43,723 1988 3,662 20,208 113 32,343 56,350 1992 3,155 64,184 58 22,543 89,940

F egh Ca fd (%)______Year Rail Road Air |Shipping Total 1983 8 33 0.31 59 100 1988 6 36 0.20 57 100 1992 4 71 0.06 25 100

1. PFs frs 1992for road wee ted fromrottrads, otwise aUSws anefrom the MTCCsoue. 2. 1991and 1992 fumes for sipping takbnfrmn ENAPU. 3. 1990.1992fie. for Air t*a fmm CORPAC. 4. All aoter fiur fromMIC and Ewme Yuio& 1989. S. Shpping gre ae for isr'ausad dodeti. spping ony. -41- ANNE I

leading to a staggeringmaintenance bacidog; (iii) inefficientpublic sector agecies; (iv) regulatory id administrativefailure; and (v) sub-optmaldefinidon of fiutional and fincial responsibilityfor provisionand maintnancebetween nation and local governmens,community organizations, and the privatesector.

3. A numberof reform takensince July 1990(see Annex2) haveaddressed some of theseshort- comin; howevermuch remains to be done. The fbllowingsections summarie the main issuesin the trasport sub-sectorsad oudinethe measurestakn in this projectto assistthe Governmentin resolving them. The rebilitaton of the road systemdeserves special priority, given the remarkableincrease of trucktransport in the last ten yearsCable 1-1).

A. Road Transport

4. Thecondton of the roadnetwork has severelydetriorated due to ineffectiveadnistration and financingof the roadsector, deferred maitnance pracdces,and poor enforcementof road regulations leadn to overloadingand unsafedriving behavior. Te impactson the economyof such detioration and mismanagement,in tms of traveltime and vehicleopatiw costs,not to mentionthe staggering maitnance backlog,are far-reaching.

5. Road Netwok. lhe Peruvin road networkc jmprisesabout 70,000 km of which11 percent are paved,19 percent stabilized, 23 perent earth, and he remaining47 percentare track. Peru'sroad denity - 54.4km per 1000square km, 3.20 km pe 1000populton, and 1.91 km per US$1million GDP- is halfthat of its neighbors,Ecuador and Chile,partly because of the largeunexplored areas in the Selva,the highconcentrtion of economicactivity in the Costa,and the exte difficultyand high costs inerent in buildingand maintn longroads through the etemely ruggedSierra region and tropicallyforested Selva. Futhrmore, the networkis not complete,whih missing links in important corridors. In Peru, classificationof roads detemis the type of agencyin chargeof the roads, the finaning mechanismsfor constuctionand maintenan, as well as the standardsto whichthe road is maintained.The network is classifedas: (i) the primaryroad system of about15,700 km, knownas the nationalroad network, comprising three nord-south sxial roads rumning respectively through the Costa, Sierra,and Selvazones, of whichonly the coast highway(Pan American)is completelyconstructed; and 20 planed east-westtransverse highways, of whichonly three (onein the north, center,and south of the country)are mostlyconstucted; (ii) a secondaryengineered road systemof 14,500kn; and (iii) a feederroad systemof 39,800km, muchof it consistingof tracks.

6. Flowsof trafficare concentaed on the NationalRoad Network, partcularly the Pan American Highway,which carries 6,000 vehiclesper day (vpd)close to Lima, about 1,S003,000vpd on most sectionsruning towardsthe northof Peru, and about700-2,500 vpd on road sectionsto the southof Lima. Thetransverse highways carry as muchas 2,200vpd closeto Limabut in generalrange between 500 and 800vpd on pavedsecdons.

7. Conditionsof the road networkwhich deteriorated in the 1980sto very low levelsbegan to improverecely as a resultof increasedivestments in rehabilitationand maintenanceof roads. ByJuly 1990,about 44 percentof the nationalndwork - whichis the primaryroad system - wasrated "poor", 44 percentwas in the 'fair" category,and only12 percentwas rated "good". Conditionsin the rest of the road network (secondaryand feder systems)are even more critical. One of the main reasons for this deteriorationin quality was the steady defrral of cc in the 1980's. Tis-trend seems to havebeen recety reversed,as a resultof the FujimoriGovenment's emphasis on invesmentsm the -42- rehabilitationand repair of the exsting infatuct. By December1992, about 29 pcenm of the national network was rated "poor, naly 54 pcet was in the "fair" categoty, and 17 prcent was rated "good".

8. Reliabilityof the road system,in additionto tho safetyand condton of the network,affec the cost of roadusage. 'Me lack of all weatherroads, poor maintenancepractices, as well as topographical andclimatic conditons render larg segmns of the roadnetwork impassable or verycostly. Ihe Cental Highway,which carries a large percentag of goodsand pasger transportin the cea corridor,is totallydosed due to mudalidesfor up to 3 days a year, and averageclosure in terms of accumulated hoursreaches up to 7 daysper ye. 9. Vehicleoperating cos on the unpavednetwork and "poor" segmentsof the networkare extremelyhigh, evenconsidering the natue of terain. It has beenestimated that the poor conditionof the networkhas increasedroad travel time by as much as 40 percent, affectingin turn, the overall transportcosts. 10. Composidonof Veide Fleet Thecomposition of the Peruvianvehicle feet between1983-1991 wentthrough severad tions. The vehicleReet has been growingby about 10,000per year, reachinga levelof about600,000 in 1990. However,the natureof this growthhas varied, in terms of vehicletype and age, for a varietyof reasons. First, before the recent dreglation of imports, restctions on the import of vebiclesleft the availabilityof new vehiclesto th high cost domestic assemblyplas. AfRerthe recent deregulationof importsthe vehiclefleet has been growingmore rapidly. Second,the agp and coniton of the vcl fleetprior to the deregulationdwfd the effact of the gowth in new registrations;new vehiclesmerely replaced the old withoutcontibuting to an incre in the fleetsiz. This wasespecay tue in the case of pickups,trucks, and trailers. Finally, the rate of gowth of truck, trailes, and pips has beengreater than that of cars and buses. During 1983-1991,the growt ratesfor the picklp, trc, md trailerfeets showedmarked increases (up tD7 percentfor tralers during 1988-1989);on the contrary,that of cars systematicallydeclined. Withthe dereguationof impors in 1991,there has beena dramaticrise in the nmber of newvehicle additions. Whilethis ince is mostlymade up of second-handvehides, it has, _noless, helpedto reducethe averageage of the totalvehide fleet. 11. Motoizationpatterns are alsoreveding. Ther is on averageone vehiclefor every 36 persons in Peru. Ibis aggegte figure,however, hides regional differences. In Lima, motrzation levelsare the highestwith one vehiclefor evey 1Spersons. About14 of the 24 regionsof Peru haveone vehicle for every 100 people, but other regionshave even lower motorizaon levels. In Huamcavelica,for example,tere is onlyone vehiclefor every 1,000people. 12. Trafficsafety remains a compellingissue in the road sector. Availablestastical data indicate more than S3 annualdeats per 10,000vehicles, ranking Peru amongthe high fatalityrate groupof -developingcountries. Furthmoe, the perentae increasein roadacciden fatities between1977 and 1987is about3.6 percentper anmm in comparsonwith genrly decliningataliy rates obsered in other counties. Safetyproblems are most severein urban areas. In Lima, about70 percentof fatal accidentsinvolve vehicleedestrin incident. Amongthe prevailingreasons for safetyproblems in Peru are: (i) meand inefficientuse of roadspace, includig poorsigning and dcannelization,and uncodnated and n ncioi trafficsignls; ( poor provisionfor non-vehiculartraffic in urban areas- in Limabicycles and pembulator vehiclesfor trade,as wellas pedesriansall contibuteto the congestio of the urbanroad spac; (ii) lackof speedlimitation and enfcement of safedriving behaviot - amongthe most frequentcauses of accidentsand fatalitiesare driver's imprudenc (39 percent), 43- ANNEXI overspeeding(20 percet), druik drivg (8 percent),and pedestria negligence(6 percent);and (iv) a lack of awarens and commitmentto safety. Othercaues includelack of roadmarkings, guard rails, and signingas well as lack of vehicleinspection.

Red Mwsagemat and Adib tbx 13. Adminin andflnancing of roadsin Peruhas gone through fundament chuangesas described in Amx 5. Severalalteratives for decenrization are cumendyunder discussion,some reforms envisagethe creationof departmeal unitswhich will take over the responsibflitiesof the formerregional gvmme , but be directlyunder the MTCC. In the framewworof the NationalSystem of Road Maitne (SINAAC:Suem No4w de Manenime de Carree ), about12 teional disicts are to be set up (amongwhich three wereopional in December1993) to assumethe responsibilities for the mainenc progm, underthe jurisdictionof SINMAC. 14. Decentaization gives damena directoratesand municipalitiesroad maintnace and rhabilitationreponsibilities for the extensivesub-national network, comprising about 54,300 km and 78 percentof the toal road network. Ihe resou availableto these agcies (fiances, staff, equipet) are seriouslylacking. For example, the equipmentfleet in the handsof the localgoverm is about at the end of its usefil life, and is in need of refirbishing and renewa. 'his situation is aggwrad by the absenceof a reliableand dedicatedfunding mechanism at the locallevel, as well as lack of technicalskill at the operationallevel.

15. L=ocagovements have used innovative but sometmes inefficientmeans to overcome these limtons. First, facingthe scarcit of equpmen, laborintensive tecmiques have been relied upon with a measureof success.Second, several of Peru'smunicipalities have joined in supra-govera entities to coordinate muicipal effots in large metopolitan areas (e.g., Municipalityof Meto litan Lima). Finally,however. muic es have resorted to settig toil collecon stationson roadsegment where ther are no alterative routes,ths exactinga gatefee to all incomingtraffic. These toiling systms have recety beenabolished pending a reevauationof road financingmechnisms. 16. 1Re-u. At present,the isdituional capabilityto adds evironmetal issues associaedwith road projects and usageis weakor non-existent.Road construction in Peru, despitethe sensitivetopographical and ecologicalconditions, has so far not had major direct impactson the environment.Slope stability and draiae problemshave mostly been limited to localizedsections. The im of slope stabilityand drainageroblAs on the reiabiliy of traport, however,have been severe. Roadsections are oftenclosed due to suchproblems. Ihe mainreason is the capaciy to respond to such problems,which is verylow, as is demonstratedby the lengthof timethe roadsare closeddue to mudslides.There is also limitedconcern with respectto indirecteffects in the selva region,where road impr have conribute, on a litd basis, to lega and illegalexploitation of nat resources(timber, wid animals),erting somepressure on exiimg and prote areas. In somecases, roaddevelopmeat may have accelerated lad tenumeconlicts in areaswhere the Governmentis developing tt ural amdlad-tiding proga. The maie and imporne of these indirecteffects need to be addressedwithin the broadercontext of economicdevelopment and environmentalsusainability. Polluion, as a result of road usageis a major issue in urban areas, espeiy inLima where road congetioncontibutes to poor air quality. Annex 15 gives a more detaileddescripdon of the environmentalaspect of the projectcomponents. lilt~~~~~~~~E Ahpeiheesa ansdRq*avWa 22. Peu basa totl 305aipor andlaig strips,of which59 aromanaged by CORPAC,113 by munclpalltuand the Ministy of Dl nse,and 133 by pivat operars. Dueto ruggedterrain sevea of Peru'sairpo arelocated at bigh altde, witheiht of dtembeing higher tha 2,000meters, and Juliacabeng thehht at an devatonof 3,824mterave sealevel. 23. In 1992, eGenealDirectoratforAirhanspot, DITA, prwducedtheNationalAiportSystm (SistnemaNadoal de Affopwlo - SNA)aied at adaptigthe deveopmentof airprt faciitiesto respondto currentcvil avaon needs.T1is systm clssifi aipor usingthe followig coniderons: (i)strategic (defes) and ntegaon; () airportequipment; (i) awtasport sevices;(iv) a transport demnd;(v) air operations; and (vi) soo-economic development. According to te SNA,Peru's airport bhv beenclassifled as formiag.(a) fte NadonalAirpor Network(d BddlcaANdonal de Aempuertos - RBNA)comprisig ionda,intationa, principal,and compl y aos; and(b) the Rogiona Airport Network (Red ReSgi de Aeroperos - RRA). Based on this clasifcation, Peru has 12 natial/ ona airports.Futr ivetment disions andthe role of the Govnn aviation devlopment(e.g., whedherto decentralizeor privaie aviadon-relatedactvities) will be madefollowing ths ystem of dclcation.

24. Peru's arport facies are not sufficientlyequipped to me th chage of a expot eonmy and ai thderrole of Integrai andpacicaton. The raso for poorfuncdonal pedormace include:lack of resources,poor planing, etreme _ neglect,and obsdoetair avigation epmnt. All of CORPACsairs consistof one rnway each, its mejorJorge Chbz IffnadonalArport in Lima. ITe runwayp arein varius stges of deteriorationdue to lack of a. Th extt of rehabilitationwok on the runways,following years of nslect, couled withthe fat tat aie the airpor are sigerway aiports, creats a substanial clen and cost of repair, in reiltating tee aipo while keoping them oeaional. Good practicesae threfore esseni to avoidthse highcost. Onlytwo airportsae capabl of handln B-747 ircai Oneis Jorge uvex Interatoal aiport andthe otheri. locaedat Pioc on tm cost about200 omsouth of LIma Mkotote man arpor can _ aircraftup to a DC-B, whie a fewotes arelimited to B-737.Airraft canreful at only12 akportsand 27 landIngstrb. In termsof nvigationlaids, 11 airpot prvde deton equipment,to airportsprvide insumen ldIngs, 20 provie voiceradio cot, and29 provideradio directiona bacos. Onlyten aiports permit night time landing. 25. Ie rnway andtaxiwq at LimaAirpor, of p m importancefor Peru'saviation sectr, ae badlyin needof rebi o In 1993,this airport was used by 33 aIrlinesseing 38 internationa and29 domesticdI. T nwaypavment, to whichonly minor s havebeen made since ts constructioin abou 1960,is badly in needof rehbilition. It is curendy wing sigs of severe de,tI ., -in(cacking and spalling) tohe extet tht someaiines havevoiced complaints about it (it b nowrated as 'a runwaywith concern" and pibts have complaned about rough landing and taeot) andif thecuet ra of detebrioain not arrested,dte arport may n sadsfythe FAA and ICAO safty reuao for landingsome typ of aircraft It is eomated ht therunway may deteriorae to "a dangr rwy in lesst th years,afber which neary aUintnonl operationsmay be -46- M 1

26. Past _antg neglecthas led to the cur level of deteriorationon the runwayand has consted an excessivecost of routine . A maor rean for defered mdw is the lack of resourcesdue to high operig decis of CORPAC,pardy due to bad debs from nationalairlines. Thisproblem has sincebeen resolved a resultof recentprvaization, mainlyof Aeroperdwhich was a large debtorof CORPAC. 27. Traffc Composition Trends. Of the total 1993trfflc at airportsmnaged by CORPAC, Limaesaiport accutd for 26 percentof aircrat operations,41 percentof paengers, and 70 percent of freight tonnage. Direct trafficmovements among regional airports are much smaler in comparison withthose which either originate or end in Lima. Domestictraffic, which accounts for 65 percentof all aircraftoperations at Lima,peaked in 1987ad decinedutil 1992,when this trendreversed itsef again. On the other hand, intnatonal trafflc has shownerric increasesin both passengerand fright volumes'. intetonal passengervolumes exhibited irregular gwth aes from 1987to 1990and the declinedalso irregularlybetween 1991 and 1992. Intnational freightvolumes were in a decliningtrnd from 1987to 1990after whichvolumes almost doubled. 28. O t Effciency. CORPACis a publicenteprise, whichunder Peruvian law, operates as a private e, withthe exceptiont its sole shareholderis a stateauthority. Under the Pemvian businesslegal system, CORPACis supposedto oa as a financiallyself-reliant entity. From the late 1980's, CORPAChas operatedat significantlosses; equivalent, in currentdollars, to US$4million in 1990, US$4 million in 1991, and less ta US$8 million in 1992. Among the main reasons for poor fiacal performae were: i) the collectionrate - in 1991,the reservesr snted about60 percent of receivables,mostly due to the deliquencyof Aeroperd;(iH) interest on accumulateddebt; (iii) high shae of persomel epses (salary,administaive purchases, ret benefits,and contac withthird parte) in to operat costsdue to laborredundancy - peonn expenditureswere 73 percentof the operatingcos in 1991,esimated at 67 prcent for 1992,and forecastto 65 percentfor 1993;and (iv) iefflcient opentionsleading to low revenuegeneration.

Aviaion Pelky Rfnw 29. Privatiza_on of Aeroperz In lauy 1993, Aenper was sold to a consortiumled by AeroMxico whichoffered US$54 milion for 70 percentof the shares (brokendown as 47 percent AeroMico, 21 percenta consortiumof privatesharebolders called SERMINCO including Banco Ierandino, and2 perce a singleprvate hivestor),approximately double the initialbase price. Former Aeroperdemployees received 10 percentof the shareswhile the statereserved for itselfthe remaiing 20 pernt, pending a possiblesale of stock in 1995. 30. Prior to privaizaon, Aeroperdcarried out severalreforms including: (i) a rationalizatimof its routesby discondmtingservices to ninePervian cities,as wellas Bogotaand Caracas(ack of operatng airraft was a good incentivefor such route rationalization);(ii) reductionof its personnelby close to 1,000(about a thirdof the totalwork force); and (iM)great attention to day-to-dayoperational eficiency - rehabiliaton of a B-727engIe in Aeroperd'sshops for a large savingin costs, renegotiationof severalcontract on termsmore favorable to the airline,ad instuting procedus fr betor management of the carrier's negativecash balance. As a result of the aboveefforts, Aeroperdreduced its

Cbla wrake, whh he usled in a dc lin Ituis ta& NW *h MM of imWo nOW0o, wbich hvo recedInoais.inegdhtf myogc plalayespap end. 7.Is, howwver, a p Me_e wsa it is pecbdat there an a santa numb erof _u1eoe ahrcraft nvemes of meg goods. 47- t

amnistae costs, and reduced the rate at which it was g loes. was abo able to advertise itsldf for privatizationas bavig: O) gross anual sales of about US$87 million in 1991, of whichdomstic traffc accuted for 34 per and natnal trafic accountedfor 66 percent;(ii) loss of aboutUS$25 million; (9i) a negativecash balancs of aboutUS$21 million; and (iv)assets worth US$54million. 31. v on and 1RtucuhsI of CORPAC. The presentpolicy of CORPACis to work towards oril efficiny so that it may achieve onan pnce and profitability. To this end, it has takea thrm major steps: ) reaed agreme with the central Goveent on Aeroperd's outtanding debts, wbich clas up its balance shoet; (ii) reduced its labor redundany by about a third, whichhas posidvdyaffdected its Ioomes and (ih) proceededwith a privataton programfor a few of Is airportsevice, opecspiaythose whichhave recoy shownoperaonal losses. lbese deo seem to haveimproved CORPAC's Income st_ CORPAC'slosses reduced from US$12 milion in 1990to US$8 millionin 1992. Furtier efficienygains are expectedfrom these refoms: privatzetionwill rest in generatingconaual rues where previouslyther eisted operaonal loses, andprivatiation will improveservice thus increing demandand generat greaterrvenues. 32. Sinc July 1990,866 employeeshave paticipated in CORPAC'svoluntay reiremen progm. Additonally,410 excessemployees hae beenlId off. 33. h rv duringthe restuctuing processhave contnued despite severe financial limitations. CORPAChas und _rtakea number of Ilvestmt recntly: Q)radio and navigationequpmet for the folowingairpors: Cbklayo,Cuo, Pueto Maldonado,Ayaccho, San Juan, Piscoand Tiumbes;(ii) _imnrmo in the folowairport termins: Pisco,Tumbes, Tarpo, TalaraandCuzco; (ih) repairs of the runwayat ito Airport;and (iv) pansionof rways at Pue EsperaBzaand Alya airports. 34. Rem Dt Withinthe processof liberalizon and elimdinon of monopolisficand rstictive practes, the Lgilative Decr (DL 670) waspassed to modifythe currentCivil Aviation Law (Lay 2482) accomplishig e following:Q) eliminion of unnecessarypperwork for the aquisitin of airplanesand the awardof pemits and licenses;(i) liberization of crges and fees,to be setby the makt; and ii libeadion of arport land-sideservices, which could be providedby the prvate sector(previouy, solelyCORPAC provided those services). As a rest of these measuresan initialboost has been givento Peru's commal aviation F example,since July 1990,DGTA has issued:7 newpermits and 4 rewals for intenaional services;and 25 newpermit and 6 renewalsfor 4ws servwes.

D. Watabone Transport 35. udtItmm Reform. Overall _oodnato,plaig andrelation forthe maritime,river and lake tr sector is the responsibilityof the D iectra General of Water Transport (Direccidn GCeade1jwftAaAct), underMTCC. TheE sa*cadonalde P9wls PeruS.A. (ENAPU), a publi company, manages and operates the national port of the country. Prior to dereguation, the CoipWa Pama de Vapores (CPV) was the natonal shipping line opatg under a series of prwoecdtiv es nd r atios. CPV has since been li aed, and its merchant ee almost all sold

mW opwxaMon%pwking,4 lps an kmaee, ad -_ &=VwL 48- ANNEXI

to privateenities. In addition,the monopolyonce held by the Comisk5nCordhzadora de 7)a*o MarWno(CCTM) over all stevedoringactivities within ENAPU ports hasbeen abolished, as a resultof whichntwly establishedprivate enterprises are nowcompeting for the provisionof stevedoringservices. The earlyresults seem to be positiveas stevedoringcosts to ENAPUfor cargohandling have decreased by a reportedaverage of 50 percent.

Prot nfrastnuctre 36. Strucme and Owueasip of Port Failaes. Ocen freighttransport accounts for 95 percent of all Peruvianinternational trade. Movementof trade is accomplishedthrough a systemof 27 ports,of which22 are maritime,four are riverports, and one is a lakeport. About16 of thesepons are publicly owned;five are privatelyoperated; the remainingare heldby publicindustrial companies. Waterborne freightis haudledabout equally between publicly managed ports (in the handsof ENAPU)and those independenyoperated. In the early 1990s,independenty held ports accountedfor over55 percentof totalfreight movements, measured in numberof ships (see paragraph38 for the measurein terms of tonnage). 37. Competition. Similarto the independentlyheld ports, the ENAPUport systemis a specialized ratherthan generalized system, in the sensethat ports are gearedto handlespecific types of commodities ratherthan being general ports each one competing with the other. Thespecialization of theENAPU port systemin terms of the main commoditieshandled is: Callao(gener cargo, grains, mineras, contners); SalaVerry(sugar, grains); (fishmeal, frtilizers, coke, iron); Matarani(minerals, wheat, chemicals);San Marttn(fishmeal, fertilizers, grains); (eneral cargo,containers); Ilo (ffshmeal); and (consumer goods, wheat). ne exceptionsto this characterizationare two: (i) the terminal at Cailaowhich handles all typesof cargo,including containe.;zed shipments; and (ii) the marineteminal at Paita whichhandles connerized shipments,and being on the Pacificcoast, competesto a certain degreewith the terminalat Callao. 38. Independentlyheld ports are more efficient,being responsiblefor about 17.4 milliontons of freightin 1992(about 58 percentof all port freighttonnage). Mostof the freighthandled at theseports consistsof bulkminerals, petroleum and petroleumproducts and is largely(about 95 percent)handled in four ports: Conchan(41 percent),Bayovar (21 percent),San Nicolas(17 percent),and (15 percent). Exportsat these independenttyheld ports are morethan three timesas muchas imports,*ith intra-countrymovements accounting for morethan half of the total freighthandled. Amongthe Noin reasonsfor poor performance~of ENAPU-heldports is the poor performanceof past investmentsand inefficiencyof operationsin existig ports. 39. Performance.The waterborne transport sector is repletewith instances of badinvestments. Port infratucte constructedduring the 1960sand 1970shas not achieved satisfactory levels of development. This has resulted in gross underutilizationof capacityand high recurrentcosts of operationand maintenance.For example, port facilitiessuch as Paitaand Salaverryare currentlyunder-utilized. Also, Saaverryrequires extensive dredging, which produces high maintenance costs. Severalriver pors, such as Yurimaguasand Pucallpa,suffer hydro-morphologic changes, making the facilitiesinaccessible a significantpart of the year. 40. The economic,iustial and commercialcenization that domiated Peru until recentyears has resultedin a concentrationof port movementsin its mainport of Callaoand a few otherports. In 1992,ENAPU ports handledabout 12.4 milliontons. Callaoaccouned for about55 pacent of this tonnage.Six other ports accounted for an additional30 percent(quitos: 0.8 milliontons, Salaverr: 0.7, -49- ANNEX I

C2imbote: 0.7, Matarani: 0.6, San Martih: 0.4, and Paita: 0.3). Of the remaining nine ports under ENAPU control, two did not handle any freight in 1992 (Chicana and Puerto Maldonado),and the other sweQ port handled about 0.1-0.2 million tons each.

41. JhMt Movemens and Trd. Most of the reight is handled in the maritimeports (over 95 percent). and partilarly in the diet loadinguloading ports (90 pernt). River t port accounted for about a 5 percent share of total freight in 1984-1988. In 1992, only about 3 percent of freight was handled in rive ports. Traffichandled on Lake TWcaca in 1990 was 31,000 tons of freight out of a Pervian total of about 27 million tons. The level of freight peaked in 1987 at 36.0 million tons, with 1991 showig the lowesttonnage at 23.9 milion tons. In 1992, the trend of decline in freight seems to have been arrested, when the total movementof freight rose to 29.7 milliontons. The variationsin total feight are mostly atibutable to variations in trsac in independenty held ports and in the level of domesticmovemen of liquidcommodities. Freight trafficat Peru's ports used to be mainlyhandled by Peruvianregty vessels. This is no longer the case since the deregulationof transport restrictions,the limination of shipmentquotas for Peruvian registry vessels, and the liquidationof CPV.

PMt Serna

42. Reformsare showingsigns of success in improvingthe qualityof port and shippingservices but consoldationof the gai" fo. the reforms is still a priority. Several enablinglegislative measures have been enacted or put into efFectwith a view to improvingthe qualityof port services and the development of the waterbon tasport sector. legislative Decree No. 644 (a) greatly simplifiedvessel registration re.uhpe_u and procedure, and (b) permitted the initiation of new transport services and routes accordingto economicconsiderations and not p mined restrictions. SupremeDecree No. 20-91-TC deimind all previous restctions on export and importof cargo, includingthe paymentof fees when foreign vessels were used. LAgislativeDecree No. 688 elimina all administrativerestrictions on coast shippingroutes, and pemited the itroduction of private entities into ENAPU port operations.

43. As a result of the above reforms, several internationa routes have been reactivated, namelyto Europe, East Aia, and in the Pacfic basn. T'e private sector has reacted positvely to these reforMs. Mm nmber of shippingcompames operig in Peru has incresed from 15 to 32 betweenJuly 1990 and December 1992. In addition, 52 new permifs for operationhave been approved for both inrational as wel as domestic hpping services.

44. Sizeablereductions in the costs of shippingbave been observed as a result of recent reforms. LegislativeDecree No. 660 frmalized the dissolutionof CCTM's monopolyover stevedoringactivities and eldimatd CCIWs quota reative to inernational transport of cargo from public enterprses. *Islve Decree N. 645 consolidatedthe proceduresunder whichprivate stevedoring enterprises could be established. As a result 70 new stwvedoringenterprises have been established,with competition among OIem anerage re-ducdon of 50 percentin stevedoring charges. In July 1992, 25 new pplicatons were receivedfor establishingand operatng private and cooperativestevedoring enterprises. Furmore, the handling of contaized cargo at the terminal of Paita has been transferred to private entepises, as well as the maintenace of break bulk cargo handlingequipmen at the port of Callao, and the bhnling of ENAPUs dry docks.

45. TaW ReoL The commissionIn char of regultingtransport tariffs(Comisi6n Reguldora de Mv&s de Thznpone - CRETI) bas been disbanded. As a result, ENAPU sets its tariffs subject to the Wrovby the M ster of Transport. In June 1991, on the basis of a 1990 MTCC decision, new port tarft were set to accont for ENAPU's real costs. These new tariffs represent a marked decrease -50- ANNEX1 fromprevious levels, which were set by applyinginflationary facts on a geal basiswithout accunt for tehological advances. Reductionscompared to past levelswere in the order of 30 percentfor handlingbreak bulk cargo, 50 percentfor containerizedcargo, and 50 percentfor all cargohandling at Bo and Marani terinls. Tariffsfor handlig domesticcargo are sea tmes lowerthan either exportedor importedcargo, and are standardizedacross ENAPUs ports. Whissuggests a de-fat policy of subsidizingdomestic waterborne rnsport by levyinghigher tariffs on importersand aeporters'. Cabotagetariffs for coastalshipping are stillhigh (excludingoil productsand mineras),compared with the roadalternative (Panamerican Highway). The Governmentpased DL 688 to encowagedevelopment of this activity.Tariffs have decreased, the caboageships have priority for dockiWundockingand other port operations.It is expectedthat traffic will increase substantly. 46. Tariffstrures havebeen used as incendvesfor redirectingactivity in the waterbornetasport sectorand achievingsuccess in macro-economicpolicies. Reductionsin ENAPUcurges, beyondthe new 1991tarff scheduleshave been adoptedto provideincentives for a varietyof actvti icluding: (i) renewalof Peru's vehicularfleet; (ii) developmet of new export market; and (iii) success of privaaton efforts. For example,the terminalsof Paita, Matari, and Iquitoshave posted: (a) 50 percentreduction in tariffsfor the importationof uncratedvehicles; (b) 30 percentreduction for the exportof non-traditionalmarket; and (c) 32 percent and 45 percentreducos in break bulk and ontainerizedhandling charges respectively for indirect loading/unloadig acvties ofprivateentprses. Furtmore, ENAPUhas adopted special incentives at the marineterminal of Matarai for cargoto/from Boliviaconsisdng of additionalreductions from 5 percentto 60 percentof the applicable1991 charges. A pilotpricing scheme is alsobeing applied with further across-the-board reduction of 30 percent. These drasticcuts are all aimedat rediectg Boliviantraffic from Chiean portsto the port at Matai. It is too early to judgethe successof these incentiveschemes.

PN Management 47. Theefficiency of ENAPU'soperations is hamperedby aniqued equipmentand facilities,lack of resourcesand training. Withthe exceptdonof newercontainer handling equipment, e.g., the piggy- pacers, ENAPU'sequipment park is on averageabout 10years old, and is almostreaching the end of its usefil life (5-15years). Most of ENAPU'sequipment ma_teance is contractedout to privat enttes. ENAPUdoes not have a systemof long-term in place, and this may resut in deferringmainance work in dmes of financialcash flow difficulties,a pracdce commonin all infrastructu sectorsin Peru. A detied reviewof the waterbornesector is necessaryin order to opporunisticallyschdule the rotationand mainnce of equipmentfleets. For example,sttraegic cascadingof olderequipment to lessudlized facilities in orderto delaythe purchasingof complebdynew fleet would be a favorablepolicy in responseto financialshortages. In addtion, the existg communcationsand inmation systemsare deficent. Othershoruges, such as the exstce of only one scalefor generalcargo at Callao,and lack of specializedequipment for contie operati, leads to bottlenecksand slowoperations between ship and storagearea, causinghigher fuel conmtn and costlydely.

Simcedomeic wstbo taimpoutis n compettnwh coasoaltucki on th P mcan fHiq, it is likeb tht ENAPU'srafes for coat n hsvebee purposelowemd to h coasol hipng compoeton a mthdalh bes wiahtucking. If dh is the cse, it suggeslsbgly i port ap i/osan&cr sol ece pot chw l arou, or h past pwe of CCTM's stvodoug monopoy in lmainas mt sde via-_-vi tucking. Improvig So effcimq of portoperdon in orderto becomecompedtve is a beo approachta the _aof btnqot ai is curb beng praiced In 1990,48 pcn of e cao handld at mwme poits (1 mlion to) wa from ' . -51- ANNEX 1

48. Improper investmentshave led to unusually high recurrent cost budgets further lowering the finncial efficiencyof ENAPU. Very few new investmentshave been made in the waterbornetransport sector since the 1980's. Only three maritimeports, Callao, Salaverry and Matarani, have been slightly imprved. Regarding river ports, Iquitos was significantly improved and expanded in 1980, and Yub puas was constructedin 1982. With the exception of Paita, some 1,000 km to the north of Callao, where there seems to be an element of diversion of containerizedcargo from Callao due to cheaper tariffs, the other ports seem to be properly geared towards meeting specificregional needs and requirements. There is no immediatepressure for expandinginfrastructure facilities at the majority of the ports; however, there is a great need for maintenanceand modernization. Improper investmentsIn the past led to a system exhibitingunder-utilized ports in good conditionand over-utilizedand outdated facilitiesin a few ports.

49. Other problemsthat affectedENAPU's efficiencyin the past and that now need solutionsare: (i) the lack of a decentralizedpolicy which considersnot only nationalaspects, but also regionalaspects; (ii) the lack of private sector representativesin ENAPU's board; (iii) excessivenumber of employeesin the maritimeports; (iv) lack of a strategy for operatingports of non-directdocking, which are still managed by ENAPU, evet though some of them show no movementsfor the last few years; (v) unnecessary paperwork, which is extreme in length and cost, harming not only the user, but also ENAPU; and (vi) coordinationproblems with other goverrnent agenciessuch as the Coast Guard and Pilot Administration (DireccidnGaneral de Captanfas y Guardacostas)and the Customs Administration(Adminismacifn de Aduanas) whose limitedbusiness hours differ from ENAPU's, producing serious bottlenecks.

E. Urban Transport

50. All urban transport in Lima is by road, and bus transportationis by far the most important' form of public transit in Peruvian cities. It is reported that of about 20,000 buses registered in Peru in 1992, close to 12,000 (60 percent) provided urban bus transportationin the Lima-Callaoarea; an increaseof 3,000 since 1990. The Lima metropolitanarea produces about half of GDP, includingmore than 90 percern of the national output of urban goods, two thirds of consumer goods, and almost all financial services. The concentrationof economic activity and population (about 29 percent of the national populationand 42 percent of totl urban populationin Peru) in MetropolitanLima makes it vital that the city is well managed and maintained. This section, therefore concentrates on the provision of urban tansport in Lima.

Rega*eay Refonns

51. Several laws were enacted and executivedecisions taken to reform the transport sector in Peru and reduce the state role in direct service provision. LegislativeDecree No. 651 declared the freedom of access to routes for urban and inter-urbanbus passenger service, and the policy of unrestrainedprice competition. This decree was found unconstitutionalby the Peruvian Courts (paragraph5 of Article 254 of Chapter XII of Peru's constitution). The courts maintainedthat municipalitieshad authority and duty to regulatetraffic within their respectivegeographical jurisdictions. As a result, SupremeDecree 010-92- TCC was issued, whereby municipalauthority for traffic regulation was re-establishedand confirmed. 'he object of the LegislativeDecree is to break up the private bus monopolieswhich prevented access to the market, while the object of the SupremeDecree is to prevent traffic chaos from developingon the stes.

4 Tber am some pedicabs (for freight and pasaongei) in sddition to small open taxis (moto-tais) in many cites. -52- ANNE

52. Otherlaws have been put in placewith the aimof providg freedomof accessto the passe rnsport market,alowing the marketto set prices, and rewing the bus fleet. Theseinclude: (0 LegislativeDecree No. 640 whichdedlared freedom of busoperations and routes in inter-urbantasport; (ii) LegislativeDecree No. 642 which abolishedall tariff controlsin Inter-urbanbus trasport; (iii SupremeDecree No. 076-91-EFwhich permitted the importationof used vehidesup to 10 yearsof age; and (iv)three MinisterialResoludons issued in 1992,defining the regulationsand fins applyingto inter- urbanbus transportand settng out the proceduresfor removingbuses from serviceonce they reachthe ageof 20 years. Otherlaws being consideredrelate to groundtransport in general,an updatedtraffic code,and ordinancesfor urban masstransport and freighttransport.

53. Ihe privatzationof the EmpresaNacional de TransporteUrbano del Perd (ENATRU)which providedpublic bus transit in the Luma-CatlaoMetropolitan area followed a well-plannedprocess and was quitesuccessful. First, it was done in a mannerthat atlowedthe proceedsfrom the sale to meet all ENATRU'sfinancial obligations without futher GOPsubsidies. Second, it providedmany of the former ENATRUemployees with economically viable income-earning opportuities. Tlese employeesbanded Into65 mini-enterprisesand purchased452 out 510 operatingbuses (89 percent). ENATRUprovided creditterms to assistits formeremployees in the purdhaseof thesebuses.

Pleonnance of Utb TAwoMt 54. Physicalconditions and capacityof the main road networkin Limaare generallygood, except for the poor conditionof roadsand streetsin outlyinglow-inome neighborhoods, which are generally unpaved. Dedicatedbusways along several of Lima's mainavenues are a valuableasset in fiul:itating efficientmass transit. Someof these becamecongested at bus stops after the deregulationof urban tasport, and the Municipalityof MetropolitanLima (MLM)took effectivemeasures in 1993to Ihmit the numberof vehicleson the most overloadedbusway. There are also safetyproblems created by unauthorizedstopping of buses to pick up or drop off passengers. Bus traveldelays are high due to trffic congestion,and so are the costsof increasedfuel consumpdonand air pollution. Accidentrates are also high, with recent accidentanalyses indicating about 70 percentof fatal accidentsinvolving vehicle-pedestrianincidents. The main causes of theseproblems are mismanement and inefficientuse of existingroad space, including poor signing and channelizationof traffic, lc of pedestrin walkws, uncoordinaedand oftennon-fcioing trafficsignals, and unsafedriving behavior.

SS. It Is estimatedthat about10.4 million trips, including walkig, weremade by MetopolitanLima residentsin 1988. Masstransit represents about 50 percentof all trips takenand about 81 percentof motorizedtrael. Walkingis also a majormods of transportin Limaacoounting for about38 percent of all trips in 1988,about four timesthe persontrips by car. For the poor,mode choices are crrey limitedto: (i) use a bus; (ii) walkc;or (iii) do not makethe trip. ntoductionof cheaperbus trsport or alternativemodes (e.g., non-motorizedtrmnsport) is thusa pressingneed to alleviatethe hightansport cost and longwalking distances currently undertaken by the poor. 56. A numberof factorsdetermine the existingmode choices for the poor in Limaincluding: O) the spatl patternof urb developmentconcentatng the poor in marginalareas of the cidesand exacting high commutg costs on them; (ii) the historicalorgnizato of the urbantransport industry; (H) the chacterdstcs of the bus fleet;and (lv) the performanceof busoperors. -53- ANNEX1

57. Organizationof the urban transportinustry in Lima has gone throughrepeated birth-death cycles, whereby one public enterprisewould be dismanded to give way to another. In 1936, the Empresa de Transportes Municipal (ETM) started public transit in Lima-Callao. Later, in 1965 when financial problemsdeveloped, it was succeededby the Administrdora Para-Municipalde Transporte(APTL). In 1968, after financial difficulties at APML, the Empresa Nacional de Transporte Urbano del Perd (ENATRU)was created. ENATRU has since been liquidated and its bus fleet and routes sold to the private sector. MLM then created the enterprise EMTRACAR,which is now operating some buses donated by Canada as well as buses formerly owned by ENATRU(Hino 1990 model) for use on trunk routes. The main segment of the populationthat suffers from these policy shifts is the low-income populationwhich is left at times without adequate options. For example, prior to the liquidationof ENATRU,its servicesto thepueblosffdveneswere slated for abandonment,since all 'social' routeswere to be discontinuedto maintain cash liquidity.

58. Buses. The age and quality of the bus fleet is improving following the lifting of import restrictionson spare parts and used buses. Nevertheless,its averagequality is still poor and the capacity and size mix not optimal from a system operatingcost perspective. In MetropolitanLima for example, about 2,000 (17 percent) of the buses are of "regular" size with a seatingplus standing capacityof about 100 passengers. Ihe rest of the bus fleet (83 percent) operatingin the metropolitanarea consistsof about 10,000 microbuses. The "micro" buses are generally older with about 35 percent of them being more dtan 20 years old. As a result, they suffer fiequent breakdownsand contributeto the pollutionproblem in the urban areas.

59. Private bus service operatorsconsist of two groups: (i) those operatingwith a licensefrom MLM and payingall relevantfees, generallyrepresented by the Centrd de Empresasde Lima y Callao (CETU); and Oi) those not belongingto CETU, sometimesoperating without a permit and avoidingfees paid by the fnrmallyregistered'. Most of the latter group operate the 'micro" buses and service routes in the marginal areas at lower fares, filling in the gaps in the provisionof services by the former group. This distributionof the markethas resulted in some corrections(but not completecontrol) of the tendencyfor operators to oversupply major travel corridors while undersupplyingareas of lower density of travel demand.

60. Alternativesto mass transit for Lima were recommendedin a 1972 study by experts financedby the Federal Republicof Germany,which recommendedthe constructionof a metro. A 1982 study also called for a surface light rail system along the availableright-of-way between Villa el Salvador in the south and Conas in the north of the city. In 1986, spurred by atrctive bilateral finding, construction started of a rail rapid transit line (tren elicnico) in the Tomes Marsano and Pachacuteccorridors, at an estmated cost of US$400 million-a highly disparate figure compared to the low-cost alternative of MLM's busway system. The rai project remains incompletewith a 9-km stretch mostly built in the outermost section from Villa el Salvadorto Puente Atocongo.

T ere ae opetng committeeother than CB1Uformed by opemalonsof malr buses. Wb the progssn of dergulaonof warffsand routes, the need to organi becameles pessing, andthe distinedonbetween the twogroups becameblured. Reenly,with ineasg preue to rgulat rute and to captrat tarff, opertna commi ate resumingactivity in lobbyingfor theirints. -54- MNL

61. Bicydhways. MLMis planninga systemof biyleways a weil as a ptomotioncapaig for bicycl use. hisplan aims to inducosubsdittonbetween bus and walking modes ads noon-m zed tU5spO1 TWOmin fors cumrtlyipede thepotentdal use of bicyclesin Lima:(a) thehigh price of bicycleswhich rages fromUS$140-300; and (b)the absenceof safe cycleroutes, deticated paths and connections,and securebicycle parking. Annex8 givesmore detailon the benefitsof non-motorized sport for Lima as well as a descrptionof the pilot projectto prmte bicycleuse, includingthe establishmenof a creditscheme for bicyclepurchase. -SS-5h- 2

PERU - Transport Rehabilitation Project POUCY OBJECTIVES,SATEGMS AND PRIORJUIES,AND REFORM IN THE TRANSOT SECTOR

1. In December1992, MTCC issued a retrospectiveof achievementsrealized during the preceding two years.' It also lists the followingas majorpolicy objectives in the transportsector: a. To raise substantiallythe standardsfor rehabilitatingexisting roads, to implementa "Road Rehabilitationand ImprovementProgram", and to completethe road lints currendyunder wnstuction.

b. To strengthenthe operationaland servicecapacity of the mechanicalequipment for road maintenanceand rehabilitation,improve the administrationof road maintenance,and establishintensive programs for correctiveand preventivemaintenance.

c. To controlthe over-dimensioningof road projects, priortize investment through technical and economicevaluations that justify their execution.

d. To support Andean integration,favoring the consolidationof road infastructure followingthe agreementsbetween the membercountries in the Andeanarea. e. To optimizelabor policiesin the subsector,define principal technical criteria in road admiistation, and a suitable managementapproach.

x. To reviseand modify the regulationand systemof supervisionwithin the roadsubsector, undertakingthe necessary institutionalreorganization to account for the new administrationfuntions andpadcipation of regionalgovernments.

g. To establishincident and safetymanagement systems that permitadequate intervention in the road subsectorin cases of emergencyor disaster,by meansof a "Programfor SupportingRoad Conservation". h. To strengthenand developthe planningfunctions in the subsector,by meansof technical and economicstudies and evaluationsof roadand bridgeprojects.

i. To streamlinethe capacitiesof regionalgovernments and use the potentialof various enterprises(private and state) in executg investmentand maintenanceprograms to improvetransport infrastructure, which will aid in the economicdevelopment of the populationin the projectareas.

1. Obejw y PUb4atn Acads 1990f992. MinitedodeTapnwotes, Comumicacnes, Vmvicda y Conswucc6n, ULn, 1992 -56- AkA 2

Strategi and Priortes

2. The short and mediumtrm strategiesof the governmt for the road anport in Peru are oried towards the followingaspects:

a. Increasesubstndally the levelsof maintnanceof the aional network,allocate maor budgetay resources,improve the technicalconditon and state of meh ical equipment necessary for road m, as well as improve the road administraion system acrrendy in exisence.

b. Continuethe emergencyprogram of rtin and periodicmaintenance in critical sections of the nationa road networkand the roads locaed In isecue areas, wih the supportof the PeruvianArmy, by ms ageed joily by MTCCand the Ministryof Defense. c. Prpare and execute an intenswe road rehabilitationprogram, identifyingand rehilitaiag criticalpoints in the transportnetwork, with the objcdve of formulating an Intrated RehabiliaionProgram permitting an impwovet of the reliabilityof the road network. Mmiswould rely on internaland eal finaning sources. d. Coordinatewith regionalgoveme to completeongoing works on nationalroads, espeially thosewith foreig financingand thosethat are criticalto the reactivationof productive activities. Ihis rel to sections on the Olmos-Corral Quemado and MorocochaOrvyalinks.

e. Coodinatet axetion of prioit activiiesin the rehabilitationand improvemn - within budgetay lits - of cria secions on the ral netok, especlaiy ways and sttes infrastuctuLreand equipmentmaineanc. . Strengthenthe cpacity to executetrasport feasiility studies, rehabilitationand/or imvement studies,traffic and inventorysudies, with te objectiveof desigoing packages of futu investmentprojects and/or strenghenimgtransport planning capabilities.

g. For the purposeof intgating frotie zones, conue the encuton of worbs in coordinationwith th army,intensitfing acvities on tose roads whichare considered prities in the con of intgrati programssnd frontierdevelopment.

h. At the interational.level seekimproed physicalin ationwith neighboring counties, proceedingwith effors to implementbilt agreets conceng roads, delineated in the *AndeanPact' and "the Meetingof TransportMisters of the SouthetuCone', amongoters, gang priorityto the relatnship withBolivia (rail and shipconnection via LAe Titcaca).

i. Seekintenational techncal cooperation between governent, princpallyfor the putpose of gaini accss to moden technologiesfor improwvroad andbridge construction. -57- ANNIX 2

Reforms

3. Govment fnance and many aspectsof transpor efficiencyhave been improv by mfoms introducedsince 1990. The reformprocess is still underwa, ad the followingissues will haveto be furher addressedin the comingyears: a. Most transportre tons have beenabolished including the tariff seting commission CREIT. However,tariffs set by publicagencies are stillsubject to centralgovernment approval(MTCC and urban transporttariffs applying to Peru's municipalitiescan be frozenby the Ministryof Economyand Finance. b. Road mateanc and rehabiitaton activitieson the secondarynetwork have been deceralized to localand deparal authorities.These authorities do not have the capacityand resourcesto maintainthe equipmentand carry out all the maintenance responsibilities. Enablng legislationfor private sectr participationin routine and periodic _maie (throughconcession type ageements)is underdisusion and is expectedto be completein 1993. Underthis agreemet, localauthories couldcontract out the privatesector to carry out maitnce and rehabilitationworks.

C. Most public sector enterpri have been privatized (ENATRU,AEROPERU, CPV) or are undergoinga restucuring process(CORPAC, ENAPU, ENAFER). d. Toll collectionstations which had beenestablished and werebeing operated by a variety of stateand local authorties have been abolisied. Alterative tollcollecting schemes are under review. One of the considerats is the possibility th private rms wouldbe engagedto mainta specificroad sectionsusing the toll chargesthey wouldcoliect as compension for thr road m _ responsibilities.This legistion is meetingwith heavyresistance from the formaltuckrs. The systemof tolls that existedprior to the abolishmentdid not havea rationd basi, and each uthoritycould levy whatsemWd to be neededfor its generalpurposes. e. Mechanimsfor creatinga viable road fund (FondoVial) for road matenn and constucdonare beingdicussed. Thefund wouldbe fianced throughexcise taxes on vehicles,licenses, and fuel. The projectis supportinga studyto identifyte best road finacg mechim for the Peruvansiuation, given the generaldifficulty of collecing taxes andenforcing licensing and regtration procedures. f. Importrestictions have beenlifted resultingin a signifiany inceased level of truck imports. he typesof trcks imported,in ms of size and axle configuration,when loaded,exceed the designlimits of Peru's roadsand bridges. The centralgovernment has de-factolegalized dhe importation of such irucksby settingup a scheduleof finesfor excessweights. Ihese fis are rarelycollected. The implicationsof overloadingsuch trucks on competive tansport taiff, road mc osts, weight-sizeregation, andpavemen design stmdards need to be investigated. g. Non-Peruvimscan nowinvest in the Peravianair transportsector. The privae sector has so far showninterest in thesereforms; up to sevennew itnational air ransport operationlicenses have been issued and four morehave been renewed. -58- ANX 2 h. Peru has joied a conventionpromoting th intqegtionof asi trnsport in the Andean sub-region. 'bis convendonpwvides freedomof acces (open sim) to Peuvian airspaceon a mutualbasis, to reglar passengerfights as wellas freightand air mail tasport. In order to fuly meetthe requirem of the convWtion,Peru instuted proceduresfor eliminatg previousdouble taaton schemes.Peru has also established proceduresfor giving direct approval to Andea reguar airlinesfor non-scheduledflis to Peuvian destinationspreviouy not served. i. A municipalprogram for non-motorizedtransport was creted in 1990 in Lima t increasethe pe of peopleusing bicycles. Tbis programaims to: (i) pwvidea complemenry fform of transportfor people who cur y walk long distnces; (H) reducethe cost of transportationfor low incomeusers as well as savethem time and improvetheir health; and (I) im the overallfunioning of the urbansystem of trafficso as to reducecongestion, incease safety, and efficiendy utilize exstig capacity. Promotionalprogrms to exportthis program to othercities have aready begunfollowig signsof earlysuccess in Lima. j. Laborredundac whichwas prevalt in the publicsector agencies has beendrasialy reduced,following the sale of public cenrs - AEROPERU,CPV, ENATRU- and restcturn effortswithin CORPAC, ENAFIR, ENAPUand the MTCCare currently underwayto cut thidremployment. he impactsof thesestaff reductions on the capacil to provie serviceneeds to b e . Posibiltie of assistnglaid-off employee in formingmia o to underke operationaland maintence works(e.g., railway track mantnance) an a contactua basisneed to be explored. Thiswill ensure that the Govnmens objectivesof increasingpublic sector efficiency, promoting privae secor partcipation,and Increasingemployment opportunities are met -59' AS= 3

PERU - raport b projet PIBM=OU BANK11PIUNE1N1 RNOK= EC

Overvew 1. Since l9S2,th Banke s madea tos ofd 17 loas to Peru io thsestsor totaling US$490.6mfllion. Of the totl loa amount,42 pect wasfor highway projects, 21 pen for urban prjec (a lnge partof wbichbad urba traWportcomponents), 16 percent for mudtmodalproject, 12 percenfor aIation,6 paee for rail,and th remaing 4 percnt forports.

Highwgv PJds 2. Sevenhighway projects wero made totallng US$202 mllion. Two of these loans were made with rod maintenanceas their objecdve(Loan 0127-PE, US$5 mllion, 1955,and Loan 0300-PE,US$10 million,1961). Although the fi roadmaitnc projectra In severaldifficuldes, the maintnce effortwas contned and expandedwit conideablesuccess under the secondmaineace project. -At, the road reconstructionproject (Loan 0706-PE, US$30 milon, 1970)also includedtec al btam for roadmaintenance and improvement. 3. TheBank has made tre highwayloans to reconstruct,Improve, and rehabilitate the La Oroya- P.calparoad. lheseloans totalled US$64.5 milion, comprsing 13 peet of totalloans to thetransport sectorto date,and 32 percent of allhighway loans (other highway loas involvednew construction). The first( 0271-PE,US$S.S million, 1960) heped finance reconstrtion andpaving of about166 km of the Agusytfa-Pucallparoad, the ea stion of the 800km roadlinking Lima with PucaUpa In thoupper Amaon River system Becas of extremelydiffit soilsand climatic conditions, lack of experence,and poor engineingpreparation, the roadwas only 80 percentcompleted when the loan fnds; wereeaust in 1976;at tat dmethe goverxnm was not ableto raisefunds to contdiuethe worcs. Subsequently,extesive falues occurredin the Aguaytfa-Neshuyasection, which were later corectedby MTC(now MTC). TIs sectionwas lncludedfor upgrdn underLoan 1196-PE, the L- a TransportCoridor project, and was defered under the proposed refomuon of the project. 4. The secondLa Oroy-Pucalapaproject (Loa 0425-PE,US$33 million, 196$) was for the La Oroya-Aguaytiasection of the road. bI Novemb 1969,the Governmentand the Bank reed,after argecost ovwers whichweo pardydue to Indequa engineeng,to reducethe scope of theproject in orderto mitchthe avalablefunds; consequenty,the remainingwork werepostoned to a second phase. The scaled-downproject was completed in Jany 1973,18 mohs afterthe originalClong Date. S. The third La 0r*-Puculproct (Lam 102S-PE,US$26 million, 1974) financed the remaiig wrs (secondphase) in themost crcal part of theLa Oroys-Pucilpasection - the219 km HuEnuc*-Aguayftsecdon. The project iled pavingof theentire section, except for about55 kmof higly unstableterain, whichwas deferred until further geothnical studies included in theproJect were caried out. t alsoInuded thepurcae aof portonof themainen equipmentrequhred for proper mainteanceof theLima-Pucapa road and a doublesurfac treauentfor the61 km Nesbuya-Pucallpa section. I addtio, 200 km of feederroads to be Improvedand two tamsportrelated studies were includedin the project. Becausof inidaldelays and s costicres, againresulting from -60- ANNEJ 3 incompletengineeig work,the scopeof the projectwas reduced in February1978. Constructionwas eventualycompleted and the loan wasdosd in 1981with 100percent disbursement. 6. TheBank was also involvedin acess toadsfollowing the violentearthquake in May 1970(Loan 0706-PE,US$30 mUlion, 1970). ThIsproject was quicWyapptoved in order to help recontuct the accessroads to, and wilhin,the earthquakearea. The exeut agencyin this case was not the MTC but ORDEZA,an autonomousagency charged with the reconstructionwork. The projecthad been identifiedonly at the timethe loanwas made, and a preliminawstudy of ateraive routesfor the access road, a feasibilitystady, and detled engineeringstil had to be caried out. Althoughthe Bankacted rapidlyto approvethe loan,the timerequired for hestudies was understmated at the timeof appraisal, and a numberof difficuldesdeveloped with the consultantsengaged to prepare them; the rate of disbursemen,therefore, was slowerthan forecast. Oncethe prepaion was completed,however, constructonunder ORDEZAproceeded satisfacorily and was completedin 1977. 7. The EighthHigbway Project (Loa 2091-PE,US$93 milion, 1982) had as its mainobjective the provisionof supportfor key elementsof the Governen's expandedhighway investment program and to sgthen the Directorateof Roads(DGC) within the Minstryof Transportand Co(mmuicatiows (now MTCC). The projectincluded the rehabilitationof 195 km of severelydeteriorated paved roads; Improvementof another400 km of unaed roads,to a gravelor pavedtwo lane standard; and assista for strengtheningDGC's road maien operationstrugh provisionof equipment,spare part, workshopimprovemets, tecbhical assistance and traing of staff. In order to improvethe qualityof managementin DOC,the projectalso providedfor the hiringof experiencedengineers and managers to fill soeiorpositions. Finally, the projectincluded detailed gneeing for fitmreroad rehabilitaton and improvement,as well as technicalassiance for preparinga regionaldevelopment project and for executingthree transportsector related studies. The executionof this projectencounte basicallythe Sameproblems that affectedpreious Bank highwayprojects in Peru, namely;time delaysdue to Instional weaknesses;and lack of counterpartfunds. In additn, a numberof constrih factors worsenedimplementation problems: naura disasters (extensivefloods, landslides,and persistent droughts)which strck PeruIn 1983when project Implementation was about to gainmomentum; difficult macroeconomicconditions which beset the coutry from 1983,leading to a decisionby the Bak to supend loan disbrIsementsfor all projectsin Peru in May 1987. This wasfollowed in 1991by the cancellationof the undisbursedbalance (US$50.4 million) of the loan.

Urba Projects 8. Therehave been two urbanprojects in Peru totallingUS$104 million since 1952. The fist one was an urb sites and servicesdevelopment project (Loan 1283-PE, US$21.6 million, 1976)which orally consistedof, amongother instuctural components,access roads of 86.1 kmto connectlow incomesetemens (pueblosj6venes) to mainroads and upgadingof estg roadsin thesesetemen (US$5.47million). In the secondaryaccess roads component it was pectedtiat the beneficiariesIn the pueblosj6vens wouldmake a downpayment of 10 percentof projectcosts, whichwas similarto the downpayment for other servicessuch as water,sewerage, and electricity.The residentsof the pueblos jdvenes viewedroad constructionas a public serviceto be providedby the governmentand were unwillingto makethe downpayment ITe government,having tried for severalyears during the early part of projectimplementation to modifythis view, to no avil, requestedthe Bank to cancelthis componentfrom the project(despite the projecthaving a 29 percentERR, higher than the industi sites (4.8 percent)and electriciy(25.4 percent) components of the project); whichwas doneIn 1981when the projectws restuctured. -61- ANN 3

9. The trassport componetsof the seconduwban project had better success. lbis wasthe Lima metropolitandevelopmentp6ct (Loan2451-PE, US$82.5 million, 1984) which was Intended to support the progressivetransfer of u admitraion fromnational to localgovernment, and specifically, more efficientmetropolitan maagement in Lim, the capitalof Peru. In additionthe projectsupported improvementsin high priority infrastructureand servicesin the areas of urban transport(US$60.2 million,or 59 percentof totalproject base costs), solid waste management (US$9.4 million, or 9 percen of base costs),and a wholesalemarket (US$24.7 million, or 24 percentof base costs). IncludedIn the transportsubproject were: trafficmanagement improvements throughout the city; pavingof about 100 kmof street inlow-income areas; and road rehabilitation and maintence. Othersubproject compones affting transportincluded the provisionof vehides, equipmentand transfer station capacityand developmentof two landfillsites to meetthe needsof the city's solid wasteagencies; and intttional strthenig throughstudies, technical assistance and trainingof the agenciescharged with each of the aboveactivities as wellas ivements in city planning,municipal finance and coordinationof urban investmentsand projectadministaton. 10. The urbantransport subproject was the mostsuccessful of projectsubcomponents. Efficiency in planningand management mostly explains this performance. Road rehabilitation and street paving in low- incomeareas were generallyon schedule,and so was technicalassistance. ITheseaccomplishment notwithstanding,the Borrower'sfaiure to officiallynotify the Bankof a biddingagenda for the fit four sectionsof a transportimprovement program - the Tren ElectricoPrqject - promptedthe Bankto requesta cessationof the constructionof the bus corridorsthat wereexpected to be adverselyaffected by the program The Bank cancelledapproximately US$12 milion allocatedto the executionof engieming worksfor the buspriority routes whichhad been conceived as a low-cost,first-step approach to solvingsome of Limahsmost acutetraffic problems. However,spured by bilate fnding, the Governmentdecided to disregardthe agreementwith the Bank. This becamea majorissue giventhe diparity between te trn's US$400million estimatedcost vs. the proven low-costalterative offered by the Bank'sproject.

MUatodal Piecd

11. The only multi-modalproject (Loan 1196-PE,US$76.5 million, 1975)was for a combined highway and river ports project for the Lima-AmazonasT port Corridor. It consisted of a further stagein the developmentand upgradingof this corridor,including: the improvementof 37Skm of road betweenLima and Pucallpaand acces road to PucaUpaand its river port; improvementof 110km of feederroads; constructionof river port at Yurmaguasand Pucalipaand expansionof the river port at Iquitos; procurementof road maiunance equipmentand installations;procurement of hydrological equipment;and consutingservices. Improvementand pavingof 240 kmof the La Oroya-Huanucoroad were achievedin this project. Progss on the port componentwas slow, and disbursements on the road projectwere seriously delayed. Contractngof civilworks was also extremelyslow because of MTC's amberome proceduresand limitedimplementation capacity. However, most contracts were evenually let. A restrumcringof the proje;:t,concentrating on its mostneeded components - particularlyon road maintece - elminatingthe lowestpriority road sections,was done in 1979.Eventually, the works werecompleted in 1985, whenthe projectwas closed (US$70.82 million disbursed) - two yearslater than expected. -62- AN 3 Ava*ox Projed 12. An aviaion developmet project(Loan 1963-PE,US$58 mMion, 1981) had the objectivesof increasingths efficiencyand securityof civilaviation in Peru and Imprvingservice to the easte jungle andjungle highland regions, which had poor transpt linkswith the rest of the couty. Thiswas to be accomplishedthrough the impvmenut of threeregional aiports and constructionof a fourth;provision on a nation-widebasis of comunications,navigational and other aviationequipment including a fight Inspectionaircraft; an f oengineeringfor the pojec airportsand for a new airpot at Cuzcoand technicalassistance for CORPAC.This project faced no specialrisks, and wasdosd in 1987,one year behindschedule with US$19.25 million disbwsed and US$38.75million cancelled. The Implemeio of the projectwas adverselyaffected from the start by the unavalabilityof localfwuds, which reuld in the Ministryof Economyrequesting Bank assine in the analysisand resolutionof CORPAC's financialproblems. The project wa entuly reformulatedby timmingits sizeto reducethe needfor couterpart funds, and establishig a plan of action to Improvethe financialposition of CORPAC, includingmeans to ensurethat the airlinesAeroPerd and Faucetthonored their paymentsto CORPAC. Althoughthere was some improvementin projectImplementao and CORPAC'sfinacial posiion followingthis reformulation, the projectwas eventualy suspended when the Governmentstppe making servicepayments on WorldBank loans in 1987,leadig to a generalsuspension of disbursements.In July 1988,the loan accountfor this projectwas closed. However,the part of the projectwhich was compietedshowed a goodoverall rate of rtur (19percent after reevauation).

Ralway P)vjeds

13. There have been two rail projectsin Peru, one of which was eventaly cancelled. Loan 0190-PE,US$15 million, 1958and Loa 0334, US$13.25milion, 1963 were madeto the Peruvian Corporaton(PC), a privatecompany which owned and operatedthe country'smost important raiways. Thefirst loan,however, was cancelled by mutual 4r beforeit becameefectve. Thesecond was successfulboth from physicaland economicpoints of view. In 1972,the governm purhased PC's assetsin Peru and createdENAFER to managethe railways.A railwaytechnical assistnce project was appraisedIn 1986.but never executed. PortProjecs 14. Fourport projectshave been carried out in Peru. Thefirst two (Loan057-PE, US$2.5 million, 1952and Loan0208-PE, US$6.58 million, 1958) wme madefor the expansionof the port of Callao. Althoughdelays were encounted becuse of difficuMleswith contctors, the projectswere completed isfactorily. Two fuitherport loanswere made oan 0373-PE,US$3.10 million in 1964and Loan 0446-PE,US$9.10 million in 1966)for the ports of Pait and Piscorespectively. The Port of Piso projecthelped face the uton of newport facilitiesat Pisco,consistng of a four berthmarginal whaf and relatedfacilities; carry out feasibilit studiesIn connectionwith the oceanport of Chimbote and four river ports; and Imve port opratin and procedures,including pem el training. Both projectswere completed successy. An appraisalreport was prepae for the Port of Salaverryproject (1959)but no projectwas subsequenyapprved. 63- ANNEX4

PERU - Transport RehabilitationProject ROADERMlLllATO AnlQ MARONH&CE

1. Road mainenanceon the Peruviannetwotk (70,000 km) is largelydecentrized withmost of WMCC'smaintennce equipmentand staff havingbeen handed over to local and regional authoritiesin 1991-92.Whether on the nationalroad system (15,700 kn) whichis underthe responsibilityof MTCC's Genra Directorateof Roads(Dwreccidn General de Caminos- DGC)or on the departmental(14,500 km) and feeder road systems (39,800 kn) wbich are under regionaland local jurisdiction, the maintenance conditionof the networkis extremelypoor. Unreliablefunding mechanims, lack of trainingat the operationallevel, critical condition of the equipmentand weakinstitutional and organizatonalstructures are at the toot of the largeamount of deferredmaintenance which can be observedtoday on the highway system.

2. 'Me Governmentis seriouslyaddressing this problem and has assignedthe highestprioriy to the road subsector. In January 1992, it secured a loan from the Inter-AmericanDevelopment Bank (IDB) to strenghenand resurfacethe Pan-AmericanHighway and pat of the CentralHighway, a totalof about 3,500kin. Theseworks, which are undertakenby privateconstruction frms, concern60% of the total lengthof the pavedroads belongig to the primarynetwork and will not onlyeliminate the backlog of maintenanceon this portionof the network,but also extendits servicelife for another 10 yearsor so. 'he proposedBank-financed project, as describedbelow, will address fiuther the needsof the national oad network,including not only a majorinvestment program of urgentroad rehabilitationand bridge construcdonschemes coupled with a mantenancepilot plan, but also a policy and instiuonal dev'Iopmentcomponent aiming at strngtheningthe capacityof the highwayauthorities to carryout more efficienldytheir planning, implementation and maintenancefunctions. 3. Thepposed projectincludes an investmentprogram consisting of (i) urgentroad rehabilitation schemes;Qi) a bridgecomponent; (iii) a roadmantenanc component;(iv) a trafficsafety component; and (v) a policyand insdtutionalcomponent regarding road management and financewhich is described InAnnexS. lhetolalbasecostfor teims()to (Oii)havebeenStimated atUS$118 million,broken down aS fOlOW3:

______coes inus$ ini*ko Conp_om Sub-PnJo Fmi DesnT Conat|on Supervion ToWl

d Rudliablom ThMP * _ 10.3 0.6 10.9 Ribo Nir 0.35 13.2 1.0 14.5 RboNlswaC Quomdo @CW) 0.45 32.3 2.5 35.3 TS=-La MelCod v 6.6 0.5 7.1 1A Mezeed4ailpo 0.35 13A 1.0 14.8 O-7IIOOMuhA 0.25 5.2 0A -

BfidMp AcqulsldooofuagsybMgee 2.9 - 2.9 Rom" of BDafybddes 0.2 3.7 03 4.2 Repla.emmnzof deli bdeS 1.0 9.5 1.6 12.1 Bridgerusuageassot andy 1.8 . . 21.0

RoadMaint. piot h*e 0.3 7.5 0.8 8.6

TOuW 4.7 104.6 1.? 118.0 64 ANN 4

Road Rebablita00n 4. Apartfrom the final designof futureroad improvement,five road segmentsare Includedin the rehabilitationprogran. A summaryis givenbelow on the statusof theselinks, their presentcondition, the studies which are availableor are yet to be updated, and the anticipatedrehabilitation works. 5. TARAPOTO-RIOJA(135 kn) is part of the northernmosttrans-Andean route linking the cky of Olmosin the Costa,to Tarapotoin the Selva. Includedin the previousBank financed Eighth Highway Projectamong the road linksto be improved,construction works extended from 1984to 1988but were not oompleted,due to lack of counterpartfunds and cancellationof the loan. Ihis road link can be subdividedinto three sections,starting from Tarapoto:

(a) ITe first section,35 km long, runs over a flat to rollingterrain and is pavedwith a doublesurface dressing which has performedreasonably well so far, althoughsignificant patching is required on a numberof localizedsections. (b) The secondsection, 65 kn long,crosses mountainous terrain and hasremained unpaved, withvery high roughness. (c) The last sectionis 35 km long and runs overrolling twain. It is pavedover its entire length,with a doublesurface dressing on the initial15 km and a 5 cm coldbimmin concretecarpet over the next 20 kin, betweenMoyobamba and Rioja. This cold bitminous wearng coursehas deterioratedbadly as a resultof poor mix design(ston qulity). 6. Detaied engineeringdesigns were prepared in 1993,taking into account the earlierdesigns and the workscarried out in the 1980s. 'he followingrehabilitation and maintenanceworks are needed: (a) Over the first section,routine manten followedby generalresurfacing.

(b) Overthe secondsection, pavement construction including: paving, slope corrections and extensiveroutine maintenance, aiming at restoringthe efficiencyof the drainagesystem. (c) Over the third section,pavement reconstruction. 7. TARMA-LAMRCED (72kn) is part of the centralhighway that connectsLima to the Central Selva. The first 50 km were also part of the EighthHighway Project financed by the Bank. For the samereaons as above,works initiated in 1984ended, uncompleted, in 1987. Ihe link comprisesthree sections:

(a) The first sectionstarting from Trmia is 26.9 km longand runs over a roilingterain. About 18.1 km ha beenpaved under the EighthHighway Project with a 5 cm thick bituminouscarpet, which is still in good condition.Short sections totalling 8.8 km yet remainto be paved.

(b) The second section up to San Felix cses abrupt and mountainousterrain over approximately23 km andhas not beenpaved. -65- AN=K 4

(c) he thirdsection liDnkig SanF oan Ramdn and then to La Merced was paved in the early 1980sover a tot length of approximately22 km. The segmentfrom San FElix to San Ramdn bas lost Its asphalt surfaing over a number of short stretches totalling between 500 and 1000 linear meters, i.e. over 5 to 10% of its total surface area, while the segmentbetween San Ranmn and La Merced is in need of repair due to many pot- holes and extensivecracking.

8. Detaled engineeringstudies were carried out in 1993. 'Me followingmaintenance activities and rehabilitationworks are to be undetaken:

(a) Over the first section, extensiveroutine maintenanceis required on the paved portions as well as the constructionof an asphaltpavement on short subsectionstotalling 8.8 km in length, that are still unpaved. Small drainage improvementsare deemed necessary, together with the constructionof one retaining wall.

(b) Over the second section of the road, the bulk of the rehabilitationworks will involvethe constructionof:

- a new asphalt pavement,23.1 km long; - 15 retaining walls, totalling300 m in extension; - one tunmel,150 m long; - two minor bridges of approximately10 m long span; - a 150 m long bridge over the Yanangoriver; and - some 10,000 meters of surface drainagefacilities.

(c) Over the third section between San Flihx and La Merced, only routine maintenance followedby extensivepatching and resurfacingare to be carried out.

9. BIJQZA QL OUEMAD (275 km) is part of the penetation road into the northern Selva of Peru, liklng the coastalcity of Olmosto Tarapotoin the Amazonplain. The improvementand paving works which were recendy performed between Olmos and Corral Quemadoimply that once the Corral Quemado-Rioja-Tarapotosection has been rehabilitated under this project, the total length of the northernmostTrans-andean route, i.e. 600 km approximay, shall be bitumen-surfaced. Construction works started more than 30 years ago on that road but only earthworks, for the most part, have been completed. Feasibility studies carried out in 1983 have been reviewed; the preparation of detailed engineeringdesigns includingenvironmental mitigating measures will commencein early 1994. These final designs over the total length of 275 kan wil be entirely funded through the World Bank loan. Rehabilitationworks are to be carried out in two phases.

10. Phase 1 concerns the segmentRioJa-Rfo Nieva (100 km) and will be fianced under the World Bank loan. Civil works will essentiallycomprise the constructionof a new asphalt wearing course and local improvementst the drainagesystem.

11. Phase 2 concens the segment Rfo Nieva-orr_ Ouemado (175 kn). Civil works and construcdon supervisionshall be flnanced under a KfW co-financingloan. Rehabilitationworks will include not only asphalt paving but significantdrainage improvementsand the constructionof seven bridges with individualspans ranging from 20 to 40 meters. 12. lUANUCO-TINGOMQA (120kmn) Is a roadwhich forms part of the Lima-Pucallpa highway and its constructionhas been financed by two previousBank loans. Presendypaved over its entireleng it now needs resurfacingor strengtheningtogether with other complementarydrainage rehabilitation works,all to be definedby furitherdetailed engineering studies. 13. LA MERCEDADEQ (122km) followsfirst the roadto VillaRica andthen brancheseast via the Chanchamayobridge, about 12 km fromLa Merced. This road was a componentof the Eighth HighwayProject but has notbeen implementedfor the samereasons as mentionedearlier. The platform of this roadhas beenconstructed to gravelroad standards. Inadequate drainage, a numberof areaswith slopestability problems to be corrected,protective works sgainst river actionand ultimately paving were alreadyidentified in 1980as the bulkof rehabilitationworks needed. Furtherevaluation and updating are nowrequired. 14. FURTHERDETAILED ENGINEERING STUDIES. Under the proposedproject, detailed engineeringstudies will be carriedout for the nexttwo roadsegments in viewof theirpossible inclusion in a futurerehabilitafion project.

15. 7lngoMarta - Pucallpa(255 km) is the end portionof the penetrationroad that connectsLima to the town of Pucallpain the EasternSelva, over a total extensionof approximately750 km. Five sectionshave been identifiedalong the roadsegment, startng fromPuca1Ipa.

Section1 km 0-21 Asphalt-surfced,in fair condition. Section2 kn 21-77 Unpaved,in poor condition. Section3 kan 77-95 Doublesurface dressed, in good condition. Section4 kan 95-181 Unpaved,in poor and fair condition. Section5 kn 181-196 Doublesurface dressed, in good condition. Section6 kn 196-236 Doublesurface dressed, in poor condition. Section7 km 236-255 : Asphalt-surfaced,in fair condition.

In additionto the road works,two major bridges need to be built overa totallength of over 800 meters and three odtersare in needof extensiverepair and rehabilitation. 16. Manystudies have been performed over the last20 yearson that road,the majorityof whichare at feasibilitylevel. Althoughsome updaftng by MrCC wascarried out in 1984,and as recentiyas 1991 by the RegionalGovernnent of Ucayali,it is necessaryto recompileand reviewthe information.

17. Puente ainchwmyo (Reiter)- VillaRlca (44km)was included in the EighthHighway Project but not implementeddue to cancellationof the loan. The platformof the road was alreadycompleted in 1980and graveledaccording to engineeringstandards. At the timeof appraisalof the EighthHighway Project,improvement works had alreadybeen definedas includingprimarily proective works against river scour, slope stabilizationmeasures, drainage improvement and paving. Further engineering evaluationis now requiredto updatethe information.

Bridge Rehabllltatlon 18. Thereare some 1,030bridges on the Peuan road system,of whichapproximately 100 are of the Baileytype. On the networkof nationalroads, under MICC jurisdiction,the total numberof -67. ANNOC4

bridgesIs about850, including some 90 BaileyBridges. 'Me majorityof thesestruc havebeen built or erectedmore than ten years ago, and their actuadconditon desrves either mainteance, extensive rebabilitationor replacement.In addition,a signifficantnumber of locationshave been identifiedon the primaryroad network,where pemanent bridge crossing e urgendyrequired and have not yet bee provided,dms reut in unpredictableand osly iMption of traffic durng riny seasons. Ibere Is theref a needto globallyand radonallyaddress the bridgeproblem in Peru, witha viewto desig a strategyfor the managementand improvementof the system. 19. rigiay, MTCCrequested Bank suppo for acwquirigappo y 1,750linear metes (.m.) of Baiey bridges in order to reae a stockto be used in emergencysituaions on sites damagedby teroit actons or by natu floods. Moreprecise esmates haveindicated that red needis morein the order of 800 l.m.. Afterfiuther analysis,it was agreedto alter the previoustendenqy of considering Baileybridges as permanentstuctures and keepingthem on the same site for decadesrather than replacingthem with reinlfrced concretebridges which, in the long run, are more economical. Accordingly,and in addidonto the 950 l.m. representing16 new bridgesto be built as part of road rehabilitationschemes, the project supportsthe followingbridge-related actions: (a) Acquisidonof a stockof 500 l.m. of Baiey bridge(crondig to approximately25 bridgeunits). (b) A constucdonprogram, including:

- the progressivedismantling and recoveryof some500 LI.m.of existingBailey bridges (60%of which are assumedto be in good condition)which will complementthe new stock, followedby the consuction of an equallength of reinforcedconcrete stuctres I.e. approxitely 14 bridgeunits); - the dismandingof some450 l.m. of instaled Baileybridges which are in bad condition and their replacementwith 10 pemanent;

- the demolitionand reconstuctionof some20 old andseverely damaged concrete bridges totallingapproximately 1140 LIn.; and

- COScosutingsertices for the stuctural designand constructionsupervision of these new bridges;a designstdy of typicalstandard short-span reinforced concrete structures is also indluded,as this mayprove useful in situationswhere urgent actions are requiredfor permanentcrossings. (c) A genera bridge study, includingthe inspectionof all the bridges as well as the Iden-tificationof al unprovidedcrossings on the nationalnetwork, diagnosis of the problemat each locationin order to deaelopa strateg and plan of action for bridge construction,rehabiitadon and m ce on the nationalnetwork. 20. Thefirst-year imple on programfor the bridgecomponent will comprise (a) the acquisition of the 500 I.m. of Baileybridges, (b) the preparao work(field inspection) necessary for the selection of the mosturgen. sites where exiti Baileybridges are to be dismandedand replaced,as wellas the ratoale supportingthis selection,(c) basedon thesefield inspections,drafting of termsof referencefor the engineeringstudies and structuraldesign of the reinfrced concretebridges to be builton thesesites, -68- ANNEX4

followedby invitationto tender,with the selecdonof consultantsfor timelyinitiaon of the detailed studies,and (d) the selectionof a consultingfirm for the generalbridge study.

21. Thesurface condidon survey carried out in 1990offers a dramaticpicWe of the maintenanceand renabilitationneeds on the pdmary networkof nationalroads. Nealy 50% of the total lengthof this networkwould require extensivestrengthening and overlayswhile another40% wouldneed to be resurfacedor sealedin order to slowdown the processof deterioration. 22. Takinginto account the ongoing1DB-financed road program, and consideringthat this proposed Bank-supportedproject will support the rehabilitationof 725 kamof roads as well as an adequate mainenanceover another 620 km of roadsover the nextfive years, DGC will still have to copewith the maintenanceof approximately11,000 km of primaryroads. 23. To supportroad maintenance,a numberof actionsand instiional developmentmeasures are includedin this project: 0i the carryingout of a pilot road maintenanceprogram as describedbelow; (ii) the provisionof technica assistancefor a study aimingat redefiningthe organizationalstructure required for a more effectiveroad adminision and financingsystem (see Annex 5); (iii) the implementationof urgentand criticalmeasures designed to increasethe capacityof DGCin the planning and executionof maintenanceactivities during the periodof thisproject and; and (iv) the undertakingof a set of generalstudies addressing the highwaysector. 24. The pilot naintenance programaims at achievingthe followingobjectives: (a) providethe basis for establishingadequate unit costs of typicalmaitence activitiesfor bothpaved and unpavedroads (which is presentlylacking); (b) test and promotethe use of micro-enterprises(including a rationalassessment of labor- basedparticipation);

(c) determinethe deteriorationpatterns of contrastedtypes of roadsurfacing under variable maintenancestrategies;

(d) providea suitablecenter for fieldtrning and seminarsduring the courseof the project; and (e) lay the foundationsfor frther regionalmaintenance development activities. 25. The roadsegments selected for inclusionin the pilot programfeed directly into the maintrunk road sectionfrom Tarpoto to CorralQuemado which is to be rehabilitatedunder the proposedproject. They cover a total lengthof approximately620 km, belongto variousadminisrative classes of roads (.e.wlth differentgeometrical standards) and comprie the fll range of wearingcourses from earthto aspatic concrete. Of the 620 km selected,approximately half are pavedroads with traffic intensities of up to SQOvehicles per day.

26. Ihe pilotprogram contemplates the tenderingout of the ma_ience worksto miro-enterprises locatedin the area, withthe supervisionand monitoring preferably assigned to the privateconsulting firm whichwill havepreviously been selectedto cary out the detailedmaintenance program. A smallbut -69- AN=

suitablydesigned unit from DGCwould be instaledon the sie to performthe necessaryoverall control and follow-upof the operation. Ihe scheduleof actiies are as follows: (a) By early 1994,a consultingfim willhave been selected to carryout the detaileddesign of the maintece program,including the preparationof the relatedtender documens; contractswould then be awardedwithin the first eightmonths of 1994. (b) the period from the latter part of 1994 to 1997 wouldbe dedicatedto the actual implementationand monitoringof the maintenanceworks; and

(c) in 1998,final processingof resultswould take place and a comprehensivereport would be prepared.

27. Preliminaryassessments indicate that thebase cost of the maintenancepilot component would be in the orderof US$8.6million with the followingbreak-down:

ilS$Sllion Preparatory- studies (detaied desigpof 0.30 PilotPlan, preparationof contracttender documents) Maintenanceworks over a thre-year period: * Routinemaintenance 1 2.81 * Patchingof pavedroads 0.13 . Sealingof pavedroads 1.16 * Gradingof unpavedroads 1.50 • Regravellingof unpavedroads 1.26 Smallbridge and stmctr repairs 0.17 . Trffic signsand roadmarkings 0.27 . Safetymeasures (plmzlets) 0.17

- Supewrvion,monitoring and reports TOTAL 8.57

28. RoutineMintenance of the Prima Road System. Excludingthe rehabilitationand maintenanceoperations to be carriedout underthe DB-financedprogram (3,450 km) and underthis project(725 km of rehabilitationwork plus 620 km of the road maintenancepilot program),DOC will sfillhave to copewith the regularmaintenance of about11,300 km of primaryroads. Matices of road conditionand trafficvolumes provided the basis for a preliminarydefinition of maintece standards and an approximateassessment of budgetaryneeds. Table 4-1 presentsthe requirements(engths of networks)combined with assumed maintenance stregies and costesdmates. Accordingly, the minimum suitablelevel of annualexpenditures to be spenton theseactivities (to coverthe 11,300km of national roads) would be in the regionof US$60 million(of which US$50million would be assignedto mluitenanceand US$10million to furtherrehabilitation and/or rsurfacing of pavedroads). At loan

,1. includig css:tially: cleaning ditchesand culves, gas culling, ma of *lopeslides and shoulder eis. -70- ANNEX4 negotations,the xMvnntML dedaurmc that, for the duraon of the project,an anna allocationof at leastUS$50 million, to beupdated and agreed with e Bankbetwee Jly andOcbr eachyear, wil be madein thebudget for the maitenanceof aiond roadsother than those covered drety undereterlly finacedproject, and hatthese fds be eteasedin a tmely manner. 29. A prelimay assignmentof maintnanceand rehabitation tas to the variousexecutg un availble,accodingtoDtheir respctive capabilities and expertise, leads to the folowingdistributioic

Exn: g i Mainactiiies Alod of resr (%of bsof us$ 60millioai)

Force Miitary Unpavedroads: grading and 25% Account Brigades regravelinglandslides removal, BaileyBridges Pavedand unpaved roads: Civi gradin andregrveling, Brigades removalof slides,patching and resurfacIngof pavedroads 25%

Labor tnive (Sierraand Roun maitace (except 10% Selva) removalof largelandsides) PrivateConactors: Small Regavelling, rfae dressing, 25% firmsor micro-enterprises thidnresa ng, removalof landsides PrivateContractors: Medim AJlftic concreteoveay 15% or rge firms andlorreconstruction

Table4-1: Matricesof RoadCondidon, Trffic Vohbnes,and Mitenane Standards Excludingproject support by 1DB,3RD, andKfW

Lengt of oewwk imkm an mintauo Otbdd (P)

Surfaco_____ ~~TraftivioIuse per day_ _ _ CooUtI <200 20 0 500.1000 1000-2000 >200 2 T a0 Good so(PO 100(PO) 450(PI) 70 (PI) 0() 790

Fab_P130(2) 10 (3) 240 OM) 10 (3) 10(13) 400 poor 10 (P) 370() 170(PS) 380 (Po6 930 Tbm! 220 480 86D 460 100 2. -71- ANNEX4

Table 4-1 (contnued) Dr,awd

Lengthof awt (kin) and maintnance standards

Surfae condtion T_lhlbevolumes per day Tota _____=_____200 Good 70 200 70 180 520 F%ir 440 1,990 1,110 660 4,200 PaOW 860 1,770 1,340 Soo 4,470

Totl 1,370 3,960 | 2,S20 1,34 9,190 Maintenane W UNPu UP2 UPS

Assessmta of e i

Unit Quaniqtin TOtl Symbol Ma anc stard dction cosmkyear In cost/year ______(USS)__ _ USS1,000 P Rouin mana + patching 1,S00 180 270 P1 Routi maiten + Rsig withsurco teatmebt 2,550 520 1,331 P2 Routin maien + patching+ ovrlay 40mmasphal oncete 4,350 230 1,003 P3 RouDtiemainten + patching+ oveday50mm asphalt onee 4,900 260 1,274 P4 Routinemaneac + pahng + overay 0mmasphalt cncree 6,000 380 2,280 PS Routn + patching+ rlay100mm asphalt concete 7,950 170 1,353 P6 Routine + po 0 +mo ay 120mmasphalt coret 9,690 380 3,682 UPO Routiwmainenac +sPt regrve + one gading per year 2,300 1,370 3,1S1 UPI Routie maitnane +spotregrvd + twogading per yer 3,300 3,960 13,068 UP2 Routnema_nta + generl regrvd + fourgradings per yea 4,200 2,520 18,144 UP3 Routinema_intnac + genesalreved + sx gading per year" 9,300 1,340 12,462 To Mean-S,130 11,310 S8,018 Or veconstructionto be consideredif rougnss vaues exeed 8.5 IMI. ** Roconsuctdonto be conideredif trafic emxcds300 vpd and IRR> 12%. -72- ANNEX4

30. In additionto sufficientfinancial resourmces being made avilable for roadmaintenance purposes, some immediatedecisions and actionsare requiredin order to strengthenthe capacityof the highway administrationto more effectivelyplan, programand implementthe maintenanceprograms, untl the strategicstudies on road managementand financing(Annex 5) make their recommendations,and implementationof the newsystem cauried out accordingly.As fromJuly 1993,the Ministerof Transport startedimplementing an actionplan which will be furthersupported in subsequentyears under itemsIF and 1H (see Annex11) of the project. Ihe actionplan includes:

(a) Carryingout overthe prinary networka road inventory,including traffic counts and assessmentof road surfaceconditions (roughness measurements, visual assessment of major pavementdefects), using simpleand expeditiousprocedures, and establishan updatedlist of unit costs,per region,for representativecategories of roadmaintenance actiities. This, In order to acquire a general and more objectivepicture of the maintenancecondition and needs of this networkso as to prepare a programof road activitiesover the mediumterm (essentially,a prelmnary road networkmaster plan), and more specifically,a realisticmantenance program for next year.

(b) Creatng a RoadFund and a NationalSystem of RoadMaintenance. Two Presidential Decreesdated July 25, andAugust 27, 1993,have officialy auithorized MtCC to: (i)use the resourcesrecovered from tolls for the improvement,tehailiaion and maintenance of the nationalroad network, and (ii)deposit, through MEF, intoa specialaccount (Road Fund), the revenuesfrom tolls, such accountto be supervisedby MEF. A third PresidentWDecree dated September 17, 1993,promrulgated the creation,within MTCC, of SINMAC(Sistema Nacional de Manteiento de Carreteras)which will operateas a manageriallyand financiallyautonomous entity and whoseattribuions are to plan, mnae and controlthe activitiesand fcial resources(toll collectionand road fund) relatedto the mintence of roadsand bridges on the nationalroad network. 31. SINMACcomprises already: iOa steeringcommittee consisting of the ViceMinister of Transport (tresident),the GeneralDirector of Roads,and the ExecutiveDirector of the entity,recently appointed to that effect,and (i) an advisorycommittee consisting of three membersrepresenting the privatesector and the uses, namelythe Chamberof Commerce,the PeruvianAssociation of Roads,and the Peruvian RoadTrnsport Association.SINMAC's organizationalstructure would comprise:

(a) a supervisionunit responsiblefor the monitoringof all financialmatters and technical actividesrelated to the roadmaintenance program;

(b) a technicalassistance unit responsiblefor the preparationof amual and pluriannual programsas well as for the designand operationof the toll system;and

(c) a number (about 12) of the regionaldistricts responsiblefor the executionof the maintenanceprograms as directedby the steeringcommittee. 32. Thefunds for maitence, to be depositedin the specialaccount, are to comefrom the National budget,tolls, and any other internationalor bilateralassistance or donations. SINMACis to employ about20 staff, tD be selectedfrom ether the privatesector or amongformer MTCC engineers now workingunder regionalauthorities and to be contractedat atracdve salary levels. Also the road equipmentpreviously transferred to the Regionsis to returnto MTCC. -73- AS= 4

33. It is aso notworthy thatthe Genad D iremtoof Roadshas requestedthe Militaryand Civil Brigadesopeat In the field to maryout traffic countsIn order to updatothe informationon raffic volumes. Besides,the NationalRoads Laboratory has startedto updatethe inventoryof the daine structureson the natonal networkand is now equippedwith a bumpintgrat with a view to cay out a campaignof roughnessmeasurents withvisal surveysof defectsover this networlkIt is therefore anicipatedthat, witin the first quarterof 1994,updated information on the conditionand traffic volumes of the networkwfll be available,thus enablinga more accurateassessment of maintenamceand rebabilitatonneeds.

34. A prelimnay assessmentof roadsafety in Peru suggeststa there is an wrgentneed to addrs this issueand to includea trafficsafety component in the Project. Avaiablestatistics indicat that about 53 personsper 10,000motor vehicles are killedaunually in trafficaccidents, which ranks Peru among the highfatality rate groupof developingcountries. Furthermore, the amnualincrease in trafficfatalities between1977 and 1987is about3.6 percentin comparisonwthh a generallydeclining trend observedin other counties wherethe awarenessand commitme to Improveroad safety is high. 35. A numberof shortcomingshave also beenidentified, which contbute to this highfatality rate. They are: (a) Mostroads have inadequate traffic signs and road markings, and lack safety featres such as guard ras and Chevronsigns (reflectorizedpanels delineating road at dangous curves); (b) speedlimits are not enforcedwhere roads pass throughtwns or viflages,and there is no provisionfor spW restrictiondevices that wouldtake accountof the particular characteristicsof the road (is type, classification,etc); (c) technicalcontrol of vehiclesis not Implemented;

(d) despitethe regulationson i vincialpassenger transport, drivers do not take nor qualifyfrom a roadsafety course; and (e) educatonalcampaigns on trafficsafety are occasionalycarried out for urbanbut not for rr populations. 36. As a fitst step, the consultantsengaged for preparingthe final designsfor roadrehabilitation schemesand for the maintenacepilot plan are incorporatingin their designsmeasures to reducetraffic hazrds on the roadsunder study. However,futher actionsare reqired to improvetraffic safety. A componento that effectis Includedin the project,including a trafflcsafety study, the main objectiveof whichwill be to preparea nationaltraffic safety strategy. Ihe studywill also identifyspecific actions, such as (a) creationof a trafficsafety unit, (b) equipmentfor that unit, (c) implementationof a traffic safetydata base, (d) training,(e) roadsafety campaigns, (t materialsfor roadsigns and marlings, (g) safetyfeatr such as guardrails and Chevronsigns, and (0) vehicleinspections. -74- ANNEXS5

PERU - Trnspot tehabilitationPrect IQARAl [IDMUONI ANCE

1. Reformmes instit by the GoveramentIn recen yearsto improvethe organzaton of the road nework havenot yieldedthe desiredresults. The reponsibilityfor managementof the aional highwaynetwork was devolved to the RegionalGovemens but in 1991it revertedback to the General Diecte of Roads(DGC -DlreecdAnGOewa de CQmWos).'he departmen andmunicipal networks rmai under the jurisdictionof reglonal and municipal atowies. Ihe respoibilities and objecdves of road mnagementare not deady deined. Moreover,neit the scarc financialresources nor the small cadre of qualifiedtechnical personnd are deployedefficiently. Ihe result is a very large maiteace backlogand the resting poor serviceabilityof the roadnetwork which worsens with each day. 2. Historically,the DGCof the Ministryof Tranport, Com cations, Housingand Construction (MNCC)bad been responsiblefor the planning,design, construction and maintenanceof the entireroad netwok (70,000 kn), worng from its headquars In Lima and through 24 departmentaloffices. At present, DGC is responsiblefor only the nationalroad network(15,000 kn). Most personneland equipmentof DGC's former departmentaldirecorates hv been transferred to the regional adinstratons. 3. DOCcurrenty has about400 employees(down from 6,000 in 1986),including some consultants. Engineersaccount for fewertham 10 percentof the staff. ts regionaloffices are too weakto efficiendy dishrge their assignedresponsibilities. Ihe rehabilitationand maintenanceof the nationalnetwork is caried out by DGC's own force accountunits (19 civilbrigades - jeuras caes), Armyunits (25 militay bigades -jfas militars), and privatecontractors. In someinaces labor-based methods are used for road maintenc. The civil(and mlitary) unitswhich employ about 4,500 persons carry out slightlymore than half the requiredrotin maintenance. 4. Ihe fundingfor roadmaitena nce comes from general government budget allocations. Road user chargesare mostlyin the form of fueltuaes. Othersources are vehiclelicense fees and tolls. Central govenu expedue on constructionand maintenance roads is only a frction (about 20 percent In 1992)of revenuesfrom fuel taxes. In conast to the centralGovemment, municipalities have earmarkedroad finds whichare replenishedby localfuel taxes. S. In the early 1990s,tol stationsoperatd alongthe PaamericanHighway and someother trunk roads, whichwere under the controlof state,regional, and localauthorities. They wereclosed in early 1993in responseto publiccriticism that suchtoils were not basedon rationalprinciples and that receipts werenot alwaysused for roadmaintennce. Tollsgenerally had no relationto the lengthof roadsection. Somelocal authoritiesappeared to fix the toil rates to bolsr local revenueswithout transferring the rcepts to the agenciesrexponsible for roadmaitenance. 6. The Goverment is studyingmecams to createa RoadFund for buildingand maintaining roads. t would be fed ftom existingvehicle taxes, licensefees but, primawiw,from feel taxes. Whaeverfunding meaism is adopted,there is a clearneed for establishinga financialmechanism that is simple, rliale, institonally acceptable,and adequatefor buildingand maintainingthe road inflistructure. -75 ANNEX S 7. Solutionsmust be ud urgendytorfom vaous apectsof(a) roadadminsttion and (b)road fnce. Workinggroups ha been ablished at MTCCand th Mistry of Economyand Fince (MEF)In orderto address iheseIues. The studis and governent actionsthat are neededto impoe road managementare discussedin the remainderof this Annex.

S. Objecives 8. Theobjecdves of thisproject are to helpthe Government-especiallythe MTCCand the MEF-in Identifig and selectingthe best altenatves for (a)an oizational structureto effectivelymanage and adinier the nationalroad system ad (b) a wendingcanism for adequatemaintenance and improvementof the roadsystem. ImprovingRoad Administration 9. DGCwhich used to be responsiblefor the endreroad system,with an estmad assetvalue of US$6.5billion, is nowtoo debilitated even to managethe nationalroad network on its own. Furthermore the detmenal and municipalroad networks receive Insufficient attention from the variouslocal road agenciesfalling under the jurisdictionof regionalgovernments, which should have absorbd the former departmentalroad directorates. It is thusnecessary to specifythe responsibilitiesof the organizationsin chargeof the differentroad neto, takg intoaccount their cons=tional responsibilitiesand capacity to assme theseresponsibilities. 10. Tbe proposedrems aimto Imve the efficiencyand the effectivenessof roadmanagement, by makingthe road agenciesresponsible not only for reurce management(iputs) but also for road conditionsand serviceability(outputs). Tie agencies would thus be accountableto the public for the physicalcondition of the roadnewkorks resulting in improveddecision-making by their executveswho wold be responsiblefor upholdingthe publicintrest ECLACand GTZhave researched these issues tensively,as documentedin a recendypublished reporte. This work postulate tha the current highway problem Is primarly due to deficient road administaton and inappropriatefinancial mechanms. 11. Sevea feasiblealternatives can be consideredfor the minion of the naon's roadsystem, from a singleagency responsible for al the roadsin the county iresetie of their fimctionalclass to a multi-tieredsystem in charge of the national,departmental, ad local networks,respectively. An attractivealtermative could be a deconcen ornation with a smallheadquarters staff in Lima, responsiblefor planningand overal managementof the nationalroad system,combined with firly autnomousexecive agenciesin eachdepartme (or otherpolitical-administrative unit) responsible for theomain ce and improvementof the roadsunder their jurisdiction, but undercentral supervision for techncal control. This modelof highwayadministration is commonin Scandinaviancountries and utiizes principles of industri organizationand managemen theory. When consideringfte reorganizationof the road sector,the functionsof the municipalagencies should also be consideredfor the managementof urbanroads and streetsystems. 12. While a varietyof organztional forms are possiblefor managinga road system, there Is widespreadconsensus that a responsiveand well-fimctioning road administration must have the following

1. Unid Nai BoonomioComison for LedoAmer= and se Catbean C ), Camhos, a nwv enfqe pra to gad y 0conserwvOnvial, Sntugo, 1992. -76- NEXS

attributes: its functimonsmust be based on acceptedprinciples of highwayengineering and sound public administrationpractices; it must be sufficientlydeconcentrated (decentralized decision-maldng) to be responsive to the needs of the road users; it must be fully accountableto the public for the use of resources (particularlypublic funds) and the results achieved; it must have autonomyto establishits own operating policies and rules (e.g. delegation of some of its functions to the private sector) and compensationpolicies for its staff; and it must have a reliable and stable source of fimding.

13. Responsibilitiesshould be clearly stated and assigned by the Govern'ent to the national organization in charge of the main road system. Ibis national entity should be reinforced with more resources and autonomy. The responsibility for local networks should be fully delegated to the municipalitiesso that the nationalorganization with its network of territorial offices would concentrate its efforts on improvingand effectivelymaintaining the strategic nationalroad system. Participationof the Army in the execution of maintenanceworks and in providing technical assistance to the civil organizationscould be quite useful In improvingthe road network in selected strategic areas. Other technicalinadequacies could be resolvedthrough a crash traing program. A cental technicalassistance unit in MTCHC in the form of a Superintendencyof Urban Roads couldbe created to provide assistance to municipalities.

14. The road ion personnel in MTCCconstitute a much smaller work force as compared to other road administrationsin Latin America with.a similar span of responsibilities. This is pardy explainedby the inabilityof MTCC to attract qualifiedstaff due to very low salary levels, which are well below those in comparablecountries in the region and are even lower than in other Peruvian Government agencies. Clearlyan increasein the number of professionalpersonnel cannot be expected if salary levels are not raised. Since the present situationat the MTCHC makes it difficult to reach the near-market- level salaries, other alternativeswill have to be invesdgatedin order to attract and retain qualifiedstaff, such as special training opportunitieswithin the country and abroad, improvingthe work environment, improving the facilities and equipment, instituting a systematic approach to career developmentand advancement,and establishingextra-salary financial incentives such as performance bonuses. Such incentivesshould be merit based and availableonly tj those employeeswho have a good work evaluation. Inmtitutionalstrengthening and personnel managementhas been treated as a marginal issue within MTCHC,with considerationgiven to the creationof a specialorganization for managemenitand operation of toll roads. A diagnosisof the existingadn problems and their solutions are being studied at the Universityof and could provide a basis for a more detailed evaluation..

15. The functions at central level should be reviewed against those of the territorial offices. The central level funcdons shoUld be concentated on effective planning, programming, and overall supervisionand control with no direct involvementin operations. Ihe territorial offices should be so defined that they can make independentdecisions, are more involvedin operations and are less planning oriented. There shouldalso be more efficientmechanisms for awardingcontracts and making payments along with the necessarytedhnical and administrativecapacity to superviseworks. The present role of the state forces in road constructionand maintenanceneeds to be reexaminedparticularly with respect to the availabilityand ability of the private sector to undertakesuch worksparticipants. Whether routine and emergency maintenance should be done entirely by force account or by private companies is debatable. However, periodicmaintenance, rehabilitation, and new constructionshould be done through private companies.

16. The use of micro enterprises as a mechanismfor executingroutine maintenancecould improve the situationof the local roads and could possiblybe appliedto main roads. The Pervian Institutefor Social Economy (a private entity) is investigatingalterative sources of employment through the privatizationof public services. Road maintenanceworks executed through labor based methods and -77- ANN S undertakenby private micro enteprises could generatesignificant levels of gainfl employnt paicularly in rural areas. Onepossible altnative couldbe to createmicro enterprises that employtie presentroad workerswho are paid on the basisof predefluedwork and inspecdonof roadconditions. If these workes live in the vicinityof the roads, they wvl be more inclinedto keep the roads well maitied.

ImprovingRoad Funding

20. MTCHChas establisheda workinggroup to assessa nationaltoll system,mainly as a mechanism to collectfuds for the rehabilitationand maintence of the roads. Thegroup should identify secdons of the roadnetwork suitable for tolling.Furthermore the groupshould review the existinglegislation and prepar model legislationfor establishingroad tolls. Such legislationshould penrit private concessionairesto bid for roadworks, allowing recovery of investmentsthrough toll charges. 21. Fundingfor roadma ce and improvementat presentis part of the state 'caja tica'. All taxespaid by road users go intocaja dnicaand are not specificallyallocated for roadimprovement and maintenanceworks. Varous fcors have contibwlbdedto this generalgovemmet policysuch as the miss of specialyallocated funds for housingand toadsIn the past. In generalMEF would be reluctant to modifyits policyregading earmarkedfmds but it mightbe amenableto considera specialfimd for roads with its we confinedto road maiten and rehabilitationto help remove the massive mahaunce backlog.

22. The idea of establishinga road fimdfor maiance and rehabilitationworks by charginga spe 'tariff on fuel prices, -ibich is anmuallyadjusted on the basis of actualmaintenance and rehabilitaionrequiements,would allow in the longrun a reliablesource of fundingfor maintenanceand providea durablesolution to the problemof prematureroad deterioration. Such a fimd shouldbe adminsteredindependently of the central governmentbudget and its size and structureshould be establishedby a standing inter-ministerialcommittee, including represenatives of the organizationsof road users. 'he majorityof parties involved,represe both public and prive sectors, have welcomedthis Idea.

23. As mentionedbefore, another alternative for mobilizingresources for the road sectorwould be to grant concessionsto prime companiesfor road works such as construction,rehabilitation, and ce. Suchconcessionaires could recover their investments through tolls paid by the roadusers. lblls are, however,a high-costmechanism for raisingrevenue and are justifiedonly on roadswith high trafficvolumes (generally an ADTof over5000); there are veryfew such roadsin Peru. 24. Roaduser fees in the formof a specialfuel tax canhave several effects that shouldbe carefully managed.First of all, a fuel tax couldbe inflationaryin the shortterm. In the mediumterm, however, the inflaonary effectpeters out as fuelconstites no morethan 15-20% of road ransportcosts. Such a tax servesas an efficientuser chage and producessubstantial revenues for the road sector. In urban arm, fuel taxes shouldnot be the only mechanismfor cost recoveryfrom road users and could be supWle by parkingcharges, prperty taxes, and bettermentfees.

25. Theproposed road user chargestudy under the project,to be implementedjointly by MTCHC and MEWwill recommenda new structe of road user fees and taxes, includingtolls, to ensureta adequatereurc are generatedby the roadusers to pay for the upkeepand improvementof all road systems. In additionthe studywill recommend a tax structure thatp ly accouns for roaddamage, congestion,and other exteraities, whileconsidering other factors like regional mtegration and income -78- ANNEXS

distribution impacts. To the extent practical, user fees and taxation instead of regulation would be consideredfor modifyingthe behavior of road users with respect to road damage and congestion.

- - - C. hnplementation Strategy

26. The International Road Federation (IF) and the German Cooperation Agency (GtZ) are preparing a training program for countries in the region that wish to improve their administrationand fnaucing systemsfor road maintenance. The U.N. EconomicCommission for Latin Americaand the Caribbean (CEPAL) and MTCHC have expressed an interest in participatingin this program. This technical assistancecould be started by the end of 1993. The program includesthe preparationof model contracts for maintenance, methods for paying the companies, assessment of the roads condition, preparation of changes in legislation,training in the companiesinvolved, creation of such regulatory entitiesas a road superintendency,organization of a road fund, and methodologiesfor calculatingcharges to the road users. If this technicalassistance is adopted, it will be incorporatedinto the project.

27. The pilot operationsfor road maintenancethat are includedin the project will help to strengthen the administrationand financialreform of the road systemand will includedifferent types of contractual arrangementsfor road maintenancein different locations,and differentquality control procedures. The results from these pilot operations will help to establish the best methods for bidding, work allocation, and quality control.

28. A special committee should be formed at MTICHCwith represenatives from the planning, construction,maintenance, and training departmentsto coordinatethe pilot maintenanceoperations and variousstudies and evaluatethe resuls for wider applicationin MTCHC's road operations. The existing 'toll road' work group could form the basis for this committee.

29. Reform of road administrationand financing systems will necessitate prior consensusof all parties involved. This will be feasibleif all interestedparties are awareof the problems, alternativesand solutions, inherent risks, advantages, implementationterms, costs, and benefits. This will require discussions among Government authorities, transport companies, constructioncompanies, long-term investors, insurance companies,banks, and the public in general. This process would be facilitatedby a consultadvecouncil formed by privatesector representatives,as allowedunder the MTCHClegislation.

Medium-Term Action Plan

30. The institutionalstrengthening of the nationaland local road organizationswill be a slowprocess, whose success will primarily depend on the availabilityof trained professionalsand their knowledgeand dedication. On the other hand, adequatefinancing will be of critical importance to ensure stability in road manltenanceprograms and the related organization. Subject to further refinementsbased on the recommendationsof the proposed studies of road organizationand road financedue to start in 1994, a medium-termaction plan could includethe followingelements:

(a) Fosteringa nationalconcensus on the enormouslosses to the economyand the countrycaused by bad roads (estimates range from US$200 to US$300 million per year) and the need to reform road administrationand fimancing,through policy seminars for decision makers, press briefings, public hearings, and professional conferences; -79- ANNEXS b) Ihe establishmentof a roadorganzation with a dear definitionof is functions,attributes, personnel structuresand policies,includingdelegation of executivefunctions to terriorial offices;

(c) Preparationof an updatedInventory of tfieroads and their condition, a prioritizedinvestmentprogram, and establismt of procesas and proceduresfor effectiveplanning, programmingand budgeting;

(d) Implementationof pilot roadmaintenance programs involving micro enterprises, private contractors, deparmeal or municipalforce accountunits, and militaryunits; (e) Establishmenof a new structureof road user chargesthat providean adequatesource of revenues for roadmaintnce and imprwvementprograms and at the sametime promote efficiency in transport services; (f) Establishmentof a specialroad fivd managedby an intministerial committeeand representatives of road user groups to ensure timely availabilityand adequacyof funds for road maintenace and reiabilitation;

(g) Revisionof exstg legislationto penni awardof road concessionsto privatecompanies based on toll as a sourceof revenue.

31. The proposedaction plan shouldbe accompaniedby a processof moderizationof highway unctionsin MCI{HCincluding adoption of appropriatemanagement systems, transparent and competitive biddingprocedure, field inspectionsand financialaudits, and appropie monitoringand evaluationto providesystematic and regularpublic informadon on the condidonof the roadsystem and the growthin the volumeand typeof trffic.

NOM8:T*e Anm=z on RoadAntralon andFinane was defted in July1993 duing the course of theappnial miima. It doesnot reAet dh ubsequ decions taen by Govemen in tbis rard. 40- ANNkI6

PERU- Tnsport RdhablUtationProject PRIVATIZATIONANM REEABlLiTATION OF THE RAILWAYS

I. RailwayOverview 1. Railwaysplay an importanteconomic role in Peru,transporting minerals, petroleum deivatives, filizerts and other bulk commodities.These minerals represent a substanialpart of total Peuvla exports. Peru's railway system(2,074 km) iS madeup of severl compaies, not al of which are physically integrated. Ihe national ralway companyENAFER (Empresa Na8cona de Ferociles) I the largest operator, dividing its oprations into the Central (475 kI)', Southern(915 in)*, and South- Eastern (172 km)*Railways. CENTROMIN, a state-ownedmining company, owns and operates two li (272 kn) whichconnect with ENAFER's Central Raiway. A prvate miningcompany, Souter Peru Copper,also operatesa rail line (240km). The railwaynetwork is maiy madeup of stndard gaU (1.435m) exceptfor ENAFER'sHuancayo-Huancavelica and Cuzco-Qulilabambasections, which are narrowgauge (0.914 m), representingabout 15 percent of the totalnetwork. A lineprevioudy operated by Cap Casagre has beenclosed. 2. Central (Te(FCC)FnUM with 346 kn of main line, linksLima and the port of Calo with the citiesof La Oroyaand Huancayo in the CentralSierra. bt is the higheststandard gauge raiway in die world(maximum altitude 4,829 meters), and one of the most difficultto operatebecau of the stee grades(over 4 percent),switchbacks, and sharp rves. In this corridor,the raiway is paralleledby the pavedCentral Highway. Currendy, over 50 percet of freighttonnage along the coridor is tsported by ral. In 1992,779,000 tons (152million tonkmn) were trnsported on the CentralRaflway betwee Callaoand Huancayo;about 77 percentof this trafficwas either metal ban or concenrates. Nealdy56 perce of Centromn'scugo wastransported by rail, reeenting about87 pecent of FCC's tota freit movement. The non-economicalpassenger services between Lima and Huancayowere suspendedIn 1991.

3. The narrow gauge Huancayo-Huancavelicaline (129 kn) of the Cenl Raflway is largdy dedicated to passenger traffic. This line is virtualy the only access to an othervise isolated and underdevelopedarea. In 1992, k carried 533,000 passengersbut only 35,000 tons of freight.

4. The &rutem Ralwa (FCS)consists primariy of the 855km longline linkingthe sea port of Matuar withJuliaca and Punoon Lake Titicaca,and condmtugfrom Juliaca to Cuzcoover the high plateau;a ferry servicefrm Puo cocts withthe Bolivianrailway networl. Some545,000 tom (232 milion ton-kn) were transportedon this railwayin 1992. Trific is madeup of minerals,petroleum derivatives,agricultura products, fertilizer, cemen and Bolivan internationaltraffic. Ihis raiway is not paralleledby pavedroads except over relativelyshort sections and, consequently,carries two-thirds of all freighttraffic in the Matrani-Cuzcocorridor. Passenger traffic Is also relativelyhigh, wth about 562,000passengers (126 million passenger-km) in 1992.

* Wittid -81- ANN 6

5. In addition, the FCS admistes operations on the distinct Tacna-Aricaline (60 kn) along the Chilean-Peruvianborder. Although it carries no freight and only limited passenger traffic (64,000 passengersin 1992), it is kept in operationto complywith the terms of the 1929 treaty between Peru and Chile.

6. The South-Eastern RiLwav (FCSO)consists of the narrow-gaugeline (172 km) betweenCumo and Quillabamba,via . The profitable tourist traffic between Cuzco and Machu Picchu reached84,500 passengers(9 millionpassenger-kn) in 1992, and the subsidizednon-tourist traffic, pardy to otherwise inaccessiblevillages in the Sacred Valley, amountedto 490,000 passengers (51 million passenger-kn).

I. Instituticnal Framework

7. ENAPER has a six-memberBoard of Directorsheaded by a president. All membersof the Board are appointed by the Ministry of Transport, Communications,Housing and Construction (MTC). Overall administrativeand operatingresponsibiities of the railway rest with the General Manager who is appointedby the Board. Likewise, the regional managersof the individualrailways are appointedby the Board.

8. The railway companyhas had to cope with deterioratingtraffic, finances and infrucre. In part, its problemshave been linked with decliningmineral exports, rafl traffic diversionto road, and with the inability of managementto release itself from political interference and to adequately adapt the company to the changing economic environment. ENAFER must rationalize costs and improve managementand operationalpractices in order to ensure its profitabilityand cut its relianceon the central Government'sbudget.

9. This meansthat ENAFERmust be convertedinto a commerciallyoriented and efficientlyoperated enterprise. To this effect, ENAFER's managementresponsibilities are being delineated, with a view towards increasingthe entity's autonomyand accountability. At the same time, the Governmentis giving fdll support to the privahzationof the entity, as detailedlater in this Annex.

10. Raila Operffn. In the case of FCC, the difficult topography requires special operating practicessuch as the use of double-headinglocomotives on the Callao-Huancayoline, where switchbacks make it impossibleto accommodatemore than ten towed freight cars and one locomotive on some strtches. ENAFER startod a program to double the capacity of these switchbackson the central line; however, works had to be stopped because of a lack of fumds. A few simple indicatorsdemonstrate ENAFER's operatingproblems: between Callaoand Huancayo,main-line locomotives travel slightlyless than 44,000 km per year, and freight cars less than 9,000 km. Equipmentuse is somewhatbetter in the southern corridor, which has an easier topographyand longer averagedistances for both passengersand freight: the locomotivescover about 120,000 kanper year, and freight cars some 14,000km. This is low by ienational standards, and it is estmted that anmal equipmentutlization could almostbe doubled. In general, but especiallyfor FCC, train runs could be rescheduledinto a tighter timetable,and improved demnrragetariff policiescould markedlyreduce car turnaroundtime, and thus reduce losses. ENAFER!s operating efficiency could still be further improved by renegotiating its labor agreements to permit rational operations in line with the company's new commercialorientation.

11. Ihe conditionof ENAFER'slocomotive and wagon fleethas deterioratedsignificantly during the last fvw years as a result of its inabilityto carry out the necessary maintance and overhauls due to financial constrain. Locomotiveavailability in 1992 was about 27 percent (56 percent in 1983) and 42 -82- ANNE 6

percent (47 in 1983) for FCC and FCS respectively (80 to 90 percent is commonly tned in the industry).These availability ratios improvedby the end of 1993to 48 percentfor FCC and 51 percent for FCS,as a reslt of the rehabilitadonof 18 ALCOlocomotives through a programfinanced under a Japanesegrant. Freightcar availabilityin 1992was about68 percenton the CentralRaflway and 79 percenton the SouthernRailway. Ihe wagonturnround dme for FCC was 8.9 days in 1992 (8.1 in 1983)but was 18.3days in the caseof FCS(12.5 days in 1983).The mechanicalworkshops are old and are faced with severe limitationsof spare parts, inappropriatesize, and poor location. Lack of equipment,tools, and quality control contributeto the low availability,reliability, and general performanceof locomotivesand rollingstock. As a result maintenanceand repair costs are increasing, and thus are an importantfactor in the resultingloss of business.As an immediatemeasure, ENAFER should urgendy improvethe provisionof spare parts, particuarly for locomotives. An overall preliminaryassessment undertaken in 1993has identifiedappropriate solutions to improveworksop efficiency,including modernization of equipment,quaity control,and workprogramming. 12. Likewise,tracks are not kept in proper conditiondue to shortageof inputsfor the mechanical servicesand workareas (i.e., lackof equipmentand materials).As a resultof deterioratedtracks, speed restrictionshave been imposedon severalline sectionsto providesafe conditionsto traffic. A recent surveyof trackconditions indicates the urgentneed for the provisionof trackmaterials on criticalsections of the line. This i speciallytrue of the SouthernRaway. Thereis also an overal shortageof track mainance equipment- a needthat has become more evident as a resultof the staffreduction program

13. shm. In 1990ENAFER started its staffreduction program and reducedits stafffom 5,440 to 4,068 (December1993); however at 2.6 staff per km of main line, it is still overstafd. The Governmenttransferred (April 1993) US$2.5 million equivalent for the paymentsowed to the staffwho retiredduring 1992. A comprehensivestudy of manpowerrequirements has been underta and about 2,200 employeesare to retire in 1994,bringing the totalENAFER employment to 1,857. Mostof th redundantstaff have already reached retirement age but havebeen unable to retirebecause ENAFER has not been able to generatesufficient funds to meetthe requiredseverance payments (equivalent to one- monthsalary for each year in service)'. Successfulcompletion of this program,which cost about US$9.4million, requires securing these funds from the centralGovernment. 14. Table 6-1 comparesproductivity of ENAFERemployees, utilizing number of employeesper kilometerof main lines method,before and after the completionof the staff reductionprogram. It is relevantto quote dtat employeesper kmndecreased from 3.88 in 1983to 2.79 in 1992. Althoughnot readilycomparable, these ratios are curently 2.07 for the BrazilianFederal Railway (RFFSA), 3.06 for the SaoPauto Railway (FEPASA), and 3.15 for the MexicanNational Railways (FNM). Withthe labor reductionprogram, employees per kn are expectedto fiurherdecrease to 1.19for ENAFER. In tem of other efficiencymeasures of railwaystaff, in 1992,ENAFER labor productivity was 141,940T.U. per employeewhich is less tan half of internationlstandards. In comparison,this ratio is 661,000for RFFSAand 514,000for FNM. In termsof the individualoperating performance, the laborproducdvity of FCC, FCHH, FCS and FCSOwas 117,323,196,950, 165,597, and 113,839T.U. per employee respeicvely.With the restcturig of ENAFERand realization of the staffreduction program, this rao is epected to cre by 1996to: 302,000in FCC, 440,000in FCHH, 392,000in FCS, and 223,000 in FCSO. Iherefore, once the reducedemployment targets have been acieved, the railwaywill be

1. Under th Peuvin abor la, am tie retg stff receiv ti comp_tion.

2. T.U. (tr u - tn-kn.t) + puenr4= -83- AN= 6

placedin a strongercompetitive positin withother modes of trasportation. The data on currentand projectedstaff levels, however, hide important shortages of skilledstaff. It is thus importantto review the proposedstaff reduetionplan and proceedto Includea comprehensivetraining program for the remaing employees. Table 6-1: EmployeesPer Kilometerof Main L3ne

December1992 Projected FCC (Callao-Huancayo) 3.77 1.34 FCC (Huancayo-Huancawellca,FCRH) 1.52 0.83 FCS 2.39 1.03 FCSO 3.34 1.70 Total ENAFER(including headquarters) 2.79 1.19

15. The impactof laborreductions may be adversein communitiesalong the railwaycorridors where ENAFERis the majoremployer. At the sametime, specializedworkers have the appropriateknow-how to performsatisfaorily specificraiway tasks. In this context,steps shouldbe takento assistin the processof incorporatingthe laid-offworkers into the productivesector. The workerswho are rendered surpluson the railwayshould be informedof the oppordtues to startproductive activities. Ihey should also be encouragedto find altenative employmentin other Industriesad In the micro-enterprisesdsth wod replacesome of the activitiesof the laid-offworkers. Activitiessuch as trackrehabilitation works and wagonrepairs can easily be privatizedand thus can be a sourceof employment.Consultas should be engagedto definea programwhich utilizes the experienceof this staffand at the sumetime minimizes the hadships causedby the changeover.

16. TraIning. Lackof adequatelytrained personnel has contributedto lowlabor productivity in both operadonaland managerial/administraveareas. BeforeENAFER's training unit was disbanded, it was characterizedby chronicunderstaffing and insufficientexpertise to adequatelyperform its functionsin planning,organizing, implementing, and evaluatingtraining actiities. In addition,courses were not derivedfrom a comprehensiveanalysis of trainingneeds. In orderto developa suitabletraining system, it is neesary to emphasizetraintg activitiesaccording to specifictechnical and instituonaldevelopment objectives,with strong participation of supervisorsand managersin the selectionof courses,seminars, and on-the-jobtraining. Annex10 describesthe trainingcomponent of the project.

17. Inondc SerSces. Passengerservices were suspended in 1991on the Lima-Huancayoline. However,ENAFER contiues to provideother uneconomicservices such as: (i) freightand passenger serviceson the Huancayo-Huancavelicaline, requiringan annualsubsidy of US$0.6million; (h) services on the Tacna-Aricaline with an anwal subsidyof US$0.5million; and viii)services on the Cuzoo- Quillabambaline, whereannual losses due to freightand passengertraffic to Quillabambaamount to aboutUS$0.5 million. Mostof these services,which requkre an overallsubsidy of US$1.6million per yea, are consideredpolitdcally importat for inegrationand socialreasons. The Gwvernmentmay, therefore,be preparedto compensatethe railwaycompany for the subsidiesrequired; alternatively, these uneconomicservices should be closeddown. -84- A 6

mL RainwayP on

18. Rail serviceswould highly benefi from strongerpardcipation by the privatesecoDr in Its activies. To this effect,the Govenmenthas Includedthe railwayin the overl pnvatzatlonprogram of ste-owned enterprises(Leislative Decree 674 and Law 26120), and has formed a special privaization committeefor the nationalrailway - Com Espeidde PrlwAwddn (CEM-ENAFER). 'he restucturingeffirts of ENAFERfocus primarily on thosereorms and measuresthat are necessary to preparethe railwaysfor an earlyprivaization. Besidesthe resolutionof the financialobligations and the rationalizationof the laborforce, thesereform includethe mostcritcal emergencyinvestme that are requiredto keep the systemoperational within the acceptablesafety guidelines. Major capital investmentswould be deferredto fuumreprivate owners of ENAFER,thus ensuring the usefulnessof such investments.The proposed strategy thus aims to transfera restructuredand functioningralway to priWate investors.

19. CEPRI-ENAFERinteds to followa well-definedpdvatzation process, including the preparation of an independentinventory and valution of assts, the apropriate financi and tenical hifmation to all interestedbidders (dimaion memorandum),protional actites, competitvebidding ad timetable,sales agreements between the Governmentand the prvae investor,etc. Otheraspects related to ENAFER's liabilities, such as the short and long term debts, accounts payable and social benefis amountingto US$132million (end 1992) will also have to be resolvedbefore the railwayscan be offered for sale.

20. Beforea partclar prhvazationproposal is selectedby the Govemment,altemrntvepaization scenaros will be analyzedby CEPRI-ENAFERExperience from the prvatzatlon of otier railways indicatesthat sveral differentmodels of railwayprivadin ae avilable. One alteratve whichhas beenadopted by manycounies is to separatethe resposib of ifastructure fromopeaDons. Ibis techniqe sllowstie Govemmentto transfe onlythe riway ratons to the privatesector while retining controlof the railwayinfasructre, and thus is analogousto road tsport However,this kindof privatiationis geneallycha d by cleadydefined services opeating overspecific railway lines.In certaincases thejoint prvatdzation of servicesand track inasctre maybe moreappropiate, as FCC is dominatedby mining,the operating ntgrity shouldbe kept under a singleresponsibility. Anotheroption is to contractfoil concessionof linecorridors for longperiods, generally about 30 years or more.

21. Thetransfer of FCC (Callao-Huancayo)to hs mainclient the miningcompany Centromin, was not consideredin the ongoingprocess of privatizationof that company.Once Centromin is pivatzed, the new ownermay be interestedIn consolidtg Its own raiway (La Oroya-Cerr de Pasco and Pachcayn-Chaucha)wih the FCCline as a singleopatg unit. If this lternativedoes not materialize, FCC shouldstill be offeredto the priWtesector as an Independententity. The samestrategy should be applicableto the remainingtwo lines,FCS and FCSO,which houd be offeredto the privatesector as separaterailways. In viewof the morepromising financial suation of FCSO,derived mostly from the touristtraffic to MachuPichu and becauseof limited issuesimvolved in its pfivati n, an early privatation of FCSOmay be possible.

22. Ihe narrowgauge line from Humncayo-uancawdica, because of the socia ntre of itsservices, couldbecome an independententity explicidy subsidized by the nationalbudget and managedby a prvate contact. Similartreatment could be edeed to the Ibna-Arica line. Onceall transactionshave been completed,ENAFER headquts wouldcease to opeae. 45- A

IV. ENAFER'sFnanal er%formance 23. Duringthe last decade,ther has seena seriousdeterioration of the rilway's fcial posidon. This has been causedby the loss in revees, withouta correspondlngdecrease i costs.Tbe revenus loss wasmainly caused by a 21 percentdecrease in freig hauledin 1992as comparedto 1990,from 498 million ton-kmto 392 mllio ton-km;pasger traffic decreasedeven nore, by nearly 52 percent. Furthercuts in passengertraffic during the first haf of 1993have brought the totalreducdon to 71 percent. During the 1990-92period, operatingrevenues decreaed by 51 percent while the decreasein the operatingexpee wasonly 22 perc The operationalexpene haveremained high mainlyas a result of the high labor costs which ount to nearlyhalf of the total 1992 operating expenses.

24. 'he operatinglosses during this period were fanced by accumulatingliabilities - by not servicingthe railways'debt and by deerring the paymentsfor pesom relatedcontributon to the social securityagency, pension and heath payments,and other legallymandated payments. Tbis frther detrorated ENAFER'sfinancial posion, as delaysin the serice of the outandig liabilities (shownin Table62) resultedin heavyfinanc penalies againstthe companyby its editors. As a result, 1992 non-operaingexpenses exceeded the operatingexpenses, and the tota expenseswere nearlythree timestotal revenues.

Table 6-2: ENAFER'sLiabIUties - December19M2 (US$mion)

Shoet- Loea Acoants SoeId tenmDebt tenr Dbt Paabl Befi Totd 27 37 46 22 132

25. Bndal Ec=d. Separe financialfores have been preparedfor the t regional raflways:FCC, FCS, and FCSO. It is assumedtht the futureoperation of the aiwayswill be stricty basedon the financialstgth of the regionalcompanies ad dat the unprofitableroutes will eitherbe closedor explicidysubsidized by the Governmentto fully offsette opeationallosses. The privato sector is unlikelyto show any Interestin acquiringthe raiways withouta pemanent solutionof ENAFER's debt. Thereare, It may be necessaryfor the Govement to assume ENAFERs outanding financialobligatiom (both domestic and extnal) befre s transf to the privatesctor. The financial feca are ths based on the _ton that, after 1994, ihere wil be no nn-operationalexpenses, except for the repaymentof tie proposedrehabilitation loaL 26. These projecdonswere epaed o vatively by holding freight and passeWer traffic volumesto the levelsof 1992 withonly minor adjustmes for the opestional r in that year. Tiriff rates and distancestraveled, lilkwise, have also beenheld constant. t is assumedIhat the labor reductionprogram will continueas planned,wih the get (1,857positions) beig acheved by December 1994. After the ralways restruct into separ operatng companies,EXAM headquarte would be dissolved;It Is assumedt the 67 ffeced staff positons would be proportonedinto thoseopating compaies. It is futher assumedthat the exonditum on supplies and materialswill subtilly increasefrom their curr levels dtrig the yeas followingthe -86- ANBXA

Investmentprogram. Salaryap is asmed to hceas by 5% per year sating In 1994to compensatefor increasein laborproducdvity and Increases in the geeal pricelevel. As shownin Table6-3, operang and workingratios of the ranlay are apected to improvesubstaly, even withoutan increasein traffic. Detaiedincome stemets showingpast and projected perormance are presentedIn thetables at tie endof thisAnnex.

Table63: RailwayProfitabillty Ratios, 992 - 2000 BIseCase Sene"t

I19 1993 194 19 1 19 i 1999 2X

FMC Qpmting Ralio 183% 154% 159% 136% 110% 117% 117% 119% 12% WoakingRatio 150% 131% 132% 110% 96% 103% 103% 103% 108% Net OpertingSJno (5.8) (4.5) (4.3) (2.8) (0.7) (1.3) (1.3) (1.4) (1.6) 'CS Opeting Ratio 130% 147% 136% 102% 101% 106% 107% 1OS5 111% WorkingRatio 113% 126% 114% 89% 81% 86% 87% 88% 90% Ne Op=ing Incom (4.7) (6.1) (4.5) (0.2) (0.1) (0.9) (1.0) (1.3) (1.6) FC90 OperatingRatio 133% 126% 112% 86% 96% 101% 103% 104% 107% Wod IgRatio 108% 93% 84% 69% 69% 74% 75% 77% 79% No Opraing boom* (1.2) (1.0) 0.4 0.5 0.1 (0.1) (0.1) (0.2) (0.2)

g-Ra a.eg s to ooetn trfo in theyeam 1994-2000at thatof 199I, constnt ta bed on th 199 bvel, andaco oanly e oof f lbbor =&dtionprogmaL

* InUSS mlin °: bR_ T o us$ UbOp*gRato: Opating Coat e o y div ange.

27. hN esuit S . Unlesssome emergw rehabilitationis performed,raway operatonswould continue losing traffic and come to a halttowds theend of 1996. Whfleit maybe possibleto keepcetain linesopen for operation,e.g. Cuzco-Quillabamba,th servicewould be reducedto negligiblelvelS. Onceraiway operationshave temiaed, all remanig staff would becomeredundant. The no-investmensceario assumesthat ENAFR wouldnot incurany other ewpensebesides making the requiredseverance payme at the teminatonof railwaysservices, in 1997.In orderto appropriatelycompare the costof choosingthe no-investment scenario, it I asmed thatthe unused investment benf underthe ivestment sceario wouldbe reoveredat theend of the anlysis periodin the year2000, ie., the salvag valueof the invetmenequal to theamount of the toalInstment lessaccumulaed depredatio Theresult of the resutig net cashflow analysis e presentedin Table64. 28. As can be see fromthese calculations,the Investmentscenario is deady prefered. Ihe fnancesof the threerailways show significant improvements, with an overallfinaa rate of retr (IRR)of 19percent. This MR is basedon the most s e criteriaand, even then, provdes positive beft frominvestment. Relaxing any of theasmption, suchas includigincresing traffic, would giveev higherrests. U must refore, be pointedout ht the simplediticdon betw the Invemen and no-Inestme sensaios i the differ betwee keepingthe raioad operatngor 47- ANNEX 6

dosing it down. Basedon the aboveanyses. it is highlybenefcial 10 makothe proposed nvt even i someof the nvemns are consideredmas lly profitable,i.e., tt In FCC.

Table 6.4: ENAUER- Cash Flow Analysis OUS$thousd)

9 1994 1995 1996 1997 196 1999 2m0 FCC n Jnvegdjw,n (2,568) (,130 (2,035) (2,0 (3,075) 0 0 0 - With nednt (2",68) (3, (8,104) (105) (199) (5) (393) (555)

- Not Benef 0 (97) (6,069) 2,115 2,876 55) ") (555) 'CS . Wthout Ine_mnt (3,407) (4,017) (3,381) (4,037) (4,75 0 0 0 - wesb (3,407) (3,97 (16,539) 1,728 2,097 1,968 1,752 12,7 - Not Bon 0 47 (13,158 5,766 6,847 1,98 1,752 123

FCSO -VWihott Ietment 272 129 361 (180 (1,460) 0 0 0 'Withl vestmwt 272 38 (3,210) 8017 849 786 661 -Net Bnefit 0 (91) (3,571) 990 2,347 849 786 661

KNAUER - WihoutAwIetmet (5,703) (7,018) (5,5) (6,48 (95) 0 0 0 - Wtthhlo_ma (570) (7,159) (27,04) 2,433 2,786 2,582 2,145 12,479 - Net Beneft 0 (141) 22,798) 8,871 12,071 2,582 2,14S 12,479 -IaR 21%

NM 1. Cah flowsfw 200 inde eidual vulu of th nvetmet beingesdmed. 2. In t cam of no invesme seario, it is and tat KNAUERwMlm o as of dh ad of 1996.

IRL Fwua Rateof Rdeturbased on netch flow.

29. The propoed ralway rehabilitationis of an emergewynature and is packagedas a set of complemey componenscomprising: () loomotivesand rollingstock; (h) waysand stuctures; and CiM)telecom cations. Tbis packageis the technica minimumneceary to maintainthe railways operationaluntil they are privaized. Theefre, remoig ay one componentwiftin the packge has iherisk of cancelingthe ensuingbenefits of the remaininginvestmen For example,an investm in was and stuctures t mpre the conditionof track wihou a synchronied nvtme in locomotive repairscould contrte to saty problemsad accidents,as well as hightrack maitenan and repair cost, thus reducingthe benefit of the mrenueflows which coime frm an invesm in locomotives and rolling stock.

30. Mal* .t IheTvitv financi forecastis most likely to be afected by changesin operatngrevenue due to chages in the pasnger and feight rff mcure and the respectivetraffic volumes,and/or dcanges in opeating expemesdue to changesin stf costs. Del in the payme of nd-of-servicebenefts to staff is likely to slow don the staff reductio program and would perceptiveyaffect the ficial forecasL Likewise,reduction in trffic volumecould adverselyaffect 48- ANNEXA

the prqected operatingprofit. ThisIs particulartmue of FCC whichis epected to operatewith high operatingratios while mainining constanttraffic at the 1992level. On the other hand, a 20 percent increasein fireighttraffic in 1995for FCC, up to the levelwhich was achieved in 1990,would reduce the workingratio to 99 percent. The reverseis true as well; however,further decreasein traffic is anticipatedonly if the proposed rehabilitationprogram is postponed. n thbiscase, the raflway operationsare expectedto cometo a haltby 1996. 31. Similarly,the financialforeasts assumethat the averagesalary would remain const in dollar terms. It is quitepossible, however, that the increasedlabor productivity and the raiway privaization couldjustify higher salaries. As the personnelcosts are projectedto averagearound 34 percentof the totaloperating expenses, once ENAFERslabor force has been rationalized,a 10 percentincrease in wageswould mean an increasein expensesby merely3.4 percent. On the other hand, furthercuts in labor forcemay be possible,thus moderatngthe totalpersonnel expenses.

V. ActionStrategy 32. The restructuringof ENAFERis necessaryto ensureits eary privatization.To this effect, an ActionStrategy was prepared, the principalobjectives of whichare to accelerathe admintradve and operationalreforms of the railways,with a view of makingthem a commerciallyoriented entity. In parallel, CEPRI-ENAFERis definingthe necessaryarrangements for an early privatizationof the railways. Under the ActionStrategy, the railwayswould be re-dimensioned,in tems of labor and operatingassets, to fit their fiture market-orientedrole. The Strategyentails primarilythe: (i) voluntarystaff retirementprogram; vii) sale of selectedwn-operating assets; (iii) renegotiationof the collectiveUnion agreements;and iv) orgional rt ting int at least three self-contained operatingunits, withthe eventualdivision of ENAFERinto legally separate companies. 33. The staff restructuringplan calls for an adjustmentto 1,857employees in 1994 at a cost of aboutUS$9.4 million for whichENAFER has requestedgovernmet funding. Other initiativesunder progressinclude: Q) separation of accountsfor the railwaysystems (regional railways plus Huncayo- Huancavelicaand Tacna-Aricalines) and (ii) identificationof the non-operatingassets with a schedule for their sale. However,much remains to be done: establishmentof the railwaysystems into separate cost centers; decidingon the future of the Huancayo-Huancavelicaand Tacma-Aricalines; and resolutionof ENAFER"soutstanding liabilities. 34. In order to ensure early privatzationof the railways, CEM-ENAFER has retained an internationallyexperienced advisor to determinethe fiture structureof the railwaysand to adviseIt on the best practices in railway privatizaton. In about May 1994, CEPRI-ENAFERwill retain a cunsultingfirm to: (i) evaluateENAFEt fot privaization,(ii) providestrategic support to CEPRI;(it) preparea prospectuswith the appropriateinfomation, including the promotionof intest for potential investors;and (iv) preparetender documents and makeal rngements for isuing these tendersfor the railways'finl privadzation.

VI. The RehabilitationProgram 35. Only about30 percentof ENAFER'strack can be classifiedas being in goodto fair conditon; the remainderis in poor to very poor condition. Muchof the rai is badly wom and is beyondor approachingthe end of its usefil life. Ihe acuteshortage of spareparts and genally poor workshop -9AN 6

conditionshave contributedto low equipmentproductivity, especially in the case of loomodves. Scarcityof spare parts has forced ENAFERto resort to cannibalizationof locomotivesor to the productionof spareparts in its workhopswithout industrial precision. 36. The proposed1994-1996 emergenc progrm alimsto msintainthe currentlevels of raiway operationsin order to ensute early privatizationof the railways. 'he proposedUS$35 million (includingtaxes and dutiesbut withoutcontingencies) investment program aims to rehabilia critial sectionsof track and overhaulexisting locomotives and wagonsand is distributedas fbllowing:10 per- cent in 1994; 85 percent in 1995; and 5 percent in 1996. lhe program does not includeany investmentsfor the Huancayo-Huancavelicaand Tacna-Aricalines. Table 6-5 summar_l the investmentprogram.

Table 6-5: RailwayInvestent Program (lSS million)

FCC L1n of 4 switba to doble thei capaky. 2.57 RehabIiation of 10 In of tuck. Pal weplacemen of ti and baest in 0e -Cp

Provisio of light track maintenan equproit

Rehdaliation of 5 OaN d 7 ALCO/MLWlocomotie. 5.97 Pats and nalateaa of locomotives. Repair to 100 wagos.

1.J0 Prvision of a*dio dispatcing sysem. 9.54

iPCS R dehabianof 40 km of twk betwee Areq and Julicau. 12.64 Patial repamt of ties and ballat thughogut FCS Prvision of lisg trac maitnance euint.

RphMablationof 7 GMand 9 ALCO/MLWkbcomot. 7.60 Pab and tot equ*mn to suppoit numteae of loomoie. Repair to 120 wagons.

JI Pwvisionof a radiodi_pahg system. 21.24 FCSO Rephaementof 15 km of ul in C 1noMAwhuPiW sec 2.06 Pal rpacement of ies in Cvoo-mulxMiceu eon. Prosio of ghttrak mainoegan eipent.

1.33 Rh tn of 3 ALCO/MLWloomotives + I rIl cr.

0.79 Pmvison of a radio dispatcig sytem

04 i and safet stuy. 4.22 Total 35.00 *- AN-

37. It Is esmated that the rep* cost for the 47 locmes (37 for main serviceand 10 for shunting)need to mainn the rrt levd of seice during1994-1996 would be US$11.2million While 18 of these unit have been etpar wt fnds from a Japanesegrt, US$2.2million wil be requiredfor their routie mainteanceand scheduledrepairs. Repai d m_n of the other 29 unis (12 GM locomodvesand 19 ALCO-MLWBombardier unis) durng 1994-1996perlod ae exected to be US$11million. This progam w raie the availabilityof locomotivesto 66 perent and thus makethe railwayservice more reliable.

VI. Environent Aspet

38. The physicalIvment includedin the proposedaemgenc programwill not causedirect Impactsan theenvironment, since they only involvereabilion and defed mainena works. lTe main e onmentalcoerns are related to wastewatercollection, treame and solid waste disposal in woalshops,diesel depot and units. Tbe proposedprogram entils the preparationof a safety study to solve the problemcaused by the Wafficof pedestria along the switchbacksin Cuzoo. R also calls for the carryi out of an environma audt, incuding the anaysisof the cummtproblems and feasibilityof variousalteav solutions,in order to recommend an inegratedprogrm of actiontogether with costs to implementit. The privatzadonprocess wil afford a vauable opporunityto solvethe environmentalproblems, in pardlar with respectto the contm inationof workshopsand edingstations. k is important a ths auditbe conductedbefore the privaizatontenders are Issued,and that pwspectivebidders be infonnedof the e mentI Issues. Railway EmergencyInvestment Program

P.m.mtwW 0.25 2.11 015 Z57 4.19 7.22 06 12.4 021 1.75 0.10 206 4.65 11.74 M 1727 r__bsaisqie. 0.05 05 0.04 0.59 1.52 2J3 .23 4.58 0.02 0.14 000 0.16 19P 3.47 0.27 533 Swewqiil_ee 0.02 0A.S _ 0 0.38 0.14 026 0.02 0.42 002 06 0h0 0.39 0A.Q O.S7 04 0.79 _atB _0.030.11 0.01 _ Q13 0.75 1.41 0.13 2.27 00 000.00 0.00GO7a .52 0.12 2.40 0.05 0.31 0.02 0.45 0.45 0.5 0.07 1.37 0.03 0.26 0.02 031 0.53 1.49 0.11 2.13 SwIsbbeb Q.07 0.60 0.04 0.71 0.00 .00 o0. O 0 0.00 .00 00.000 0.00 07 0AO 0.04 0.71 Rea _a_odm0.05 0.43 0.03 0.51 0.24 0.45 0.04 0.73 0.02 0.35 o03 0.13 0.33 3.03 0O0 3.42 Ran 00 ono 0.00 0Q0 3.09 2.02 0.36 3.27 0.12 14 O.6 LIZ 1ta 306 022 449 LweaUIweA r*E.e 0 .60 5Q0s .2s 5.97 4.3 239 038 7.40 0.11 .6 0.06 133 5.54 86 3 0.73 sen" Eoeomve .m 0.45 SAO 0.22 4.48 4.62 0.54 0.27 5.43 0.10 0.87 00S 1.02 5.17 5.22 0.54 30.93 _p wamesdbb 0.2 1.04 0.6 1.22 0.16 139 O.01 13 .O0 0.00 0o0 0.0 0. 2.43 0.34 2.5 Rebab ntalle00 0.0 0.0 00oo 0.00 0.0 M0 0 o.0 00 0.17 OO 0.37 0.00 0.17 000 0.17 Uj ubie0._1 0.13 "I0 0.27 0.s 0.4 0.03 0.54 0.03 0.32 0.0 0.14 0.09 o0.8 as0 os

raIamnmu~.ae -0.8o5 01 0.05 mo 1olO 35ss a0 3.00 001 07 0.0 0.79 0.21 2.37 04 2.79

______QC0 o00 0.0 o 0 00 0n GAon 0.00 0o.0 o0 0o 0.04 0o00 o0A4 00 o TOTAL 0.95 t0o 0.49 9.54 9.32 11.06 t.06 21.24 Q40 3.62 0.20 4.2 10.4? 22.71 3.7S 35.00 1S = (_g4i1u(USS$311lalE4 ~~~~~~~~~~Vsbec19Slpe.

in n i n i i n -~~~~~~~~~~~~ * hiw U6umsimin(*atW5.maUin~Vimb.eub.i.3U~m59 atdumppr3g(i.t152.mI33m~0 'd I. * -92-

ENAFER JncomeStatement 1990-2000

Acal Mo. Fonrec 1 199 1993 199m9V 199 99? 19m9 1999 2t9

OPERATINOREVEtE 54.017 4395 242 23 434 2404 2.2325 25.3 25X.5 25.325 25. FteagBt 37,548 30.622 14.850 tg 11.645 17,456 17.456 17.456 17.406 17,456 17.456 Pem~pi. 9.199 10,631 7632 6,509 .993 7,609 7,69 70 70 7O9 7.69 odwn 7,27O 2633 1.787 0 0 0 0 0 0 0 0 Go@VC_cmpoamtinsw 0 0 0 0 0 939 759 59 759 59 759 Unpwiabh savIms

OFRiRATINOEXPENSES 40.822 60200 38776 37.367 33,473 29.194 26.547 2.051t 282 269 29256 Pen rek 3O0,93 35091 22,410 21,226 17.623 121155 10,354 10,864 11.400 11.962 12453 Sabui 20.872 22.265 16.920 16.626 13,735 9.481 8.045 8.447 8.869 9,313 9.779 PuIondcaItHka 2.160 4;203 2,58 1.995 a1654 1133 965 1,014 1.064 1.18 L173 Pfmt=mdrda dT&w 5M41 2845 L324 1.052 372 597 523 549 57 605 636 ScsenaceParymU 1.139 2.355 1.410 U8 1149 790 670 704 739 776 815 Oher 753 423 163 168 168 150 150 ISO lb 150 150 SuPPlias&4N*UIso 6A642 8.215 7.894 8.019 7520 8.021 8010 9.3£4 9.032 3.927 UV927 Fad &Laubdml 4.9S 5J,46 6.153 6;t73 5.779 6;t50 6.230 $3S6 53652 5,527 5.27 M.tsial 1.647 2.669 1741 1741 1.741 1.741 1.730 5.400 3,400 3.409 3.400 Miia^ffiautic 543 241 214 214 214 214 t7O 170 170 17G 170 D.baMiai3" 3.341 10.461 S563 5.996 5A660 4.495 4.905 5.012 4995 4.989 4.935 CoauscbaalSsvi=s 2,54 3.192 2.395 2.412 2.451 4309 3.108 24S39 2.621 2621 2.621

NotOpadrnglema 4,194 (16.264) (12.50) (12.490) (IOK3) .I),) (722) (2 ) (413) (2U44) (3.431)

RA,TlOS WcukhagRuio 76% 113% 125% 126% 119% 95% 84% 89% 90% 92m 949 Op..ig Rato 92% 137% 148% 149S 143% 112% 103% 109% 109% 111% 113%

NewfsuLw w 0 0 0 0 3.520 29.790 1.750 0 0 0 0 Wa a&Sb¶w 0 0 0 0 1,980 16.730 980 0 0 0 0 RoUhisck 0 0 0 0 1.540 13060 770 0 0 0 0

Av NvN fEmp&y.o 5.39 5.A2 4,494 4,414 3.479 2276 1.857 1.1.8 1185?

FbwglowOL Thu.Km 493 440 338 434 399 399 399 399 399 399 399 Pasuumw(WLas) 469 320 222 177 167 222 222 222 222 222 222

Fh4ht CM=Tom) 1.729 1.506 ,359 U552 1,395$ 395 9 1395 1395 1395 1.395 Pamagu5(Thouji 3ll28 2.269 1,680 U13 1680 1,60 1,680 1.68O 1,680 1.680 1.680 93- AMM6 Cental Ralwy (FCC) IncomeStatement 190-2000

AeNd SO=a 19u6 m J1m - tm 10 196 cm1W -- 199m 199

OPERAATINREVENtES 20 1,12 6."31 8 725 12 7M 719 71.?9 7U9 7.59 Ftd 17.20 9,717 5,2 7,640 /12 612 612 612 612 65 6.12 PI-is572 12 75 3 753 753 753 753 i5 73 73 063 259 1.164 "4 0 0 0 a 0 0 0 0 OoeCir 0 0 0 0 0 44? 330 530 30 330 330

OPERATINOEXPENSES 222345 19.571 12.4 12.32 1157 10.07 825 8.54 S94 9. 9.229 PWSmd: 13,042 12.617 2 167 6.94 962 4.063 3.44 5.614 3.2 397 41 SIia V?.30 9.151 S.3 5W 46 3.163 266 2W9 2.950 39 .2 Pe &Htlh 801 t,336 763 6$6 $39 380 321 337 354 372 390 Pe-auldTu" 2,143 1,185 413 35 303 206- 174 183 192 201 11 p^.-urRitmn. 728 in 457 456 388 264 223 234 246 25 27 OO 636 183 I Si SR $I S1 51 5I 51 51 sum A vauMah 1 8 2.0 2.4 2.68 t621 21 261 3.20 3.198 .49 3.149 Fad&Luhrmab 1.3 1.71S 2.311 2.790 2,2 2.442 2,442 2,2 I 2.149 2149 mazl 334 490 179 179 179 179 379 1,000 1,000 S,000 1.00 170 9 1o 1to 11o 11o 11o Io 110 11o Ito Dqime6il6305 31706 22 1,71 151 2011 1055 1,060 14 L4 1,4 OmItiaguSuvb. 958 951 464 8"9 930 1." 1.09 750 750 710 750

NoOpmag las. (1.981) (7446) (5.763) (4.55) (42" (2,735) ( ( 9) (12) (457) (.3

RATIOS Wow"gRado 79% 131% 150% 131% 132% 110% 96% 103% 10% 10% 103% Opw Ra ti. 110% 161% 183% 154% 10% 136% 110% 117% 117% 119% 122%

ewl_aumft 0 0 0 0 870 7,330 430 0 0 0 0 Wsp&Sbusa 0 0 0 0 270 2.2Q 130 0 0 0 0 410mos1a0* 0 0 0 o00 500 300 0 0 0

AvM N..4. gh7w 1.955 USS 1.459 1,435 1.8 764 615 615 615 615 615

F1dM(MM Tmg 192 166 1S2 191 163 113 163 la 163 163 163 PMOW_Mlw* Is 54 35 35 3 35 35 35 35 33 35

F TW&M.Tam) 913 850 573 1.080 814 14 814 814 814 814 814 PuarntT M.) 1.104 712 S 44 544 $44 44 544 44 544 S44

*bik,emWmN_11Eh_ 94- AXA 6

SoutheemRailway (FCS) IUcomeStatement 1990-2000

Actuld RBt. Forecast 1990 199a urn o -nt99< 1995 teu tm tn Irn 2003

OPERATWOREVENG 29.44 27,M I8 13.097 120754 14262 14.709 14.79 W7 14.739 1479 Fa'oi#A 19,943 20,5 1133 10* 10 10.4 10.64 I0 106 1o06 20.664 uw_ 4,M 5.0 3.70 2149 Z09 3,706 3.7 3,0 7M 37 3,7 o0h 4,738 468 1,23 0 0 0 0 0 0 0 0 GuCoA aauli_ m a 0 0 0 0 492 429 42 429 429 429 U1amS6 nm

OPRAMThO PENSU 20.763 31,S61 20.580 19,218 17.298 15.088 14,932 IS.716 1S825 16,054 163"6 P.u t 13,273 19,783 1167 10,850 9.08S5 6,333 5.480 5,753 6.039 6,340 6.656 Satiu 9.012 14,824 8,776 8539 7,148 4.978 4.301 4.520 4.746 4,983 5.233 Pw &NI U4 2335 1,309 1,02 858 $97 517 42 570 598 628 paA! i_ldedTam 2.419 1.34 851 555 465 324 280 294 308 324 340 SrevmooPAYuMM 7U1 1,2X6 731 712 596 41 3S9 377 396 415 436 othw 2t 34 19 19 19 19 19 19 19 19 19 sp"&Mdh 4,102 U,227 4.8t6 490 4,315 4,817 4,817 5,304 S,141 S,075 .01" h &Ludod e 2955 3.3tO 3.267 2,841 2.766 3.267 3.267 3.104 2,941 2,875 2875 6tokhk 21.147 1.857 14 15 ,5 1.49 1,549 2,200 2.200 2.2 20 Adhtails 286 93 47 47 47 47 47 47 47 47 47 Dap a 1,877 5.116 2.714 2714 2.74 1,878 2,931 3.013 3,013 3.007 3,003 CosUashIaSWIM 12 1,583 1,316 1,217 1,137 2,013 1,658 1,599 1.585 1,585 1,585

NOp.aU Imui 867 (420) (4.715) (6,1)( (4,) (227 (133) (an6) (a0 (,5 (1,67)

WOIkl.gUatI. 64% 97% 113% 126% 114% 89%- 81% 86% 87% 88% 90% 71% 116% 130% 147% 136% 102% 101% 106% 107% 108% 111%

i _e1av~~ 0 0 0 0 2,140 18,190 1,070 0 0 0 0 w paya&sbwtuv0 0 0 0 1,8 £1,730 690 0 0 0 0 RolllagItusk 0 0 0 0 760 6.460 380 0 0 0 0

ANwWNAqflAVa4 2514 2456 2,242 2,182 1,739 1,154 950 950 950 950 90

VFinisTiL tm 302 270 232 238 232 232 232 252 252 22 252 PswaoarLw) 28 14 126 73 71 126 126 126 126 16

Fml8Iith Tom) 720 as 54 496 55 45 S45 545 545 45 s4 P4 u- wCIhCu) 1,194 910 52 319 562 562 562 562 562 562 562 o1wuabj.ed E -95- AN

South-Eastem Railway(FCSO) .acome Statement 99-2000

*Aetual Lit. 3Fore 1990 1991 199 1993 *99 1995 1996 199 1998 1s99 20o

OPERA71NOREVENU 421 428 3,473 37 3,430 3,430 3,4 3,430 34 3,430 3,40 Fu*t 341 383 2S8 280 30 280 280 280 20 280 2 P_en 3,8 3,834 3.167 3,607 3,110 3,150 3,150 3.130 3,150 3,150 3.150 Oa= 3 I 17 0 0 0 0 0 0 0 0 aOVCouiyasaliour 0 0 0 0 0 0 0 0 0 0 0 U*rftb.Ser'Ao

OPERATINOEl ENSES 3,297 7,244 4,630 4.905 3.833 2,954 3,289 3.481 3,519 3,582 3,60 P.omnmd: 3,647 4,561 2,946 2,188 2.074 1636 1430 1,497 1568 t.643 ,721 Salaies 2,421 3,430 2.195 2.1335 572 1,014 1,0S4 1118 ;174 1232 1,294 Prns& He"ath 218 441 462 256 189 122 128 134 141 148 155 PnOnneurblatedTxe* 780 264 26 139 102 66 69 73 76 80 84 S.ver3ePayu2mou 202 286 183 178 131 84 89 3 98 103 108 Qiher 26 140 80 80 80 80 80 80 80 to0 S0 S&pliqe*& l64his 651 773 57 650 573 m 573 742 714 702 702 Fuad&Lbricabn 505 461 575 648 571 571 571 $42 514 50222 mateids 146 312 2 2 2 2 2 200 200 200 200 AdzniaUdaa 6 3 13 13 13 13 13 13 13 13 13 Depresiati 594 1,541 864 1;289 972 584 919 938 938 938 938 Coatacta Sebvices 399 335 231 165 223 419 354 290 286 2?6 286

NdeOpen*augIa@na (1.09 (3006) (1,158) (1.017) (425) 476 141 (51) (89) (152) (230)

RATIOS WoddkgRahi 112% 133% 108% 93% 84% 69% 69% 74% 75% 77% 79% Opeaig Raio 126% 171% 133% 126% 112% 86% 96%A 101% 103% 104% 107%

NawIvmfi.n1nc 0 0 0 0 510 4.270 250 0 0 0 0 Ways& Stuctomw 0 0 0 0 330 2,740 160 0 0 0 0 WingSotock 0 0 0 0 180 1,530 90 0 0 0 0

AvwrogeN& ofba*phyms 799 726 697 678 476 292 292 292 292 292 292

FrhightMiLTm ) 4 4 5 5 S 5 5 5 5 5 5 Paueqe(MILPXi) 98 72 61 69 60 60 60 60 60 t0 60

FFdght(flmLTOMu) 36 32 36 36 36 36 36 36 36 36 36 PaasatprCfloL) 82 647 574 650 574 574 574 574 574 574 574 W ANNA 7

PERU - TransportRebabliltafon Project BEHABZRON OF LIMA AIMRPIT RUNWAY

SU]MMARY

1. The airsie pavementsof Jorge ChavezInternational Aitport in Lima are in urgentneed of rehabilitationto ensurethe safeand unobstructedcontinuation of aircraftoperations. Pardcular attention must be paid to the 3,507 meter long runvay, althoughthe taxiwaysand apronsalso requiremajor remedialworks. 2. Mhepavements were built around 1960, and their design was thus based on aircraft loads anticipatedat that time. The rehabilitationworks wil allowfor a structuralupgrading of the pavement sectionto sadsfythe projected20 yearlifetime of the newpavements, based on establishedparameters. Engineerscontrcted by the IntemationalCivil Aviation Organization (ICAO) prepared the final design for this projectcomponent which includes the following: a. Rehabilitaionof runway15-33, Indluding exits B, C, D andE and new airfieldlighting system(ALS Cat. D1):US$11.65 million. b. Rehabilitationof the paralleltaxiway: US$10.1million C. Constructionspervision:US$2.5 million.

3. Tie tota constructionworks will be carried out by a gener contractorwith adequate trnaal exper,Iencein similarworks. The estimatedduration of the overal constuctioncontract is 15 month. Duig the 6 monthsneeded for the runwayrehabilitation itself, all aircraftoperations will have to be cancelledfor about 8 hours everynight.

4. Supervisionof the constructionwill be performedby a qualifiedconsulting firm with international eperience in the constructionand rebabilitationof airportrunways. Both the consultantand the general contractorshall closely coordinate all aspectsof the runwayrehabilitation works with the airportauthority CORPAC,in orderto facDitateaircraft operations and other ongoingaiport operationswithout undue restrictions. S. MTCCintends to prequalifygeneral contractors while the tenderdocuments are beingprepared, therebyreducing the timespanbetween submsion of tenderdocuments and signingof the construction contract

PROJECTDESCIPTION

6. Ihe scopeof the dvil works assodated with the runway includesthe following:

- Conveningpreconstruction conferences, drawing up a detailedplan of operations, approvingwork pracdtes and asphalt mbiture(s),arranging security measures and assemblingequipment. 97- A

Preparingjoints and cracksin existing onc pavementprior to overaying,inaluding removingasphalt layer whichhad bee placedon aboutone thirdof runway. Construcdngasphalt concrete overlay of 220mmnomina thickness on 45mwide runway, in lifts of maximum100mm. The fina courseshall be maximunmSOmm thiclk Placingfiber-glass reinforcement grid on fim asphaltlayer. Providingat the endof eachwork period tmprary visualads, i.e. marn andlights, constuctinga taition ramp, cleaningup work area and removingequipment outside air movementareas. Reconstructing7.5m widepaved shoulders and wideningwhere needed. Constructngrunway end safetyareas, including90m long paved blastpads. Reconstructingrunway strip to conformwith ICAOAnnex 14 standardsfor precision approachrunway Category L Constructingasphalt concrete overlay on connectorsB, C, D and E and on holding aprons 15 and 33 up to 75m from runway centerline,which includesprovisional transitionramps with eaxstg concretepavement. Installingnew and modifying exisdng undergrund provisions for airfieldlihting (APL) facilites,viz. ducting,bases. Applyingreflective white runway pavement marking. 7. Thescope of the airfield lightingworks includesthe following: Dismandingexistng centerand edgelights and cleaning.

Installingnew AFL cables,SOOOV, including trenching and backfilling, thereby possibly udlizingavailable cables in CORPACstore. Placingavailable light fixatreson nmwayedge, centerlineand dweshold/endbases.

Modifyingapproach lighting system on runway15. Replacingvisua approachsystem (VASIS) on runway 15 by avble new precision approachpart indicator(PAPI) units. Adjustingexisig PANIand runway end indicatorlight system (REILS) on runway33. Modifyingexisting or providingnew AFLmimic panel. -98- ANN?I

- Miscellanouswork In AFLequipment buiding, Incuding replacing existg const curt regulatrs(CCR) by newavaiable CCRs, cabling etc. All quipmentto Isal In buildingat new location.

- lghlWttsftg and S. Iho scopeof thewwr modatedwith the txiwa Indes thefoln.

- Contrcting PortlandCemen Concree ovelay, width 22.5m, desig thicmnss350mm, on paralleltaxway A fromapron to holdingapr 15 ad on parlde tauiwayF from apronto holdingaprm 33.

- Priorto concrteoverlay, prparn edsdag concretesurface and laying a bituminous levelingcourse of 50 mm. = Rooonsthuctingd axiway asphalt souders (10.75wide) and reworking tdway strip. Rdocatg axiay edgelights and om stem of taxiw lhtng.

Applyingyellow tdway marng.

PAVEM ENGINENG CONCEP 9. -heenghiners conacted by ICAOdedeope te followingpavement design concept for runway 15 -33. (a) Applya minimumasphalt ovelay of 220 m nomnalthicness on t existingrunway concretpavomL h proposdpavement mode is:

- Asphaltconcrete overay 220mm - Existdngconcrete sb 300m - Granularbse CBR80% 300m - Onsubgade CMBR12% Ob) In orderto reducethe likelihoodof reflecdtoncracks, the joints and cracks (wider than 6 mm)shall be properly teted anda fiber-glss nr grid all be placedon thefirst asphalt layer. (c) Designa 'kewditypical secdon, thereby reducing the asphaltoverlay thickness on the eastn outebae, to minimum130mm at the edge. (d) lhe tender documentsmay give the opto to consderthe alternaivemethod of rehabilitatingthe nmwayby constuctingan asphalt oveday of 230mm on poundedand seaed concreteslabs. 1| X 6 i7i § I: g I01*,,i 051i' f ti -100- ANNEX7

APPROXIMATECOST ESTIMATE FOR CONSTRUCTIONAND SU N 12. The cost esmates presentedbelow are basedon fina tecbnicaldesigns and estimatesof constructionquanites:

1. Upgaf R-M 1s0

1.1 Aqphakov3rly of nom 22.0mm, ieL LAt minforenl 6,30,000

12 ko ueain sholdfen (7.5 m) ad bbltd (60 x 90 tn) 1,050,000

1.3 Reprofihn ovos and sarip 150,000

1.4 Ahlt ovea of 2noina20 mm an co_ns B, C, D and E, incWing fabric 1,600,000

1.5 Aplt ovay of naudi 220 mm on holdingapin 15 and 33, inluin abic 1,100,000

1.6 Madp aonpamama 250,000

1.7 Airfild rUghda woalam,60X:iob I,W," - CATB rsyii on inway, CORPACqipment to AFLtaways mdn- q t ;stmU Modg Wimd -

1.8 CfHlwow A PedtoL 200.040

RofRmtWon of Runway: USS11,650,COo

2 Upgadifg TAways A ad F

2.1 Asalt lv1ling coum 850,00

2.2 Potlnd CWmn ooMn PAA Of350 mm thichs 7,150,000

2.3 R1 motins hOwdr (10.75m) 2.100

TOt Cantruedon Works: US$21,750,000

3. Svpwrvlom of Comtu0n Wors USS2

TOTAI; US24,250,000 -101- ANNE 7

PREQUALIFICATIONOF CONSTRUCTIONFlu 13. UisIgthe Banks adardprquallficatlon doments for cvil workscontators, thefollowing guidel will be observedfor preselectingt _nderfor the nway rehablation projec at Lima tatdonal Airport:

(a) 'he GeneralContor (O.C.)shl havee eric withconstruction works on opational

(b) The assignedproject manager all assumefAll responsibit for the consotcton works, thareby closelycoordinating all aspectsof the projectwith the responsiblenoginer assignedby the AirportAudiority of MTCC.G.C.'s constructionmange shal havea mimum of 15 years exeience in similarprojects. (c) Therunway rehabilitation wok shallbe executed during off-peakt dmes, i.e., thenihtme hours between10:00 PM and6:00 AM wherebyIn prinple a minimumof eighthours wil be avalablefor construction works to therunway. The G.C. shl takeinto account thA emergency 8situato may occur, resuling In reduced work periods. (I) Hot/mixaphalt concreteshall be usd for the recntructin of the runwa pavement The capacityof theprime asphalt plant sbhl be minImm225 tons per hour,and of thesecond plnt minimum75 tonsper hour. Bothasphalt plant shallproduce simulneously an asphlt mixture Ofsimnar dedgm in orderto ensurea unftm andregular supply to thefinishing equipmet on the ruway. The hauing trucks hal hve tble cover to protec the mix from advers weather.Two bitm pay, hav dut typ, wih minimumS.Om paing widthshall be provided.Eah pavershall be equippedwith automatic grde contol. FourroUers, steel and pneIc tdred type,dshll be prvided for the compactionof the asphaltlayers. The overdll weightof oneof thepneumatic tired wllers sall be at least25 tons. !he estimatedquantity of ssphaltconcrete required for thenmway is about40,000 cubic meters. (e) The G.C.shill at all timesad to the operationdasafety procedures requiked to ensuresafety and securityduring the off-peakconstrucdonL The followingmain topics shoud be emphasized in this resect: a Safetymeetings shal be held and a safet planwill be prepared. b. Cleadymarked truck bhl rtes shal be located.

C. Obstructionlighting and barricadesshall be placed. d. Stagingarea wil be assignedfor eoquipmentand mateials. 0. Constuctionequipment shall be parded outside the air movementareas (I00m away from rwnw edges)durig aircraftopatin. (t) At theend of eachwork period, the G.C. shall construct a (dowslope) transition ramp over the fAll45.Om width, apply tmporay pavementmaring, provido portable lighting and clean up the Wok area. -102- 7

(g) In general,the G.C. mustconsider those factorsand sball followthose procedures which are neededto ensure qualitycostuction, while mdntning a safe operatingenvironment. In addition,excessive aircraft delays shall be avoidedand arcraft operationswill have priority over onstructiono ons. (h) lhe O.C. shallfunih satisfactoryevidence of his/hercompetence to perforn the proposedwork. Such evidenceshall consistof stements coveringpast experienceon similarwork, financial responsibilityand of lists of equipmentand key personnelavailable for the project. (i) The periodfor executingthe works Is 15 months. Upon completion,a warranty/maintenance periodof one year is applicable.

MAINTEANCE CONSIDERATIONS 14. In opeatingand maintang theaiport pavements,the managersand the maintenancedepartment a continuallyfaced withproblems involving pavement distress and deterioration.The deterioration proces is mainlycaused by the weatheringeffect and the actionof aircrafttraffic and actuallybegins immediatelyupon completion of the reconstructionworks to runwayand taxiway. Normaldistresses in the pavementstrucue result from suface weathering,fatigue effects, differenti movementin the underlyingbases over several years and, in addition,from poor constructiontechniques and the use of substndardmaterials. A comprehensivemaintenance program should be developedto definea systematic roah to bothpreventive and remedialmaintenance works. 15. A study will be conductedunder the projectto developsuch a programand to strengthen CORPAC'scapacity to undertakemaintenance at Limaairport. The mainoutput of this studywill be an actionplan to be completedby the MediumTerm Review of the project,that will be followedby CORPACto ensureproper methodsand fundingallocations for maintenanceat Limaairport.

CONdMUCIION SUPEVISON

16. The basic servicesrendered for the supervisionof the constructionworks will includethe followingactivites: Providingconsultation and adviceto the Authority(TCvC and CORPAC)during the constructionworks.

- Coordinatingsheite alotls and safety measures. Reresg the Authorityat pre-constructdonconferences.

Supevisingthe ongoingworks and providing progress reports. Reviewingand approvingshop drawings and material/equipmentproposals submitted by the GeneralContracor, for compliancewith the designand specifications. Reviewing,analyzing and approvinglaboraoy and field test reportsof proposedor constructedmaterals. -103- AN=E 7

Preparingand negotlatingchange orders and other agreements.

- Reviewingand approvingthe interimpayment certiflcates and submittingthe statements to the payingAuthority.

- Conductingfinal inspections and submittingreports on outstandingor remedialworks to the Authority.

- Reviewingand approvingAs-Built drawings and submittingthem to the Authority.

- Finalizingconstruction contract and participatingin the handoverprocedures.

17. In viewof the natureof this delicateproject, construction supervision will be carriedout by - qualifiedand internationallyexperienced consuting firm. The terms of referencefor construction supervisionwill specitf whichof the followingprovisions are on the accountof the supevisionconsultant and whichones shallbe furnishedby the generalcontractor: a. Fieldlaboraory, survey and test equipment. b. Fieldoffice, including furniture and equipment. C. Officeand fieldservices. d. Transportation. e. Housingfacilities.

It is probablethat the GeneralContractor will be responsiblefor providingitems a, b and c. This will have to be specifiedin the tenderdocuments for the constructionworks. The supervisingconsultant wouldthen includein his offer the costsfor itemsd and e. The consultants'supervisory team should Includefive technical specialists (Senior Resident Engineer, civil engineer, material engineer, electrical engineer,and quantitysurveyor) and supportstaff. -104- NE

PERU - napor Rehab}litatonPrtject pIU)TPROICTFOR IN-aOlZDTANPRLE^

Badound. 1. TheMunicipality of Mopolitan Lima(MLM) has defineda plan for th increaseduse of the bicycleas an alternativetraUsport mode, especily for worktrips. T planfor promotigthe use of bicycleswa announccedin August1990 by Decree 159. During-th elaborationof the plan (1991- 1992) by the Metropoln Planing Institute stituto Metropolitanode Panlficacln - IMP), planningareas wre identifiedand analyzedfor suitabilityin prmoting the bicycle. Tbis plan, Plan intega de transporteveular no motorizadoy construccin de cIclovas*provides the bads for the constructionof cycle-ways.Withi this context,the non-motorizedtansport componentof this projectprepares the groundfor expaningthe use of an environmentallyfriendly and affordable transportmode in a pilotarea of Lima. 2. Public transportservice to the low-incomearea is iregular, has insufficientcapacity or is non-existing,especially to new settlementsof the poorest. Furthermore,low incomegroups spend a ubstntl part of their income on transport, while the economiccrisis results in an increasing numberof peopleliving in extremepoverty.

3. The populationof Metre: !itanLima grew from 3.2 millionin 1972to 6.5 millionin 1993. More than 50 percentof the populationhas a low (US$208)or very low (US$80)income. These inome groups spend an averageof 12 pecent of their incomefor transport,but for some of the poorest this is estimatedto exceed25 percen The montly incomesat the householdlevel are shownin Table 8-1below:

Table 8-1: MONTHLYHOUSEOLD NCOM IN LIMA

.Sbst Eoushod Distdbutio. Avmp Moty boomoin USS Veay igh I 1.98% 3,000 1gb a 2.63% 1,3 Modim m 33.31% 676 LOwI 26.71% 283 V.y low V 2S.34% s0

id. Prant 1989

4. All urban transport in Lima is by road. Irffic congestion,with resultantdelays for passeners and goods, and excessiveful use contributingto poor air qualityare common. Accident rateware alsohigh. Recen accidentanalyses have indicated tha about70 percentof fatalaccidents involvevehicle-pedestrian incidents. Ihe main causeof this problemis mi ement and inefficientuse of roadspace, including poor signing and channelization, and uncoordinated and often -105- ANN13X8

non-functioningtraffic signals. The provisionfor non-vehiculartraffic In Lima is poor, bicycles, other perambulatorvehicles for trade, pedestriansall contributeto the confusionand congestionin road use. 5. Publictransport in Lima often does not cover the outlyingareas where low-incomegroups live. The increasingtransport demand of these people is characterizedby their inabilityto afford privatetransport means. They dependon inadequatepublic transport services which, because of the long trip lengts involved,often cause a financialburden for regular commu ..

6. Ihe antiquatedbus fleet is being replacedby relativelynew (3-S years), privatelyowned microbuses.Despite fierce competition, high operating and maintenancecosts resultin relativelyhigh f3res. Affordabilityfor the poor is worsenedby a tariff structurewhich requires an extra paymentfor a transferbetween buses. The growingdemand for cheaptransport in the oudyingareas cannotbe met and existingpublic transport services are limitedand unreliable.Expenditures on publictransport (US$ 15-30monthly) compared to an averagemonthly income of less than US$280for half of the populationdemonstrate the urgentneed for alternativesolutions. 7. ThhIpopulation is young: 63 percentare youngerthan 30 years, and 40 percentare between 10-29years old, with an increasingdemand for transportation.Most of this demandis in the outlying mrea of the metropolitanregion, made up of low-incomedistricts such as San Juan de Lurigmcho, Comas, Independencia,San Martfn de Porres, Callao, Villa Marfa del Triunfo, San Juan de Mira-loresand Villa el Salvador. A surveyconducted as part of projectpreparation 1 showedthat 88 percentof the youngworkers would be willingto use the bicyclefor work trips. At present,only 2 percentof (all) workerstravel by bicycleto theirjob. 8. Lima's transportpattern is stronglyinfluenced by a 'motor culture' of cars and buses. Bus and car drivers exert an aggressivebehavior over pedestriansand the occasionalcyclists. Recent tauport statisticssimply ignore non-motorized vehicles. The vehiclefleet in 1989consisted of about 500,000automobiles and 10,000buses, microbusesand taxis. It is clear that an increaseduse of motrized transportwill presentthe municipalitynot onlywith a growingdemand for expensiveroad infrastructureaso with environmentalproblems. A strategicpolicy to encouragebicycle use may be an importantpart of the futuresolution. However,two majorfactors constrain the use of bicyclesat present: (a) The highprice of bicycles(ranging from US$160 to US$300)and no accessto credit for the poor to purchasebicycles; and (b) the absenceof safe bicycleways.

9. MLM inroduced a programof cyclingpromotion trough the MetropolitanInvestment Fund (WNVME1). This programextends up to the year 2010 and includes(i) constructionof bicycle ways; (i1) provisionof low cost credit for the purchaseof bicycles; (iii) provisionof low cost bicycles;and Civ)education and public relations campaigns. The most importantmedium-term objectiveof this plan is to reacha 10 percentshare for bicyclesin daily trip distributionby 1999,to achievea morebalanced and sustainabledevelopment of urbantransport.

1 3ESetade opbn a empleadorsy trabajadoressobr traponhe nomorWao (opinionsurvey of employersand workerson non-motorizedasWot), preparedby CuSntoS.A., Lima,July 1993 -106- ANNEXK

Componet Description.

10. In support of the MLM policy to provide a well-balancedtransport rystem,the project includesthe constructionof about51 kn of dedicatedbicycle ways, and the reconditioningof existing seri roads to create 35 km of bicycle lanes. The paths will connectlow- and middle-income residentWalareas to an industrialzone and will (i) complementthe existng u trbasportsystem with a cheap,energy efficient transport mode and (i) increaseaccessibility to low-incomeresidential areas. It estdmatedthat personal travel cost by bicycleare less than halfthose of bus travel. Beneficiaries are thus primarilythe poor who cannotafford the relativelyhigh bus fares. It is unikely, however, that bus travel will decrease,given the continuingpopulation growth of GreaterLima. Ihe project also includesprovision of creditsto purchaselow-cost bicycles, provision of parkingfacilities, and educationaland promotionalcampaigns. 11. Map1BRD 25105 shows the pilot area whichincludes an industrialarea with8,984 employers (includingmicro-enterprises) and about70,000 employees. Of these, 72 percentare goingto workby bus or mini-bus,4 percentby car, 2 percentby bicycle, and 22 percentwalk. The workersare mosty residingin CaUlao(17 percent),Lima-center (16 percent)and Brefla(12 percent). The origin- destiation data indicatethat the proposednetwork of bicycle ways would offer, at least for a substantialpordon of the commutingtrip, a convenientand relativelysafe alternativeto over 70 pecent of the workersin the pilot area.

Mm Pilot Network. 12. The pilot networkof bicycleways extendsover 45 km of main road, along the following arteras: (a) AvenidaColonial (east-west in the industrWzone); (b) AvenidaUniversitaria (north-south and connectingresidential areas withthe industrial zone); (c) AvenidaTupac Amaru; and (d) AvenidaTomis Valle which connects the two precedingavenues.

13. Total costs of the bicycleways are estimatedat US$2.6million, includingconstruction, 5 percentfor final design and 2 percentfor supervision. Althoughthe designerswere chargedwith mimizing costs,safety for eyclistsis one of the main designcriteria. The alignmentof the bicycle ways followsexisting corridors and, as far as possible,existing paved serviceroads. At junctions, standardcrossing details will be adopted,so that cyclistsand motoristswill becomefamiliar with them. The bridge over the Rimac river will need wideningto assure safety for bicycles. This wideningwill requirecoordinated action of ISW, INVERMETand MLMto solvethe resettlementof aboutfour affectedifrmal micro-enterprises.

Proisdon ot Low-CostCredit.

14. Ihe prvision of low-costcredit for the purchaseof bicyclesis a highpriority to ensurethat low-incomegroups have accessto affordablemobility. Over time, effectivemechanisms have been -107- ANEj

devdopedfor providingfiancial sevices of tfis type. Resultsof the socio-onomic sunreyshow that 67 percentof the men and 57 perct of the women iewed wouldwant to trvel by bicycle if they possessedone. Morethan 80 percentof the mediumand large enterprisesin the surveyarea, represeningabout 50,000 workers,would support such a credit systemand are willingto consider salarydeduction schemes to facilitatecredit repayment. 15. The proposedloan will providecredit facilitiesup to US$600,000through a revolvingfund. The creditswill be for 12 monthsand for a maximumamount of US$91which enablesprovision of approximately17,800 credits during the first 24 monthsof the credit scheme. The principal objectivesof the creditscheme are to:

(a) enablethe poor to purchasea bicycle,thus increasingtheir mobilityand reducingtheir transportcosts; and (b) mutroducepopular, low-cost bicycles through credit conditions(maxinum bicycle price of US$100including tax) whichwill createdemand in this marketsegment.

16. The success of the credit scheme will dependon the effectivenessof all stakeholdersin competentlyand successflly handlingtheir roles. The Caja Municipalde CreditoPopular de Lima (CMCPL)will be the custodianof the credit funds. It will periodicallysubmit reimbursement requesu for subloanssatisfying the requirementsof the CMCPLDirective (see para 19 below). Credit applicationswill be processedthrough local CMCPLagencies and by using approvedNon- GovemmentalOrganizations (NGOs) and medium-sizedand large enterprisesas intemediaries. 17. Throughmemoranda of understding withCMCPL, enterprises in the Llma-Callaoindustrial area can participatein the credit schemes,thereby supporting bicycle purchase by their employees, with intrest and loan repaymentsbeing effectedthrough monthly wage deductions.The critria for eligibilitywfll include(i) registrationas a corporate entity, (ii) location in the pilo4area, (Wii)fmancial credibility,and (iv) managerialcapability. 18. WhilePeru has one of the largest numbersof NGOsanywhere in the world, most of them seem to lack the instutional capacityand flnancialexpertise to implementcredit schemes. A nationallyoperating NGO will be invitedto paricipateas an observerin the credit schemewith the objectiveof training an organizationfor eventualreplication of this concepton a broader scale. Based on a memorandumof uanding, CMCPLcould provide training in bookkeepingand projectadmiistraton the selectedNGO. Eligility criteriafor the NGOto be selectedwill be: (a) NationalCharacter: registration of NGO as a corporateentity, office or representationin the pilot area, intefactionof NOO with other associations,degree of communityrecognition. (b) Experience:track record in similar undertakings,previous dealings withdonors, experience in dealingwith financial institons.

(c) FinancialCredibility: record with financial insttions. (d) ManagerialCapability: ability to develop effective plans and to implementmonitoring and evaluationsystms supportingthe program, abilityto selectpotential beneficiaries. -108- ANEX 8

19. As a conditionof disbursementsfor bicycles under subloans, CMCPL Is preparingan OperationalDirective for CMCPLstaff and a ContractModel, both to be acceptableto the Bank, whichwill includethe followingelements: (a) creditbeneficiary obligations - iforOmationon beneficiariespersonal data - at purchase,information on creditsubject (bicycle) - during credit period, relevant informationon credit subject mutations(e.g. bicycletheft).

(b) creditevaluation - collateraldefinidon - definitionof commissioncosts, insurance costs and interestrates - coordinationwith intermediaries (employers, NMOs). (c) creditrecovery - timeschedule of repayments - termsof repayment. (d) operationalcharacteristics - places to apply for credits - places to repay credits.

20. CMCPL will prepare and submit quarterly progress reports to MLM and the Project CoordinationUnit. These reports will include data regarding (D)number of credits to formal employees,(ii) mnmberof creditsto the informalsector, (iii) total amountof outstandingcredits, and (iv) statusof creditrecovery, both for the formaland informalsector.

Availabilityof Biycles. 21. The success of the pilot projectwill dependconsiderably on the availabilityof Inexpensive bicycles. Peru has an existingbicycle import and assemblyindustry and bicyclespare parts are readilyavailable from well stockedshops. At this moment,however, minimum market prices are relativelyhigh and vary from US$160to US$200. Experienceelsewhere shows that low-end,durable bicyclesshould be availablefor less than US$100. The project's credit programwill enable low- incomeresidents to purchasea bicycleof their own choice in the low-pricerange up to US$100 (includingvalue added tax). Direct importof bicyclesby MLMwas consideredbut this wouldhave limitedthe buyers' choiceand complicatedwarranty and reparationunnecessarily.

Educationand PromotionCampaign. 22. The promotionand educationregarding bicycle use will be targetedat communitycenters, schools and factories situated within the pilot area. The promotionalprogram will include informationon the availabilityof bicyclecredits, and on how to apply. Audio-visualtechniques, pamphlets,and handoutswill be primarilyemployed. MLMwill developterms of referencefor this campaignwhich will be subjectto Bankapproval. Repordugand Monltring. 23. 'he implementationof physicalimprve, the credit systemand the ptomotiond ca g wJIIflow a numberof benchmwkdates. Monitoringconsultants will be enaed to collect and aalwy the data on a systematicbasis. MLMwill prpare quaterly progressreports to provide infoDaIon on project implemenion, biglightng issues and problem areas and recommendingactin. Spedfic monitoringindicators wfll be (D)progress of bicycle way cnstructin, (u) povisionof credits,(iii) etmates of the expectedincase of usageof cycle ues, (Iv) Identification,in the pilotarea, of the overallincrease of the use of the bicycleas a modeof transportfor low-incomegroups, and (v) descripfionof taffic behaviorand road safety on the bicycle routes. Ihe monioringvalues, which are to be defnedby mid-1994,will cotiute an important bput ino thedevelopmet of an itegratedBicycle Network Plan, mentioned in Annex9. -110- ANN C9

PERU- Trasport Rehabilitation Project TE CAL ASSISrANCE

I. POLICY ISSUESAND COMPONENT OBJECTIVE

1. Poicy mles: The most importan policy issuesemerging from the study of the transport sectorin Peru are: (a) the past neglectof maintenacewhich has led to deterioratedtransport networks and decliningquality of transportservices; (b) the distortionsin modalchoice as a result of improper chargingfor transportusage (mcludingoverloading on roads) and high opeatg costs of transport servicesprovided by publicsector agencies; (c) the weaknessof whatremains of publicsector agencies In charge of transport infrastructureand services and their ability to manage investmentand maintenanceprograms; and (d) environmentaland safety related issues resulting from lack of eaforcement(e.g., the high rate of accidentson Peruvianroads comparedto other Latin American coutries).

2. In addition,past Bankexperience in the transportsector In Peru bas Indicatedchronic problems In the inmlementationand supervisionof projects. Amongthe reasonscited are the lack of capacity withinthe publicsector agencies responsible for ransportwhich have been furtherweakened following recentrestructuring. 3. Finally,the mechanismsfor finance,management, and administrationof infrastructurein Peru are currentlybeing revisedfollowing broad-based macroeconomic reforms. Me future structre of caying out infrastructureprovision is thereforeuncerta 4. TheTransport Rehabilitation Project includes a set of studiesand technicalassistance aimed at addressingthese issues.

5. bwetives The mainobjectives of the projectare to rehabilitateexisting infrastructure, assist Governmentin implementinginstitutional reforms, and lay the ground work for fiutureprojects. Withinthis contexta programof studiesand othertechnical assistance was identified, which falis under three main categories:(i) policystudies on highwaymanagement and the functioningof MTCC;(ii) studiesfor preparingfuture investments; and (iii) advisoryservices to the agenciesresponsible for the highway,railway, and non-motorizedtransport components and for the projectmanagement.

IL POLICY STJDIES RELATEDTO IGHIWAYSAND MTCC 6. Two main themeswere identifiedfor policy assistance,namely: (i) improvementsto road administrationand finance;and (ii) organizationalreform of MICC. With regardto the former,the projectwill supporta studyand/or other technical assistance which will be definedupon completionof a road policystudy to be carriedout withfinding from the ongoingHighway Repair and Maintenance Project (IDB). With regard to the latter, a study wiUlbe conductedunder this projectto address MTCC'sorganizational needs. -111- ANEX9

7. Road Administaion and Finance: Tnis technical assistancewould examinealternaive mechanismsfor managingroads in Peru within the contextof privatizationand decentralization. Amongthe alternativesconsidered would be: (i) semi-autonomousunits for contractingand supervising the privatesector in carryingout road works;and (ii) decentralizedunits managedby MTCCwithin the departmentalunits to be formedfollowing decentralization. With regardto road finance,there are manyoptions to chargefor roadusage includingfuel taxes, registrationfees, and tolls. The systemof oad carges as presentlymanaged does not assurethe proper recoveryof marginalcosts from each modeand leads to distortionsin modalchoice. Excessivetolls on unpavedroads and in locationswith no alternativeroutes lead to high operatingcosts for long-haultrucking while overloadingin some tnsport corridorsleads to prematuredeterioration of the road network. The technicalassistance wouldassess the best mechanismsfor chargingfor road usagein a manneathat will allowrecovery of at least margina costswhile keeping overall transport costs at reasonablelevels. 8. =runiao Reforn of MTCC he scope of this work will includean assessmentof the adminitatve set-upand capacitiesof MTCCand will also take accountof the rolesof other transport sectorinstitutions. In the light of the recentgovernment reforms, the studywill developa strategyto reorane and strengthenthe Ministry. 9. 11B Studies: The technicalassistance included in this projectwould complementthe four studie whichare plannedunder the ongoingIDB loan for a HighwayRepair and MaintenanceProject. Thesestdies will examine: (i) policy,technology, financing and responsibilitiesfor the variousroad neworks, (ii) regulations,charges, and controllingmechanisms for axle weights;(iii) strengtheningof institutions responsiblefor road administration;and (iv) environmentalaspects of highway management.Special aetion willbe givento coordinatngthe two programswhen the studyterms of referenceare finalizedand consultantsengaged. MII.PlARATION OF FUTUREINVESTNENTS 10. Technicalassistamce to MTCC for conductingthematic and detailedroad design studieshas been descrbed in Aex 4. In addition,the project containsa provisionfor other studiesin the transportsector to Identifypriorities and preparefinal designs. Thereis a specificneed to identifyand priortize airportrehabilitation works. The preparationof designsfor the airportsidentified could be financedunder this component.Studies for varioustransport investments, including national highways, secondaryroads, and airports,are foreseenwith funding from a Japanesegrant for the preparaticnof a secondtansport rehabilitationproject.

IV. ADVISORYSERVICES 11. InstitutionalStrenhtening for MTCC: A main governmentobjective is the integrationof rural communitiesand pacification. This impliesextensive efforts in the provisionof rural roads as wellas the maienamce of existng road, railway,river port, and aviationaccess to rural communities and agricultura ares. Advisoryservices will be providedto MTCC to assist in the plaaningand managementof trsport investmentsand sector policy to achievethis as well as other transport objectivessuch as enhancingtransport reliability in concentratedexport corridors. The projectwill providefor five advisorsin variousaspects of roadmanagement and maintenanceplanning, an advisor In cii aviaion, an enviroental specialist,and an advisor in ports and water transportation. Toehicad support is planned to strengthen the National Road Laboratory, with the objective of restoringits capacityto performits mandatedresponsibilities. -t112- ANN X

12. TechnicalAssistance to ENAFER:The structureand importanceof technical sistanceto the railways,given the transitionfrom stateto privateownership, takes on addedsignificance. Four man activitieshave been identifiedfor support: (X)restrucuring and privatization;(i) costing; (iii) workshopand maintenancepractices; and (iv) marketing. 13. Restructuring and Privatization: In additionto the assistancefunded in paralle under the PrivatizationTechnical Assistance Project, Loan 3540-PE,approved in December1992, some sup willbe providedto ENAFERand CEPRI-ENAFERto preparethe data andanalysis necessary to assess altenativesfor privatizationand its consequences.This includes:(i) the developmentof a strategic plan for ENAFERwhich would define the businessand givedirection to the enterprise;(ii) supportin developingand monitoringan actionplan for ENAFER;-(iii) assistance with respectto publicservice obligationsand the issuesrelated to uneconomiclines; and (iv) preparationof economicreviews of ralway performanceby line, commodity,ard servicetype.

14. Costingof the varioustypes of cargothat the railwaycarries is a key inputto the restructuring process. Technicalassistance will be providedto aid ENAFERstaff in developingand Implementinga computerizedvariable costing system which can be used to a2sist in commercializatonand privaizationdecisions. Thesedecisions include analyzing the impactsof changesin opeating and maintenace procedures,profitability analyses of current and potendalbus;iess services, and the impactof policiessuch as staffreductions. 15. Workshopand MaintenancePractices: Manyof the practicescurrenty used for recording and accountingfor repair and maintenanceactivities are outdated. Ihis sub-componentaims at: (a) designinga budgetsystem, by account,for each classof repair,showing costs of labor, materals, and units of repair; and (b) providingconsulting services to Impartgood practicesand monitorthe emergencyrepairs to locomotivesand otherequipment.

16. Marketing: Oneof the majorsteps towards preparing ENAFER for privatizationis to implant a commercialorientation within the enterprise. This sub-componentwill provideassistance to: (i) develop customerservice criteria and monitoringsystems that can enable ENAFERto determine customerneeds for wagons and deliveryschedules; (i1) enhanceempty wagon and rolling stock managementsystems in order to maximizeutilization and productivity;and (iii) reviewmarket demand and tariff settingactivities to capturerevenues for the railways. 17. TechnicalAssistance to MLMwill also be providedin the form of advicein non-motorized transportplanning and management. This includesidentification of the demandfor non-motorized transport,development of an integratedBicycle Network Plan for the Limametopolitan area, ensuring the affordabilityand accessibilityof this modeof tranport tD the poor, and assessingthe advantag of variouscredit schemes. 18. TechnicalAssistance to the PCU: The Project CoordinationUnit will also receivetechnical assistanceover the durationof the projectin orderto carryout specializedstudies when necessary and to superviseongoing project components. -113- ANN=LO

PERU- Tnprt Rehabliltatlon Project TRIN1NG PROGRAM!

L MOTIVATION AND OBJECTIVES 1. Statusof PublicSector Professionals: The capacityof sectoralministries and thek asso d publicsector agencies to performtheir mandatelduties has been eroded. Amongthe reasos cied are the economiccrisis from which Peru isjust recovering.Due to financialcntrnt in the publicsectr, formaltraining of personnelhas beendiscontmed. Stae agencieshave fuithr lost qualifiedpersonel due to low salaries,and volunty or mandato rerement and layoffs. Many agencies,Including MVrC, havebeen weakened so muchthat they are barelyable to conductdayto-day operns in their respectivesectors. Additionally,the systemof Incentivesfor public sector employeesto undertako traininghas been undermined due to uncertaintyof the fture andthe fst-paced refoms curry taking place. Therehas also been little atractionof youngerprofessionals to the publicsector due to all the factorsmentioned earlier.

2. Cmoe Obise: The objectiveof this component is to restore the insttonal ad technicalcapacity of the professionapersonnel withn MTCC,Its respecdvepublic sector agcies, as weUlas other entites engagedin the mnagment of sectoroperaions and policies.

3. Pomw =ang helpsto maxmizethe benefitsof any bistment program. The folowingare the areasin whichtraining activities must concente in orderto ensuresustainability of the benefts from the on-goingivestment in the transportsector. Ihe trainingprograms are linkedto the investme programin each sectoras wellas to the technicalassistance to be prwvidedunder the project.

4. AdminiamoQfIzaIntIAgMties: Thetraining activides wil be admisterednd coordinad by the PCU. The trainingwill take placethroughout the durationof the project,following a schedle to be developedby the PCUand MTCC,in tems of prioritiesfor the country,and basedon the list of coursesalready idendfied. A trainingcoordinator within the PCUwil haveoveal responsibilityfor the completeset of equipmentto be purchasedunder te projectfor tg purposes. This include projectrs, scre, computers,pn , photooopycapability, and access to fax machinesad inernationaltelephone lines. 5. Moirntgf Lralining ActMties: Ihe PCU will keeptrack of who is receivingwhat tining as well as prepare yearly repors showinghow mny courses were conducted,how many students partcipated,and whatproblems were encountered. Each yearly report should show what is planed for the next year. The coures are intendedprimarily for assistiAgPeru In strengtheningthe sk of personnelin publicinstitutions. However, In lightof the restuctuing and reformsaking place In the governmentagencies, the couses shouldalso be opento the pvate sector,contractors, conutants, and materialsuppliers. A procedurefor chargingprivate sector partiipants shouldbe developedby the PCU ad Weed withthe Bank. Coursesthat are broughtfrom other contrie shouldbe taughtby Peruvin InstructorstO the degreepossible. In the eventthat a course is taught by a forign expert,a local instrucr, possiblyfrom a unierft or fromMTCC should learn the matera, learn howto teachthe material,and be authorizedto teachthis materialthroughout the countryin a programmedfashion. The PCUshould ensure at this procedureis followed. -114- ASNNE1

H. COURSES 6. Courses in HighwayIssues: A numberof courses,to be conductedin Peru and adaptedto Peruvianconditions, have been identified.lhese coursesare of four types:(i) generaltransport studies to assistin planningand evaluatingroad transportprojects; (i) targetedcourses in areas of specific importanceto Peruvianroad conditions; (iii) thematic courses on areasthat are newor changingwithin the highwaysector in Peru; and Ov)site visits to highwayagencies in foreigtncountries. Someof these courses could be offered more than once, perhaps in several locations. Courses that deal with maintenanceand rehabilitationof roadsshould be offeredat the beginningof the program,and the others should be offered later dependingon the set of prioritiesfor MTCC. A tentativeschedule and prioritizationscheme should be prepared,based on a surveyof the mostcritical needs. 7. Gneral nIt iAWCourses include: () formulationand evaluationof transportprojects; (ii) envionmentalimpact and environmentalmanagement of roadprojects; (iii) integratedtransport system analysisincluding internationa trade and logistics,freight transportand reliability,and multimodal transport;and (iv) strategicmanagement of transportsystems. 8.. Mtd Comes includeissues such as: (i) highwaydesign and maintenancestandards; (ii) economicevauation of rural roads; (iii)highway capacity estidmation and levelof servicefor single-lane rural roads,two-lane intacity roads, andurban intersections; (tv) geometricdesign of roads;(v) bridge and tunneldesign given the numberand stateof bridgesin the Peruviannetwork which is nearinga crisis stge; (vi)geotechnical studies of tropicalsoils and soilstabilization to be adaptedfor Peruvianconditions whichis necessarygiven Peru's topographyand climaticconditions; (vii) hydrologicalaspects of road design;and (viii)management of roadconstruction and maintenance equipment which is importantgiven the tentof maintece and constructionworks ta willbe undertakenunder this project. 9. hemati. Coursesrecommended are in areas of particularsignificance following the recent setoral reforns as well as the changingrole of transportin Peru. ITese includecourses in: (i) procurementand otheraspects of contractmanagement which is importantdue to increasedparticipaion of the prvate sectorin projectworks; (ii) modernrehabilitation and maintenancemanagement techniques for roadswhich is neededconsidering the exme maintenan neglectin past years;and (iii)road safety coursesto instuct on modernmethods for reducingand controllingaccidents - alsoof importancegiven Peru'spoor safetyrecord.

10. ForeignShe Visitsand Scholarshipswill also be providedin order to allowroad personnelto gudyabroad when local training is not possible. Thissub-component includes two levelsof training:(I) managerialand technicalpersoonel; and (ii) recendygraduated enginees and economists.Each person selectedto traveloutside the countryfor a courseor seminarwould be requiredto presenta talk and wrktenpaper on the seminarand on the implicationsfor Peru. Tnissub-component would also include technicalvisits to foreigncountries under themes to be developedby the PCU andto be approvedby the Ban.

11. YoungProfesionals: As a form of institonal strengthening,these courses are aimed at atacting young professionalsto work initally as internswithin MTCC at the Lima and provincial offices,as well as participatein the courseslisted above. 12. R3Mrng: ThePCU will prepare an executivesummary of all the highwaycourses to be taught, and sendthem quarterly to MTCCand the Bank. -115- ANNEX1Q

13. ENAFER:Inig Most of the tinig to ENAFERstaff will be performedat appropri ENAPERlocadons. For sometaining It maybe Importa to take ENAFERstaff to trang faciltes in the homecountry of the trainingconsultaons or dsewhereabroad. The trainingprogrm wil cosidst of the following: (a) Locomotiveand wagonmaitace to train the use of nowmethods and equipment for maiance of locomotivesand wagonsso as to enablea sustainedlevel of operating efficiency, (b) a systemto keep maintce and repairof equipmentand tolling stockrecord to keep up withthe unit s of maintenanceand repairand the typesof failuresof equipment and rollingstock-, (c) basic trainingand upgradingof skill and teciuques of rai and bta mantenac to bettermanage the waysand structures;

(d) foremns corse In trc maintenance; (e) tranig in the operationand maintenanceof mechanizedtrack and equipmentwhich is importa giventhe extentof staffreducdons and restucring to be undertakenunder the project;

(O) dispatchingwith new radio and telecom nations systems to be inoduced under te project; (g) tnical courses and instructionto telecommunicationdepartmen employeeswhich would enable them to operae, test, maiin, and repak aU new equipmeotto be instaled; (h) ining in the applicationof newOperating Safety Rules which will b necessayin light of the new radio communications; 6i) basic aing in the use and operationof computersand computersystems, as wel as trainig in basicoperations; and 0) traing in marketingand sales as wel as targetingand selling to customersin a commerciWenviomentThis corse will also incdudepricing and costig in various productmarkets and undervarying competve condidons.

M. BOOKS,JOURNAIS, VIDEOS, ANDMATERIAS 1. Ihe projectwill also assistin the acquisitionof books,subscriptons to professionalJournl, purchasig of istuctive videosad other materialsnecessay for ainig purposes. P3315TRANlSPOT REHADTAUON PROJECT

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4."K P0.0 PRJIU LOA La2s 1.101 1.5 0.20 0.18 0.0 3,4 0.510 U4S 1.88 0.26 0*s 0.0 4.00 tax4 2.A D.20 4.88 DoolamolowI - 013 CL00 000 0.00 000 000 01s 019 0.00 000 000 000 000 019 004 000 002 2 IS 28a 25- is coOatacbml 0.10 1.00 V.22 000 000 000 2132 0.12 122 1562 000 000 000 -286 011 104 02 29 is 2a 291 7 Coolumbonsuo a*t 0.02 005 000 000 000 00 008 002 004 040 0oo 000 000o 006 0012 004 002 01I is 28. 25 I-S Cr04. vE000 0.0S 010 020 0.AS 0as 040 000 006 0*5 020 019 005 040 048 012 000 00 1 of 0 [email protected] 1 8 000 003 00T 000 000 000 0*0 000 004 009 000 000 000 012 001 -007 02 01 Is 21 25 is 0.00 008 0.06 0.05 000 000 020 000 000 0*$0 008 000 000 029 000 01s 004 02 Is 28 25 I

5 YIOCIO6CAMA88IT5A064 I.46 .6 0am tic0 0.4 0.221 0.70 I 1.72 1.07 1.02 1.42 0.64 020 7.8 3.55 2.47 1.0 7.08 R*ada4v,*miob,mdmwWnc 000 000 000 0.00 0.00 000 060 0.00 000 000 0.77 000 000 0 77 020 027 012. 08 I5 281 5 151 coMTCCm mEw.~ ~~020 000 000 000 000 000 020 05 00 00 00 00 00 05 06 02 06 0 9 2 0 1 P. asonof "* =81oB od, 0 37 046 0 28 000 000 000 1 20 044 0s? 026 000 000 000 140 0 72 051 0 22 S6 is 2.O 0fi T.Ago MTC 025 020 02 027 02 010O 140 0l 0132 024 0 16 1U 014 Iis 08I6 06 1 1a21 TAI.EI4AP4R ~~~~~~~~~026 054 000 00 0.00O 000 080 043 0 66 00 00 00000 18 04 08. 1Od9 8 50 1 T A IM*.M 002 004 0.04 000 0.00 000) ot0*0 603 00 s 00r 000 000 000 012 006 0041 002 01 19 28 0 * T A2 CoP(WdnsU*owmNI 00 036. 008 006 006 04 04 006 000 010 0*0 010 005 091 0 25 0la8 000 05 Is 2* 0 Tt" 0.101 0*5 0.15 i 018 * 008 -080 0.12 019 010 020. 020. 0il I01 051 026 0.19 10 I 2 0 1

6. ROJECTUAIAGE10101T 004 am6 0.60 0.80 0.60 0.20 4.o 0.08 1.05 1.00 l02 .7* 0.2? .12 &0.0 0.00 0.04 0.18 Petsaww 0*0 0* 060 000 060 0.20 460 006 0.07 *00 *02 010 027 S01 000 S01 000 s0 *5i 20 0 ~~~~~~~~ 00G00 ~~~ 00 ~~~004.00 o0 0*0 006 007 000 000 000 000 912 002 008 004 OL 1s 28 5 1

10180.5102.1128.27 45.16 1682 4.16 0.46 101.44 1164 125.28 8628 20.50 8716,1 0816124200 242.80 0001901 *1660"M 2740270 24260~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~203042 -118- 24J 12

PERU - Tnsport RehablUtatlonProject IPLEMENIATION SCH]DULE, MONITORING INDICATORS AND PROJECT SUPERVISION

Implementation Schedule

1. Table 12-1 shows the planned implementationschedule for each subcomponentof the project. Most activitieswould commenceIn mid-May 1994, the assumedtime of loan effectiveness. Somefinal designs and other aspects of project preparation already commencedwith funding from a $1.5 million Project PreparationFacility. The rehabilitationof roads, which correspondto 30% of the Bank loan, can commence by July 1994 if final designs and the selection of conractors and supervisionconsultant proceed as planned. Any substantialdelays during that preliminary phase could postpone the road rehabilitationby almosta year, as seasonalrains usuallypreclude the initiationof civil works during the December-Marchperiod.

Monitoring Indicators

2. Table 12-2 presents key monitoringindicators of physical progress and operationaland financial performance,which were agreed at loan negotiations. They cover expected achievementsthrough 1996 and will be updated during the annualproject reviewsexpected to take place in September1994 and April 1995. New targets through 1999 will be developed during the Mid-Term Project Review which is tentativelyscheduled for March 1996.

Project Supervision

3. A preliminay scheduleof Bank supervisionmissions is shownin Table 12-3. The key activities shown in the table are in additionto the desk supevsion needs by Bank staff, which includethe review of (and preparationof commentson): (a) progress reports, (b) audits, (c) terms of reference for studies, technical assistanceand traiing requests, (d) procurementdocuments, awards and resultig issues, (e) study analysesand recommendations,and (M)general correspondence. These desk supervisionneeds ae estimatedto require an averageten staff weeks per year during the first three years of the project, and four staff weeks per year thereafter. Table 12-1:PERU TRANSPORT REHABIUTATION PROJECT -IMPLEMENTATION SCHEDULE

_aw 199zts4 1995 1 .9 119 119 -119 . ROAD COMPONENT

A. MinalDetgns of RoadReftab Sohnw

%a Merced4Saupo

*Nusnuco-TlngoMada

'Rioia4bo,NueCofal umafsns

8 Supeson of Rod Reab. Sdm

'?ama4.a Merced

H1uanuoo.flngoMann

o N1wauco Mwrnpad

C Exeution of Road Reb~. S dhm

ranma4.alsfAced

La MaMed-Stzpo

T11repoto*soias TalpRe Mesa¢/0/gg0//olo

RioN iaeConsOuemede (0W)

0. adge Pogrmi

,n"*d nyt t&/0//00/0/ 0ffm

Fhal designs of cone_t btdges

*Aoqtusstnof Bai badges

Recoery of bbddaieybage

E PilotRoad _mland PMnM

PO dtign O PiltIWUd WeMr

SupMaaoaof Wafti

P. 1Gmat tot RoadLabofat iy

G. Tiaf Sfey Pogr-m

7trafficsafety stud

Equwpme -Ad

*SIn contract tm, tes wiho asteSW" require WI onftCtUt -120- ANEX 12 Table12-1: PERU TRANSPORT REHABIUTATION PROJECT. IMPLEMENTATION SCHEDULE

Name~~~~ ____1_1911S______.______._.. K Osof tAAeRoa*b. S.hu _

R,d6 mfs sumft sez o mual

2. PRNATIZAfTON& aREMOPiP WA

Tgemmuniswadosdmg

3 RUNWAYREHMa AT UMAMAORI

TRymo (m_ab. . . ITwm Roittwydwh^ Iwo

TA CuOLm I i ----s

NMTPWTPJECTIRNu UMA,

SdumdenZanmmalsw s smn*agnsm;l Mamudeg_and00 vNmmpsms

|.t CNL ASL ANCEU& TRAIN

SWdA4wr*uI@flvs0Ofwmff C

TA tMO_

TA to 84AMS

TAMU M

TAwPms c4dhmiisAu"

IL PROJCTrMANAG_I

*SV 1 obn mw m fhozl_destdfequi a, a p e -121- ANNEX12

Table 12-2: MONITORING DWICATORS

1. ROAM AND BRDGES evglo comieon at aW of

RehabUitadonof ThrlI-a Moed-Stpo, Tarao- foJaRfo Niea, nd Hudoueo.Thso Marts roads (9 kIm: - Finaldedu and tedr domes 100% Contucton wo*e (overal) 24% 10% 100% - Wo on bridges, tuuls and other stractum 20% 80% 100% - N or rhabila pavomentopend to bTrI 20% 85% t05% Rebabtation of Rio NMevaC Querdo road (176 k-.): - Finaldesign and tender document 100% -Contucionnwi (oveal 0% 43% 90% - Wo on bridges,tuwes and ohr srwres 0% 20% 90% - Now or rehabiat pavm opend to tuffe 0% 20% 90% MrEg.Rehabililtation: - Bridgerehabilitatio d _sint e udy 40% 100% - Baley brdges dRevd (inear mw ) 400 S0 DDaify bridges rewoved (ine m trs) - S - BDat bridges saed (ia mates) 100 200 30 - Rement of dlt bridge (linearmet) - 300 - New or rhWbilitd blidge openedto truf (No.) 3 13 36 ma*w- m of Natona Road System: lniarqr of RoadMaintennem

Ratio of venuesfm rd usr to and mnteaneexend bRree 5 >1 >1 >I Rad8 maisaemo budget(US$ nM=lx) , Ofwhich: ecudig 13RD&IDB pect roab >50 >50 >S0 Ainowt speoton oad maintenanc -of which excludingIORD MIDB pqjet oads >50 >50 >S0 knout¢ spothon _hftnuweco_fton >20 >20 >20 Anmt spoot on tlc moo" wo*s >20 >20 >20 Amoungs_ on admin_atrationand dhbwbm tO 10 10 Remol of ndAldes (million aublemers) 3 3 3 kn of road overayWedwih asphal cae 1,200 1,200 1,200 Icmof road ngravd 4,000 4,000 4,000 km of road naded 27,000 27,000 27,000

Pgt road mrogrm Iada to bedefined in 1994 by detad deig stuy -122- A 12

Road Adminialon and IIjmnw Rod Pbbuy Rod dmi. OWakla Sludv tllD TA af MIC MTCCius TORs to con _ut 0212W94 1/S/9M 02/155 MC and couans sin contt 05115194OU1W96 06/5/ Coltanb iniat sftu 06/15194 05/15/6 0711s595 Conlants compilt sudy 10/31/94 06/15/97 I1259 arZ prvides commen_sand susion 11/30194 03197 0131196 Gov'tapproves/commentsaon stdy findins 12/31/94 I10197 03/1516

MTCCpepae acton Plan to eforM rd MuAgmAn rIV31/94 M1CC devlv plan (i. equimt ftsungo Natol Rod LI _a y 02/15194 IMCCimplemet plan to stbnh Nal RaPl Laboraoy 12/15/95 MTCCpovide updaed nvetor of ub,o rad u gta enbthstA. 043094 Govermn imlemnt acion plan baedn roduser ohare su4y 12/31/95 Govement impleme actionpln basedan admh study 12/31M95 MTCCimpleent actio pln bad an oanitiaa *dy 12/31196

Aver Traffc (vehides per day) Indiosnraof Road Use

- Tanma-SanRamdn 1114 1150 1180 1220 - San Rand-LA Mesod 1604 1650 1700 1750 - LAMeOrd-Puent Ch _nchaiyo 481 500 510 530 - Paes" Chona o-S 302 310 320 330 - TarpotMoyobambs 542 570 590 620 - Moyohamba-Rija 488 510 530 560 - Rio*4tRoNia 311 360 380 390 - Rio Nieva-Cand Quemmado 294 310 320 340 - Hudauo-TrngoMari 543 560 580 600

Aver Road Rougbnes (IMM) Indk of Road &uto OuBiat i99im im1 m - Tum-San Rau 13 9 S 3 - San Ramnn-LaMeroed 4 4 3 3 - L Mesd-Puae Chanmmyo 12 12 8 3 - Puent Chrnhmayo-Satipo 12 12 8 3 - Tawapot-Moybamba 12 10 7 3 - Moyobamba-Rioja 12 10 6 3 - Rioja-R/oNmeva 12 12 10 3 -Rio Nieva-Cor Quomado 12 12 10 3 - Hudmio-rTgo Maa 6 6 3 3

Trafi Safety ad Desigpof F_e Road Sbmit T rlf Tug Mark- Oer goad hSf ,u dU m

PCU ises TORs to shostidd consta 05115/9405/15/94 07/15194 PCU andconsusn sign conr 0194 09/1I194 II/11/94 Consutant inae suy 115/94 10/1594 01115M95 Coun complte duy 011519SOs11519s 07/15/95 Gov e 4mptoveCoonme ea Xb f; 07319 07M319509115M/ Now fundn is appoved for h _ _ 09/319S* Implmntion of schom 01/31/96

* exceptfor minorsafty fmlvanet tie er dde pmjot -123- ANNEX12

RebabMtadca~ ~Workc ~ ~ ~ ~ ~ ~ ~ ~ ~~~nba,matuI CenU2Ralwy (CC - Baiio p m 1 vI inubic. o 6,8Wo 400 - Ticbplat 1 unit 17,00 3,000 -LoomoAtOis uai 5 7 - waspus,in units 45 55 - Tekoomnwrhmdm(,A) ~~~~~30 70 Soemn Railway(PCSO Track eblitaon with vw a, in km 34 6 - Ball zpoment in cabi nmr 12,000 1,000 12,000 -Toe pln in untlsl,ow 19,2M * Tkac mbbilitaon with _w nib (1. 34 6 * Loomotivein units 7 9 .Wagonsinunits so 70 - Telecomnications() 40 60 Soudt-E.tem Raiway(FCSO) - Track ehabilfia with ne aoin km 12 3 - Locomotie in uvits 1 2 - Railcar in unAs I - - Tc (%) 40 60 OpeatonalP"erfoaanm pe..r nimainat

Ceta RailwayMCC) - Locomotiveavaiabiit in S 27 40 54 60 66 - WagontArund in das 8.9 7.3 7.1 6.9 6.8 -Tons handl per year (thoun) 778 1020 814 814 814 - To-kmpeM yea (milo) 2 191 163 163 163 -Pmegpers year(thousnd) 44 544 544 544 544 - Paasengerlonpr yewr (mMiO) 35 35 35 35 35 - Numberofaployas (Dombr 31) 1IA9 1419 912 615 615 - Employeespe ha of track .2 3.1 1.9 1.3 1.3 - Thousandof tufo unitsper emlO*ee 128 156 217 322 3 SouthernRailwa (FCS) - Locomotiveavaiabiity in % 42 58 60 65 65 - Wagon rmmad in s 18.0 23,6 20.5 18.3 15.0 - Tonshled p erwrya(tha 55 496 54 554 S45 - Ton-lo peryear (miwo 232 238 232 232 232 - Paseq pery (torusand) 50 319 300 2 562 - PassenerSmper yerm ilo) 126 73 71 126 16 - Numberof eaployees(Doecmew 31) 2,24 2,089 1357 950 950 - Employeesperkrmof track 25 2.3 1.5 1.0 1.0 - Thoandsof tuffleunits por aylos t1o 146 303 377 377 South-EastmRaiwy (FCSO) - Locomotimvaileailt in % 50 52 60 62 66 - WagVaetusond in da 10.6 8.8 7.5 7.0 6.0 - Tons h oddWperyear (dwannO y 36 36 36 36 36 - Too4an per yar(MMW) 5 5 5 5 - P_sw per yalr_8 574 650 574 574 574 - Passengw4cmpwyew (ant(OO 61 0 60 6 60 - Nundr of anpoyaw Moembw 31) 907 560 292 292 292 - Employeeper hmof tack 4 3.8 1.7 1.7 1.7 - Thoud of ufficunib pereapoy ff 112 223 223 223 AcdonPHum - Audi Repastfor 1993by hi_d_p _AMu Wm -ENAtERhas mare at lst UWLOmiN .. d as of_m.epuIuin _ 9/94

eprdxuadth onaa hip pm_u-ethe do viov pmes 7/94 -124- 12

ivPm -mm

Ph="da Pedrtouau Coedra Railwa (PMC *Opamtingratio in %183% 154% 159% 13% 110% .W ingmtio in% 150% 131% 132% 110% 96% *Netoperaztinghomo In us mlilon (5.8) (4.5) (4.3) (LO8) (0.7) uthan Railway (FC) - Opaing abioin % 130% 147% 136% 103% 101% .World* rtio in % 113% 126% 114% 9% 81% - Nd opetirna aomo in US miniom (4.7) (6.1) (4.) 0.2 (0.1) SothEger Ralwa (FCS) - OpeMtnin ill % 133% 126% 112% 86% 96% . Wkinm tio in % 108% 93% 84% 69% 69% - Netoti"waf heom4 in US$-on (1.2) (1.- 04 0.5 0.1

3. LIM ARPR

Cm_ M' A ._mif Advioe CWub_n _¢*mo to9Me Stndy

PCU lim TDRs to ebhdisd ooant 04/15s94 01595 PCUand o _nke gn coaot 0415/94 07/15/94 S/I1s95 Cou14kats inh _ g Ol5/sm 08/15/94 06115M Consekmn compet n _met 04/30U96 04/30/96 09/31Uff

CA1 w.: PCUpubes piqation aoumeme for IoVs12115193 PCU i tendordom 06115/94 PCU and co _uin fArmsagn onte IVIS/94 Caomtoton pbas ben 01/01195 Runwayis dosed for 8-9 bon sub nigh 03/15/S to O9/15/95 CAnabuction=6 W~~~~~~~~~~~~~~0415/96 Waanty Pea nds O/W597

Am_d T1aff at Lima Alpot: _idicato of Almt UN im m ~i Totd htinatinl passe_r (Illin) 0.9 1.0 Tdil dometic pas_ens (miln) 1.3 1.9 Tdt deuating feight (thuad tol) 26.1 23.8 Total arrg fegt (thousd ton) 19.2 19.2 Ton ommea ameaft movnet tousn 11.0 11.9 Tdal privae at mnovenet tosnd 0.5 06 Nawoal aidline erVn iqrot 7 10 Fatoreg abibinesseuving airpoat 24 23 -125- AhmX12

Coulans A :gmmut Deos of Cowntcton educational C:ivi Wks , ueridon C mpya Mano

MLM issuesTORs to conulans 05130/94 05/30/94 06/31/94 MLM aNdconsultas sign conZQu94 08m4 09/09 09/30/4 12131194 Consult initt asinmet 03/15/94 10/31/94 10/31/94 01/31/95 Consult comple assigment 07/15/94 12/31/95 06/30/96 231/96

CJvUWorks: Tends are Consuction Woas Issue Su-- Ent- AverAdsColoil 08131/94 11115194 06/15195 AvenkdaUniveosiria 08/31/94 11115/94 06115/95 Ave"idaTupao Ams O0IS/95 04/15/95 12/15/95 AvenidaTomns VaUl Ol/Sf9S 0415/95 08/15/95

nicators of Biclo USD Nr. of b1cyclesweekday an JM 1994 1995 19 - Aveni Coloial - Ave UnivdriarU Values and ct drly stes - Aveodds7Upac AmaN to bo defied in mid-1994by MLM. - Avenida Tonmi Valle Bcls parked at pac of amnpl Data on bicyce ackients To be defined.

ndicats of Cdit U Us of Credit Scme for Low-Co tDlc 1994 9 Numberof bicys pursed under crt shem Amwunt lot to emloym of foma sectr (n Soles and U38) ' Amountlet to infrm sector (in Sole ard USS) Ine and paywmu rcived Values to be estmed and Adm in ve com additoal indicator to be Numberof ceditos in potfoflio,by geder definedin mid-1994by MLM. Numberof reditor in good anding, by gender

TnSaport Sig Acrulng to Cydis 1949 1996 Surveyand analyl mdhodolo to be defined. -126- AN 12

Table 23: SUEVSON PLAN - Mti~~y Expecte~dSMU Stf* Dte______Reqieet Wcd s 6194 Pject Laich, icudg semian POCUrMent 12 p _mt and disuremet. Roviw of Disbumn_t finaldesig and eost estiates for d Railwy Patization ard arport ri me. Raiway, Roadand Reviewof railwayprvaiztlo pmrgn. Air Engin Lanch techal a oisacad tunizt Envimn. Manage_m co_MPoL Epaei in NW

9/94 Supervac Misson. Annual Raiway ?rvaizato 9 Project Review.Focs n prog with Raway, Roadan prccurementand enga wmof Arport Eninei consauints, ari on preparationof airpost Ecaonoics rehaIirkation wadis. 1/95 &Spvision Missi. Inspec contructi Railwa Exprtise 9 sie, ssess experic with Roadand Aio eir l_ manualfor contator, Engieing reviewsudies in pess, and asses Economics ____ ~~progrewith rilway priathizatiL EvrLManagelmen 45 Second Auius Prject Revlgw Riw Aiport, Roadand 9 overallprgrs and updato estimat Brd Engineering and implementa timetable.Focus on RailwayExertise

lisi~NW Imdmainco sb*, and Pomen /Speravi on MIssi action__l_to 9 l~ ~~~ft n sd finano and amddu

11/95 SuervisionMon 9 3/96 MIPd-Tn Project Review.Review Road d Airp. ElUg. 12 overallprgrs, updat oost estits Expets in Railwys, and i dedsble, rescbc proj Finane, NMT composRh'on.Daft inteim mlmion EconomiEs rports for railway,aiport and NMT PrOcurmet compones. Emvroin. aa met 9/96 SupervisionbMision S

199698 TwoSupersion Missionsper Year. _ 6/yr 1999 Two Suervision Misso, inlding p rparation of PCR.

* In addiion, deskstpervision wil quir 10 daff-weeksper yearin 1994-1996,and 4 staff-vweekper year in 1997-1999.

NOlulM he above suervision plan is basedon the Sclhetule(Table 12-1) and will needto be modified in line witb acbtalproject impl _ttion. -127- ANNXC13

Enmsl K(u M_

Yearand Quarter Q y Cumulave (ndingdaft) D_ Disbunemets

Match31 IS11.S June 30 5.0' 6.5 Setember 30 3.5 10.0 December31 5.0 1S.0 199S March31 6.0 21.0 June 30 6.0 27.0 Setembe 30 9.0 36.0 December31 9.0 45.0 1996 March31 12.0 57.0 June 30 12.0 69.0 Sep_tmb 30 12.0 81.0 December31 12.0 93.0 1997 March31 9.0 102.0 June 30 9.0 111.0 September30 9.0 120.0 December31 9.0 129.0 1998 March31 6.0 135.0 June 30 6.0 141.0 Sepmbe 30 3.0 144.0 December31 3.0 147.0 1999 March31 1.0 148.0 June 30 1.0 149.0 September30 0.5 149.5 December31 0.5 150.0

2p1

baia dspouiat specalMu -128- ,

PERU - 1Iasport -h-- oProj.c ECONOMICEVALUATION

I. ROAD COMMONENT

1. The economicanalysis for theroad lin to be ilndudedin the projectwas based on four main typesof variables:(a) macr-economicand demographic variables such as GNP,popuaton, and per capitaIncome; (b) traffc projectdo; (c)project costs; and (d) aep d benefit. Trafficvolumes and compositionwere obtainedfrom the Ministryof Transpoa Comnicatio, Housingand Construction(MC). Trafficprojecdon was bed onepected growth rates in population and the GNP fromthe project'sarea of influence,usig the followingformula: AMT AJT. (I + rj Delt.AT), - Delt.ADT,(I + rt Where: A,DT,8 AverageDaiy Traffic,vebicle type j, year n AT, = Avge DaByTraffic for the base year DeltAT, s Inducedtrf, year n, veicde j DeltADT1 Inducedtaffic for the baseyear growthrte, vehicletype J 2. Growthrates were calculated from the macroeconomicand demographicrates as follows:

Liht vehicles rL = rH + EL.rT Buses r, = rt + E,r, Trucks =m E-ra

Where:1L = incomeelasticityper capitaof lightvehicle traffic; ED = income-elasticityper capitaof bus traffic;and E, = grossproduct-elastcty of truck traffic. 3. Upgrading,rdebilitation, and costs wereespecially estidma for this evaluation. It was assumedthat extraordinry wouldbe doneduing the frs year on each section,and routineand periodic maintece (e.g., regravellingand cracksealing) from the secondyear on. These costswere esdmatedby the MICC as follows: Type of Mai ace Asphat Macadam Routine(US$/km/year) 2,5W 3,500 Periodic(US$/km) 25,000 18,000

4. Theproject would generate the followingbeefits: (i) svig In roaduser costs;(ii) timesavings for psengers; and (I) savingsIn ftluaeroad mai ence. Vehicleopertig costs were calculated though the VOCprogram of HDMIW. Fixed costswere addedto opeating costs as a percentage,

1. VOC - Vdc Opeting Coa. HDM M- Thirdvenic of HighwayDaiSgn a0d Maidnaum Sdanrds Modd, Wold Bak, 1987. -129- ANNEXL1

whichfor lightvehiles (automobilesand station wagons) crrespond to the costof insurance,and for commercilvehices Os and truc), coreond t genr exPediur. 'Me asume Perceta are 4.7 percentfor liht veicles, 15 percentfot buses,and 12 perent for trucks. S. Roadconditions before and after the investmet wer ratedin tems of rougns, corvatur,and gadient. Therv vues dwwnbelow wero used:

TYPEOF SUACE ASSUUMDSURFACE ,m, CONDMON 1NTRNATONALROUGHNESS INDEX) Exin pavement Bad 9.5 NOWpavement Good 5.0 Exisi gavd Avemsgs 12.0

6. Other inputsto the VOCmodel were the topograhy ratngs typical of Peruvin roads, as follows:

TYpeof Rolling Topography Avere dope Averagecurve Surface _S___ _ % '/kM Asphalt soft Is.- so tolling 3.U ISO ______Rough 4.5 400 Macadam Soft 2.0 70 Rolln 3.S 200 Rough ______5.5 480

7. B fts in tm saings fr passengerswere calculatedassuming a per capitaicme, reresentate of thearea of Influence,corresponding to a personeaming minimum wages: Minimumwage - US$122/month Workedhours/month = 176 Hourdysaary = US$0.69/hr(adopted as timevaue) Pagers timecosts were calcuWlated as follows: TC - u.VT.(W%+ O%/3) V Where: vu = vehicleuse rate (passengers/vehice) VT - tme valu (US$ho) W% pacenp oftravtowork 0% pecenae of travelfor other reasons V = speedwm/kr)

8. Pourvariables were used to obtai a priori atingof theinvesme on theroad links: bternal Rateof Return R); BefWCostRatio (B:); NetP-esem Value (NPV); and First Year Beneft Rate (FYBR).Tne R wa usedas a primy raking crterion,while the FYBR was used as the seconda -130- one. Thelatter criterion indicates that the projectwould generate benefits from Its inception.As shown below,the resultsobtained Intdicae that all the projectliks are economiclslyadvantageous.

Order Road Link iERR Estimated FYBR % cost % ($ mill)* I Tarma-LaMerced 38.7 7.1 36.9 2 La Merced-Satipo 33.5 14.8 30.9 3 Trapoto-Rioja 30.8 10.9 25.5 4 Hutm;co-ngo Maria 28.9 5.8 25.0 5 I CorralQuemado-Rioja 21.6 49.8 17.1

* Base osts, includingdesign and consuction supervision. 9. SenstdvityAnalysis. Tbreescenarios were designed for sensitivityalysis: (1)a 20 percent ncreasein projectcosts; (1U) a 20 percentdecrease in estimatedbenefits; (m) a combinationof (i) and (d) whichis the worst casescenario. The resultsof the sensitivityanalysis indicate that all the project lins are economicallyfeasible even underthe worst case scenario. The rates of returnwitiout time savigs werealso calculated.The analysisdid not resultin a changein the relativeranking of the road links.

Order RoadLink 1 ()(I " -a I______1.20*Costs0.80*Benefits J(l)+ (ED 1 Tarma-LaMerced 33.2 32.1 27.6 2 La Merced-Satipo 28.8 27.8 23.8 3 Tarapoto-Rioja 26.6 25.7 22.0 4 Huinuco-TingoMaria 24.4 23.4 19.6 5 Corrl Quemado-Rioja 18.4 17.8 15.0

EconomicAnalysis for PilotMaintenance Plan

10. he pilot plan for maintenmcewill be conductedon nine links comprisinga total of 6.Okm. Tbeselinks feed direcdyinto the maintruink road sectionfrom Tarapoto to CorralQuemado, which is to be rehabilitatedunder the proposedproject. The selectedlinks belong to differentclasses of roads, withdiffer geometricalstandards, surface types, and condition.The benefits of this plan are several: (i) directbents due to reducedcosts of operationon the projectlinds being maintained;(ii) indirect beneft in the formof improvedinformation on methodsfor managingroad maintenancein Peru; and (i) indirectwelfare benefits accming to the micro-enterprisesthat will be contractedto performthe works. Ihe economicanalysis only quanifies benefitsof type (i) using the improvementsin road condition(as measuredby roughness)following the mantenace activities. Of the nine linksincluded in this project,two of them (Thefour year flowsresulting from this projectare: -131- ANNEX 14

Thbousandsof US$ Year Costs Benefits Net Benefits 0 300 -300 1 2767 2649 -118 2 2767 3396 629 3 2767 4097 1330

Theseflows yield a Net PresentValue of US$1,043and an IERRof 91%, indicatingthat the component is economicallyfeasible. EconomicAnalysis of the BridgeComponent

11. Ihe bridgecomponent of the projectconsists of the replacementof 48 bridges. The type of worksinclude: (J) the replacementof existingBailey bridges that are in bad conditionwith new Bailey bridgesor thosesalvaged from alternate locations; and (ii)the replacementof existingBailey bridges with permiaentconcrete structures; and (ii) the demolitionand constructionof severelydamaged concrete bridges. Themain benefits of this componentare due to the allowableweights on bridges. Currendy, the majorityof the bridgeshave postd limit onweight and they exact high operating costs on trucksthat be to carry less-than-full-loadto meetthese requirements.Other benefits accrue to the agenciesin chargeof maintainingthe bridges,in the formof reducedroutine maintenance of the replacedbridges. An analysisof the projectflows (costs and benefits) resulted in an overallrate of returnof 103%,for this projectcomponent.

ILA.AIORT COMPONENT

12. Rehabilit the runwaypavement of Lima airporthas direct and indirectbenefits. Direct befits include: (a) net incometo the governmentfrom upenditresby foreigntourists while in the country;(b) benefit to CORPACfrom savings in lifecyclemaintece costsfollowing the rehabilitation; (c) net incometo CORPACfrom landingand take-offcharges for aircraftand airportuse chargesfrom passengers;(d) benefitsdue to time and cost savingsaccruing to passengers,cargo, and airline companies;and (e) Increasedcomfort, convenience, and aboveall safetyto the airportusers. Indirect benefitsare effectson labor and employmentas wellas multipliereffects on the economy.

13. An economicanalysis was performedto quantifythe direct benefitsof type (a) and (c) above. The followingassumptions were made to accommodatedata deficiencies: (i) No constructionof a new parallelrunway in the mediumterm. (u) The new runwaywill be rehabilitatedfor a usefullife of 20 years. (iii) The rehabilitationworks will be performedwithin segmented time blocks,maintaining the operationof the airportthe rest of the day. (iv) Therunway would be rehabilitatedusing an asphaltoverlay of 23 cm thicknessat a cost of US$24.7million. This cost includesworks on the taxiway,airfield lighting and instrumentlanding system, as wellas constructionsupervision. (v) The estimatedannual cost of runwaymaintenance *without the projectais US$120,000 and wifththe project"is US$20,000. -132- AiNEX 14

(vi) Withoutthe project,it was assumedfor the economicevaluation that operafionsat the airportfor wide bodiedaircR wold be suspendedby January1996, and those for narrowbodied aircraf wouldbe sspended by January1999 (CORPAC's estimations). (vii) FromnJanuary 1996, the aliportsof Pisco,Las Pamas, and Colliquecould be used to accommodatetraffic diverted from the Lima airport, In accordanc with the characteristicsand capacitiesof their respectiveinfrastructures. If the Piscoairport Is used, it imposesa 4-hourdrive for thosepassengers whose destination is Lima. (viii) The registred movementof passengersand their peacentagedistribution between interional andnational traffic in 1991,wil remaincostant duringthe analysisperiod. OLx) The structureand distributionof origin and destiations of the passengertraffic Cn percentage)calculated In 1991wiUl remain constat as follows: (a) SouthAmerica 35%, (b) Centra America8%, (c) UnitedSaes 41%, (d) Europe15 %, and (e) others 1%. (x) The breakdownof passengersfrom intatonal flights, providedby the General Direcre of Immigrationfor 1992,is assumedto remainconstant during the analysis periodas follows: Peruvianresidents 62%, and non-Peruvianresidents 38%. (xi) It wasesimated that, in 1991,the averageturist stayed13.4 days and spentduring this periodan averageof USS1,700. Limaairpr served2,344,212 passengers, of which 977,536came from internationalflights. Approximately38% (371,464passengers) of these wereregistered as non-residentsin Peru or as touists. With the abovefigures, touristsgenerated an incomeof US$631,489,000.In other words, tourism alone generatesin one yearmore than 23 timesthe estmatedcosts of rehabilitaingthe runway of Limaairport. EconomicImpacts on NadonalIncome from Tourist TraMc 14. The possibilityof progressiverestrictions of airport operationscould provokea significant reductionin the volumeof tourist. Additionaiy,the deviationof widebodied aircraft (which could ocr in January 1996if no actionis take to repair the Lima runway)to alteave airports,would resultin a significat lossof touristsvisitng Pem. 15. Withregard to suchpotental responses, a coneative 20%reduction in touristtraffic is assumed from Januay 1996through the end of the analysis period of l0 yeas. The losses to the country, in termsof grossincome from tourism, would approximate US$126 million annualy. Assumingthat 7% of the grossincome is a socialbenefit accring to the economyat large (a figurebased on past analyses of incomeflows from tourism), the consequenteconomic indicators result: NPV @12%discount rate 13 millon B/C @12%discount rate = 1.98 IERR = 25% Therefore,the runwayrehabilitation of Lima!sairport is economicallyjustified, even if only a fraction of the potei beneft are considered.

Net Incometo COIRPACfrom Airport Se-vices 16. CORPACcurrently collects about US$12million annually in fees for renderedservices to ionaltraffic. AboutS7%ofthisincomeresultsfromroutenavigationserces, 41% fromlanding andtake-off fees, andthe remaining2% fromaircraft parking charges. Close to 91%of the totalIncome -133- ANNEX 14

to CORPACorigintes fromheavy aircraft. n additionto incomeftom Intemationalraffic, CORPAC derivesrevenues from chargesto nationaltraffic for the us of hangars,passenger service charges, liceosesand cerificatesfor airworthiness,and other charges. This aalysis considersonly the income from intenationaltraffic. 17. The progressiveclosure of the airport would Inducea significnt reducton of incometo CORPAC.Such losses are in the orderof 40 percentof its cumrt incomefor the firt stageof closure (1996-1998)and 80 percentfor the secondstage of closure(ater 1998). Theselosses are respectively, US$4.7million annually for the first stage, snd US$9.4million annually for the subsequentstage of closure. As shownbelow for an analysisperiod of 10 years,the runwayrehabilitation is also economica from the viewpointof CORPAC's incomegeneration. NPV @12%discount rate = 6 milion B/C@12% discount rate = 1.6 ERR = 18% m RAIL COMPNENT 18. Ihe inita concernwas whether the railwaymode has an economicfute fo transportin Peru. A comparativeanalysis was made between road and railin twotsort corridors,which clearly showed ta the railwaycontinues to playa vitaleconomic role in Per's transportsystem. The financial viability of the railwaywith project investments is presentedin Annex6. The followingsection deals with the economicbenefits of the plannedinvestments.

Bosc Investment Packa

19. The benefit of railwayinvestments derive from three mainsources: (a) waysand structures- rackrehabilitation and repair, and etension of switchbacks;(b) rolling stock and mechanical equipment - - locomotiveand wagon repairs and spare parts for maineace workshops;and (c) telecommunications- - radioand dispatchingsystems. Annex6 givesa dtailed breakdownof the invatmentsby railway. A tota of US$35million will be invested,broken down into: US$9.54mfllion to FCC; US$21.24million to FCS; and US$4.22million to FCSO. The breakdownby typeof investmentfor each railwayis: Railway Ways& Strucures RollingStock Telecom FCC 26% 63% 11% FCS 60% 36% 4% FCSO 49% 32% 19%

20. Benefitsdering from waysand strucures investmentsinclude: (a) safetyivemen as a reslt of reductionsin the numberof accidentsand derailments;(b) improvementin operatingspeed; and (c) improvedproductivity of labor and capitaldue to more efficientmovements on the tack. 21. Investmentsin roilingstock have the poteal to: (a) improvelocomotive availability and hence reducedelays in traffic handling; (b) improve the reliabilityof therolling stock; (c) increasethe efficiency of rollingstock in tem of fiel consumptionand tonnage/capacityper rollingunit. All these beneft allow a railwayto handlethe same amountof traffic,with less equipment,and hencelower operating costs. -134- 14

22. TelecommunicatonsImprov resultin more fficint opeatons due to: (a) potenta reduedonsin thenumber of statonopators henceimpwoving labor productivity; (b) increased sfety In dispatching;(c) eductio trainbdelys; and (d) better utiizaon of equipmentas a rest of coordinat schedules.Ihese beeft allowa ralwayto usefer traim,of longerlengths, and les cw.

Zconomie E"vauton 23. Usingthese srtr of poenti benefit andtih technicallyfeasible nvesm packgesfar eachrailway In Anex 6, an economicevauation was done. Fourscenaios were nayzed: (i) sario 00 - thecurren ituation,without investment; (I) scenario10 - staffreductions, without investent; (il) sceario 01 - investmentwithout staff roductio; and (d) scenario11- staffreductions with insments. AnIncremental analysi was perfomed to separateyquantif the bnefs of the: (a)staff reduction plan wihoutiw me in emergencyworks; (b) investents in emgenyqworks wihout the staff reduction plan; and (c) the joint bnfit of the staffreduction pln and the ency rehabilition. 24. Wi regrd to the staffreducdon plan which is expectedto be completedby end-1994,most mloyeesleaving ENAFER are at retrementage, andare thus not expectedto be gaily employed afte r Hencetheo mjor economicbenefit of thestaff reducdons accer to dtecash flows of he railways.The planned reducdons by railwayae as follows:

AverageNumber of Employees Raiway 1990 1991 1992 1993 1994 1995 FCC 1955 1835 1549 1230 912 615 FCS 2514 2456 2242 1800 13S7 950 FCSO 799 726 697 559 420 292

2S. It is umedfor the analysis *t:h 0)without the staff reduction plan, the raiways wil maintain their 1993staff levels; (u) withth staffreduction plan, the stafflevels achieved after 1995 will be constantfor the remainingperiod of analysis;(111) contractud services wihout the staffreduction plan wil rnmainconstat at 1992leves; and tv) contact seices withthe staffreduction plan wil be ncroasedto meetthe work volumes genea per yearby theraiways. 26. Withrgd to theprojected trafc andreiablity, the analysis uses coevatve asumptionsto foea the benefitsof the project In partia, it is assmed dt therewi be no gowth in trafficand tat themat dare for railwMI remain contt atcmrent levds. Mheplanned emegenq works under theproject are ufficientto justkeep the raltwayopratl untilprivaizato taks place. Undertie nvestm plan,thero. thereis no additionalcapacity. he iwayswill only have what is neessay to mahntaiext lvels of traffic. Anybeneft to theraiway accruing as a resut of moreeffient operationsbeyond those resulting from improved reliabilty of theirrolling stock, will be overand above the onesqunfied in this naysis. Without merc investmes, the currentoperations of the |a 0 S]g tIII'4X

iUt ji' u.u2w4! t hi IIg s111111* i iiiIii . "l*1EallsS -136-

PERU - Trsport ReabtatIon Project ENVIRONMENTALASPECTS

Enviromnental Issues 1. Environmentalissues of the proposedproject are mainlyrelated to the road component.lhe railwayscomponent presents some environmental concerns especially in the maintence and workshop units. Thenon-motorized transport component has importantpositive evironmental impacts for the city of Lima. THE ROADCOMPONENT 2. The principalenvironmental issues related to the proposedroads concernindirect impact. As the projectis mainlyrehabilitation, the direct impactson naturalsystems and tights-of-wayare less impot . However,there is evidenceof increasederosion, slope stability and drainageimpacts in the existingroads causedby originalimproper design and constructionand absenceof goodmaintenance practices. These problemswill be addressedin the presentproject and the appropriatemitigation measuresidentified for the designand constructionof rehabilitationworks. As existingrights-of-way crossthmugh some sensitive areas (national forests mainly), construction practices need to be controlled in orderto minimizeeomental effectsduring construction.

3. Local Non-GovernmentalOrganizatons (NGOs) and govenmentofficials do not foreseeany major ecologicalor naturalresource conflicts in relationto the proposedroad projects. There is no indicationthat there will be additionaldirect impactson existng wildlandsor protcted (existng or proposed)areas.

4. However,there is someconcem that the improvementof someroads in the SelvaRegion might increaselegal and illegalexploitation of naural resources(timber), exertng additionalpressure on xistng and proposedprotected areas. In addition,road rehabilitationmight accelerateland tenure conflictsin areaswhere the governmentis developingagricultural and landtitling programs. 5. The magnitudeand importanceof these indirecteffects, togetherwith the improvementof environmentalconditions along existing roads and mechanismto controlenvironmental impacts during constuction,vary fromroad to road. 6. At presentMTCC's institutional capability to addressenvironmental issues associated to roadand other trasportationprojects is weakor non-eistent. It is thereforeimportant that, underthe proposed TransportSector Rehabilitation Prject, MTCCinitiate and promoteattention to environmentaissues in orderto managethis and futureroad and transportprojects. 7. Il ere are thenthree principalcategories of environmentalconcerns related to thisproject. They Include: (a) The needto minimizeand controlenvironmental impacts of proposedroads.

(b) The needto strengthenMTCC's institutional capability to manageenvironmental issues relatedto roadand transportprojects. -137- ANNE 15

(c) The need for adoptingan mamud or environmenl guideine for construction,robabiitaton and mainte practices.

Fayironmaital ssessmentotProposed Roads 8. An EA study was caried out by the Borrowerwith a group of local consultantsunder the coordinationof an lutenaotio consultant,fhanced by the JapaneseGrant Fund. The specialtiesof the consultantgroup included environmel geology,terresti ecology, agricltural economicsad enionmental asessment. MTCCassigned three counterparts to participatein the EA prepartion. 9. Ihe EA wascompleted in June 1993,and MTCChas agreedto takeall neceary stepsto ense the ImplemenaIof the migativ measuresidendfied. 10. The main economicactvity in the area of influenceof the proposedroads is agriculture,with migratorypa in specificareas; many of the productionsystems are unsusinable whichhas caused a great deal of defbrestadtoand soil degradationin thoseareas. lnport hucs of land In the area of iuence are dedicatedto coca clivation. An importat segmentof the populationalong existing cridors livesin extremepoverty. Legaland illegallogging both in protectedand unprotected ara is a mijor actvity in border w. 11. Keyeniro issuesidentified in the studyinclude: inasing pressureon naturalresources In existingand prposed protectedareas; soil degradation,itabilit anddrainage related problems along coridors; disposalof constuctionwastes in sensitiveeironmental ecosystems;land use and dding conflictsin local and naive commnites; displacementof some dwellingsby road wideningor reulgpment;recovery of alreadyaffcted archaeologicalsites; and local viro andsocial impacts during construction.Positve impactsinclude improvement of local economies,reduction of time of travelfor o n of localproducts, and reductionof aesetic and healti hazardsby dustin towns and viages. 12. Te studyevaluated the magnitudeand importanceof the aboveissues and a seriesof mitigative meases to be undertake by MICC wereidentified. Some of thesemeasures will be incorporatedin projectdesign. Odhermeasures involve different govenment instuons of Peru and MTCChas agreed to iIitiate concts to formalizeall necessaryagreements or' conenios' to implementthem. Table I summaiz majoreniromnt issuesand mitigativemeasures identified in the study. 13. As someof the road linksinduded in the EA studyhave been takenout of the proposedloan, MICC should adjustthe recommeIons and mmigativemeasures accordingly However,as the Pucalpa- TfmgoMaria link willbe designedunder the proposedloan, the proposedstudy for ecological zoningand forestrymanageme in the area of influenceof this road (see Table 15-1)should be undertakn siutanously. MIXC, in coordinationwith INRENA(Naural ResourcesInstitute) will prepae termsof referencefor this sudy. -138- ANNEX 15

Table 15-1: Pkindpal Envirom tal Impactsand Mitigatve Maure

Impact Roadlink/cotion MitigativeMeasures Instability,land slides Selvaroads Slopestabilization, drainage works, revegetationprograms; included in road designs. Erosion All roads Drainage,slope revegetation program; includedin road designs. Increasingpressure on Selvaroads, specially Watershedmanagement plans; wildlands; expansion Pucalipa-TmgoMaria technicalassistance to INRENA for of agriculturil frontier ecologicalzoning study. Increasinglegal and Selvaroads, specially Technicalassistance to INRENAfor illegaltimber Pucallpa-magoMarfa ecologicalzoning study. Enforcement exploitation of forestrylaws. Landtenancy conflicts Selvaroads, specially Incorporatepotential conflict areas in Pucallpa-lingoMaria the PETr-IDBprogram (Special Land TitlingProject). Increasingmigration to Selvaroads Technicalassistance to INRENAfor border towns ecologicalzoning study. Displacementof urban Palca,Moquegua and Torata 1. Surveyof affecteddwellings. dwellings 2. CommunityAgreement Act. 3. Designof neededworks and incorporaing themin road costs. 4. Communitymeetings. l ______5. Specialroad safety/signals. Effectson archeological Camataor PampaColorada Specificarcheological study. sites Constructionwaste management; technicalassistance to the Cultural e ______Institute of Peru. Effectson sensitive All roads Selectionand enforcementof environmentalareas: constructionwaste sites. All sensitive wetlands,water intaces, areashave been identified. These irrigationcanals areasmust be includedin bidding documents. Constructionactivities All roads Adoptingenvironmental guidelines for contractors. -139- ANNEX 15

EaronmnuatalInsttutlonal Srengthening of MTCC 14. Ithe existng Law for Environmentand NaturalResources (C6dlgo del MedioAmbiente y los Recusos Naturaes, Decree613) wasestablished in September7, 1990. Article7 of this law required the aroval of environmentalimpact studies by the 'competentathority" for differentkind of projects includingroads and othertype of transportationprojects. Ihis articlewas revoked in late 1992by the Legitive Decree 757 GeneralLaw for the Growth of Private nvesatment(Laey Marco para el Crecimientode la InversidnPrivada). However,Article 50 of this newlaw definesthat the "competent authority"to dealwith issues related to the enforcementof the EnvironmentalLaw is the Ministryof each sector. Fubternore, Article51 of the samelaw establishesthat each competentauthority (that is the ities) will determinefor each sectorthe activitieswhich present environmental risk whichcould exceedtolerable levels or standardsof pollutionor environmentaldamage in such a waythat they will necessarilyrequire environmental impact studies before implementing such activities. 15. It is clearthen that MTCChas an overall responsibilityto addressenvironmental issues for the transpo, communications,housing and constuction sectors in Peru. The new Law for the Transport, Communications,Housing and ConstructionSectors (Law 25862, November, 1992) creates a Directorate of Eironment (Direcci6nGeneral de MedioAmbiente, DGMA) in "chargeof proposingpolicies conaning the improvementand controlof the qualityof the environment".DGMA is underthe Vice- ministryof Housingand Constructionand is currentlystaffed by personnelof the previousHousing n8ls E o Directoratewhich only addressedurban relatedissues (solid wasts, waste watr collectionand tement, landscapeworks, housing standards, among other issues). 16. Therefo, MICC has two optionsto complywith the existingenvironmental regulation and to promotean adequateenvironme managementof sectorialprojects. Theseoptions are: (a) Explicitlyinclude functions and staff within DGMA to manageenvironmental aspects of roadand anort projectsin additionto the existinghousing and urbanrelated issues. (b) Create an Enviromental Unit or EnvironmenalOffice in the Road Directorate(Direcci6n Generalde Caminos)or in a positionthat will enablesupervision of all sub-sectors.This unit wouldonly address emvironmenta issues of sectorialprojects different from the urbanissues of the currentDOMA.

17. Regardlessof the optiontaken (although the first optionwill probablybe selectedby MICC), the evironmentalunit or staffwithin DGMA will initiallyhave a smallcore staff of abouttwo to three persons and grow as more road and transportationprojects are being implemented. Required specializationsfor DGMAstaffing should include terrestria ecology,environmental engineering, rur sociologyand geography.The unit shouldinialy draw on existingin-house staff in the Ministryin orderto deal with geologicaland law-relatedproblems. Prior to loan negotiations,MTCC officially createdthis enviromentalunit and definedits staffing.

18. A mamnalof functionsand environmentalscreening procedures for this unit was prepared as part of the EA study. Ihe specificfunctions of the environmentaloffice for the managementof sectoral nvirnmental issuesinclude:

(a) Advisethe Ministeron envitonmentalconcerns in the transportsector. (b) Establshmt of enviromentalpolicies and proceduresin MTCC. -140- ANN I

(c) Establishmentof environmentalscreening and categoizationprocedures for sectorprojec. (d) In supportof the mediumterm planningof MTCC,incorporate environmental issues in tho executionof feasibilityand designstudies. (e) Preparationof termsof referencefor necessaryenvironmental studies. (t) Ensuringthat the recommendationsof the envirormentalimpact studies are followedin the field duringconstruction, operation, and maintenanceactivities. (g) Ensuringcompliance with the Environment Manualfor Contractors(see para 19 below)during road construction,rehabilitation and mantenance. (h) Ensuringthat all contractsand biddingdocuments incorporate the appropriateenviromen requirements. ) Coordinatewith other agencies In the governmentof Peru withenvironmenl fumctionsin those aspectswhere intersectoral or nationalissues are raised. () Monitorenvironmental factors and maintin a data basefor the sector.

EnvironmentalManual for Road Contractors 19. An EnvironmentalManual for RoadContractors to be adoptedby MTCCwas prepared as part of the EA study. Thepurpose of this manualis to establishspecific rules for minimiing ir ent damageduring the constructionand rehabilitationof roads. Ihe mana definesspecific penaltie for each type of envronl violationby individualemployees as well as by contractingcompanies. Examplesof the topicsincluded in th manusalare: (a) Applicableenvironmental and naturalresource legislation that contractorshawe to complywih duringconstuction and maintenanceactivities. (b) Explicitprohibitions and environmentalbehavior guidelines for work crews, speciallyalong sensitiveareas. (c) Proper selectionand managementof quarries,borrow pits, gravelextraction along rvers, ad other sourcesof constructionmaterial; eventual rehabilitation of affectedareas hrougb soil replacementand revegetat}on. (d) Selectionof campsites, managementof campwastes and guidelinesfor campdismaing ad abandonment.

(e) Proper disposal of excavatedearth and spoil mater to avoid otminaing streams or oiher unnecessaryenviromnental damage.

(f) Properdisposal of wastes fromconstruction machinery and equipment(buned ofls,parts, semi- solidwastes). -141- ANNE 15

THE RAILWAY COMONENT 20. Principal environmentalconcerns of thi componentare rlated to watwater collecton, treatment,and disposaland solid waste handling and disposal in workshopsand mnaintenace units. None of the existingunits haverun-off collecdon systems and oil or greasetraps; however,oil recyclingis a standardpractice in all workshops. Solidwaste disposal is carriedout in opendumps in placesalong railroadtracks. Fumes,gas and smokepollution in workshopsis high. Industrialsafety and preventive healthaspects are lackingfor maintenanceworkers. Thedesign of majorimprovements of existingor new maintenanceyards for this componentwill include:ventilation improvements, industrial safety equipmentstorage, standard industrial safety training, and designof controlmeasures in existingrefizse dumps.

THE NON-MOTORIZEDTRANSPORT COMPONENT

21. This componentrepresents a majorpositive environmental impact in the city of Lima. It will improveair qualityconditions by reducinggasoline consumption, and reducenoise pollution and traffic congestion.It will also reducetransportation costs for poor workersin the city. -142- A L

PERU - Transport Rhbligtaton Projed MSEL DOCJMEMm gDMpT AYALA= INnm IERM mg^c

Ove1l Project 1. Reglamero Unicode Adqudskcones,lstiuto Nacionalde AdministracidPdblica 2. ReglamentoUnico de Licitaclonesy Contratosde ObrasPiblicas, CAPECO,Agosto do 1992 3. Objetivosy PrindpalesAcdvldades 1990-1992, Ministerio de Transportes,Comunicaciotes, Vivienday Construccidn,Lima, 1992 Roads 4. Norma Perumasparael Disefiode Carea, Miuseo de Tranportes y Co ca , Direccidnde auctura Vial, 1970 5. Evalcl6n: CarreteraTaao -Rioja, NdstorPalacios, UCPP, May1992 6. EvaluIacldnProyetao: Tanna - San Ram6n,Nestor Palacios, UCPP, May 1992 7. EvaluacidnProyecto Rioja - CorralQuemado, NEstor Palacios, UCPP, Sepmb 1992

8. Contrto de Prf o PeuW, 7 deenero 1992

9. ProgramadeR ey n ede Cweteras, BID,Informe SemestrW enero-juno 1992

10. Base y TMminosde Rerenca para la Selecicn de Conskores, Estdos 05, 06, 07, MTCC, UnidadEjeoctiva del Progrma BID, Octabrede 1993 11. Pgroama de Relhabikacidnde biergencla de Carretws Robin C. Carruthers,JosE BL Bacigalupo,Reptblics del Perd, Mlnlsteriode Transpottesy Comuicaciones 12. Gauflcadn de la Red Val, Plaeamiento Normasy EspecificacionesTEWnicas, Direcci6n Generalde Caminos,December 1982 13. Idejtcacl6n y Defldcln del Componentede Carmterasde ProyectoReha dn de Sector Thnsportes,Rolando Flores, Gladys Perona Buder, UCPP, Mayo1993

14. Manual Ambental para Disefos y Constucdn de V(s, M Ainisterode Transports, Comunicacion,Vivienda y Contruccidn,Lima, 1993 15. Esdl de Inqao Amblentalde Proyectode abtacln de Vas en d Pern, Hernm Aistzabal, AntonioChavez, Wlfiredo Gut[rrez, JosdRios, UCPP,Julio de 1993 16. D&flddn dl CWponenede Segidad Val, SergioPaWn Lozno, Juliode 1993 -143- AN X 16 17. EwvuacidnEcondmica de los ComponemesWales, Lufs Girardotti, UCPP, Marzo de 1993

18. Evaluacfondel Sub-Coponhnte Pemes, Renln Garchade los Rfos, UCPP, June 1993

19. Flnanciamlento y AdmbzLractdnde Caminos,Jaime Carramifiana,Julio de 1993

20. Sistema Naclonaide Mantenimlentode Carreteras- SINMAC, MTCC, Septiembrede 1993

21. Evauad6n Econ6mica del Proyecto de Mejoramientode la Carretera Tarapoto-Aoyobanba- Rioja, Lufs Girardotti, UCPP, Agostode 1993

22. Evaluacd6nEcondmlca del Proyectode Mejoramlentode la CarreteraLa Merced-Chanchamayo- Saio, Lufs Girardotti, UCPP, Agosto de 1993

23. Evauacdn Econdmica del Proyecto de Mejoramleno y Rehablltacdn Carretera Thrma-La Merced, Lu(s Girardotti, UCPP, Agosto de 1993

24. EvaluackOnEcondmica del Proyeao de Mejoramknto yRehabiltacldn CarreteraThngo Marfa- Pucallpa, Lufs Girardotti, UCPP, Agosto de 1993

25. Evaluacin Econdmica del Proyectode Mejoramientode la Carretera Corral Quemado-Pdoja, Lus Girardottl,UCPP, Agosto de 1993

26. Evaluacn Econdca del Proyectode ReabilitaciOn de la CarreteraHuanuco-Ihigo Marta, Lu6sGirardotti, UCPP, Agosto de 1993

Rlways

27. Sftuact6n de la empresa y montos globles aproxmados de bliersun para rehlabUtact6n, ENAFER, September 1992

28. InvestmentProgram - Base Costs, ENAFER, July 1993

29. Enqfer StrategicSt* - Phase I Report, CANAC International,March 12, 1993

30. Enafer StraegicStudy - Phase I Report, CANAC hIeraional, July 1993

AhVort

31. Memoria, CORPAC, 1990

32. Proyecto de rezabUftacl6nde las p stas del aeropuerto internmcaonalde Lbma/CallaoJorge gdvez,DGTA/OACI

33. Aeropuerto Imernacional "Jorge OIdVez LlmaUCa11ao,Proyecto de RehobitaclOn de Pavinenos, Infme Tecnico,Federico Dovalf, ICAO, November 1993

34. Estrategiade Desarrollodel AeropuertoIntemnadonal Jorge Omvez - Lma-Call4o

35. Privatilon Proposal, Aeropod, September1992 .144- AN= 16 36. SW" FLmncderosa 31 de Diembre 199

37. SWst de Acdones por Desarroar en la Coiporacdn y ProyectosPiwWos en el Aewpw Jorge Oadwz Hl0c y Acduazadeel 31 de Dklembem1991, CORPACS.A.

38. Balawe General od 31-12-92. al 31-08-92, a1 31-12-90. d 31-12-89, Coptacidn Poaua de Aewopuertosy Aviacidn Comal, S.A.

P"motom of NonMotodre Tnspot In Uns

39. ProgromasPropue.uos para Solicitr Cooperacdn Mlcna Interacional at Banc Mund par 1. Mul dad de Lim Metrop_a, Municipalldaddo Li Metpol , 1992

40. Plan Integral de hranspor VehcWar No Motodw y Con rdn de aclovtas en LXma Maeropolkana,IMP, December1991

41. Euesta de Opbni a Enpleadosy Th*Wado&m soft Transpte no MotorWado, Cuto S.A., Lia, July 1993

42. Pre rse de SecetaratX udpo; _P?Wueode E)npisas Mw*ipks, MLM budget reorts for 1992and 1993

43. Presu o de C paMunia de Qdlo Poplar de Lma, CMCPL budget rporti for 1993

44. Pla de Desarrogo Maropilao de Lbnaea 1990-2010, development plan for the Lima- Callao metropolitan amea MAPSECTION ECUADOR 'n

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