The World Bank Lima Teleferico San Juan de Lurigancho (P170609) Public Disclosure Authorized Public Disclosure Authorized Project Information Document (PID) Concept Stage | Date Prepared/Updated: 30-May-2019 | Report No: PIDC26998 Public Disclosure Authorized Public Disclosure Authorized May 30, 2019 Page 1 of 14 The World Bank Lima Teleferico San Juan de Lurigancho (P170609) BASIC INFORMATION A. Basic Project Data OPS TABLE Country Project ID Parent Project ID (if any) Project Name Peru P170609 Lima Teleferico San Juan de Lurigancho - (Series 1) (P170609) Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) LATIN AMERICA AND Apr 02, 2020 Jun 05, 2020 Transport CARIBBEAN Financing Instrument Borrower(s) Implementing Agency Investment Project Financing GOVERNMENT OF PERU - Empresa Municipal MINISTERIO DE ECONOMIA Y Administradora de Peajes de FINANZAS - MEF Lima -EMAPE Proposed Development Objective(s) The Series of projects (SoP) Development Objective is to improve mobility and accessibility to jobs and services in selected hillside urban settlements in Lima Metropolitan Municipality, MML by integrating them to mass transit services. The SoP is comprised of two urban cable car projects: San Juan de Lurigancho (SJL) and El Agustino (EA). The PDO of the SJL Project is to improve mobility and accessibility to jobs and services of the hillside settlements in the SJL and Independencia districts of MML by integrating them to the BRT and metro services. PROJECT FINANCING DATA (US$, Millions) SUMMARY-NewFin1 Total Project Cost 123.00 Total Financing 123.00 of which IBRD/IDA 100.00 Financing Gap 0.00 DETAILS-NewFinEnh1 World Bank Group Financing International Bank for Reconstruction and Development (IBRD) 100.00 Non-World Bank Group Financing May 30, 2019 Page 2 of 14 The World Bank Lima Teleferico San Juan de Lurigancho (P170609) Counterpart Funding 23.00 Borrower/Recipient 23.00 Environmental and Social Risk Classification Concept Review Decision High Track II-The review did authorize the preparation to continue Other Decision (as needed) B. Introduction and Context Country Context 1. In the last decade, Peru has experienced sustained growth and significant poverty reduction; however, despite these efforts, inequality remains a significant challenge. Between 2004 and 2014, Peru’s economy (led by mining, agroindustry, and tourism) had one of the highest average growths in Latin America. During this decade, the GDP (Gross Domestic Product) growth of Peru has been 4.4 percent. This growth was the primary driver of poverty reduction. In the same decade, the poverty rate decreased substantially from 37.3 to 20.5 percent. Even with these robust results, inequality (based on the Gini coefficient) only decreased from 0.47 to 0.43 in the same period. 2. Economy growth decreased during the 2014-2017 period, and rebounded in 2018, supported by both, an expansive macroeconomic policy framework, and a cyclical recovery based on external and domestic factors. Public spending, in particular investment, accelerated due to reconstruction works in the North and investment related to the forthcoming Pan-American Games in Lima, the country’s capital. Despite increased capital spending, revenue overperformance allowed for some fiscal consolidation. The current account deficit increased moderately to 1.5 percent of GDP in 2018, as commodity exports stagnated, while imports accelerated, driven by the increased spending. The rise in the export prices was matched by an almost equal rise in import prices, maintaining terms of trade unaltered. The external gap was fully financed by inflows of long-term capital. However, lower reserve requirements for banking deposits in dollars and public sector used of stabilization fund prompted a fall in reserves. 3. Average inflation was 1.3 percent, close to the lower bound of the Central Bank’s targeted range of 1 to 3 percent. The low level of inflation is partially due to price reversals after the scarcity of some food products led to increased price pressures in 2017. In this context, the Central Bank lowered its benchmark interest rate to 2,75 percent in March and left it unaltered since. 4. Poverty (US$ 5.5 per day) is estimated to have declined only slightly in 2018. Labor market started to recover, reflected in the increase in employment and real wages in the formal sector in 2018. The LMA (Lima Metropolitan Area), experienced strong recovery in employment in 2018, especially in the construction sector, although underemployment has also increased. This recovery might not be benefitting all groups equally: youth in LMA seems to remain particularly affected by still weak labor markets, and low-skilled workers saw a larger increase in underemployment and a slight decline in their labor income. May 30, 2019 Page 3 of 14 The World Bank Lima Teleferico San Juan de Lurigancho (P170609) 5. Economic growth is expected to level off close to 4 percent in 2019-21, gradually closing the output gap and generating the space for a gradual withdrawal of monetary and fiscal stimuli. The fiscal consolidation is expected to continue, with the deficit converging to 1 percent of GDP in 2021, in line with the fiscal rule. Withdrawal of monetary stimulus might begin in the second half of the year, once output recovery gains strength. 6. GDP is expected to decelerate slightly in 2019, mainly due to lower growth of public spending, as the replacement of subnational authorities would lead to the slower implementation of public projects. Higher growth in private investment, mainly related to large mining projects, would only partially compensate for the decline in public spending. Also, positive developments in the labor market and favorable credit conditions would support the expansion of private spending. Over the medium-term, GDP growth is expected to accelerate slightly mainly due to a moderate increase in exports, as mining investment projects come into operation. Sectoral and Institutional Context 1. Peru is a highly urbanized country, with about 78 percent of the population of about 32 million living in urban areas (2017 World Bank data). Urbanization and migration rates in Peru have been high for several decades. Since the first wave of migration in the 1950s’, when urbanization rate was around 47 percent, Lima was home of only 14 percent of the population. Forced displacement, from areas affected by internal violence, drove the second wave of migration that took place in the 1980s. This wave concentrated migrants in the North of Lima. The third, recent wave is being driven by the arrival of Venezuelan immigrants to Peru, particularly to Lima, which, since 2002, was established as the MML (Lima Metropolitan Municipality). Even without accounting for this recent wave of international immigration, MML’s population has increased by an average of 1.1 percent per year between 2008 and 2018. 2. MML concentrates 29 percent of the national population and, after conurbating with the City of Callao, forms the largest urban area in Peru. MML and Callao, which have independent administrative arrangements, are physically conurbated, giving the name to the LMA (Lima-Callao Metropolitan Area). LMA stretches north to south for 80 km along the Pacific Ocean, and from west to east for 40 km from the Pacific Ocean to the Andean Mountain Range, with about 2,672 square kilometers leading to a population density of around 3,000 people per square kilometers. LMA encompasses a total of 50 districts, including SJL (San Juan de Lurigancho), the most populated district in the country (1.1 million). In the North of LMA the poverty rates in 2017 range from 16 to 23.2 percent, in some cases over the national rate. Currently, the population for LMA is around 9.3 million (2018), being the third-largest city in Latin America, and it is home to 29 percent of the country’s population. 3. The northeastern municipalities of LMA agglomerate 16 districts that, despite being predominantly poor, stand as engines of economic growth and competitiveness. LMA accounts for 49 percent of the national GDP and includes the country’s leading facilities for international trade and domestic logistics. What is more, Lima has played a vital role in continued poverty reduction and shared prosperity during the past decade (from 37.3 to 20.5 percent). However urban poverty in the north and east districts of the LMA ranges between 16 and 29 percent or 8.3 p.p. above the Lima average (12.9 percent in 2017). These 16 districts concentrate 53 percent for the LMA population and three of them are the largest residential districts of the LMA --San Juan de Lurigancho, San Martin de Porres and EA (El Agustino), see Figure 2. Notwithstanding, the rest of the districts, including economically emerging districts in the northern parts of the LMA, concentrate many commercial and industrial activities (with 85 businesses every thousand inhabitants, a business density only surpassed by Central MML). Overall, these conditions have generated May 30, 2019 Page 4 of 14 The World Bank Lima Teleferico San Juan de Lurigancho (P170609) greater economic dynamism and decentralization of financial and governmental activities from the center of the city towards these emerging poles in the north and east. 4. LMA’s urban transport infrastructure is insufficient, only 15% is covered by mass transit systems. Around 18 million trips are generated each day in the LMA of which 15% are made in private vehicles and 10% in taxis, while around 75% of the trips are made using public transport modes (which is on the higher end by international benchmarks), including 60% using non-Metropolitano bus services (both formal and informal providers) and only 15% using mass transit systems (7% on the BRT (Metropolitano Bus Rapid Transit) and eight percent on the elevated LM1 (Metro Line 11, Tren Electrico). LMA’s current transport infrastructure can be characterized by insufficient and non-integrated mass transit options, inefficient, fragmented and largely unregulated existing public transport.