World Bank Documentdocuments.worldbank.org/.../pdf/Peru-Env-PAD-12212016.pdf · 2017-03-02 ·...

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: PAD1148

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$40 MILLION

TO THE

REPUBLIC OF PERU

FOR AN

ENHANCEMENT OF ENVIRONMENTAL QUALITY SERVICES PROJECT

December 9, 2016

Environment and Natural Resources Global Practice

Latin American and Caribbean Region

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

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

Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective as of October 14, 2016)

Currency Unit = Peruvian Sol

3.3199 = US$1

US$ = SDR 1

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ANA National Water Authority (Autoridad Nacional del Agua)

AO Administrative Office

CPS Country Partnership Strategy

CAM Municipal Environmental Commissions (Comisiones Ambientales Municipales)

DGCA Department of Environmental Quality (Dirección General de Calidad

Ambiental)

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

DGIIA Department of Environmental Information and Research (Dirección General de

Investigación e Información Ambiental)

DGPNIGA Department of Environmental Management Policy, Standards and Instruments

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

ECA

EPR

Environmental Quality Standards (Estándares de Calidad Ambiental)

Environmental Performance Review

EVAP Preliminary Environmental Assessment (Evaluación Ambiental Preliminar)

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

de La Calidad del Aire)

GLP Good Laboratory Practice

GoP Government of Peru

IBRD

INACAL

International Bank for Reconstruction and Development

National Institute of Quality (Instituto Nacional de Calidad)

IPF Investment Project Financing

LEED Leadership in Energy and Environmental Design

LMP Maximum Allowed Limits (límites máximos permisibles)

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

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

MINAM Ministry of Environment (Ministerio del Ambiente)

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

Construcción y Saneamiento)

M&E Monitoring and Evaluation

OA Office of Administration

OECD Organisation for Economic Cooperation and Development

OEFA Agency for Environmental Assessment and Enforcement (Organismo de

Evaluación y Fiscalización Ambiental)

OCI Internal Control Office (Órgano de Control Institucional)

PCU Project Coordinating Unit

PIU Project Implementation Unit

POM Project Operational Manual

PRTR Pollutant Release and Transfer Register

PSC

RSA

Project Steering Committee

Regional Safeguards Advisor

SEIA National System of Environmental Impact Assessment (Sistema Nacional de

Evaluación de Impacto Ambiental)

SENACE National Service of Environmental Certification for Sustainable Investments

(Servicio Nacional de Certificación Ambiental para las Inversiones Sostenibles)

SENAMHI National Meteorology and Hydrology Service (Servicio Nacional de

Meteorología e Hidrología)

SIAF Integrated System for Financial Administration (Sistema Integrado de

Administración Financiera)

SINADA National System of Environmental Grievances (Servicio de Información

Nacional de Denuncias Ambientales)

SINIA National Environmental Information System (Sistema Nacional de Información

Ambiental)

SNGA National System for Environmental Management (Sistema Nacional de Gestión

Ambiental)

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

Regional Vice President: Jorge Familiar

Country Director: Alberto Rodriguez

Acting Senior Global Practice Director: Julia Bucknall

Practice Manager: Raul Ivan Alfaro-Pelico

Task Team Leader: Ismael Fernando Loayza Careaga, Ernesto

Sanchez-Triana

PERU

Enhancement of Environmental Quality Services (P147342)

TABLE OF CONTENTS

Page

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

i

PAD DATA SHEET

Peru

Peru: Enhancement of Environmental Quality Services (P147342)

PROJECT APPRAISAL DOCUMENT

LATIN AMERICA AND CARIBBEAN

Environment and Natural Resources Global Practice

Report No.: PAD1148

Basic Information

Project ID EA Category Team Leader(s)

P147342 B - Partial Assessment Ismael Fernando Loayza Careaga,

Ernesto Sanchez-Triana

Lending Instrument Fragile and/or Capacity Constraints [ ]

Investment Project Financing Financial Intermediaries [ ]

Series of Projects [ ]

Project Implementation Start Date Project Implementation End Date

01-Mar-2017 01-Jun-2022

Expected Effectiveness Date Expected Closing Date

01-Jun-2017 01-Jun-2022

Joint IFC

No

Practice

Manager/Manager

Senior Global Practice

Director Country Director Regional Vice President

Raul Ivan Alfaro Pelico Julia Bucknall Alberto Rodriguez Jorge Familiar

Borrower: REPUBLIC OF PERU

Responsible Agency: Ministry of Environment

Contact: Marcos Alegre Title: Viceministro de Gestion Ambiental

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

Responsible Agency: Organismo de Evaluacion y Fiscalizacion Ambiental

Contact: Tessy Torres Title: Executive President

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

Project Financing Data(in USD Million)

[ X ] Loan [ ] IDA Grant [

Guarantee

ii

]

[ ] Credit [ ] Grant [

]

Other

Total Project Cost: 70.41 Total Bank Financing: 40.00

Financing Gap: 0.00

Financing Source Amount

Borrower 30.41

International Bank for Reconstruction and

Development

40.00

Total 70.41

Expected Disbursements (in USD Million)

Fiscal Year 2017 2018 2019 2020 2021 2022

Annual 0.00 3.14 20.18 16.64 0.04 0.00

Cumulative 0.00 3.14 23.32 39.96 40.00 40.00

Institutional Data

Practice Area (Lead)

Environment & Natural Resources

Contributing Practice Areas

Proposed Development Objective(s)

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

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

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

public participation in environmental quality management.

Components

Component Name Cost (USD Millions)

Improve Environmental Quality Control 61.42

Information Disclosure and Public Participation for

Environmental Quality Control

4.83

Project Management 4.16

Systematic Operations Risk- Rating Tool (SORT)

Risk Category Rating

iii

1. Political and Governance Low

2. Macroeconomic Low

3. Sector Strategies and Policies Low

4. Technical Design of Project or Program Moderate

5. Institutional Capacity for Implementation and Sustainability Moderate

6. Fiduciary Substantial

7. Environment and Social Low

8. Stakeholders Low

9. Other

OVERALL Moderate

Compliance

Policy

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

respects?

Yes [ ] No [ X ]

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

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

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

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

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 X

Natural Habitats OP/BP 4.04 X

Forests OP/BP 4.36 X

Pest Management OP 4.09 X

Physical Cultural Resources OP/BP 4.11 X

Indigenous Peoples OP/BP 4.10 X

Involuntary Resettlement OP/BP 4.12 X

Safety of Dams OP/BP 4.37 X

Projects on International Waterways OP/BP 7.50 X

Projects in Disputed Areas OP/BP 7.60 X

Legal Covenants

Name Recurrent Due Date Frequency

Operation and Management expenses

covenant X CONTINUOUS

Description of Covenant

iv

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

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

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

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

and maintained.


SENAMHI Cooperation Agreement 01-Jun-2018


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

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

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

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

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

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

relevant provisions of the Legal Agreement


ANA Cooperation Agreement 01-Jun-2018


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

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

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

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

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

with the relevant provisions of the Legal Agreement.

Conditions

Source Of Fund Name Type

IBRD Operational Manual Effectiveness

Description of Condition

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

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

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

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

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

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

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

Environmental and Social Management Framework (ESMF).


IBRD OEFA Cooperation Agreement Effectiveness


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

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

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

v

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

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


IBRD Project Coordination Unit (PCU) Effectiveness


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

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

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

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

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

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

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

OEFA under Parts 1.1. and 2 of the Project.


IBRD Project Steering Committee (PSC) Effectiveness


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

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

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

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

guidance.

Team Composition

Bank Staff

Name Role Title Specialization Unit

Ismael Fernando Loayza

Careaga

Team Leader

(ADM

Responsible)

Senior

Environmental

Economist

Environmental

Economics

GEN04

Ernesto Sanchez-Triana Team Leader Lead

Environmental

Specialist

Environmental

Management

GENDR

Selene del Rocio La

Vera

Procurement

Specialist (ADM

Responsible)

Procurement

Specialist

Procurement GGO04

Nelly Ikeda Financial

Management

Specialist

Financial

Management

Specialist

Financial

Management

GGO22

Alonso Zarzar Casis Safeguards

Specialist

Sr Social Scientist Senior Social

Scientist

GSU04

Ana Luisa Gomes Lima Team Member Environmental

Specialist GEN04

Bjorn-Soren Gigler Team Member Senior

Governance

GGOII

vi

Specialist

Catarina Isabel Portelo Counsel Senior Counsel LEGLE

Cecilia Belita Team Member Operations Analyst Operations

Analyst

GWA09

Cesar Augusto Tapia Team Member Consultant GWA04

Jiang Ru Team Member Senior

Environmental

Specialist

Environmental

Management

GEN06

Juan Carlos Enriquez

Uria

Safeguards

Specialist

Senior

Environmental

Specialist

Environmental

Engineering

GEN04

Juan Jose Miranda

Montero

Team Member Environmental

Economist

Economist GENGE

Maria Luisa Castro Leon Team Member Consultant GENDR

Maria Virginia

Hormazabal

Team Member Finance Officer WFALA

Mariana Margarita

Montiel

Counsel Senior Counsel LEGAM

Momoe Kanada Team Member Consultant Environmental

Management

GENGE

Oswaldo Patino Team Member Project

Management

GTIDR

Sylvia Michele Diez Team Member Environmental

Specialist GEN04

William Reuben Team Member Consultant Consultant GSU04

Extended Team

Name Title Office Phone Location

Locations

Country First

Administrative

Division

Location Planned Actual Comments

Peru Lima Lima X

Consultants (Will be disclosed in the Monthly Operational Summary)

1

I. STRATEGIC CONTEXT

A. Country Context

1. Peru achieved annual GDP growth rates of 6.4 percent between 2006 and 2015 while

experiencing low inflation (3.06 percent on average). Growth helped Peru reduce poverty from

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

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

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

substantially due to increasing public investments.

2. Strong macroeconomic and structural reforms over the last 20 years have driven these

successes. Macroeconomic stabilization in the 1990s included the introduction of a more flexible

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

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

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

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

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

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

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

3. In spite of this progress, Peru lags in the quality and quantity of its infrastructure. In

2015-2016, Peru ranked 69th

in the Global Competiveness Index, but only 89th

out of 140

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

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

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

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

support aggregate demand.

4. Since December 2014, Peru has had an OECD Country Program2. Through this program,

the Government of Peru (GoP) has participated in several of the OECD’s Specialized

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

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

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

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

environment for enhanced environmental quality control and improved access to environmental

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

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

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

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

http://www3.weforum.org/docs/gcr/2015-2016/Global_Competitiveness_Report_2015-2016.pdf

http://www.oecd.org/latin-america/countries/peru/

2

B. Sectoral and Institutional Context

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

percent of its GDP.3 Most of this cost came from morbidity and mortality as a result of polluted

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

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

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

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

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

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

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

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

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

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

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

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

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

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

population, primarily in rural areas.

6. However, the development of the Peru's general framework for pollution management

and control has been less successful. Pollution control is handled using environmental quality

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

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

environmental discharges and emissions from regulated entities. The Department of

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

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

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

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

Environmental Assessment and Enforcement (Organismo de Evaluación y Fiscalización

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



3

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

system.

7. External observers have called attention to the country's limited environmental quality

control capacity: as a World Economic Forum report points out, Peru is positioned higher among

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

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

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

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

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

local protests in the country.”8

8. There are several areas in which Peru's environmental quality control is lacking: (a) some

environmental quality and compliance standards are absent or inadequate; (b) environmental

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

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

few channels for public participation.

9. The ECAs and LMPs are still evolving and they are incomplete to manage the country’s

environmental quality. Furthermore, the currently regulated values of ECAs and LMPs do not

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

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

control effectively the country’s environmental quality.

10. Another deficit is the lack of environmental monitoring networks for air and water.

According to OEFA, regular air quality monitoring is limited to major urban centers, such as

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

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

As a

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

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

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

registered, which leaves priority areas uncovered.

11. In addition, problems in the use of statistical methods used for sampling, including the

uncertainty level associated with the sampling results have affected the validity and

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

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

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

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

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

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

September 11, 2016) 8 ibid.

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

for the World Bank. Unpublished. 10

ibid.

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

4

12. Monitoring efforts are also hampered by poor analysis. In Peru, third party laboratories

undertake most of the analysis of samples, and the authorities do not maintain rigorous quality

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

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

the parameters they ought to.11

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

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

measuring air quality parameters.

13. As a result of these weaknesses, the available environmental quality data has not satisfied

the public's demand for knowledge. Environmental contingency plans are rendered useless

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

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

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

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

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

adverse effects on economic growth.

14. Even when information does exist, it cannot easily be shared across agencies involved in

different aspects of environmental quality control. While the GoP has established norms for

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

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

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

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

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

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

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

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

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

coherent and standardized system.

15. To organize the country's disparate environmental information systems, the GoP

developed, in 2010, a National Environmental Information System (Sistema Nacional de

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

environmental management information from related authorities12

, performing data processing

and analyses13

, and enabling data access and dissemination.14

However, SINIA is plagued by

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

11

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

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

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

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

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

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

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

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

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

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

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

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

5

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

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

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

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

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

across agencies and supporting sound decision making for sustainable economic development

activities.

16. The last key issue is the lack of informed and active public participation. Peru is a

country facing more frequent, and more intense, social conflicts linked to perceived

environmental impacts and degradation.15

In addition to the information availability issues

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

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

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

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

MINAM acknowledges that the environmental complaints and grievance mechanisms in practice

involve cumbersome and inflexible processes with limited transparency, which inevitably

discourages public participation, particularly by the rural poor.

17. MINAM has promoted information disclosure through its SINIA portal, which has

documented over 750,000 visits from 2010 to 2014. But MINAM hasn't been able to move past

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

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

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

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

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

effectiveness as a public disclosure instrument.

18. The GoP recognizes that it faces issues at all levels of its environmental quality control

system. At the top level, it lacks emissions limits in some areas, and in other areas the values of

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

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

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

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

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

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

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

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

collecting and disseminating the data to the public.

19. Acknowledging this situation that impairs transparent, accountable and participatory

environmental quality control, the GoP has requested a World Bank financed project to support

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

15

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

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

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

6

effective environmental quality control in order to enhance environmental management and

develop an evidence-based environmental policy.

C. Higher Level Objectives to which the Project Contributes

20. The Project is in line with the Country Partnership Strategy (CPS) for the Republic of

Peru for FY12-FY16 (Report No. 66187-PE), discussed by the Executive Directors on February

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

public sector performance objectives. Given the fact that environmental degradation

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

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

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

of ending extreme poverty and promoting shared prosperity.

21. The proposed Project is also directly aligned with the priorities of the new Government to

develop indicators, baselines, evidence-based policymaking and measuring impacts of

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

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

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

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

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

supported by component 216

. Other components will indirectly contribute to the implementation

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

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

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

II. PROJECT DEVELOPMENT OBJECTIVES

A. PDO

22. The objective of the proposed Project is to generate and share information for

environmental quality control at the national level, by supporting the Government of Peru to

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

environmental quality information and promote informed public participation in environmental

quality management.

23. To achieve this objective the Project will (i) improve the regulatory framework for

controlling environmental quality, (ii) increase environmental monitoring and analytical capacity

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

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

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

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

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

16

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

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

Resolution N° 04-2016-MINAM.

7

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

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

B. Project Beneficiaries

24. This Project’s primary beneficiaries will be OEFA and MINAM. OEFA will receive

Project support to strengthen its human and technical capacity in environmental monitoring and

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

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

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

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

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

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

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

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

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

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

data center capacity to share information with SINIA.

C. PDO Level Results Indicators

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

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

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

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

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

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

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

monitoring services.

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

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

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

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

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

OECD Environmental Performance Review of Peru, 2016.18

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

new system satisfies public demand for environmental quality information and facilitates

17

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

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

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

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

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

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

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

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

8

participation in environmental quality management. The indicator will be disaggregated

by sex to identify potential variations in average user satisfaction.

III. PROJECT DESCRIPTION

A. Project Components

26. Component 1: Improve Environmental Quality Control (US$ 61.42 million, of which US$

37.28 million financed by the Bank Loan). This component will support MINAM and OEFA to

carry out their responsibilities in air, water and soil monitoring and analysis based on an

improved regulatory framework, the development of capacities and infrastructure for effective

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

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

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

Monitoring and Analysis.

27. More specifically, subcomponent 1.1: ‘Environmental Quality Standards and Guidelines’

will support DGCA of MINAM to strengthen the regulatory framework. It will also support the

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

9

dissemination of environmental quality information and public participation in environmental

quality management.19

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

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

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

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

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

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

B. Project Financing

31. The selected lending instrument is Investment Project Financing (IPF). An IBRD loan

will be provided to the Republic of Peru, which will allocate the loan proceeds to OEFA.

C. Project Cost and Financing

32. The proposed Project cost will be US$ 70.41 million, of which US$ 40 million would be

financed by the IBRD loan. The counterpart funding will be provided through the government’s

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

revenues.

Project Components Project cost* IBRD Financing % Financing

1. Improve Environmental Quality Control

2. Improve Environmental Information and Public

Participation for Environmental Quality Control 3. Project Management

Total Costs

61,418,150

4,829,837 4,159,319

37,277,479

2,722,521 0

60.69

56.37 0

Total Project Costs

Total Financing Required

70,407,306

40,000,000

40,000,000

56.81

* Including tax

D. Lessons Learned and Reflected in the Project Design

33. Although Peru has made considerable progress in developing an institutional framework

for environmental management, reforms have also revealed a number of capacity gaps. In its

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

that covered from strengthening environmental impact assessments systems, improving

environmental quality control, developing environmental information systems and promoting

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

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

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

19

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

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

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

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

10

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

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

34. As a result, OEFA was invited by MINAM to join the project due to its focus on

environmental quality control and enforcement. Also, the Bank and MINAM's initial focuses,

which involved strengthening environmental impact assessment systems through support for the

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

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

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

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

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

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

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

environmental management.

35. Another key lesson has been recognizing the need for only one head of the Project to

ensure close coordination between MINAM and OEFA. This resulted in the creation of the PSC

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

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

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

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

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

risk of management fragmentation and insufficient coordination for Project implementation.

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

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

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

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

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

tasks.

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

36. Following Project approval, MINAM will establish a project steering committee (PSC) to

oversee project implementation and give the project strategic direction. This committee will

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

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

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

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

(POM), which is a condition of effectiveness.

37. The Project executing agency is OEFA, which is an agency with an independent budget

status under MINAM. OEFA will manage the loan proceeds through a Special Account to be

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

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

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

11

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

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

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

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

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

Project implementation with support from the PCU.

38. While OEFA will be responsible for the Project’s management, it will closely cooperate

with MINAM in performing this activity. MINAM will approve ToRs and clear the goods and

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

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

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

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

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

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

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

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

established to reflect the different responsibilities between the parties.

39. MINAM and OEFA jointly developed a POM to define (a) the roles and responsibilities

of all agencies involved in Project implementation; (b) financial management, disbursement,

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

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

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

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

B. Results Monitoring and Evaluation

40. The results framework has been developed in close discussion with MINAM and OEFA.

The overall responsibility for Project M&E will lie with the OEFA PCU. The PCU will

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

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

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

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

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

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

Bank will monitor and evaluate implementation results through regular implementation support

missions and review meetings.

C. Sustainability

41. This proposed Project supports critical elements of the country’s environmental strategy

and action plans by supporting MINAM and OEFA in their efforts to collect, analyze and

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

12

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

A covenant to cover O&M

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

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

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

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

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

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

results.

V. KEY RISKS

A. Overall Risk Rating and Explanation of Key Risks

42. The overall risk rating of the proposed Project is assessed as Moderate. Key risks arise

from fiduciary management and technical design.

43. The fiduciary risks are Substantial due to OEFA’s lack of experience in procuring and

managing both Bank-financed projects and large investment projects. Project delays may also

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

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

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

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

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

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

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

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

institutional capacity for implementation and sustainability is moderate.

44. OEFA will also hire a specialized firm to build its laboratory. Because of the size of this

contract, which will include both the construction of the lab and procurement of equipment,

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

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

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

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

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

stages and take corrective actions as needed.

45. Technical design risks for the proposed Project are rated Moderate on three fronts: (a)

possible delays in the procurement of the land plot by OEFA; (b) institutional capacity for

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

management is funded solely by counterpart funding.

20

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

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

be supported by this project.

13

46. For mitigating the risks with regard to the procurement of land OEFA carried out a

market study to identify the best technical and economic options for the laboratory site. The

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

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

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

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

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

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

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

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

this risk is moderate because alternative land plots are available.

47. Potential institutional frictions and coordination problems between OEFA and MINAM

create a risk for Project implementation and sustainability. This risk was substantial during

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

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

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

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

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

responsibility of Project implementation because OEFA has stronger Project implementing

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

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

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

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

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

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

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

sustainability is moderate.

48. Another risk faced by the proposed Project would be insufficient counterpart funding to

support Project management. This risk is created by the government policy of not allowing the

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

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

the Project21.

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

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

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

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

Project implementation.

21

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

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

from its directly billed revenues. 22

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

14

VI. APPRAISAL SUMMARY

A. Economic and Financial Analysis

49. In all areas of the proposed Project there are classic market failures that justify public

funding, as long as delivery is well designed and cost effective. The proposed Project aims to

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

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

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

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

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

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

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

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

public.

50. Following a cost-benefit approach, the benefits and costs were monetized by estimating the

benefits of lower air and water pollution in future mortality and morbidity rates in relation to the

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

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

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

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

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

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

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

parameters.

B. Technical

51. This proposed Project supports the GoP in developing its capacity to better manage

environmental quality. For Component 1, the current Project design will help ensure that

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

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

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

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

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

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

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

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

Annex 2 provides a more detailed account of Project activities.

C. Financial Management

52. OEFA’s administration office will manage the fiduciary aspects of Project

implementation, but the technical aspects of component 2 and subcomponent 1.1 will be under

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

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

15

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

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

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

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

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

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

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

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

financial assessment undertaken of OEFA by the Bank.

53. As a result of the Financial Management Assessment performed, the Project's risk rating

is substantial. However, once the mitigating measures are put in place and the pending activities

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

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

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

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

to the Bank.

D. Procurement

54. An assessment of OEFA’s capacity to implement procurement actions for the Project was

carried out. The assessment identified potential risks that could affect achievement of Project’s

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

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

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

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

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

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

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

3.

E. Social (including Safeguards)

55. The construction of the Laboratory which is one of the proposed Project’s investment

activities will require acquisition of a vacant commercial lot of 6,000 m2 (approximately 1.5

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

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

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

Through this process a

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

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

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

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

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

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

23

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

confirmed that OP 4.12 does not to be triggered.

16

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

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

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

selected.24

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

included in the loan agreement.

56. The installation of air quality and hydrometeorology stations in Lima, Trujillo, Chiclayo,

Piura, Iquitos, Huancayo and Cusco will require small areas (5 to 8 m2 per each station), likely in

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

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

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

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

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

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

Resettlement Policy.

F. Environment (including Safeguards)

57. By promoting transparent, effective and inclusive governance of environmental quality

control, this Project will bring positive environmental benefits. The investment activities –

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

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

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

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

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

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

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

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

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

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

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

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

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

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

part forests). The Project cannot fund these activities.

58. Because the land for the construction of the laboratory will be acquired after Project

approval with counterpart funds, the location of the laboratory was not known during Project

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

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

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

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

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

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

24

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

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

17

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

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

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

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

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

ESMF.

59. The ESMF identifies the following preventive actions for the construction phase, to

ensure minimum adverse impacts:

- Locate the laboratory in an industrial area

- Comply with the ECAs and LMPs

- Laboratory design to meet the national building standards

- Follow the LEED standards

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

physical cultural resources

- Build green areas within the site

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

- Prohibit the use of lead paint

- Promote efficient use of natural light

- Promote efficient use of wind

- Promote efficient use of water and recycled water

- Appropriate treatment of wastewater

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

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

technologies

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

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

the following:

- Promote responsible handling of chemicals

- Promote use of organic products

- Promote recycling of materials and equipment and reducing overconsumption

- Avoid purchase of obsolescent products

60. Since June 2015, OEFA has established a grievance redress mechanism that will cover

potential grievances or complaints about the Project (www.oefa.gob.pe/portada/libro-de-

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

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

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

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

virtual

G. World Bank Grievance Redress

http://www.oefa.gob.pe/portada/libro-de-reclamaciones-virtual


http://www.oefa.gob.pe/?wpfb_dl=14516)



18

61. Communities and individuals who believe that they are adversely affected by a World

Bank (WB) supported Project may submit complaints to existing project-level grievance redress

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

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

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

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

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

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

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

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

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

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

http://www.worldbank.org/GRM

http://www.inspectionpanel.org/

19

Annex 1: Results Framework and Monitoring

Country: Peru

Project Name: Enhancement of Environmental Quality Services (P147342)

Results Framework

Project Development Objectives

PDO Statement

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

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

and promote informed public participation in environmental quality management.

These results are at Project Level

Project Development Objective Indicators

Cumulative Target Values

Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End

Target

Validated air quality monitoring networks in operation supported by

the project (recommendation 25.1 of the Action Plan for the

implementation of the recommendations of the OECD EPR of Peru)

(Number)

0.00 0.00 1.00 3.00 7.00 7.00 7.00

Validated surface water quality monitoring networks in operation

supported by the project

(Number)

0.00 0.00 0.00 0.00 1.00 1.00 1.00

Analytical parameters accredited for the OEFA laboratory

(Percentage) 0.00 0.00 0.00 0.00 30.00 70.00 70.00

Environmental quality information disclosed through SINIA (aligned to

recommendation 7 of the OECD Environmental Performance Review

of Peru, 2016) (Percentage)

5.00 5.00 5.00 40.00 70.00 100.00 100.00

20

Average user satisfaction score of the National Environmental

Information System (SINIA) (disaggregated by sex)

(Number)

2.00 2.00 2.00 3.00 4.00 4.00 4.00

Intermediate Results Indicators

Cumulative Target Values

Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End

Target

Functioning air quality monitoring stations established by the project

(Number) 0.00 0.00 6.00 16.00 16.00 16.00 16.00

Functioning water quality monitoring station established by the project

(Number) 0.00 0.00 0.00 12.00 19.00 19.00 19.00

OEFA Lab Established

(Number) 0.00 0.00 0.00 0.00 1.00 1.00 1.00

Accredited laboratories with Good Laboratory Practice compliance

(Percentage) 0.00 0.00 0.00 0.00 0.00 10.00 10.00

Samples analyzed by OEFA laboratory

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

ECAs established or revised supported by the project

(Number) 0.00 0.00 0.00 1.00 1.00 1.00 1.00

LMPs established or revised supported by the project (recommendation

26.2 of the Action Plan for the implementation of the recommendations

of OECD EPR of Peru).

(Number)

0.00 0.00 2.00 3.00 5.00 5.00 5.00

National entities submitting environmental quality information to

SINIA

(Number)

1.00 1.00 3.00 5.00 5.00 5.00 5.00

Public Engagement tools deployed (Number) 1.00 1.00 3.00 7.00 7.00 7.00 7.00

Visits to the project supported public engagement platforms

(Number in thousand) 300.00 750.00 1230.00 1730.00 2260.00 3130.00 3130.00

21

Response rate to registered public requests for environmental quality

information with SINIA (aligned to recommendation 7 of the OECD

Environmental Performance Review of Peru, 2016)

(Percentage)

40.00 40.00 40.00 50.00 60.00 70.00 70.00

CSO staff trained on public engagement tools

(Number) 0.00 0.00 0.00 200.00 200.00 200.00 200.00

Officials trained on the use of environmental quality information for

informed decision making

(Number)

0.00 0.00 0.00 110.00 110.00 110.00 110.00

Software engineers trained on open data and potential uses of such data

(Number) 0.00 0.00 0.00 50.00 50.00 50.00 50.00

Indicator Description

Project Development Objective Indicators

Indicator Name Description (indicator definition etc.) Frequency Data Source /

Methodology

Responsibility for

Data Collection

Validated air quality

monitoring networks in

operation supported by the

project

This indicator measures the number of networks:

one control center and various monitoring

stations connected to it. "Validated" means

having a certification as a proof to meet certain

Peruvian quality assurance and quality control

protocols at the monitoring station and control

center level. Target is to complete and validate

the protocol at Year 2. SENAMHI has the

competence for validating air quality monitoring

networks.

Note: Recommendation 25.1 of the Action Plan

for the implementation of the recommendations

of OECD EPR of Peru, approved under Supreme

Resolution 04-2016-MINAM, requires

implementation of 31 prioritized air monitoring

Semi-annual Technical inspection of

networks compliance with

quality assurance and

quality control protocols

OEFA

22

networks, six of which will be implemented with

support from project. The existing Lima-Callao

network will be enhanced and validated by the

project

Validated surface water

quality monitoring

networks in operation


This indicator measures the number of networks:

one control center and various monitoring

stations connected to it. "Validated" means

having a certification as proof to meet certain

Peruvian quality assurance and quality control s

at the monitoring station and control center level.

Working with ANA, OEFA will develop a

protocol for monitoring validation. OEFA will

validate the operations and maintenance of the

system each year.

Semi-annual Technical inspection of

networks and monitoring

stations compliance with

quality assurance and

quality control protocols

OEFA

Analytical parameters

accredited for the OEFA

laboratory

This indicator measures the progress of the

project-financed laboratory in achieving its

designed analytical capacity. INACAL is legally

responsible for accrediting laboratories.

Semi-annual Review of accreditation

prepared by INACAL

and/or an internationally

recognized accreditation

institution

OEFA

Environmental quality

information disclosed

through SINIA

This indicator measures the available

environmental quality monitoring data on air

(according to ECAs), water (according to ECAs)

and soil (according to ECAs) quality collected by

SINIA from monitoring exercises (stations and

manual) of the five national agencies, which will

be disclosed to the public. SINIA will collect

data from ANA, DIGESA, SENAMHI, OEFA

and MINAM.

Note. Aligned with recommendation 7 of the

Environmental Performance Review of Peru to

the Working Party on Environmental

Performance, Environment Directorate, OECD.

Semi-annual Direct observation on

SINIA publicly accessible

platforms and portal

MINAM/SINIA

Average user satisfaction

score of the National

This indicator measures the efficacy of the

SINIA to serve the needs of the public for

Semi-Annual Online survey MINAM/SINIA

23

Environmental Information

System (SINIA)

(disaggregated by sex)

accessing environmental quality information and

participating in controlling and managing

environmental quality. The scale of the score is 1

to 5 based on a user survey.

Intermediate Results Indicators

Indicator Name Description (indicator definition etc.) Frequency Data Source /

Methodology

Responsibility for

Data Collection

Functioning air quality

monitoring stations

established by the project

Number of air quality monitoring stations

established by the project and in operation.

Semi-annual Review of technical

inspection reports upon

completion of civil works

OEFA

Functioning water quality

monitoring station


Number of water quality monitoring station





OEFA

OEFA Lab Established OEFA lab is constructed, equipped and fully

functional.




OEFA

Accredited laboratories

with Good Laboratory

Practice compliance

This indicator measures how many laboratories

have been able to comply with GLP

requirements.


reports on compliance of

public and private

laboratories with OEFA

good laboratory practice

guidelines

OEFA

Samples analyzed by OEFA

laboratory

This indicator measures the capacity of the

OEFA laboratory in performing sample analysis.

Semi-annual Review of OEFA log

book

OEFA

ECAs established or revised


ECAs established means developing an

environmental quality standard.

Semi-annual Review of legal

documents (public

gazette) establishing or

revising the ECA

MINAM/OEFA

LMPs established or

revised supported by the

project

LMP established means developing an emissions

or discharge standard.

Note: Recommendation 26.2 of the Action Plan

Semi-annual Review of legal

documents (public

gazette) establishing or

MINAM/OEFA

24

for the implementation of the recommendations

of OECD EPR of Peru, approved under Supreme

Resolution 04-2016-MINAM, requires

completing LMPs in sectors lacking these

standards or update existing LMPs. The Project

will contribute to achieving this recommendation

with five LMPs.

revising the LMPs

National agencies

submitting environmental

quality information to

SINIA

The indicator measures five targeted agencies

(ANA, DIGESA, SENAMHI, OEFA and

MINAM) submitting different types of

information according to an inter-operability

agreement (based on the information sharing

protocol) signed between MINAM and the

concerned institutions.

Semi-annual Review of reporting

according to

interoperability

agreements

MINAM/SINIA

Public engagement tools

deployed

Public engagement tools developed by the

project but probably also by the market. Tool

includes easy access ways to send information

(e.g. photos, text and voice messages) directly to

SINIA related to environmental quality using

simple mobile technology as well as

sophisticated applications.

Semi-annual Review of SINIA logbook

and SINIA portal on

information shared by

citizens

MINAM/SINIA

Visits to the project

supported public

engagement platforms

Self-explanatory. Semi-annual Tracking device

monitoring data

MINAM/SINIA

Response rate to registered

public requests for

environmental quality

information with SINIA

Response rate is within 7 working days.

Note: Aligned to recommendation 7 of the

Environmental Performance Review of Peru to

the Working Party on Environmental

Performance, Environment Directorate, OECD,

2016.

Semi-annual Review of SINIA logbook

and SINIA portal on

response and timelines of

responses (if required) to

information shared by

citizens

MINAM/SINIA

CSO staff trained on public

engagement tools

Self-explanatory. Semi-annual Review of service

providers reports

MINAM/SINIA

Officials trained on the use Self-explanatory. Semi-annual Review of service MINAM/SINIA

25

of environmental quality

information for informed

decision making

providers reports

Software engineers trained

on open data and potential

uses of such data

Self-explanatory. Semi-annual Review of service

providers reports

MINAM/SINIA

26

Annex 2: Detailed Project Description

PERU: Enhancement of Environmental Quality Services (P147342)

The Project has three components: (a) Improve Environmental Quality Control; (b) Improve

Information and Public Participation for Environmental Quality Control; and (c) Project

Management.

1. Component 1: Improve Environmental Quality Control (US$ 61.42 million, of which US$

37.28 million will be financed by the Bank Loan). This component supports OEFA and MINAM

to improve their capacity to properly carry out their responsibilities in environmental monitoring

and analysis based on an enhanced regulatory framework, the development of capacities and

infrastructure for an effective environmental monitoring, and the strengthening of analytical and

quality control/quality assurance capacities.25

The component has three subcomponents: (1.1)

Environmental Quality Standards and Guidelines; (1.2) Monitoring and Analytical Capacity

Building; and (1.3) Monitoring and Analysis.

2. Subcomponent 1.1: Environmental Quality Standards and Guidelines. This

subcomponent will support DGCA of MINAM to strengthen the regulatory framework. It will

also support the preparation of technical standards, protocols and guidance for ambient

monitoring and analytical activities and, for preparing and implementing actions plans, as

needed. For air quality management, it was agreed that DGCA will develop and/or complete: (a)

an analysis of cost-benefit and regulatory impacts of the proposed Clean Air Act; (b) an action

plan with key actions to implement the Clean Air Act, including the formulation of a specific

regulation; (c) design and implementation of a National Protocol for Air Quality Monitoring with

emphasis on QA/QC issues and validation requirements for monitoring stations and systems; (d)

design of Technical Norms on Air Quality to define measurement and QA/QC procedures; (e)

preparation of an ECA on air, water or soil based on evidence on the benefits for society such as

an ECA on heavy metals and other key pollutants for underground water; (f) development of two

LMPs on emissions from selected source categories such as industrial boilers, the steel industry

and smelters or other activities whose pollution control costs do not outweigh their social

benefits; (g) development of guidelines to prepare and implement air quality control plans; (h)

development of a protocol to monitor stationary source emissions; and (i) preparation of detailed

emission inventories for the seven selected zones. Greenhouse gases, specifically nitrous oxide

and ozone, would be included in the preparation of emission inventories.

3. For water quality, DGCA will develop: (a) a protocol for comprehensive evaluation of

water quality in watersheds; (b) a methodology for determining water quality indicators in

watersheds; (c) a guideline on the standardization of effluent and surface water monitoring

protocols; and (d) two studies for the development of a groundwater regulatory framework and

the production and treatment technologies of industrial and/or domestic wastewater. The

protocols, methodology and guidance will have national applicability, however, they will be first

tested and adjusted in the basins of the rivers Rimac and Moche.

25

MINAM identified the gaps in its regulatory monitoring capacity based on an analysis on environmental

monitoring demands in the next 15 years and OEFA’s current monitoring capacity.

27

4. For soil quality, DGCA will develop two studies on: (a) production and mining activities

and services generating hazardous substances that affect the soil quality of the river Rimac

Watershed; and (b) protocols to track and monitor remediation activities of contaminated soil.

5. Subcomponent 1.2: Monitoring and Analytical Capacity Building. This subcomponent

will first support OEFA to develop priority air and water monitoring networks. Specifically, it

will support OEFA to better monitor air and water quality in priority air-sheds and watersheds of

the country26

through: (a) enhancing the effectiveness of the air quality network in Lima and

identifying opportunities for further improvement and optimization of the current network;27

(b)

establishing six air quality monitoring networks in provinces (Trujillo with three stations,

Chiclayo with three stations, Iquitos with three stations, Huancayo with two stations, Cusco with

three stations and Piura with two stations and their integration into a national network;28

(c)

establishing a mechanism for the collection, quality control and transmission of air quality

information at the national level servicing all project’s air quality monitoring networks; (d)

establishing one water monitoring network with 19 monitoring stations for the Rimac River

Basin in Lima and developing a protocol for the validation of the operation and maintenance of

the monitoring system;29

and (e) strengthening water monitoring capacity at the Moche River

Basin in La Libertad. Detailed studies financed by the project, including an emission inventory

study and a pollution dispersion modeling exercise, will be used to optimize the layout and

requirements of the Lima air quality network. This Subcomponent will also support institutional,

policy and regulatory measures to establish an integrated air quality control system in the

country.

6. Each air monitoring station will measure automatically and continuously at least six

parameters: sulfur dioxide, carbon monoxide, nitrous oxides, PM2.5, PM10, and ozone. In

addition, each station will have a weather station to record meteorological parameters (wind

speed and direction, temperature and relative humidity, air pressure, radiation, and precipitation).

Moreover, each province will receive one total hydrocarbon analyzer.

7. For the river Rimac water quality monitoring network, the project will support nine sets

of additional mobile surface water monitoring equipment, three mobile groundwater monitoring

stations, and high-quality sediment sampling units. According to the monitoring protocol

26

Supreme Decree 074-2001-PCM and Ministerial Resolution 339-2012-MINAM established priority air-sheds for

Peru. 27

Lima already has three air quality monitoring networks SENAMHI (10 stations), DIGESA (5 stations) and

Protransporte (3 stations). It also has an Integrated Plan for Air Cleaning-up of Lima and Callao (PISA I, 2005-2010

and PISA II, 2010-2015). The project will support the optimization of this air monitoring system based on the results

from studies on exposed population to air pollution, emissions inventories and air pollutant dispersion models. 28

These six systems were selected from the 31 priority areas based on three conditions: (a) size of the affected

population, (b) size of the areas; and (c) regional diversity (coastal, jungle, and highlands). Siting of each monitoring

stations is decided by the Air Quality Improvement Plans for the Priority/Largest Urban Area of each province (Plan

a Limpiar el Aire), which draw on studies of air quality monitoring undertaken by DIGESA and OEFA. Specialized

agencies such as SENAMHI undertook the plans, which will be reviewed/updated during project implementation

when the detailed design of the network is carried out. 29

Siting of these stations is determined based on existing water quality management plans for the river basin

drawing on information of economic activities from OEFA that would discharge residual waters to the basin and the

National Monitoring Protocol of Surface Water Bodies. This protocol includes guidelines for the localization of

monitoring stations and parameters to be monitored.

28

developed, this subcomponent will support OEFA to conduct systematic monitoring of possible

groundwater contaminants in the Rimac River watershed, and perform comprehensive soil and

surface water quality monitoring to evaluate soil and surface water quality of the Rimac River

basin. For the river Moche basin, the project will support OEFA to evaluate background values

of sediment and water quality, monitor and characterize effluents to provide sufficient

information for the update of three priority LMPs to be defined based on their social benefits

such as LMPs on water effluents from agroindustrial activities, slaughterhouses, and

manufacturing.

8. For soil quality monitoring, three sets of portable analytical equipment will be procured

to obtain on-site readings of metals, hydrocarbons and other parameters. In addition, soil

samplers for different soil types will be procured.

9. To enable OEFA’s field monitoring activities, the project will support the procurement of

one four-wheel drive monitoring vehicle as well as multiple sets of infrared night vision cameras

and high definition camcorders.

10. In addition to the above-mentioned physical support to OEFA on monitoring network

development, this subcomponent will also support a series of studies and capacity development

and knowledge dissemination events to improve technical capacity of OEFA and its staff

members. Specifically, the subcomponent will support OEFA to (a) update monitoring protocols

of water parameters used in the Rimac watershed modeling exercises; (b) develop a protocol for

the development of groundwater quality indicators; (c) study of an ECA on sediments, including

sampling, texture characterization, and methods for extracting heavy metal sequentially from

sediments that may inform the development of an ECA by MINAM; (d) develop a guideline for

the determination of acid rock drainage; (e) develop a methodological guideline on the

establishment of surface water quality indices in different water bodies; (f) develop and

implementation of a quality assurance and quality control program for new monitoring stations

established under the project; (g) install a database server to ensure proper data storage and

processing; (h) study the number and location of air quality monitoring stations; (i) procure

radiosonde equipment to study weather conditions in the air quality priority areas of Lima-

Callao; and (j) design and implement air quality monitoring capacities targeting both managerial

and technical personnel.

11. OEFA will develop and implement a training program. International experts will be

mobilized to carry out eight training events on air quality monitoring, four on surface water

quality monitoring, and two on soil quality monitoring in Peru. OEFA and MINAM technical

staff will also attend international training events on environmental quality monitoring: three on

water, two on air and one on soil. Two study visits will be organized by OEFA to learn from

other countries that have undertaken similar projects. Lastly, to disseminate project

achievements, OEFA will organize dissemination events workshops and/or publications on water

quality, two on air quality and two on soil quality.

12. Subcomponent 1.3 Monitoring and Analysis. This sub-component supports OEFA to

construct, equip and operate a state-of-art national environmental analysis laboratory. This

laboratory is designed to be accredited with ISO/IEC 17025:2006 (General requirements for the

29

competence of testing and calibration laboratories) on 56 water quality, 18 air quality, and 34

soil quality parameters. During project implementation, it is expected that at least 60% of these

parameters will be accredited and the remaining will be accredited within two years after project

completion.

13. OEFA will operate a laboratory that will be comprised of two separate sections. One

section will cover the demand for analytical requirements of OEFA and will be managed through

the president of OEFA. It will support OEFA to properly analyze samples collected from

OEFA’s regulatory monitoring exercises under ECAs and LMPs and generate accurate and

reliable environmental quality information that can support informed decision-making. Another

section of the national laboratory will serve the needs for quality control of environmental

quality data generated by public and private laboratories. This section will perform the functions

of a reference laboratory. This section of the laboratory will be managed by a laboratory director

reporting to a board formed by public and private representatives. The proposed quality control

system will use the national laboratory to validate the accuracy, reliability and comparability of

environmental monitoring information generated by properly accredited public and private

laboratories. OEFA will promote the adoption and compliance of good laboratory practice (GLP)

among such laboratories.30

OEFA will disclose regularly a list of GLP complied laboratories that

are available to perform various environmental analysis tasks. To encourage more laboratories to

become GLP compliant, OEFA will disclose the name and GLP status of laboratories that have

been used to carry out environmental monitoring and analysis tasks and highlight the potential

risks of using environmental quality data from non-GLP laboratories.

14. Procurement and installation of laboratory equipment will be done by OEFA under the

project. The national laboratory will be located in Lima with a total construction area of 6,000

m2 and managed directly by OEFA. OEFA has identified preliminarily through a market study

two vacant commercial lots that meet technical requirements of the construction and operation of

the national laboratory. Although feasibility studies in one of these lots were undertaken, OEFA

can purchase another lot, if the first is not available or if better technical conditions and price can

be found. OEFA will use its own budget to procure the land for its laboratory. The laboratory has

been developed at the feasibility level as a green building by international firms based on

national construction codes and it has incorporated technologies promoted by the program of

Leadership in Energy and Environmental Design (LEED).

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

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

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

improvement of SINIA’s capacity of managing environmental quality data; (2.3) development

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

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

effective communication tools for public inputs on environmental quality management issues;

and (2.5) improvement of stakeholders’ capacity to use new environmental information tools. In

30

OECD has promoted GLP principles to “ensure the generation of high quality and reliable test data related to the

safety of industrial chemical substances and preparations.” Such principles “have been created in the context of

harmonising testing procedures for the Mutual Acceptance of Data (MAD).”

(http://www.oecd.org/chemicalsafety/testing/goodlaboratorypracticeglp.htm, last accessed on February 3, 2016)

http://www.oecd.org/chemicalsafety/testing/goodlaboratorypracticeglp.htm

30

doing so, this component will enable MINAM to improve SINIA’s capacity to properly collect,

store and share environmental quality information generated by various agencies at the national

and local levels and to develop and deploy public participation platforms to facilitate the

dissemination of environmental quality information and public participation in environmental

quality management.

16. Through Subcomponent 2.1 and 2.2, SINIA will develop standard protocols for the

exchange of environmental quality data among all concerned agencies, develop a data storage

platform and upgrade performance of its existing data center and data processing software

(integration and analysis). Through subcomponent 2.1 the project will support the capacity

upgrade of the data center of SENAMHI to enable proper collection, storage and dissemination

of its meteorological, hydrological and air quality data.

17. Subcomponent 2.3 will help MINAM develop five online platforms for the dissemination

of environmental quality information:

an open data platform mostly oriented to specific environmental quality research

activities;

a web portal with environmental quality information presented in formats (maps,

diagrams, figures etc.) that can be easily understood and readily accessible by the public;

smart phone applications that use these devices’ sensors (GPS, camera, gyroscope,

accelerometer etc.) to display environmental quality data dynamically;

software that provides regularly local environmental quality information to local

organizations such as municipal environmental commissions (Comisiones Ambientales

Municipales, CAM) and technical study groups on air quality (Grupos de Estudio

Técnico Ambiental de La Calidad del Aire, GESTA) to support their decision making on

environmental quality management issues; and

a web portal for official access only to raw environmental quality monitoring data

(sensitive information with potential judicial implications).

18. In addition, this activity will develop a software program to help MINAM alert national

and local stakeholders to the risks of potential social conflicts associated with environmental

quality issues. This software will analyze available environmental quality data, reports, and local

environmental complaints to screen potential environmental conflicts caused by air, water or soil

pollution. Based on the analysis, it will issue alerts to enable decision makers to take actions to

address such risks at the early stage.

19. Moreover, this activity will develop a software program to calculate and report the annual

emissions and the compliance situation of industrial activities. Using MINAM approved

methodologies and models, this software will calculate industrial annual emissions of different

categories of industrial activities, including greenhouse gases such as nitrous oxides and ozone.

Such results will be automatically submitted to the Pollutant Release and Transfer Register

(PRTR) database of MINAM.

20. Finally, this activity will develop a software program to support the Attorney General

Office of MINAM to better store and manage its case files on environmental violations.

31

21. Subcomponent 2.4 will develop a software program for interactive communications with

the public on environmental quality management issues. This software will facilitate MINAM to

collect the demands, inquiries and suggestions of the public with or without full access to

information technologies. Together, these tools form a platform that removes technical and

geographic barriers to exchanging environmental quality information between the government

and the public. This subcomponent would include features to induce the participation of women

in environmental quality control by providing two-way information options through apps on

issues of their interest such as waste disposal practices in different neighborhoods, tap water

availability, risk of diseases due to weather conditions, hygiene and sanitation and other.

22. Subcomponent 2.5 will support targeted users to improve their capacity to use SINIA’s

new information systems and tools. Training will be provided to (a) civil society organizations

such as Municipal Air Committees (CAMs) and National Groups for Environmental Technical

Studies (GESTAS) in different regions; (b) national, regional and local officials in charge of

environmental assessment, inspection, monitoring and enforcement; and (c) software engineers

that are interested in developing mobile applications on environmental quality information. In

addition, public awareness raising events will be organized to help the public know and explore

the various features of the new systems and tools.

23. Component 3: Project Management (US$ 4.16 million, this component will be fully

financed by the Borrower). This component will support MINAM and OEFA to properly

implement agreed project activities, through the provision of goods, consultants' services and

operating costs. Special attention will be given to closely coordinating Component 1 and 2

activities in order to ensure the synergy needed to achieve the PDO.

32

Annex 3: Implementation Arrangements


Project Institutional and Implementation Arrangements

Project administration mechanisms

1. The Republic of Peru is the borrower of this loan. The Ministry of Economy and Finance

(MEF) will represent Peru to enter into a loan agreement with the Bank. MEF will then provide

this loan as budget support to MINAM and OEFA for the implementation of the Project

activities. Below, Figure 1 outlines the general institutional arrangements for the execution of the

Project. The shaded boxes in the flowsheet below represent OEFA’s and MINAM’s units which

the PCU will coordinate closely but not exclusively for project implementation.

Figure 1. Project Institutional Arrangements

2. Project Steering Committee (PSC). MINAM will establish a Project Steering Committee

(Comité Directivo, PSC) to provide policy guidance, oversee project implementation, facilitate

internal and external coordination on project implementation, and help resolve implementation

issues as needed. The PSC will be chaired by the Vice Minister of Environment Management,

and will include the President of OEFA, the General Director of Public Investment, a

representative of the Planning and Budget Office of MINAM, the General Director of

Environmental Information and Research of MINAM and the Project Coordinator.

3. Project Execution Agency. OEFA is the Project Execution Agency of this project. OEFA

will establish a Project Coordination Unit (PCU) under its Presidency for project

OEFA

President

Evaluation Directorate

Supervision Directorate

Fiscalization, Sanction and Incentives Directorate

Decentralized Offices

Project Coordinating Uni

t ( PCU

)

Institutional Control Unit

General

Secretariat

Legal Office Office of

Administration ( OGA )

Vice Ministry of Environmental Management

MINAM

Vice Ministy of Strategic

Development of Natural Resurces

Project Steering Committee

DGPNIGA DGIIA

Administration Area

Project Technical

Area

,

DGCA

Component 2 (PIP 2)

Component 1 (PIP 1)

Continuous line: Functional institutional relationship Dashed line: Institutional links for project implementation

Office of Administration (OA)

Office of

Office of

Planning and Budgeting

Communications and Citizen

33

implementation. The PCU will report directly to the PSC and the President of OEFA. A

Coordinator will be appointed to lead the PCU. The Coordinator will be a PSC member and

serve as the Secretary of the PSC. The PCU will have sufficient autonomy to make decisions on

implementation issues in coordination with related agencies and the Bank. The PCU will include

three groups: a technical group, a M&E group, and an administration group. The composition,

duties, and responsibilities of these groups are set forth in the POM reviewed and agreed by the

Bank. The recruitment of the PCU Coordinator, coordinators for the three groups, and technical

specialists on environment, procurement, financial management, and M&E will be done through

a competitive process in accordance with the agreed POM.

4. The PCU will have the following responsibilities:

(a) Project Management based on the agreed POM

Interact with the Bank and coordinate with other Directorates of OEFA, the Departments

of MINAM and SENAMHI.

Monitor and assess project implementation progress and report to the Executive President

of OEFA, PSC and the Bank.

Prepare and submit to the Bank, by the agreed deadlines, project information and project

management reports.

Update the POM as necessary.

(b) Procurement and contract execution

Coordinate with and supervise other Directorates/Departments of OEFA and MINAM

regarding the preparation of the estimated budgets, terms of reference, contracts and

technical parts of bidding documents, request for proposals, including consulting services

and goods.

Prepare bidding documents, request for proposals and bid/proposal evaluation reports.

Liaise with the Bank and prepare and submit requests for No Objections.

Ensure the execution of procurement and bidding norms and processes described in the

POM, such as publication of bids and expressions of interest, conduct bid-opening

sessions, elaborate bid record opening and respond to bidder’s request for clarifications.

Prepare, update and monitor the procurement plan.

Supervise the implementation of contracts execution.

Organize the cost and quality audit of the works financed by the Project.

5. The PCU located in OEFA will coordinate with MINAM regarding the co-execution of

the project’s Component 2, Improve Information and Public Participation for Environmental

Quality Control, and Subcomponent 1.1, Environmental Quality Standards and Guidelines. The

PCU will fund a technical team including a technical coordinator and a financial/procurement

and administrative specialist to support MINAM that will be located in MINAM. Both the POM

and an agreement entered into MINAM with OEFA will set forth in detail the responsibilities

and duties of the PCU/OEFA and MINAM for the co-execution of the project.

6. OEFA’s office of administration (OEFA OA) with the support of the PCU will perform

financial management and disbursement activities, including:

Preparation of the annual budgetary request for Project funding.

34

Carrying out the accounting and financial management of the loan funds and counterpart

resources, including the project's financial statements/reports.

Maintaining the Project administrative and fiduciary information updated and available.

Managing and ensuring payments for the contracts financed under the project.

Preparing and submitting disbursement requests to the Bank.

Organizing external audits.

Ensuring that all activities and procedures comply with the POM.

7. Project Operation Manual. Project execution will be governed by a POM that was

developed during project preparation. The manual establishes operating guidelines and

procedures regarding: (i) the roles and responsibilities of the entities that participate in the

project; (ii) operating procedures for planning and scheduling the activities to be financed,

including calls for proposals, selection and hiring of firms; (iii) fiduciary and procurement

instructions; (iv) procedures for environmental and social management of the project; and (v)

operating procedures for implementing the project’s monitoring and evaluation activities.

Approval of the POM in accordance with terms agreed upon with the Bank is an effectiveness

condition for the loan.

8. Cooperation Agreements. To ensure the terms of cooperation for project execution,

collaboration agreements are to be signed between OEFA and MINAM, SENAMHI and ANA.

These agreements will establish the terms for mutual cooperation between the entities involved

and will describe the activities covered by the agreements, the commitments of the parties,

including operation and maintenance of investments, and any other terms required for project

execution. The timing and condition of signing and entering into force of collaboration

agreements between the OEFA (PCU) and the MINAM and SENAMHI are defined in the legal

agreement. OEFA will provide IT equipment and radiosonde to SENAMHI. SENAMHI will

provide environmental quality and meteorological data to MINAM. MINAM and ANA will

enter into an agreement for ensuring interoperability of their information systems to exchange

water quality data.

Financial Management, Disbursements and Procurement

Financial Management

9. The Bank has conducted a Financial Management Capacity Assessment31

(FMA) for the

Project. Based on the work done with OEFA, this section reflects a general description of the

financial management and funds flow arrangements that will be put in place by OEFA to

implement the project and reflected in the POM.

10. OEFA's Administrative Office (AO) will manage the financial including disbursement

aspects of project implementation. However, the technical and procurement aspects of the

component 2 and subcomponent 1 of component 1 will be under MINAM responsibility.

Therefore, OEFA will need to work in close coordination with MINAM for the implementation

31

In accordance with Financial Management Manual for World Bank Investment Project Financing (December 11,

2014) and OP/BP 10.00.

35

of this component. Project implementation will comply with Peru’s laws governing budget and

financial management, including the use of the integrated system for financial administration

(SIAF) and the General Chart of Accounts established in SIAF. The General Comptroller Office

will carry over the selection process of the audit firm to audit the project. The loan proceeds will

be disbursed to a Designated Bank Account opened at Banco de la Nación.

11. The remaining financial management risks to the operation are: (i) establishment of the

Project Coordinating Unit (PCU) within OEFA; (ii) timely appointment of additional fiduciary

staff within the PCU with the capacity to rapidly get acquainted with FM guidelines to avoid

situations of misprocurement or ineligible expenditures; (iii) effective coordination between

OEFA and MINAM to implement component 1 and 2 of the project; (iv) availability of

counterpart budget funds, as OEFA will provide funds from its directly bill revenues; and (v) the

inter-institutional agreement between MINAM and OEFA to manage the project.

12. The financial management and disbursement arrangements have been reflected in the

POM. Approval of the POM is a condition of effectiveness. So far, OEFA has been able to

complete the following actions: (i) agreement on format of the financial information reports that

will be prepared by the PCU, disbursements, and audits; (ii) OEFA’s decision that it will use the

SIAF (Sistema Integrado de Información Financiera) and the Module for Project Execution

(MEP) of SIAF; and (iii) submitted the POM, which includes internal control processes and

procedures, and financial management and disbursement arrangements specific to this project

which are acceptable to the Bank.

13. By effectiveness the following will be completed: (i) establishment of the PCU within

OEFA; (ii) hiring of key fiduciary staff (PCU coordinator, lawyer, procurement specialist and

financial specialist) that preferably have previous experience in implementing Bank projects so

that staff can rapidly gain familiarity with the applicable requirements to support project

implementation; (iii) signing of inter-institutional agreements that includes clear roles and

responsibilities for MINAM and OEFA, including identification of key controls that need to be

strengthened and adapted considering the design of the project; and (iv) adoption of the POM.

14. The overall conclusion of this assessment is that the project has a substantial financial

management risk. But, once the mitigating measures have been put in place and the pending

activities under staffing, budget, accounting, reporting and internal controls have been

completed, the proposed Financial Management arrangements will meet the Bank’s minimum

financial management requirements.

Financial Management Arrangements

Organization and Staffing.

15. OEFA will perform the financial management function for the implementation of project

funds that will be the responsibility of OEFA’s AO. Budget functions will be the responsibility

of OEFA’s Budget and Planning Office (B&PO). The AO and the B&PO have qualified and

experienced staff. The PCU will also have a fiduciary staff that will include an administrator

specialist, procurement specialist, accountant and financial specialist. These additional staff

36

should have previous experience in Bank supported projects who will support AO and OEFA’s

BPO in implementing the project. Component 2 and Subcomponent 1.1 of Component 1 will be

technically implemented by MINAM in close coordination with OEFA. Specific roles and

responsibilities of the participating entities, the OEFA AO, and the PCU have been established in

the POM.

Planning and Budgeting.

16. Preparation of the annual work program and budgets will be in accordance with the

procedures established by MEF through its Dirección General de Presupuesto Público. Those

procedures will be complemented by specific processes and procedures established in the POM

(preparation of an annual operating plan with at least semi-annual budget, including all source of

financing – IBRD and counterpart funds). Counterpart funds will come from: (i) ordinary

resources; and (ii) OEFA’s directly billed revenues (recursos directamente recaudados). OEFA

collects these revenues from public and private entities in Peru that make mandatory

contributions regulated by the Law No. 27332. To ensure an adequate budget, OEFA will

require: (1) timely provision for yearly approval of resources established in the work plan and

budget; (2) proper recording of the approved budget in the respective information systems

following a classification by project component/subcomponent; and, (3) timely recording of

commitments, accruals, and payments, which will assist with adequate budget monitoring and

provide accurate information on project commitments for programming purposes. The Loan

Agreement establishes that OEFA will make the necessary budget provision for the project

counterpart funds according to the annual operational plan.

Accounting and Information System.

17. OEFA will comply with Peru’s laws governing budget and financial management,

including the use of SIAF and the General Chart of Accounts established in SIAF. Accounting

and payment transactions of the project will be recorded in SIAF. Considering the nature of

project activities and information needs for monitoring purpose, OEFA will complement the use

of SIAF with the module of project execution (MEP) of SIAF for further issuance of financial

reports and prepare statements of expenditures according to the project components in US

Dollars.

Financial reporting

18. The PCU will prepare the interim financial reports (IFRs) from the transaction

information recorded in SIAF, which will be downloaded into the module of project execution

(MEP-SIAF). The IFRs will include: i) a statement of sources and uses of funds, including

reconciling items (as needed) and cash balances, with expenditures classified by project

component/subcomponent; ii) a statement of uses of funds, reporting the current semester and the

accumulated operations against ongoing plans with footnotes explaining any important

variances. The reports will include loan proceeds and local counterpart funds. The IFRs will be

prepared in local currency as well as US Dollars and submitted to the Bank on a semi-annual

basis no later than 45 days after the end of each calendar semester. The format and content of the

IFRs have been defined for the project.

37

19. On an annual basis, the PCU will also prepare project financial statements, including

cumulative figures, for the year and as of the end of the year, and explanatory notes in

accordance with International Public Sector Accounting Standards. Those financial statements,

duly audited in accordance with Bank’s requirements will be submitted to the Bank within the

six months after the end of the Government’s fiscal year (December 31). Working papers for the

preparation of the semester and annual financial statements will be maintained by the PIU and

made easily accessible to Bank implementation support missions and to external auditors. The

table below summarizes the financial reports to be prepared under the project.

Deadlines for Financial Reporting

Period Due date

Semester 1 IFR August 15th

of each year

Semester 2 IFR February 15th

of each

year

Annual Financial

Statements

February 28th

of each

year

Internal Controls and Audit Arrangements

20. Internal Controls. Overall, OEFA has to comply with local requirements related to

financial management, including internal controls and procedures. In addition, the Bank has

agreed with OEFA on specific processes and procedures for project implementation. Procedures

for approval and processing of payments to suppliers and service providers for all components

will be reviewed and agreed with the Bank. Those procedures will be reflected in the POM

showing clear segregation of responsibilities among MINAM, OEFA, PCU and OEFA AO in

technical and fiduciary aspects. The draft version of the POM (Fiduciary chapter) has been

submitted to the Bank and reflects adequate internal control processes and procedures to

implement the project.

21. Internal Audit. MINAM’s organizational structure includes an Internal Control Office

(OCI) that will provide oversight to the PCU ascribed to OEFA. The OCI may play a role in ex-

post internal control on project transactions.

22. External Audit. Annual audit reports on project financial statements, including

management letters, should be submitted to the Bank within six months of the end of the

Borrower’s fiscal year (December 31). The audit should be conducted by an independent audit

firm acceptable to the Bank and under terms of reference approved by the Bank. The selection of

the audit firm should be performed through the General Audit Comptroller Office. Audit cost can

be financed out of loan proceeds. The scope of the audit would be defined by the audit term of

reference (ToR) approved by the Bank and based on project specific requirements and

responding, as appropriate, to identified risks. The project financial statements that the auditors

will require should include the Statement of Sources and Uses of Funds, Statement of

Cumulative Investments and Statement of Expenditures. The auditors will also prepare a

38

management letter regarding the internal controls of the project. Audit requirements would

include:

Audit type Due date

Project financial statements June 30

Special Opinion:

Statement of Expenditures

June 30

Funds Flow and Disbursement Arrangements

Funds Flow Arrangements:

23. Bank Loan proceeds will follow the Bank’s disbursement policies and procedures as

described in the Disbursement Letter. The Bank will disburse Loan proceeds using Advance,

Reimbursement, and Direct Payments methods.

24. Designated Account. A Designated Account (DA) in US Dollars would be opened and

maintained in the Banco de la Nación by the PCU-OEFA, who would have direct access to funds

advanced by the Bank to the DA. Funds deposited into the DA as advances, would follow Bank’s

disbursement policies and procedures, to be described in the legal agreement and Disbursement

Letter. To process payments, the PCU-OEFA will be able to withdraw the required amount from

the DA to a local currency bank account from where payments would be made to consultants,

suppliers, and beneficiaries’ bank accounts. The payments related to services and contracts for

the component 2 and subcomponent 1.1 under MINAM responsibility will be made by OEFA

upon request by MINAM, following the procedures established in the POM and the Agreement

between MINAM and OEFA.

25. Counterpart funds. OEFA will manage the counterpart funds for the project using the

Single Treasury Account established by the Government. Funds for the project will be identified

with a specific project code and account in SIAF to process payments.

26. Retroactive Financing. A withdrawal up to an aggregate amount not to exceed US$ 8

million may be made for payments for eligible expenditures on or before November 8, 2016 or

before the date of the Loan Agreement.

Disbursement arrangements:

27. The following disbursement methods may be used to withdraw funds from the loan: (a)

advance; (b) reimbursement, and (c) direct payment.

Advance method: the DA will have a ceiling of US$ 2,000,000.

Direct payment: The minimum application size for direct payment request would be US$

1,000,000.

39

Reimbursement method: The minimum application size for reimbursement method would

be US$ 1,000,000.

28. Documentation requirements. Statement of Expenditures (SOE). Supporting

documentation for documenting project expenditures under the disbursement methods authorized

for the project should be in accordance with the provisions established under the Disbursement

Letter.

29. Disbursement deadline date: The Disbursement Deadline Date is four (4) months after

the Closing Date specified in the Loan Agreement. Any changes to this date will be notified by

the Bank.

30. Disbursement Categories: The Bank will not finance land acquisition required for the

construction of OEFA’s laboratories or air monitoring stations. Loan proceeds will be disbursed

against the following expenditure categories:

Category Amount of the Loan

Allocated

(expressed in USD)

Percentage of Expenditures to

be financed

(inclusive of Taxes)

(1) Goods, works, non-consulting

services, and consultants’

services required under Part 1 of

the Project

37,277,479

100%

(2) Goods, non-consulting

services, and consultants’

services required under Part 2 of

the Project

2,722,521

100%

TOTAL AMOUNT 40,000,000

* Including tax

31. Bank Supervision. Financial management supervision will be done using a risk based

approach and include on-site and off-site supervision. On-site supervision will be carried out at

least twice a year. Off-site supervision will be comprised of a desk review of interim financial

reports and audited financial statements.

Procurement

A. General

32. Procurement for the Project will be carried out in accordance with the World Bank’s

"Guidelines: Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans

and IDA Credits & Grants by World Bank Borrowers" dated January 2011 revised July 2014;

and "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits

& Grants by World Bank Borrowers" dated January 2011 revised July 2014, and the provisions

stipulated in the Loan Agreement. For each contract to be financed by the Loan, the different

procurement methods or consultant selection methods, the need for pre-qualification, estimated

http://go.worldbank.org/XH679K5M60

http://go.worldbank.org/1M27MNVLZ0

http://go.worldbank.org/1M27MNVLZ0

40

costs, prior review requirements, and time frame are agreed between the Borrower and the Bank

in the Procurement Plan. The Borrower has prepared a Preliminary Procurement Plan for the

whole Project, and a detailed and comprehensive procurement plan that includes all contracts for

which bid invitations and invitations for proposals are to be issued in the first 18 months of

project implementation. The Procurement Plan will be available at the Systematic Tracking of

Exchanges in Procurement (STEP). Goods and works shall be procured under contracts awarded

on the basis of International Competitive Bidding, National Competitive Bidding, Shopping or

Direct Contracting. Consultants’ services shall be procured under contracts awarded on the basis

of Quality and Cost-based Selection, Quality-Based Selection, Selection under a Fixed Budget,

Least Cost Selection, Selection Based on the Consultants’ Qualifications, Single Source

Selection and, Procedures set forth in Section V of the Consultant Guidelines for the Selection of

Individual Consultants, including Sole Source Selection for Individual Consultants.

33. Procurement of Works. Works for this project will include the construction of an

environmental analysis laboratory. To the extent possible, contracts for these Civil Works will

be grouped in bidding packages. Contracts with estimated values of more than US$10,000,000

equivalent will be procured following ICB procedures. Contracts with estimated values below

US$10,000,000 equivalent per contract may be procured using NCB procedures. Contracts

which cannot be grouped into larger bidding packages and estimated to cost less than

US$250,000 per contract may be procured using Shopping procedures. The procurement will be

done using Bank’s SBD and a model of request for quotations satisfactory to the Bank included

in the POM.

34. Procurement of Goods. Goods procured under this project will include equipment

related to the monitoring of air, soil and water quality. To the extent possible, contracts for these

goods will be grouped in bidding packages of more than US$2,000,000 equivalent and procured

following ICB procedures. Contracts with estimated values below this threshold per contract

may be procured using NCB procedures. Contracts for goods which cannot be grouped into

larger bidding packages and estimated to cost less than US$50,000 per contract may be procured

using Shopping (national/international) procedures. The procurement will be done using Bank’s

SBD for all ICB and National SBD and a model of request of quotations agreed with (or

satisfactory to) the Bank in the POM.

35. Selection of Consultants. Short lists of consultants for services estimated to cost less

than US$350,000 equivalent per contract may be composed entirely of national consultants in

accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Where firms are

not required, individual consultants will be hired according to Section V of the Guidelines.

B. Assessment of the agency’s capacity to implement procurement

36. Country. The national procurement system of Peru has made significant progress in the

last few years, particularly with regard to access to information and adoption of standard bidding

documents. However, it still suffers from setbacks that affect both the efficiency and

transparency of government purchasing. Of most concern is the distortion of competition

generated by the use of the referential price and the permanent concern for literal compliance

41

with the requirements set forth in the national regulatory framework, as well as the lack of

procurement capacity in some sectors, particularly at the local level.

37. Agency. OEFA is the project executing agency, where the PCU will be created for

coordinating project implementation. The PCU will be in charge of the procurement aspects of

the Project.

38. An assessment of the implementation agency’s capacity to implement procurement

actions for the project was carried out. The capacity assessment looked into OEFA’s: (a)

organizational structure, (b) facilities and support capacity, (c) record-keeping and filing

systems, (d) procurement planning and monitoring/control systems used, and (e) capacity to meet

the Bank’s procurement contract reporting requirements. It also reviewed the procurement

arrangements of the Procurement Plan.

39. The key risks concerning implementation of project procurement are lack of prior

experience with large investment projects and skilled staff to implement Bank-financed projects.

Bank procurement training to both PCU staff and OEFA will be provided by Bank Procurement

Specialists not later than project launching mission.

40. The overall risk for procurement is rated Substantial. The corrective mitigating measures

are:

MITIGATING MEASURES STAGE

A draft POM satisfactory to the WB Delivered before negotiations

A draft Procurement Plan for the first 18 months Delivered before negotiations

Standard Bidding Documents satisfactory to the

WB

Delivered before negotiations

The hiring of a skilled procurement staff By effectiveness

The Procurement Plan must be included and

managed through STEP

During implementation

C. Procurement Plan

I. GENERAL

41. Bank’s approval Date of the procurement Plan: November 8, 2016

Date of General Procurement Notice: Third Quarter 2017

Period covered by this procurement plan: 18 months

II. Goods, Works and non-consulting services.

42. Prior Review Threshold: Procurement Decisions subject to Prior Review by the Bank as

stated in Appendix 1 to the Guidelines for Procurement:

42

Thresholds for procurement methods and prior review (thousands of US$)

Expenditure

Category

Contract Value (Thresholds)

US $ thousands

Procurement

Method

Contracts Subject

to Prior Review

1. Works >10.000 ICB

According to

procurement plan

250 – 10,000 NCB

<250 Shopping

Regardless the value DC

2. Goods >2000 ICB

According to

procurement plan

50 - 2000 NCB

<50 Shopping

Regardless the value DC

Note: ICB = International Competitive Bidding

NCB = National Competitive Bidding

DC = Direct Contracting

Reference to Project Operational/Procurement Manual:

43. The Borrower, as part of Project’s preparation, will prepare the POM which provides

detailed procurement information for project’s implementation.

Summary of the Procurement Packages to be procured under ICB:

1 2 3 4 5 6 7

Ref.

No.

Description Estimated

Cost US$

million

Packages Domestic

Preference

(yes/no)

Review by Bank

(Prior/Post)

Comments

CIVIL WORKS

Construction and

equipment of

Laboratory

29.7 No Prior

GOODS

Equipment for Air

Quality

Monitoring

6.6 No Prior

Equipment for

Water Monitoring

6.8 No Prior

IT equipment for

MINAM’s and

SENAMHI’s Data

Center

2.1 No Prior

43

III. Selection of Consultants

44. Prior Review Threshold: Selection decisions subject to Prior Review by Bank as stated

in Appendix 1 to the Guidelines Selection and Employment of Consultants:

Thresholds for methods and prior review (thousands of US$)

Consulting Services Contract Value (Thresholds) US

$ thousands Procurement Method

Contracts Subject to

Prior Review

3.a Firms >100 QCBS, QBS, FBS, LCS

According to Procurement

Plan

<100

QCBS, QBS, FBS, LCS,

CQS

Regardless the value SSS

3.b Individuals

Comparison of 3 CVs in

accordance with Chapter

V of the Guidelines

According to Procurement

Plan

Note:

QCBS = Quality- and Cost-Based Selection

QBS = Quality-Based Selection

FBS = Fixed Budget Selection

LCS = Least-Cost Selection

CQS = Selection Based on Consultants' Qualifications

SSS: Single Source Selection

45. Short list comprising entirely of national consultants: Short list of consultants for

services, estimated to cost less than $350,000 equivalent per contract, may be comprised entirely

of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant

Guidelines.

Consultancy Assignments (involving international competition), with Selection Methods

and Time Schedule

1 2 3 4 5

Ref. No. Description of Assignment

Estimated

Cost US$

million

Processes Review by Bank

(Prior/Post)

Firms

Design and Planning of Air and Water

Quality Monitoring Network

4.3 Prior

Supervision of Design and Construction

of Laboratory

2.3 Prior

Technical Assistance in Implementation,

Development and/or Validation to

comply with ISO 17025, 14001, 18001

1.0 Prior

44

46. In addition to the prior review supervision to be carried out from WB offices, the capacity

assessment of OEFA has recommended annual supervision missions to visit the field to carry out

post review of procurement actions.

Environmental and Social (including safeguards)

47. This project has been rated as “Category B” following the Operational Policy 4.01.

OEFA prepared an Environmental and Social Management Framework (ESMF) for the project to

provide guidance on potential issues that could arise during project implementation. The Bank

reviewed and approved the ESMF. Physical Cultural Resources OP/ BP 4.11 is triggered because

of potential chance finds of physical cultural resources – especially those of archaeological

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

construction of the national environmental laboratory and minor remodeling works. The ESMF

includes specific screening provisions for evaluating potential impacts on cultural resources and

guidance on chance finds procedures. The ESMF also assess and provide guidance on handling

and disposal of chemical reagents and samples.

48. The ESMF was consulted with key stakeholders before appraisal (October 7, 2016), and

disclosed locally through MINAM and OEFA websites (September 26, 2016). MINAM and

OEFA are responsible for compliance with the Bank safeguards requirements and with the

overall environmental and social supervision of the Project and its compliance with the Peruvian

Environmental Law and other applicable legislation.

49. The project’s investment activities – construction of the national environmental

laboratory – will require acquisition of a vacant commercial lot of 6,000 m2 from a private

owner. The team social specialist visited the possible site to be acquired by OEFA and found no

resettlement issues.32

The installation of air quality and hydrometeorology stations in Lima,

Trujillo, Chiclayo, Piura, Iquitos, Huancayo and Cusco will require small areas (5 to 8 m2 per

each station), likely in public lands, which given the small amount of land required, there is

always a chance to find areas that are not occupied and do not have assets that can be affected.33

In addition, in the definitive selection of sites where the monitoring stations will be located,

OEFA will not consider sites that could involve involuntary resettlement. As such, the project

does not trigger the Bank’s OP 4.12 Involuntary Resettlement Policy.

Potential Environmental Impacts

32

At this stage of the project preparation there is no guarantee that the identified plot of land will be used for the

construction of the laboratory. The borrower has to have the project approved first in order to be allowed to launch a

bidding process for purchasing land, and there is no guarantee that by then the selected area will still be available.

For this reason the borrower has agreed with the Bank that no land will be purchased if there are third parties

interests involved, such as disputed property rights, or presence of illegal occupants, and land that could trigger OP

4.12 Involuntary Resettlement Policy will not be considered. 33

Results from updated emissions inventories and dispersion models are required to set the definitive location of the

air monitoring stations. This information will be collected and analyzed during project implementation

45

50. Potentially adverse social and environmental impacts are expected to be small and

reversible. They will be avoided or minimized through adequate project design and mitigation

measures.

Environmental System in compliance with Bank’s safeguards requirements to be applied for the

Project.

51. Being an investment operation, the Project must be in compliance with Bank’s safeguards

requirements, including public consultation and disclosure section. The responsibilities for

supervising the environmental compliance during installation of air quality monitoring networks,

laboratory construction and minor remodeling works are clearly defined in the ESMF as well as

the instruments in place to ensure that contractors implement any corrective actions identified

when these activities are carried out.

Peruvian environmental regulatory framework

52. The Peruvian Constitution entitles citizens for a clean environment, access of information

and participation, respect to cultural diversity, etc. The main environmental legal framework

protecting environment (water, soil, forest, air) protected areas, flora and fauna, is the Law No.

28611, General Law of the Environment and Law of the National System of Environmental

Management (Law 28245) and its regulations approved by Supreme Decree 008-2005-PCM;

Law on the National System for Environmental Impact Evaluation (Law 27446) and its

regulations approved by Supreme Decree 019-2009-MINAM; and others regulations. Also, the

Ley General del Patrimonio Cultural de la Nación, Ley Nº 28296, should be considered for the

protection of Physical Cultural Resources.

53. In line with environmental regulations of Peru, OEFA developed a Preliminary

Environmental Assessment (EVAP) to comply with the National System of Environmental

Impact Assessment (SEIA) and the National Public Investment System (SNIP). In July 2015, the

EVAP was reviewed by the Ministry of Production, which categorized the project as category 2.

Therefore, OEFA will prepare an environmental impact assessment after the land is purchased

and the when the project’s detail technical studies are prepared. During project implementation,

all licenses and environmental permits will be in place.

Monitoring & Evaluation

54. The OEFA PCU will be responsible for M&E activities of this project. Achievement of

Project objectives will be measured by a combination of indicators, as shown in the Results

Framework (Annex 1). The PCU will prepare a progress report and send it to the Bank no later

than 60 days after the end of each six-month period. These reports will focus on attainment of the

intermediate indicators and progress on outcomes and will identify the problems encountered and

the corrective measures adopted. No later than in the final quarter of each year during project

execution, the PCU will submit the annual work plan for the following year to the Bank’s

satisfaction. In addition, the PCU will carry out two independent evaluations (one midterm and

one final) funded with project resources: (a) the midterm evaluation will be presented to the

Bank no later than 90 days after 50% of the loan proceeds have been executed; and (b) the final

46

evaluation will be presented no later than 90 days after 90% of the loan proceeds have been

executed. These evaluation reports will include an assessment of the quality of the monitoring

system data, the degree of achievement of intermediate indicators and outcomes and progress on

expected impacts as set forth in the Results Matrix, and the level of compliance with the POM,

including environmental and social management and monitoring plan.

47

Annex 4: Implementation Support Plan


Strategy and Approach for Implementation Support

1. The Project will be the first World Bank-financed project implemented by OEFA. Special

attention will be directed to building institutional capacity for implementation and timely

implementation of the risk mitigation measures.

2. Implementation support for the Project will focus, on the one hand, on strengthening the

technical skills of MINAM, OEFA, including the PCU, staff involved in the implementation of

the project by training them on cutting edge global practices both in environmental monitoring

and analytics and in the promotion of public participation through web-based technologies. On

the other hand, implementation support will focus on the functions and activities typically

monitored by World Bank during supervision, including monitoring of technical activities,

management functions (administration, financial management, procurement), and compliance

with safeguards policies.

3. The implementation support strategy is flexible and is likely to be amended during

implementation in response to the evolving needs of the Project, including changes in the

institutional context. It includes the following main elements:

World Bank implementation support will begin immediately after Board Approval, to

help the Borrower achieve loan effectiveness in a timely manner (this will involve formal

establishment of the PSC and PCU, including recruitment of key staff). The frequency of

implementation support missions will be higher in the initial phase of implementation

(possibly up to three missions during the first year and second year) to closely monitor

the launch of the Project, and then it will decrease to the usual (two missions per year)

frequency once the Project is running smoothly.

Since OEFA has no experience with the Bank-financed operations, fiduciary and

safeguards trainings will be provided to the staff in the PCU. In addition to carrying out

their usual implementation support functions, the Bank’s fiduciary and safeguards

specialists will be available to provide close support and detailed, hands-on guidance to

the counterpart during the initial months following effectiveness.

Exposing OEFA and MINAM staff involved with the implementation of the project to

state of the art technologies and institutional arrangements for effective environmental

monitoring, dissemination of environmental data and opening of participation channels in

environmental monitoring to potentially affected communities or citizens. Early during

Project implementation a study trip to Korea will expose key decision makers and staff of

OEFA and MINAM to innovative practices on environmental quality control and user-

friendly dissemination of environmental data.

The Implementation Support Strategy will be revisited regularly, taking into account

progress in implementation and conducting continuous risk assessment.

48

4. Technical Support. The Project will support the Government’s capacity to produce and

make available reliable environmental quality data. The Bank will include technical specialists in

environmental quality management, governance and information technologies drawn from within

the institution as well as global-level experts. Technical specialists with expertise in other areas

may be recruited, as necessary. Field visits will focus on verifying compliance with the policies

and procedures spelled out in the POM, identifying bottlenecks that may be impeding

implementation progress, and offering recommendations designed to overcome those

bottlenecks.

5. Land Acquisition. The Bank will closely follow the process of acquiring land for the

construction of the Laboratory of OEFA. The Bank will provide support to OEFA to ensure that

no land will be purchased if there are third parties interests involved, such as disputed property

rights, or the presence of illegal occupants,

6. Capacity on Bank Procedures. Given that OEFA has no previous experience with the

Bank-financed projects, it is likely that many of those involved in implementation will need to

familiarize themselves with the Bank policies and procedures. Therefore, close implementation

support to the staff of the PCU will be a key in the early stage. The Bank is prepared to schedule

additional implementation support missions as needed during the first two years of

implementation.

7. Fiduciary Aspects. The World Bank fiduciary specialists will provide early procurement

support to OEFA-PCU. The Bank Procurement Specialist and Financial Management Specialist

assigned to the Project are both based in the Country, and thus are available to meet the

counterparts and provide close and hands-on support to the PCU staff including instructions to

avoid initial delays in submitting withdrawal applications, performing financial management

activities, processing procurement requests, etc., in addition to joining regular implementation

support missions. During implementation, the FM Specialist will also review the annual audit

reports and the semester IFRs.

8. Safeguard Compliance. The World Bank Environmental Safeguards Specialist and

Social Specialist will provide support during the implementation phase. Environmental and

Social Safeguards Reviews will be carried out as part of implementation support mission, i.e.,

twice per year on average. Bank specialists will review documents produced by the PCU and

provide additional capacity building to the staff of the PCU.

9. Monitoring and Evaluation: The overall responsibility for project M&E will lie with

the OEFA PCU. The PCU will monitor and document project implementation progress,

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

financial records, compliance with safeguards policies and other operational and administrative

matters. The POM will specify M&E responsibilities, including data requirements, responsible

parties, frequency and timing, and reporting arrangements. During implementation, the Bank will

monitor and evaluate implementation progress and results through regular implementation

support missions and the mid-term review.

49

Implementation Support Plan

10. The main areas of focus for project implementation support activities are summarized

below. Implementation support frequency will be high during the first 12 months of

implementation. Implementation support missions will be reduced from three to two after the

second year. However, the support provided by country office-based members of the task team

will remain continuous.

Time Focus Skills Needed Resource Estimate Partner Role

First

twelve

months

Project start-up

Fiduciary Processes

Technical experts

(laboratory, air

and water

monitoring

networks)

Procurement

Management

Fiduciary

Management

3 implementation

support missions

Support from the

country office

Experts will

join the

technical

missions as

needed

12 – 24

months Project

implementation

Procurement of

laboratories and

monitoring networks

Technical experts

(laboratory)

Procurement

Management

Fiduciary

Management

2 implementation

support missions

Support from the

country office

Experts will

join the

technical

missions as

needed

24-48

months Project

implementation

Communication

activities

Monitoring

Reporting

Innovation

Management

Communication

M&E

Auditing and

accounting

2 implementation

support missions

Support from the

country office

Experts will

join the

technical

missions as

needed

Skills Needed Number of Staff Weeks Number of Trips

Task Team Leader 15 weeks in Year 1

15 weeks in Year 2

12 weeks per year (Year 3 to 5)

3 in Years 1 and 2

2 in Years 3 to 5

Technical Specialists/Experts 3 x 4 weeks per year 3 trips in Year 1

2 trips in Years 2 to 4

Procurement Specialist 4 weeks per year In country office

Financial Management Specialist 4 weeks per year In country office

Environmental Specialist 2 weeks per year 2 trips per year

Social Specialist 1 week per year 1 trip in Year 1 and 2

50

Annex 5: Economic Analysis


Introduction

1. The economic analysis is broken down by component. The first component

(Environmental Monitoring and Analysis) represents nearly 87 percent of the total resource

allocation, while the second component (Environmental Monitoring and Analysis) comprises

nearly 7 percent of the total budget. The rest finances project management.

2. Component 1 will provide support to MINAM34

and OEFA35

to properly carry out their

responsibility to monitor and analyzing air, water and soil quality based on an enhanced

regulatory framework, development of capacities and infrastructure for effective environmental

monitoring, and strengthening of analytical and quality control/quality assurance capacities.

Component 2 will support SINIA36

to properly collect, store and share environmental quality

information generated by various agencies at the national and local levels; and the development

and deployment of public participation platforms.

3. The economic analysis follows a cost-benefit approach. Therefore, the analysis assesses

and monetize the major economic benefits and compare them to project costs to estimate the

project’s economic returns for the society. Results show that the US$70 million to be invested in

the Project are expected to generate efficiency benefits with a net present value of US$ 41

million (low case scenario) up to US$ 84 million (high case scenario). The internal rate of return

(IRR) to this investment is estimated to be between 20% and 30%. Results are robust to adverse

changes in the key parameters.

Public Rationale

4. In addition to quantitative assessment, the Bank’s economic analysis guidelines require

an assessment of the public funding justification for all Bank lending programs. A public

funding justification requires that either an important market failure be present, or that additional

investment is needed to remedy a policy/government failure, and that the intervention address the

relevant failure(s) in some convincing way.

5. After analyzing the project, it is clear that in all areas of the program there are classic

market failures that justify public funding from an efficiency standpoint, as long as delivery is

well designed and cost effective. The project aims to strengthen public institutions (MINAM

and OEFA for Component 1; and SINIA for Component 2), which provide public goods to the

Peruvian society in different forms. Mitigating impacts, promoting better management,

increasing regulatory oversight, and improving enforcement and compliance with better data and

regulations clearly justify public funding in order to achieve well functioning markets.

Consequently, given its public good nature, the justification is clear since the Bank’s investment

will catalyze better and more efficient action on the part of public agencies

34

Ministry of Environment (Ministerio del Ambiente). 35

Agency for Environmental Assessment and Enforcement (Organismo de Evaluación y Fiscalización Ambiental). 36

National System of Environmental Information (Sistema Nacional de Información Ambiental).

51

Analytical Approach

Component 1

6. Additional benefits were calculated at the individual level and then aggregated up to the

project level. In the case of Component 1, the project aims to enhance the regulatory framework

and analytical capacity of the country and OEFA, and develop further monitoring stations with

the final objective of generating information and capacity that can contribute to reduce pollution

levels. The economic analysis focuses on air pollution and unimproved water and sanitation

sources.

7. Given that the benefits of environmental monitoring are difficult to measure directly,

analysis assumes that 10 percent of potential benefits resulting from lower pollution or improved

sources are attributed to the project. Providing information by itself might not have a direct

social value, but it drives actions and policies. In the case of air pollution, for instance, new

monitoring stations were put into operation in Lima downtown in early 2000s.37

The avverage

level of PM 2.5 in 2001 was 80 ug/m3 (Miranda, 2007)38

, while in 2015 it dropped to 24 ug/m3

(DIGESA, 2015)39

, just under the national standard of 25 ug/m3. Monitoring pollution levels

helped develop policies and contributed to reducing the air pollution by 70 percent. Therefore,

the assumption of 10 percent reduction is rather conservative.

8. Potential benefits are calculated by using cost of environmental degradation estimates.40

As mentioned before, a conservative 10 percent is assumed to be brought by the newly

established monitoring system in cities that currently do not have any monitoring station. In the

case of air pollution the estimated health value includes the impacts of outdoor air pollution and

lead pollution. National estimates were extrapolated – based on population density – for the

cities where the new monitoring stations are going to be constructed, i.e. Piura, Chiclayo,

Trujillo, Huancayo, Cusco and Iquitos. Estimates were expanded for 13 years taking into account

future mortality and morbidity rates. In the case of water-related costs, it also assumes a 10

percent reduction, but only for Metropolitan Lima where the new water monitoring systems will

be implemented.

Table 1: Estimated value per capita (US Dollars)

Low Medium High

Outdoor Air Pollution 55 58 65

Lead (Pb) Exposure 33 55 80

Water and Sanitation 29 32 34 Note: Average exchange rate S/. 3.3 soles per US$ 1 dollar. Results

includes both mortality and morbidity.

Source: World Bank (2012), “Economic Assessment of

Environmental Degradation in Peru: An update 2012”.

37

Lima downtown is one of the most polluted areas in Metropolitan Lima due to its traffic. Motor vehicles,

according to official estimates, accounts for more than 80% of total emissions in the city. 38

Miranda, Juan Jose (2007). “Impacto económico en la salud por contaminación del aire en Lima Metropolitana”.

Economía y Sociedad 66, CIES, Diciembre 2007. 39

See here: http://www.digesa.sld.pe/depa/aire_lc/lima_callao.asp. 40

World Bank (2012), “Economic Assessment of Environmental Degradation in Peru: An update 2012”.

Unpublished document. Document prepared by Bjorn Larsen and Elena Strukova.

http://www.digesa.sld.pe/depa/aire_lc/lima_callao.asp

52

Component 2

9. For Component 2, estimated benefits are related to time saved while searching

information at SINIA’s website. This represents a lower bound of total benefits because it

includes benefits associated with the intensive margin (efficiency) and does not include benefits

from the extensive margin (i.e., first-hand users due to faster search time).

10. In order to estimate the potential benefits, a short survey was carried out41

. Based on this

survey, the average search time is 9 minutes per institution and a total of 36 minutes (SINIA

includes four institutions: Procuraduría MINAM, SENAMHI42

, OEFA, and DIGESA43

).

However, after developing a platform and improving its information system, the current average

search time has reduced substantially to 5 minutes per institution and a total of 25 minutes.

Therefore, a total of 11 minutes (0.18 hour) is the estimated associated benefit per user. The

average search time saved was multiplied by the total visits/user (6 – 7 times per month), and the

total number of users. The social value of time was based on the parameters used by the Ministry

of Economy and Finance, suggesting S/. 6.81 (soles per hour) for urban areas and S/. 4.56 (soles

per hour) for rural areas.44

Table 2: Estimated search time

Total

Search

Time

(minutes)

Institutions

Before improvements 36 Procuraduría MINAM, SENAMHI, OEFA,

DIGESA

After improvements 25 Procuraduría MINAM, SENAMHI, OEFA,

ANA, DIGESA

Total saving time per

user

11

Note: A new institution was included (ANA) after the improvements of the information systems. We include its value in

the scenario “after improvements” reducing the saving time to provide conservative results.

Source: Estudio a nivel de Perfil “Mejoramiento y Ampliación del Servicio de Información para el Control de la Calidad

Ambiental a Nivel Nacional”

Results

11. Using the approach mentioned above, the US$70 million to be invested in the Project are

expected to generate efficiency benefits. Using a discount factor of 9%, the net present value

varies from S/. 135 million soles or US$ 41 million (low case scenario) up to S/. 277 million

soles or US$ 84 million (high case scenario). The internal rate of return (IRR) to this investment

is estimated to be between 20% and 30% (See Table 3 – Table 5 for further details).

41

In 2013, MINAM carry out the short survey through the SINIA’s webpage. Approximately 200 answers were

received. One of the survey’s question was the following: How long does it take you to find out whether or not the

information that you are looking for is available in this website? 42

National Meteorological and Hydrological Service (Servicio Nacional de Meteorología en Hidrología). 43

Direction of Environmental Health (Direccion General de Salud Ambiental). 44

Anexo SNIP 10, Parámetros de evaluación. MEF. Resolución Directoral Nº 003-2011-EF/68.01.

53

Table 3: Results for Low Scenario

(Discount rate: 9%, Million soles)

Year Component 1 Component 2 Total

Benefits Costs Benefits Costs Benefits Costs

2017 0.0 56.3 0.0 0.7 0.0 59.6

2018 0.0 58.5 0.0 8.4 0.0 69.5

2019 22.6 79.3 0.0 4.7 22.6 86.4

2020 45.7 24.5 15.5 0.3 61.3 26.5

2021 61.9 28.2 16.2 0.3 78.1 30.3

2022 78.4 46.9 17.0 2.6 95.4 49.5

2023 79.6 46.6 17.7 0.3 97.3 46.8

2024 80.7 27.5 18.5 0.3 99.2 27.8

2025 81.9 25.7 19.3 0.3 101.2 25.9

2026 83.1 25.8 20.2 0.3 103.3 26.1

2027 84.4 26.9 21.1 2.6 105.5 29.5

2028 84.4 26.9 22.0 0.3 106.4 27.2

2029 84.4 26.9 23.0 0.3 107.4 27.2

NPV 67 77 135

IRR 16% 74% 20%

Table 4: Results for Mid Scenario




2017 0.0 56.3 0.0 0.7 0.0 59.6

2018 0.0 58.5 0.0 8.4 0.0 69.5

2019 26.4 79.3 0.0 4.7 26.4 86.4

2020 53.4 24.5 15.5 0.3 69.0 26.5

2021 72.2 28.2 16.2 0.3 88.4 30.3

2022 91.5 46.9 17.0 2.6 108.4 49.5

2023 92.7 46.6 17.7 0.3 110.5 46.8

2024 94.0 27.5 18.5 0.3 112.5 27.8

2025 95.3 25.7 19.3 0.3 114.7 25.9

2026 96.7 25.8 20.2 0.3 116.9 26.1

2027 98.1 26.9 21.1 2.6 119.1 29.5

2028 98.1 26.9 22.0 0.3 120.0 27.2

2029 98.1 26.9 23.0 0.3 121.0 27.2

NPV 131 77 198

IRR 21% 74% 25%

54

Table 5: Results for High Scenario




2017 0.0 56.3 0.0 0.7 0.0 59.6

2018 0.0 58.5 0.0 8.4 0.0 69.5

2019 31.1 79.3 0.0 4.7 31.1 86.4

2020 63.0 24.5 15.5 0.3 78.5 26.5

2021 85.0 28.2 16.2 0.3 101.3 30.3

2022 107.7 46.9 17.0 2.6 124.6 49.5

2023 109.1 46.6 17.7 0.3 126.8 46.8

2024 110.5 27.5 18.5 0.3 129.0 27.8

2025 112.0 25.7 19.3 0.3 131.3 25.9

2026 113.5 25.8 20.2 0.3 133.7 26.1

2027 115.0 26.9 21.1 2.6 136.1 29.5

2028 115.0 26.9 22.0 0.3 137.0 27.2

2029 115.0 26.9 23.0 0.3 138.0 27.2

NPV 209 77 277

IRR 27% 74% 30%

Sensitivity Analysis

12. Sensitivity analysis was carried out to test the robustness of the previous results to

changes in the values of the following key parameters (e.g., discount factors or project cost

increments). The sensitivity analysis revealed that the measures of project worth are quite robust

to adverse changes in the key parameters.

13. Assuming a discount factor of 6 percent, the net present value increases from S/. 202

million soles or US$ 63 million (low case scenario) up to S/. 385 million soles or US$ 117

million (high case scenario). See table 6.

Table 6: Results with 6% discount factor

(Million soles)

Component 1 Component 2 Total

Low Scenario

NPV 118 99 207

IRR 16% 74% 20%

Mid Scenario

NPV 197 99 286

IRR 21% 74% 25%

High Scenario

NPV 295 99 385

IRR 27% 74% 30%

55

14. If project costs increase by 10 percent (table 7) or by 20 percent (table 8), results are still

positive with a discount factor of 9 percent. Under the most pessimistic scenario (low scenario)

and with cost increments of 20 percent, the net present value is still positive (S/. 67 million soles

or US$ 20 million).

Table 7: Results with 10% cost increase



Low Scenario

NPV S/.36 S/.75 S/.101

IRR 12% 69% 17%

Mid Scenario

NPV S/.99 S/.75 S/.164

IRR 18% 69% 21%

High Scenario

NPV S/.177 S/.75 S/.243

IRR 23% 69% 26%

Table 8: Results with 20% cost increase



Low Scenario

NPV S/.4 S/.74 S/.67

IRR 9% 65% 14%

Mid Scenario

NPV S/.67 S/.74 S/.130

IRR 15% 65% 18%

High Scenario

NPV S/.146 S/.74 S/.209

IRR 20% 65% 23%

15. Finally, results suggests that the maximum incremental cost associated with NPV = 0 is

up to 21.2% (component 1, pessimistic scenario) which suggest that the project, in total, allows

up to a 39.7% incremental cost (see table 9).

Table 9: Results with maximum incremental costs

(Discount rate: 9%)


Low scenario 21.2% 515% 39.7%

Mid scenario 41.2% 515% 58.3%

High scenario 66% 515% 81.4%

56

Conclusions

16. The ex-ante economic analysis suggests that Project-supported investments will generate

substantial benefits for areas served by the Project, as well as substantial benefits for Peruvian

society as a whole. Overall, the NPV is projected to reach 41 million (low case scenario) up to

US$ 84 million (high case scenario), while the IRR to this investment is estimated to be between

20% and 30%. Results are robust to adverse changes in the key parameters. The economic

analysis thus shows that if Project implementation is effective and efficient, Project-supported

investments will bring substantial economic benefits to the Peruvian society in general.

57

Annex 6. Map of Project – MAP IBRD 33465R

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