Page 1 PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB5133 Operation Name Second Programmatic Environmental Development Policy Loan Region LATIN AMERICA AND CARIBBEAN Sector Mining and other extractive (25%);General energy sector (25%);Health (25%);General transportation sector (25%) Project ID P116152 Borrower(s) MINISTRY OF ECONOMY AND FINANCE Implementing Agency INISTRY OF ECONOMY AND FINANCE Ministry of Economy and Finance Jr. Junin 319, 4to. Piso Lima 1 Peru Tel: (51-1) 311-9900 aamezaga@mef.gob.pe Date PID Prepared October 8, 2009 Estimated Date of Appraisal Authorization October 16, 2009 Estimated Date of Board Approval December 15, 2009 1. Key development issues and rationale for Bank involvement Peru is one of the most ecologically diverse countries in the world, endowed with a large and varied territory and an enormous wealth of natural resources. Environmental quality and natural resource abundance are an integral part of the country’s sustainable growth and the well-being of its population. However, environmental degradation and the depletion of natural resources constitute a formidable obstacle to Peru’s ongoing efforts to eradicate poverty, reduce inequality, and develop a more diversified and resilient economy. The costs of environmental degradation represent more than 3.9 percent of the country’s Gross Domestic Product, mainly due to increased morbidity and mortality and concomitant decreased productivity. Over the past five decades, Peru has restructured its legal and regulatory landscape, undertaken numerous policy initiatives, and dramatically expanded and strengthened its institutional capacity for protecting and managing natural resources and environmental quality. In spite of these advances, the country continues to face serious environmental challenges. Recent events have once again drawn public attention to the consequences of environmental degradation and natural resources depletion. The media has provided extensive coverage of pollution from mining environmental legacies (MELs), which have come to symbolize social conflict throughout the country. Similarly, the high lead concentration levels measured in the blood of the general population at La Oroya have raised international outcry. The devastating effect of natural disasters associated with the occurrence of El Niño in 1998, the collapse of the hake fisheries in recent years, and the challenges to the anchovy industry have also triggered short-term institutional responses to these issues. Over the past decade, the Government of Peru (GoP) has made considerable progress in improving its institutional and legal framework for environmental management. It has done so by issuing laws and regulations defining roles for environmental licensing, strengthening the environmental framework within key sectors (including mining, energy, and forestry), enhancing the management of natural protected area, and by establishing Peru’s Ministry of Environment (MINAM). These efforts comprise the initial steps of the reforms that Peru must carry out in order to address the urgent environmental Page 2 challenges it currently faces, and to ensure that the environment is safeguarded as the process of decentralization advances. With the creation of MINAM and an accompanying maturation of public and private institutions, it has become clear that the timing of this Programmatic Environmental Development Policy Loan (DPL) operation is very opportune. Indeed, it is ideal for supporting policy reforms on the environmental front. The Country Partnership Strategy (CPS) for Peru for FY07-FY11 (Report PE-37913) recognizes the need to raise the profile of environmental issues in Peru, and includes a potential set of environmental DPLs that would enhance public environmental investments and strengthen the institutional framework. These environmental DPLs contribute directly to encouraging the environmentally sustainable growth (within pillar I) 1 of the CPS by supporting the environmental management of water resources, conservation of biodiversity and forest cover, enhancing control over air and water pollution, improving the sustainability of extractive industries (such as mining and hydrocarbons), and the sustainable management of fisheries resources. The proposed Peru Second Programmatic Environmental DPL is the second in a planned series of three operations (programmed for FY09, 10 and 11) to support the continuing efforts of the GoP in strengthening environmental sustainability in the country. The proposed policy reforms and activities under the ENVDPL program are based on two core pieces of analytical work, The Environmental and Social Dimensions of the Mining Sector in Peru (2005), and the Peru: Country Environmental Analysis (CEA-2006). The determination of which key sectors and priority areas to be addressed under the proposed ENVDPL 2 results from a series of consultations led by MEF, with input and active participation from a number of government agencies. Despite an initial demand to address a wide range of environmental issues ( e.g. renewable energies, forest policy, indoor air pollution), the core sectors and themes to be supported by this ENVDPL program were selected based on the following criteria: ƒ A level of national priority agreed on by MEF and MINAM 2 ; ƒ Supplementary support from other loans/grants 3 , ƒ The level of sectoral support and commitment. Consequently, the final selection of sectors to be supported (mining, fisheries, transport and fuels related to air quality improvements) reflect a cohesive strategy which would: ƒ Promote principles of sustainability and address core environmental issues in two natural resource- based and leading export sectors (mining and fisheries), which have grown immensely in the past decade 1 The Bank’s program of activities to support the GoP in reaching these objectives is organized around three pillars and six clusters, as follows. Pillar (i) Economic Growth: 1. Maintaining macro stability and reducing vulnerabilities; 2. Accelerating growth and widening its base; 3. Making growth environmentally sustainable. Pillar (ii) Social Development: 4. Meeting Basic Needs; 5. Promoting a new social contract in education, health and nutrition. Pillar (iii) Modernization of the State: 6. Modernizing state institutions. 2 For example, natural disasters and indoor air pollution, which were identified as prominent contributors to costs of environmental degradation in the CEA, will not be addressed by this operation. 3 Issues such as water resource management (identified as critical in the Peru CEA) are not included in the proposed ENVDPL 2 as they are already being addressed by World Bank-lead Water Resources Management Modernization Project and by two separate IDB DPLs and Water Resources Management Modernization Project. In addition, forest policy is being covered within the framework of the FTA and through an Andean Development Corporation (CAF) loan. Page 3 ƒ Address air quality, which has been identified as the leading cause of morbidity and mortality in the country (particularly in large cities) ƒ Strengthen the overall environmental institutional and policy framework in order to support MINAM’s new tasks regarding: - Policy making - Biodiversity conservation - Regulating the environmental licensing process - Environmental enforcement. 2. Proposed objective(s) The proposed ENVDPL 2 aims at supporting the GoP’s efforts to: ƒ Improve efficiency and effectiveness of environmental governance and institutions in Peru ƒ Establish sustainability principles as a mainstream element in the development agenda of key sectors, to drive improvements in the management of the mining sector, improvements in air quality, and enhance the fisheries sector. ENVDPL 2 is one of the key pillars of the 2006 Country Partnership Strategy for Peru and of the government’s strategy to strengthen its sustainable development policies. It will contribute significantly to Peru’s efforts towards the achievements of the Millennium Development Goals (MDGs). 4 This operation, under preparation for over a year, will be presented for Board approval in December 2009, and is expected to be disbursed in the first quarter of 2010. The actions supported by ENVDPL 2 build on those implemented during ENVDPL 1. ENVDPL 1, which shared the same development objectives, focused on passing key legislation and supporting strategic Government efforts. The GoP continues to show a true interest and determination to furthering its environmental agenda. By continuing the ENVDPL program, the World Bank is strategically providing both the technical and financial means for the GoP to tackle urgent environmental challenges. The subsequent ENVDPL loan (ENVDPL 3) for the environment sector is currently planned for 2010. The timing of ENVDPL 2 is serendipitous given Peru’s economic growth, the promising outlook for key sectors in which environmental issues are receiving government attention, the recent creation of a Ministry of Environment, as well as the approval of the Free Trade Agreement with the USA that includes requirements on environmental issues. 3. Preliminary description The specific policy areas and actions supported by ENVDPL 2 are outlined in the policy matrix. These policy actions aim at strengthening institutional and environmental governance; mainstreaming principles of sustainable development in key sectors including mining, fisheries, and those supporting improved air quality. Policy actions under ENVDPL 2 for environmental governance include the following: · To strengthen the legal and institutional framework for environmental management, the operation supports the adoption of regulation of the Law for the National System of Environmental Impact Assessment. This regulation defines the roles and responsibilities of 4 The proposed ENDPL would contribute to the attainment of MDG’s Goal 7 which seeks the attainment of environmental sustainability, and Target 9 which promotes principles of sustainable development in country policies and programs. Page 4 MINAM and key sector-specific agencies in the evaluation of EIAs for large projects and key sectors. · For biodiversity conservation, this operation will support the approval of: a. Sustainable Financial Strategy for the Natural Protected Areas System (SINANPE) b. Action Plan for Natural Protected Areas System ( Plan Director ) c. Regulatory measures to promote private sector financing and management of Natural Protected Areas · To strengthen the framework for environmental quality standards and better monitoring, this operation will support: d. Approval of protocol to synchronize different air quality monitoring networks in metropolitan Lima (SENAMHI, DIGESA, among others) e. Publication and dissemination of daily air quality monitoring data (in real-time) f. Development of air quality management action plans for Peru’s five (5) most polluted cities. Policy actions under ENVDPL 2 to support the mainstreaming of sustainable development in key economic sectors in Peru include the following: · For the mining sector, this operation supports policy actions to improve information and capacity to remediate mining environmental liabilities and strengthen environmental and social governance in mining sector by supporting: g. The development and implementation of an updated and systematized Mining Environmental Legacies (MEL) inventory, and of a national strategy for remediation of priority MELs (using technical, environmental economic and public health criteria) h. Government efforts to promote environmental participatory monitoring. · For improving urban air quality, this operation supports policy actions in two areas: i. Improving fuel quality by implementing a strategy and/or contingency plan to ensure supply of 50 part per million diesel by 2010 (where sulfur content in the fuel cannot exceed 50 parts per million). j. Improving vehicle performance through the continued promotion and implementation of vehicle conversions to natural gas as well as the implementation of Vehicle Inspection and Maintenance System according to a timetable based on license plate numbers in Lima Metropolitan Region. · In the fisheries sector, this operation supports the government’s program to reduce overcapacity in the anchovy fleet and mitigate social impacts relating to displaced workers by supporting the implementation of fishing quotas by vessel, implementation of the Social Compensation Fund (FONCOPES), and the retirement pension fund (financed by ton of landed anchovy) through the approval of regulation of Legislative Decree 1084. Looking forward, the Bank will support the GoP in implementing the reforms relating to environmentally sustainable improvements in these areas. The added value the Bank brings to the process lies in its convening power, the provision of global expertise in this highly specialized field, and leverage in resource mobilization. 4. Environment Aspects Page 5 The provisions of OP8.60 regarding Development Policy Lending apply to ENVDPL 2. The policies and reforms supported by this operation are expected to have a positive effect on the country’s environment, by supporting improved environmental governance and management. As the main objective of ENVDPL 2 is supporting the GoP’s efforts to mainstream environmental concerns in a number of key sectors (such as mining, fisheries, energy), the design of the operations are canted towards internalizing environmental and social safeguards issues at the macro level. The operation seeks to achieve a dual objective of incorporating environmental considerations in key productive sectors of the economy, and improving the effectiveness and efficiency of the environmental management process. Consequently it is expected that the policies supported under this operation are unlikely to cause significant negative effects, and will instead have positive effects on Peru’s environment, forests, and other natural resources. The government’s commitment to improved environmental governance is evidenced by the creation of a new environmental, ministry (MINAM) in May 2008, and the allocation of its operating budget (more than twice the yearly budget of CONAM) as approved in August 2008. The government’s efforts at strengthening environmental governance through policy reforms are supported by ENVDPL 2. Positive impacts on the environment are expected to derive from improved environmental management at both the national and local levels, in which the program places particular emphasis in assuring improved transparency and accountability with respect to governmental oversight and decision-making processes. The conservation of biodiversity and natural protected areas in Peru will also be enhanced through various reforms and activities being undertaken by GoP to strengthen institutional capacity and financial sustainability; while the approval of environmental quality standards and maximum permissible emission levels for air and water, supported by this operation, is expected to strengthen environmental monitoring. Key analytical work such as the CEA and the Mining Study support the integration of environmental concerns into sector policy development for energy, transport, mining, and fisheries. This has also facilitated the policy dialogue, the inter-institutional agreements and commitments among various stakeholders to address the respective environmental concerns (e.g., urban air quality, mining contamination, etc.). In the mining sector, government reforms aimed at updating the MEL inventory and assessing priority MELs in key watersheds is expected to improve government actions towards remediation of environmental impacts. Furthermore, various government actions supported by this operation to overcome the shortcomings of the EIA system, especially for large-scale and complex mining operation, is expected to improve the overall quality of the EIAs process and strengthen the overall licensing framework. Improvements in urban air quality are another significant environmental effect of government actions in the energy and transport sector enhanced through the support of this operation. These include actions to encourage the availability of cleaner fuels, shift vehicles to clean natural gas, and scrap older polluting vehicles. In the fisheries sector, this operation will support government efforts at boosting sustainability in this sector through regulations relating to the size, capacity, and catch quotas. The proposed operation incorporates actions to improve the effectiveness and efficiency of environmental management processes. The benchmarks that have been realized by the GoP indicate that the country is headed in the right direction with respect to protecting the environment and improving environmental quality. Page 6 5. Tentative financing Source: ($m.) Borrower 0 International Bank for Reconstruction and Development 50 Total 50 6. Contact point Contact: Juan C. Belausteguigoitia Title: Lead Environmental Economist Tel: (202) 473-8809 Fax: Email: jbelausteguigoit@worldbank.org