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. 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 Environmental Quality Standards (Estándares de Calidad Ambiental) EPR 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 International Bank for Reconstruction and Development INACAL 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 Project Steering Committee RSA 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 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 Senior Global Practice Country Director Regional Vice President Manager/Manager Director 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: malegre@minam.gob.pe Responsible Agency: Organismo de Evaluacion y Fiscalizacion Ambiental Contact: Tessy Torres Title: Executive President Telephone No.: 51-1-2049900 Email: ttorres@oefa.gob.pe Project Financing Data(in USD Million) [X] Loan [ ] IDA Grant [ Guarantee i ] [ ] 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 40.00 Development 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 4.83 Environmental Quality Control Project Management 4.16 Systematic Operations Risk- Rating Tool (SORT) Risk Category Rating ii 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 Yes [ ] No [ X ] respects? 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 X CONTINUOUS covenant Description of Covenant iii 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. Name Recurrent Due Date Frequency SENAMHI Cooperation Agreement 01-Jun-2018 Description of Covenant 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 Name Recurrent Due Date Frequency ANA Cooperation Agreement 01-Jun-2018 Description of Covenant 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). Source Of Fund Name Type IBRD OEFA Cooperation Agreement Effectiveness Description of Condition 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 iv 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. Source Of Fund Name Type IBRD Project Coordination Unit (PCU) Effectiveness Description of Condition 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. Source Of Fund Name Type IBRD Project Steering Committee (PSC) Effectiveness Description of Condition 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 Team Leader Senior Environmental GEN04 Careaga (ADM Environmental Economics Responsible) Economist Ernesto Sanchez-Triana Team Leader Lead Environmental GENDR Environmental Management Specialist Selene del Rocio La Procurement Procurement Procurement GGO04 Vera Specialist (ADM Specialist Responsible) Nelly Ikeda Financial Financial Financial GGO22 Management Management Management Specialist Specialist Alonso Zarzar Casis Safeguards Sr Social Scientist Senior Social GSU04 Specialist Scientist Ana Luisa Gomes Lima Team Member Environmental GEN04 Specialist Bjorn-Soren Gigler Team Member Senior GGOII Governance v Specialist Catarina Isabel Portelo Counsel Senior Counsel LEGLE Cecilia Belita Team Member Operations Analyst Operations GWA09 Analyst Cesar Augusto Tapia Team Member Consultant GWA04 Jiang Ru Team Member Senior Environmental GEN06 Environmental Management Specialist Juan Carlos Enriquez Safeguards Senior Environmental GEN04 Uria Specialist Environmental Engineering Specialist Juan Jose Miranda Team Member Environmental Economist GENGE Montero Economist Maria Luisa Castro Leon Team Member Consultant GENDR Maria Virginia Team Member Finance Officer WFALA Hormazabal Mariana Margarita Counsel Senior Counsel LEGAM Montiel Momoe Kanada Team Member Consultant Environmental GENGE Management Oswaldo Patino Team Member Project GTIDR Management Sylvia Michele Diez Team Member Environmental GEN04 Specialist William Reuben Team Member Consultant Consultant GSU04 Extended Team Name Title Office Phone Location Locations Country First Location Planned Actual Comments Administrative Division Peru Lima Lima X Consultants (Will be disclosed in the Monthly Operational Summary) vi 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). 1 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). 2 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. 3 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. 4 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. 5 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. 6 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. 7 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 8 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 61,418,150 37,277,479 60.69 2. Improve Environmental Information and Public Participation for Environmental Quality Control 4,829,837 2,722,521 56.37 3. Project Management 4,159,319 0 0 Total Costs Total Project Costs 70,407,306 40,000,000 56.81 Total Financing Required 40,000,000 * 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. 9 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 10 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 11 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. 12 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. 13 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 14 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. 15 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. 16 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 17 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. 18 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 End Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 Target Validated air quality monitoring networks in operation supported by the project (recommendation 25.1 of the Action Plan for the 0.00 0.00 1.00 3.00 7.00 7.00 7.00 implementation of the recommendations of the OECD EPR of Peru) (Number) Validated surface water quality monitoring networks in operation supported by the project 0.00 0.00 0.00 0.00 1.00 1.00 1.00 (Number) Analytical parameters accredited for the OEFA laboratory 0.00 0.00 0.00 0.00 30.00 70.00 70.00 (Percentage) Environmental quality information disclosed through SINIA (aligned to recommendation 7 of the OECD Environmental Performance Review 5.00 5.00 5.00 40.00 70.00 100.00 100.00 of Peru, 2016) (Percentage) 19 Average user satisfaction score of the National Environmental Information System (SINIA) (disaggregated by sex) 2.00 2.00 2.00 3.00 4.00 4.00 4.00 (Number) Intermediate Results Indicators Cumulative Target Values End Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 Target Functioning air quality monitoring stations established by the project 0.00 0.00 6.00 16.00 16.00 16.00 16.00 (Number) Functioning water quality monitoring station established by the project 0.00 0.00 0.00 12.00 19.00 19.00 19.00 (Number) OEFA Lab Established 0.00 0.00 0.00 0.00 1.00 1.00 1.00 (Number) Accredited laboratories with Good Laboratory Practice compliance 0.00 0.00 0.00 0.00 0.00 10.00 10.00 (Percentage) Samples analyzed by OEFA laboratory 0.00 0.00 0.00 0.00 70.00 150.00 150.00 (Number in thousand) ECAs established or revised supported by the project 0.00 0.00 0.00 1.00 1.00 1.00 1.00 (Number) LMPs established or revised supported by the project (recommendation 26.2 of the Action Plan for the implementation of the recommendations 0.00 0.00 2.00 3.00 5.00 5.00 5.00 of OECD EPR of Peru). (Number) National entities submitting environmental quality information to SINIA 1.00 1.00 3.00 5.00 5.00 5.00 5.00 (Number) 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 300.00 750.00 1230.00 1730.00 2260.00 3130.00 3130.00 (Number in thousand) 20 Response rate to registered public requests for environmental quality information with SINIA (aligned to recommendation 7 of the OECD 40.00 40.00 40.00 50.00 60.00 70.00 70.00 Environmental Performance Review of Peru, 2016) (Percentage) CSO staff trained on public engagement tools 0.00 0.00 0.00 200.00 200.00 200.00 200.00 (Number) Officials trained on the use of environmental quality information for informed decision making 0.00 0.00 0.00 110.00 110.00 110.00 110.00 (Number) Software engineers trained on open data and potential uses of such data 0.00 0.00 0.00 50.00 50.00 50.00 50.00 (Number) Indicator Description Project Development Objective Indicators Data Source / Responsibility for Indicator Name Description (indicator definition etc.) Frequency Methodology Data Collection Validated air quality This indicator measures the number of networks: Semi-annual Technical inspection of OEFA monitoring networks in one control center and various monitoring networks compliance with operation supported by the stations connected to it. "Validated" means quality assurance and project having a certification as a proof to meet certain quality control protocols 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 21 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 This indicator measures the number of networks: Semi-annual Technical inspection of OEFA quality monitoring one control center and various monitoring networks and monitoring networks in operation stations connected to it. "Validated" means stations compliance with supported by the project having a certification as proof to meet certain quality assurance and Peruvian quality assurance and quality control s quality control protocols 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. Analytical parameters This indicator measures the progress of the Semi-annual Review of accreditation OEFA accredited for the OEFA project-financed laboratory in achieving its prepared by INACAL laboratory designed analytical capacity. INACAL is legally and/or an internationally responsible for accrediting laboratories. recognized accreditation institution Environmental quality This indicator measures the available Semi-annual Direct observation on MINAM/SINIA information disclosed environmental quality monitoring data on air SINIA publicly accessible through SINIA (according to ECAs), water (according to ECAs) platforms and portal 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. Average user satisfaction This indicator measures the efficacy of the Semi-Annual Online survey MINAM/SINIA score of the National SINIA to serve the needs of the public for 22 Environmental Information accessing environmental quality information and System (SINIA) participating in controlling and managing (disaggregated by sex) environmental quality. The scale of the score is 1 to 5 based on a user survey. Intermediate Results Indicators Data Source / Responsibility for Indicator Name Description (indicator definition etc.) Frequency Methodology Data Collection Functioning air quality Number of air quality monitoring stations Semi-annual Review of technical OEFA monitoring stations established by the project and in operation. inspection reports upon established by the project completion of civil works Functioning water quality Number of water quality monitoring station Semi-annual Review of technical OEFA monitoring station established by the project inspection reports upon established by the project completion of civil works OEFA Lab Established OEFA lab is constructed, equipped and fully Semi-annual Review of technical OEFA functional. inspection reports upon completion of civil works Accredited laboratories This indicator measures how many laboratories Semi-annual Review of technical OEFA with Good Laboratory have been able to comply with GLP reports on compliance of Practice compliance requirements. public and private laboratories with OEFA good laboratory practice guidelines Samples analyzed by OEFA This indicator measures the capacity of the Semi-annual Review of OEFA log OEFA laboratory OEFA laboratory in performing sample analysis. book ECAs established or revised ECAs established means developing an Semi-annual Review of legal MINAM/OEFA supported by the project environmental quality standard. documents (public gazette) establishing or revising the ECA LMPs established or LMP established means developing an emissions Semi-annual Review of legal MINAM/OEFA revised supported by the or discharge standard. documents (public project Note: Recommendation 26.2 of the Action Plan gazette) establishing or 23 for the implementation of the recommendations revising the LMPs 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. National agencies The indicator measures five targeted agencies Semi-annual Review of reporting MINAM/SINIA submitting environmental (ANA, DIGESA, SENAMHI, OEFA and according to quality information to MINAM) submitting different types of interoperability SINIA information according to an inter-operability agreements agreement (based on the information sharing protocol) signed between MINAM and the concerned institutions. Public engagement tools Public engagement tools developed by the Semi-annual Review of SINIA logbook MINAM/SINIA deployed project but probably also by the market. Tool and SINIA portal on includes easy access ways to send information information shared by (e.g. photos, text and voice messages) directly to citizens SINIA related to environmental quality using simple mobile technology as well as sophisticated applications. Visits to the project Self-explanatory. Semi-annual Tracking device MINAM/SINIA supported public monitoring data engagement platforms Response rate to registered Response rate is within 7 working days. Semi-annual Review of SINIA logbook MINAM/SINIA public requests for Note: Aligned to recommendation 7 of the and SINIA portal on environmental quality Environmental Performance Review of Peru to response and timelines of information with SINIA the Working Party on Environmental responses (if required) to Performance, Environment Directorate, OECD, information shared by 2016. citizens CSO staff trained on public Self-explanatory. Semi-annual Review of service MINAM/SINIA engagement tools providers reports Officials trained on the use Self-explanatory. Semi-annual Review of service MINAM/SINIA 24 of environmental quality providers reports information for informed decision making Software engineers trained Self-explanatory. Semi-annual Review of service MINAM/SINIA on open data and potential providers reports uses of such data 25 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. 26 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. 27 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 28 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) 29 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. 30 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. 31 Annex 3: Implementation Arrangements PERU: Enhancement of Environmental Quality Services (P147342) 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 OEFA MINAM Institutional Control Unit Project Steering Vice Ministry of President Committee Vice Ministy of Environmental Strategic Management Development of Natural Resurces General Project Uni (PC ) DGPNIGA DGIIA DGCA Secretariat Coordinating t U Office of , Administration (OGA ) Legal Office Administration Project Technical Area Area Office of Office of Planning and Budgeting Administration (OA) Component 1 Component 2 (PIP 1) (PIP 2) Office of Communications and Citizen Evaluation Supervision Fiscalization, Sanction and Directorate Directorate Incentives Directorate Decentralized Offices Continuous line: Functional institutional relationship Dashed line: Institutional links for project implementation 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 32 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. 33  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. 34 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 35 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. 36 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 February 28th of each Statements 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 37 management letter regarding the internal controls of the project. Audit requirements would include: Audit type Due date Project financial statements June 30 Special Opinion: June 30 Statement of Expenditures 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. 38  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 Percentage of Expenditures to Allocated be financed (expressed in USD) (inclusive of Taxes) (1) Goods, works, non-consulting 37,277,479 services, and consultants’ 100% services required under Part 1 of the Project (2) Goods, non-consulting services, and consultants’ 2,722,521 100% services required under Part 2 of the Project 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 39 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 40 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 Delivered before negotiations WB The hiring of a skilled procurement staff By effectiveness The Procurement Plan must be included and During implementation managed through STEP 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: 41 Thresholds for procurement methods and prior review (thousands of US$) Expenditure Contract Value (Thresholds) Procurement Contracts Subject Category US $ thousands Method to Prior Review 1. Works >10.000 ICB 250 – 10,000 NCB According to <250 Shopping procurement plan Regardless the value DC 2. Goods >2000 ICB 50 - 2000 NCB According to <50 Shopping procurement plan 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. Description Estimated Packages Domestic Review by Bank Comments No. Cost US$ Preference (Prior/Post) million (yes/no) CIVIL WORKS Construction and 29.7 No Prior equipment of Laboratory GOODS Equipment for Air 6.6 No Prior Quality Monitoring Equipment for 6.8 No Prior Water Monitoring IT equipment for 2.1 No Prior MINAM’s and SENAMHI’s Data Center 42 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$) Contract Value (Thresholds) US Contracts Subject to Consulting Services Procurement Method $ thousands Prior Review 3.a Firms >100 QCBS, QBS, FBS, LCS QCBS, QBS, FBS, LCS, According to Procurement <100 CQS Plan Regardless the value SSS Comparison of 3 CVs in accordance with Chapter According to Procurement 3.b Individuals V of the Guidelines 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 $350,000 equivalent per contract, may be comprised entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Consultancy Assignments (involving international competition), with Selection Methods and Time Schedule 1 2 3 4 5 Estimated Review by Bank Ref. No. Description of Assignment Cost US$ Processes (Prior/Post) million Firms Design and Planning of Air and Water 4.3 Prior Quality Monitoring Network Supervision of Design and Construction 2.3 Prior of Laboratory Technical Assistance in Implementation, 1.0 Prior Development and/or Validation to comply with ISO 17025, 14001, 18001 43 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 44 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 45 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. 46 Annex 4: Implementation Support Plan PERU: Enhancement of Environmental Quality Services (P147342) 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. 47 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. 48 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  Project start-up  Technical experts  3 implementation Experts will twelve (laboratory, air support missions join the months  Fiduciary Processes and water  Support from the technical monitoring country office missions as networks) needed  Procurement Management  Fiduciary Management 12 – 24  Project  Technical experts  2 implementation Experts will months implementation (laboratory) support missions join the  Procurement of  Procurement  Support from the technical laboratories and Management country office missions as monitoring networks needed  Fiduciary Management 24-48  Project  Innovation  2 implementation Experts will months implementation Management support missions join the  Communication  Communication technical  Support from the activities  M&E country office missions as  Monitoring  Auditing and needed  Reporting accounting Skills Needed Number of Staff Weeks Number of Trips  15 weeks in Year 1  3 in Years 1 and 2 Task Team Leader  15 weeks in Year 2  2 in Years 3 to 5  12 weeks per year (Year 3 to 5)  3 trips in Year 1 Technical Specialists/Experts  3 x 4 weeks per year  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 49 Annex 5: Economic Analysis PERU: Enhancement of Environmental Quality Services (P147342) 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). 50 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. 51 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 Institutions Time (minutes) Before improvements 36 Procuraduría MINAM, SENAMHI, OEFA, DIGESA After improvements 25 Procuraduría MINAM, SENAMHI, OEFA, ANA, DIGESA Total saving time per 11 user 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 web page. 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. 52 Table 3: Results for Low Scenario (Discount rate: 9%, Million soles) Component 1 Component 2 Total Year 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 (Discount rate: 9%, Million soles) Component 1 Component 2 Total Year 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 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% 53 Table 5: Results for High Scenario (Discount rate: 9%, Million soles) Component 1 Component 2 Total Year 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 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% 54 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 (Discount rate: 9%, Million soles) Component 1 Component 2 Total 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 (Discount rate: 9%, Million soles) Component 1 Component 2 Total 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%) Component 1 Component 2 Total Low scenario 21.2% 515% 39.7% Mid scenario 41.2% 515% 58.3% High scenario 66% 515% 81.4% 55 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. 56 Annex 6. Map of Project – MAP IBRD 33465R 57