============================================================================= RED CIENTIFICA PERUANA ============================================================================= This section is from the document '/PIC/pid/pid/perpa117.txt'. Project Name Peru-Transport Sector Rehabilitation Project Region Latin America Caribbean Sector Transportation, Air, Road, Rail Project ID 6PERPA117 Implementing Agency Ministry of Transport, Communication, Housing & Construction National Railway Co. (ENAFER) Municipality of Metropolitan Lima Ministry: Avenida 28 de Julio No. 800 Lima, Per£ Contact: Juan Castilla Meza, Vice Ministro Tele: (51-14) 338.530 Fax: (51-14) 336.622 Municipality: Direcci¢n Municipal Administrativa Natalio Sanchez 220, 6 piso, oficina 8 Lima, Per£ Contact: Jenny Samanez de Testino Tele: (51-14) 373.897 Fax : (51-14) 337.519 ENAFER: Jir¢n Ancash 207, Lima 1, Apartado 1379 Lima, Per£ Contact: Angel Palomino Aviles Tele: (51-14) 327.801 Fax : (51-14) 324.903 Prepared - Projected Board Date February 15, 1994 1. Introduction. The Bank is considering a US$150 million equivalent loan to the Government of Peru to help finance a transport sector rehabilitation project. The project would be implemented by the Ministry of Transport, Communications, Housing & Construction (MTCC), the National Railway Company (ENAFER), and the Municipality of Metropolitan Lima (MLM). Counterpart funds of US$50 million equivalent would be provided by the Government of Peru. The contents of this PID are subject to change, and the components described may not necessarily be included in the final project. 2. Background. Peru's economy was damaged by inward-looking policies during much of the 1980s, which resulted in debt arrears, falling output and real wages, and almost no foreign exchange reserves. Transport infrastructure has deteriorated enormously because of poor maintenance and problems of internal security. As a result, the export and distribution of goods, and the delivery of agricultural produce to the markets, have become costly and in some cases had to be halted altogether. It is clear that an efficient transport system is critical for the country's economic recovery. The road subsector accounts for 95% of all domestic freight transport. Road maintenance has been poor so that the network is disintegrating. In the short run, available resources should be directed to an emergency program of rehabilitation, with increased attention to maintenance. Further upgrading of the road system would follow next, as needs are identified. In addition, the subsector raises four important issues: (i) funding for road maintenance, (ii) defining the responsibilities of central and local government levels and the role of private sector participation, (iii) strengthening the institutional capacity to manage the road system; and (iv) improving traffic safety. The railway subsector should, in normal circumstances, be the most cost-efficient mode for transporting mineral ore to the ports. Mineral traffic has fallen, however, because of poor railway management, truck competition, and high railway costs which are largely due to deferred maintenance and excessive staffing. The railways which are owned and operated by the state company ENAFER are now virtually bankrupt but, from an economic perspective, continue to be vital for bulk transport. Moreover, the railway is one of the few effective means to restrain the charges of the trucking industry which has shown a tendency to form cartels. A committee was formed in May 1993 to develop a strategy for privatizing the railways. Before the private sector is likely to step in, however, they will require physical rehabilitation works as well as structural reforms, to permit the continuation of essential economic and social services to remote areas of Peru, which in some case have no alternative means of transport. The airport subsector suffers from inadequately maintained runways and obsolete air navigation equipment. It is run by CORPAC, the state owned enterprise in charge of both airport facilities and air traffic control; a strategy is being developed to privatize airport operations, but the physical infrastructure would continue to be owned by the Government. Lima's runway has been declared "of concern" by some key airlines, and its rehabilitation is urgent lest Peru be cut off from international access. Urban transport services have recently been privatized, resulting in increased supply of public transport, reduced needs for Government funding, and more expensive fares. The latter has severely affected Lima's low-income commuters who now pay up to 25% of their incomes on transport. Affordable transport for the poor has thus become a key issue in Lima. 3. The Government has launched a drive to obtain external funding for the sector. In January 1992, it signed a US$ 210 million loan agreement with the IDB to rehabilitate the Pan- American Highway and a section of the Central Highway. The rehabilitation of these highways is urgent, but will not suffice as other transport modes and roads linking production areas in the interior to the markets and ports remain in poor condition. The Government has thus approached the World Bank to prepare a loan to rehabilitate some of these roads, the railways and Lima's airport runway, and test a low-cost transport option, utilizing bicycles, for Lima. 4. Project Objectives. The main objectives of the project are: (i) to rehabilitate essential transport infrastructure which, primarily because of neglect of maintenance, has fallen into disrepair; (ii) to assist Government in implementing institutional reforms in the road, railway and aviation subsectors; and (iii) to lay the groundwork for future projects focussing on strengthened transport management, increased private participation in the transport sector, and improved mobility of the poor. 5. Project Description. The project (estimated to cost about US$200 million equivalent) would consist of five components, the most important concerning road rehabilitation and maintenance. Seven roads totalling 1000 km are being considered for rehabilitation under the project. Of these, 350 km were included in the World Bank's previous (1982) highway loan, but could not be completed when all Bank disbursements to Peru were halted in 1987. In addition, this component would include (i) a bridge renewal program, including the acquisition of Bailey bridges, i.e. quickly-mountable structures, (ii) the maintenance of specified roads in the project corridors, and (iii) a traffic safety program. In parallel, the project would support government efforts to reform road administration and finance; road maintenance responsibilities would be redefined, staff capabilities strengthened, and the system of road finance reformed, based on receipts from user charges. The second component would rehabilitate key railway services, including track, telecommunications, workshops and repair of locomotives. These physical improvements would be accompanied by institutional and financial reforms for ENAFER. The third component would rehabilitate Lima's airport runway which, according to ICAO and some major airlines, is in urgent need of repair before it becomes a danger to aviation. The fourth component would be a pilot project for non-motorized transport in Lima to promote the use of bicycles by low-income residents. The fifth component, technical assistance, studies and training, would help to strengthen the institutional capacity for managing the road, railway and airport subsectors, and support the creation and fostering of an autonomous agency responsible for planning, operating, controlling and financing the highway system. The studies would address medium-term needs and aim to develop policies which would restructure and strengthen the transport sector so it can contribute to the country's economic recovery on a sustainable basis. 6. Project Implementation. The project would be financed jointly by the World Bank (75%, or a loan fo about US$150 million) and the Government of Peru (25%, or about US$50 million in counterpart funds). Cofinancing appears promising in the forms of a $4-5 million loan from the OPEC Fund and a $1 million Japanese technical assistance grant. Discussions have also taken place for contributions from KfW, OECF and the Japanese EximBank. The project would be implemented by the Ministry of Transport, Communications, Housing and Construction (MTCC -- road and airport components, and most studies), ENAFER (railways), and Lima municipality (MLM -- NMV pilot component). Overall project coordination would be the responsibility of a Project Coordination Unit (PCU) reporting directly to the Transport Minister; project coordinators would also be appointed in ENAFER, CORPAC and MLM. 7. Benefits. The project, by helping to reduce the deterio- ration of existing highway, railway and airport facilities and by improving their maintenance base, would avoid further losses of valuable capital in roads and railways, reduce transport costs, and consequently support growth in agriculture, mining, industry and exports. It would also contribute to more efficient use of public resources in the transport sector, and to an increase of private sector participation in road maintenance and railway operations. In Lima, the pilot bicycle project would prepare the ground for expanding the use of an environmentally friendly and affordable (to the poor) transport mode. Economic evaluations have yielded IRRs of between 22% and 68% for the seven road rehabilitation schemes and of 23% for the airport runway rehabilitation. For the railway component, similar values are expected from the economic evaluation. Contact Point - Public Information Centre The World Bank 1818 H Street N.W. Washington D.C. 20433 Telephone No.: (202)458-5454 Fax No.: (202)522-1500 ________ Note: This is information on an evolving project. Certain components may not necessarily be included in the final project.  .