Docun=t Of

The World Bank

FOx OmCIAL USE ONLY

LA) - 2qsl5- pE

Repwt No_ P-3839-PE

REPORT AND RECOMIENDATION

OF THiE

PRESIDENr OF THE

INrEItATIONAL BANK FOR RECONSTwCTION AND DEVELOPmEN

TO 'IE

EXECUTIVE DIRTORS

ON A

PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO US$82.5 lLLION

TO THE

REPUJBLIC OF PERU

F OR IRE

LIMA METROPOLITAN DEVELOPMENT PROJET

June 1, 1984

Thi doeente w a resticted distribution ad my be used by reiit maly in the jefuane Oftheir otida dutieds Its coutents maY not othrwise be dissd witho_ World Buk auboriuatio.

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CURRENCY EQUIVALENTS

The exchange rate is being adjusted daily, roughly in line with the differen-tial between domestic and international inflation. The exchange rate andcurrency equivalents in 1983 and as of May 15, 1984 were as follows:

Currency Unit = Sol (SJ.)

1983 Average !!ay 15. 1984

US$1 S/. 1,629 S/. 3,02.5S/. 1 US$0.0006 US$0.0003S/. 1,000 US$0.61 US$0.33

FISCAL YEAR

January 1 to December 31

ABBREVIATIONS

CmC - Comision Multisectorial Coordinadora(Multisectoral Coordinating Commission)

ESMLL - Empresa de Servicios Municipales de Limpieza de Lima(Municipal Solid Waste Corporation)

E.NMSA - Empresa de Mercados Mayoristas S.A.(Wholesale Market Corporation)

GTZ - Gesellschaft fiur Technische Zusammenarbeit(German Technical Assistance Agency)

IDB - Inter-American Development BankINVEUMET - Fondo Metropolitano de Inversiones en Fideicomiso

(Metropolitan Investment Fund)MUL - Municipalidad de Lima Metropolitana

(Municipality of Metropolitan Lima)MTC - Ministry of Transport and CommunicationsOxTU - Oficina Metropolitana de Transportes Urbanos

(MXetropolitan Urban Transport Office)OPDM - Oficina del Plan de Desarrollo Metropolitano

(Metropolitan Development Planning Office)PPF - Project Preparation FacilityUSAID - United States Agency for Interaational Development

FOR OFFICIL USE ONLY

REPUBLIC OF PERU

LIMA METROPOLITAN DEVELuPMENT PROJECT

LOAN AND PROJECT SUMMARY

Borrower: Republic of Peru

* Beneficiaries: Municipality of Metropolitan Lima (MLM) and WholesaleMarket Corporation (EMMSA).

Amount: US$82.5 million equivalent, including a capitalizedfront-end fee.

Termi; Repayable in 17 years, including four years of grace, atthe standard variable interest rate.

Relending Terms: For the market subproject, the Borrower would on-lendUS$22.4 million equivalent for 17 years including sixyears of grace with the same interest rate as the BankLoan. EMMSA would bear the dollar-sol exchange risk.

ProjectDescription: The proposed project would support (a) the progressive

transfer of urban administration from national to localgovernment, and specifically, more efficient metropolitanmanagement in Lima, the capital of Peru, as well as (b)improvements in high priority infrastructure and servicesin the areas of urban transport, solid waste and whole-sale marketing. About 53 percent of benefits from theinfrastructure and services improvements would accrue tolow-income residents. Principal subprojects would be:(i) traffic management improvements throughout the city,paviug of about 100 km of streets in low-income areas androad rehabilitation and maintenance; (ii) construction ofa new wholesale market; (iii) provision of vehicles,equipment and transfer station capacity and developmentof two landfill sites to meet dhe needs of the city'ssolid waste agency and the city districts; and (iv)institutional strengthening through studies, technicalassistance and training of the agencies charged with eachof the above activities as well as improvements in cityplanning, municipal finance and coordination of urbanir.vestments and project administration.

Special Risks: Risk of local funding difficulties during a period of na-tional austerity would be addressed by relying mainly onlocal funding from an earmarked source (gasoline tax re-venues). Risk of inadequate professional staff withinthe Municipality would be mitigated by requiring con-tracting of implementation advisors initially for thelargest subproject, transport, and by providing trainingfor municipal staff. Any problems of coordinationbetween national and municipal agencies would be eased bythe Multisectoral Coordinating Commission.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization.

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Estimated Costs * Local Foreign Total~~ - US$ million

(a) Urban Transport 26.6 33.6 60.2

(b) Wholesale Market 15.4 9.3 24.7

{c) Solid Waste 2.0 7.4 9.4

(d) Urban Management and Project 2.2 4.2 6.4Administration

(e) Project Preparation Facility 0.0 1.0 1.0

Base Cost 46.2 55.5 101.7

Contingencies: Physical 5.1 4.7 9.8

Price 9.2 12.1 21.3

TOTAL PROJECT COST 60.5 72.3 132.8

Interest during construction of market 0.2 2.7 2.9

Front-End Fee on Bank Loan 0.0 0.2 0.2

TOTAL FINANCING REQUIRED 60.7 75.2 135.9

Financing Plan Local Foreipn Total

i-US$ million -

World Bank 13.3 69.2 82.5Government, EMMSA and INVERMET 47.4 0.0 47.4GTZ 0.0 1.0 1.0Suppliers Credits 0.0 5.0 5.0

TOTAL 60.7 75.2 135.9

Estimated Disbursements

bank FY 1985 1986 1987 1988 1989 1990 1991 1992

US$ million

Annual 16.7 27.1 22.5 7.5 3.U 2.0 3.3 0.4Cumulative 16.7 43.8 66.3 73.8 76.8 78.8 82.1 82.5

*1 Project costs include USS9.0 million in identifiable taxes and duties.

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Rate of Return: The economic rate of return is estimated at around70 percent for those parts of the project withdirectly quantifiable benefits. These represent 78percent of total project costs.

Staff Appraisal Report: Report No. 4781-PE, dated May Z9, 1984.

.

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INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTREPORT AND RECOMMHENDATION OF ThE PRESiDEN1 OF TIE IBRD

TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TOTHE REPUBLIC OF PERU FOR THE

LIMA METROPOLITAN DEVELOPMENT PROJECT

1. I submit the following report and recommendation on a proposed loanto the Republic of Peru for the equivalent of US$82.5 million to help financethe Lima Metropolitan Development Project. The proposed loan would have aterm of 17 years, including four years of grace, at the standard variableinterest rate. For the market construction, the borrower would on-lendUS$22.4 million to the Wholesale Market Corporation for a term of 17 years,including six years of grace, at the same interest rate as the Bank loan.

PART I - THE ECONOMY

2. An economic report entitled Peru-Major Development Policy Issuesand Recommendations- (Report No. 3438-PE) was distributed to the ExecutiveDirectors on May 4, 1981. This part is based on the findings of that report,on that of an economic mission to Peru in July/August 1982 and of follow-upmissions in February and September 1983. Country data sheets are attached asAnaex I.

Natural and Human Resources

3. Peru, the fourth largest country in Latin America, is divided bythe Andes mountains into three distinct regions: the coastal region (Costa),with 46 percent of the population and most of the country's modern economicacdivity; the mountain region (Sierra) with 44 percent of the country's popu-lation; and the sparsely populated tropical rain forests east of the Andes(Selva). Thne country's rugged topography limits trade among the three re-gions.

4. Peru's natural resources include large deposits of minerals-par-ticularly copper, iron, silver, and zinc-located mainly in the Sierra andthe southern Costa. There are also large phosphate deposits, located in thenorthern Costa, and substantial petroleum resources in the Selva and off-shore, but their full extent has not yet been ascertained. Another majornatural resource is the large fishing potential in coastal waters, althoughthe catch is subject to sharp fluctuations. Only a small portion of Peru'stotal land area is arable, and most of the soils suitable for intensive agri-culture are already being farmed.

5. Although Peru's energy resource base is relatively diverse, withscope for expanding hydro and coal based power generation, petroleum is ex-pected to remain the major energy source through the rest of this century.After discovery of oil in the Selva, Peru's domestic oil production more thandoubled between 1977 and 1982 to over 195,000 barrels per day (bpd), and itbecame a net exporter of about 62,00U bpd. To enable Peru to remain a netpetroleum exporter, the Government has embarked on a strategy of acceleratedsecondary recovery and exploration efforts to increase production and of

rational pricing policies to contain demand growth. Prices for domesticallyconsumed petroleum products have been increased at regular intervals. Inaddition, new legislation was enacted offering special tax incentives to do-mestic and foreign investors.

6. As a result of three decades of rapidly falling mortality rates,Peru's population growth accelerated during the 1930-1960 period. Since theearly 19bOs, birth rates have fallen gradually, mainly caused by the urban-ization process and improved education. But with declining death rates,population has continued to grow at about 2.5 percent p.a. between 1972 and1951 to 17 million. Preliminary 1981 census information indicates that fer-tility declined by 20 percent during the past decade and the current rate ofpopulation growth has dropped to 2.2 percent p.a. The census also indicatesthat the reduction in population growth is most marked among the 65 percentof the population living in urban areas. The Government is quite popula-tion-conscious and is now supporting a family planning program.

Past Development Policies and Performance (1968-78)

7. Two successive military Governments, in office from October 1968until July 1980, followed a development strategy aimed at premoting economicgrowth and improving distribution of income and wealth. The pattern of assetownership in the economy changed drastically through nationalization of pro-duction and distribution activities, and through a sweeping land reform.however, many of the policies carried out after 1968 had an ex.cessive cost,and their implementation was inefficient. In particular, expansionary fiscaland credit policies between 1968 and 1977 produced strong inflationary pres-sures and expanded external borrowing, raising Peru's external debt to almostUS$8.4 billion (including short-term indebtedness); about two-third's ofGDP. By mid-1978, the country was in the midst of a severe financial crisis;inflation had accelerated to an annual rate of about 100 percent and thebanking system's net international reserves dropped to a negative level ofUSS1 billion. Peru was no longer able to service its foreign obligations.

8. Beginning in May 1978, the Government adopted a number of importantmeasures aimed at strengthening public finances, improving the balance ofpayments and curbing inflation. The Government also negotiated a stand-byarrangement with the IMF in support of tb- stabilization program, and carriedout major debt-relief operations, postponing repayment of about US$1 billiondue in 1979/80 to the 1982-1986 period. The Government then adopted a com-plementary Economic Recovery Program, which included measures to open up theeconomy, promote non-traditional exports, strengthen the tax system, andgenerally improve the efficiency of resource allocation in the private andpublic sectors. These policy changes-together with a declining domesticmarket because of the recession-resulted in a large increase in the value ofmanufactured exports, from about US$200 million in 1977 to the US$750-800million range in 1980-81. The Government also drew up a public se^tor in-vestment program emphasizing projects of clear economic priority and withpositive effects on production and employment. To support the program, theBank approved a US$115 million Program Loan in Mlay 1979.

9. The Government's stabilizarion-cum-economic recovery programresulted in a strong improvement in public sector finances in 1979. Theoverall public sector deficit was reduced from 5.7 percent of GDP in 1978 to

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1.7 percent in 1979, and the more careful management of public finances had apositive impact on the balance of payments. At the same time, an increase inpetroleum exports and a substantial improvement of Peru's terms of trade gen-erated a surplus in the current account of the balance of payments in 1979and equilibrium in 1980. At year end 1980, the net reserve position had im-proved to about US$1.3 billion. Growing incomes as a result of good externalsector performance and, in 1980, a reacceleration of public sector expendi-tures, resulted in renewed growth of GDP, at an average rate of 3.9 percentin 1979-1980. However, the public sector deficit increased again to six per-cent of GDP in 1980, and inflation exceeded 60 percent.

* 10. After a new constitution was written by a popularly elected con-stituent assembly, elections were held in May 1980, and the winner, PresidentFernando Belaunde, was inaugurated on July 28, 1980. lis Government faced achallenging situation with severe structural weaknesses which had been onlytemporarily attenuated by the improvements in the terms of trade and the re-sumption of growth. The new Government was committed to structural transfor-mation based on opening up the economy; encouragement of private sector ini-tiative and reduced public sector participation in economic activities; andimproved efficiency in the remaining public sector activities. Its relianceon, and promotion of, private initiative, in particular, distinguish the pre-sent Government's philosophy and economic program from that of its immediatepredecessors.

11. The Government was successful in accelerating import liberalizationby eliminating non-tariff barriers and lowering tariffs, and in streamliningexport incentives. At the same time, new legislation was enacted for theagricultural, mining and petroleum sectors, offering greater incentives toinvestors. Substantial changes were made in the financial sector, throughupward adjustments of the interest rate, and reduction of legal reserve re-quirements. The Government also made progress in correcting major price dis-tortions by reducing food subsidies, eliminating some price controls and ad-justing periodically public utility and petroleum product prices. Finally,the Government endeavored to rationalize public investment and its financing---an effort that was supported by a Bank-sponsored Consultative Group meetingin May 1981-and initiated actions to strengthen public sector institutions.

Recent Developments and Outlook

12. Unfortunately, the 1981-83 world recession made Peru's adjustmentdifficult. In 1981, the first full year of the new Government, the worlddemand for Peru's main exports declined, interest rates on the country's ex-ternal debt increased to an all-time high, and the terms of trade fell by 10percent as a result of lower export prices. The overall negative impact ofthese external events on Peru's balance of payments was estimated at US$740million. A substantial recovery of agricultural output (with a growth rateof almost 12 percent) and an even faster growth of construction (mostlypublic) allowed GDP growth of near four percent. However, industrial outputstagnated, mining fell by four percent, the public sector deficit increasedto about eight percent of GDP and the current account of the balance of pay-ments closed with a deficit of US$1.7 billion.

13. By 19J2, economic activity was slowing down, world commodity pricescontinued to fall, and the public sector deficit had also increased. TheG(verament adopted an austerity program designed to reduce the public sector

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deficit and regain external equilibrium. Peru's mini-devaluations wereaccelerated and exceeded domestic inflation by a wide margin, thus restoringpart of the competitiveness lost in previous years. In June 1982, the IMFapproved an SDK 850 million compensatory-cum-EFF arrangement to supportPeru's stabilization ano structural adjustment efforts. The current accountdeficit in the balance of payments was reduced slightly (to USS1.6 billion)in 1982, in spite of lower export prices, but GDP growth slowed to less thanone percent, industrial output fell more than two percent, the public sectordeficit rose to 8.8 percent of GDP, and inflation continued at more than 70percent.

14. The still sizeable public sector and current account deficits, com-bined with the reduced availability of external loans from international com-mercial banks, encouraged the Government to try to accelerate the adjustmentprocess in 1983. The new measures included a large cut in public investment,acceleration of price adjustments of publicly supplied goods and services,and faster reduction of food subsidies. Also, the Government followed aresttictive monetary policy, and mini-devaluations from January to August1983 again exceeded domestic inflation.

15. Peru's economic difficulties, ho-ever, were compounded by naturaldisasters suffered during the first half of 1983. Heavy rains flooded thenorthern part o: the country; there was also a severe drought in the south,massive landslides in the central area, and a reduction in the fish catch.Most of these were linked to a change in El Nino, a current in the PacificOcean off the Peruvian coast, which also affected weather in other parts ofthe world. These disasters were costly; replacing the damaged infrastructuremay require over US$500 million (about 40 percent of the 1983 public invest-ment budget). Output losses were also substantial. Agricultural productionwas particularly hard hit in the north of Peru where cotton crops were de-stroyed. Flooding of the Talara oil fields and damage to the trans-Andeanpipeline caused a 12 percent drop in oil produc:ion (to an average of 172,000bpd), and a ten percent fall in petroleum exports.

16. The combined impact of the natural disasters, low commodity prices,limited access to external borrowing and the high debt burden produced asevere economic recession in 1983; GDP fell by about 1U percent, with allsectors showing a decline in output. At the same time, inflation acceleratedto 125 percent, partly because of the natural disasters but also because ofinflationary expectations fueled by the mini-devaluations. The currentaccount deficit in the balance of payments was further reduced, but onlybecause of much lower imports. Financing of even this reduced deficit re-quired a renegotiation of the commercial bank debt (in March 1983) and of thedebt to Paris Club member countries (in July 1983). The commercial bank debtwas rescheduled in the context of a "jumbo loan that also provided -orUS$450 million of tresh money. Public sector revenues also declined sub-stantially in 1983 because of the recession, and the public sector deficit(about 10 percent of GDP) far exceeded the Government's programmed target.

17. By the eiidl or i983, it was clear to the Government that its EFFprogram could not be placed on track, so it negotiated with the IMF an 18-month standby to replace the final period of the EFF. The standby arrange-ment was approved by ,:he IMF Board in April 1984. As part of ics new pro-gram, the Government authorized advanced interest payments on deposits to

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allow effective rates to become positive in real terms. It also raisedelectricity and water rates in real terms and confirmed its tight monetaryprogram. On the strength of the negotiated standby, Peru's commercialcreditor banks agreed to a rescheduling of US$1.5 billion amortizatioa duethem between January 1984 and July 1985. The standby also lays the groundfor a Paris Club meeting, expected in early June, to reschedule 1984/85maturities and interest payments. There of course, remains a continuing needfor official development assistance, including local cost financing. Peru'seconomic recovery will depend greatly on recovery in the developedcountries-the chief market for its important mineral exports andmanufactured exports. Nevertheless, sound domestic policies are alsocritical for this recovery. Provided the Government maintains its newprogram, economic growth may resume after 1984. A medium-term growth ofabout four-five percent per year and a manageable balance of paymentssituation would then be possible, and Peru will remain creditworthy for Banklending.

PART II - BANK GROUP OPERATIONS IN PERU

18. The Bank has approved 56 loans to Peru for a total amount ofUS$1,559.4 million, net of cancellations. About 24 percent of the Bank'slending to Peru has been for transportation (mainly highways and ports', 27percent for agriculture, 21 percent for the energy sector, 11 percent formining and industry, about nine percent for education, health and urbandevelopment, seven percent for a program loan in support of the EconomyRecovery Program in 1979, and one percent for a technical assistance oper-ation.

19. Annex II contains a summary statement of Bank loans and their dis-bursement status as of !Sarch 31, 1984. As of this date, US$732.8 million wasundisbursed; this figure reflects many recently approved loans (11 in 1982-83). Disbursements on Bank-financed projects moved slowly in the late 1970s,primarily because of weak project execution capacity and a shortage of coun-terpart funds that worsened as the economy deteriorated during this period.Disbursements have improved, however, with vigorous efforts by the Bank andGovernment to correct the situation by: inter alia, (i) opening a Bankresident mission in Peru; (ii) restructuring a number of slow moving pro-jects; (iii) Government provision of adequate counterpart funds; and (iv)Government creation of a special commission to monitor loan execution and re-solve administrative problems. These actions are bearing fruit. Disburse-ments on project loans amounted to US$44 million in FY80, US$70.5 million inFY81, US$75.8 million in FY82 and US$85.7 million in FY83. This compareswith average yearly disbursements of US$27.5 million during FY77-79.

20. The main objectives of Bank lending to Peru are to assist in:(i) the expansion of productive capacity in crucial sectors, i.e., petroleum,agriculture and mining; (ii) the strengthening, through technical assistanceloans and regular operations, of public sector management, including moreeffective economic policies; (iii) the creation of the physical infrastruc-ture needed to sustain and foster economic development; and (iv) the improve-ment of living conditions for the urban and rural poor. In the past, Banklending concentrated on infrastructure in the transportation and power

sectors. More recently, the Bank's emphasis has shifted to more directlyproductive fields--petroleum, agriculture, mining, and industry-to help Peruto strengthen its balance of payments. Lending for social projects has alsogrown and will be stepped up further in the future. The proposed projectaddresses both the objectives of strengthening of public sector managementand the improvement in living conditions of the urban poor. In addition,Peru has been approved as eligible for the Bank's Special Action Program(SAP) and seven projects are receiving support under that program. Futureoperations are being prepared in industry, education, water and power.

21. Bank loans constituted an estimated 6.0 percent of Peru's totalpublic external debt outstanding and disbursed at the end of 1983, and ab-sorbed about nine percent of the country's public external debt service in1983 (taking into account the effects of the rescheduling of 1983 principaland interest payments). Although Peru is expected to continue to seek long-term bilateral and multilateral aid, the Bank's share in the country's out-standing public foreign debt by 1985 should remain about six percent, withits share of debt-service around 4.5 percent, assuming the relatively modestBank lending program expected over the next two years.

22. IFC commitments as of March 31, 1984 were US$41.2 million (includ-ing US$15 million to the Southern Peru Copper Corporation for the CuajoneCopper Mining Project) of which US$15.1 million is held by the Corporation.A summary statement of IFC investments as of March 31, 1984 is presented inAnnex II.

23. The other principal lending agencies active in Peru are the Inter-American Development Bank (IDB) and the United States Agency for Interna-tional Development (USAID). Their total commitments as of December 31, 1983were US$1.4 billion and about US$400 million, respectively, and their sharesof public debt service as of end-1982 were estimated at 1.7 percent and 0.9percent, respectively. In its future operations, IDB is expected to empha-size lending for agriculture, industry, energy, mining, roads, and small-scale irrigation. USAID is expected to stress rural and urban developmentand health.

PART III - THE URBAN SECTOR

Urbanization and the Primacy of Lima

24. The population of the Lima Metropolitan area grew from 3.2 millionin 1972 to 5.1 million in 1983 and will probably reach at least eight millionby the end of the century. Nevertheless, its 1972-1981 annual growth ratewas under 3.8 percent compared to 6.1 percent between 1961 and 1972. Manysecondary cities in Peru are now growing faster than Lima, so that the trendof the national urban system is toward greater balance. Still, Lima is morethan double the size of all secondary cities over 100,000 populationcombined. It accounts for 28 percent of national population and 53 percentof total urban population (i.e., in centers above 20,000). The metropolitanarea produces about half of GDP, including more than 90 percent of nationaloutput of capital goods, two-thirds of consumer goods and almost all finan-cial services.

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25. While Lima's size suggests that it should have first priority inresource allocation, in the longer run, complementary public investments insecondary cities are also justified on equity and regional economic grounds.However, Lima, and the urban sector generally, have been deprived of publicinvestment since 1968 because of Governments' rural bias and, more recently,budgetary constraints. This failure to invest in urban areas is now impair-ing efficiency and adversely afiecting household welfare, already reduced byfalling real wages in recent years.

26. The concentration of economic activity in the Lima area makes itvital that the city be well managed and maintained, which is not presentlythe case. Furthermore, the capital's economic activity has not been associ-ated with improved incomes of its population. About 54 percent of its house-holds are absolutely poor (earning less than $167 per month in 1981 prices);62 percent are relatively poor (with $225 per month). Over 60 percent livein slums in the city center (tugurios) or periphery (pueblos jovenes). Popu-lation is still growing faster than the expansion rate of public services.

National Urban Policy

27. Various strategies have beeni proposed to discourage the growth ofLima. The 1975-1980 Administration backed a plan to integrate Lima withmajor towns in the country's Central Region. The present Government supportsa "decongestion corridor" to promote urban growth north and south of Lima,but, except for a coastal highway and a new port, few actions have been takento achieve this objective. In any case, the industrial potential of thesepoles is too limited to assure that such a strategy would have a real impacton decongesting Lima. To invest in either area is a high-risk strategy,because without a full range of incentives to draw the population away fromLima, there would be a probability of underutilized infrastructure. Moreoverthe spontaneous deceleration of Lima's growth makes strategies to disperseeconomic activity and population of dubious merit. The Bank has been discus-sing these issues with the country in the context of its sector dialogue.

28. Peru has one of the most centralized systems of urban management inLatin America. The local sector accounts for only two percent of consoli-dated public sector expenditures. The need to revise this system by trans-ferring responsibilities to local governments (devolution) was recognized inthe 1979 Constitution. The development of a sound urban management and in-vestment strategy for Lima would be the core of a national devolution policy;the proposed project is an important element in this strategy.

Lima Metropolitan Government

29. Metropolitan Lima is a province and the provincial government(Municipalidad de Lima Metropolitana-MLM) is headed by an elected metropol-itan council which sets policies for the metropolitan area ard has a munic-ipal coordination assembly made up of the 41 district mayors. The chiefexecutive officer is the MLM Mayor, elected at three-year intervals. Becauseof the continued high degree of district administrative independence,however, coordination within MLM remains difficult.

3U. MLM controls a Municipal Investment Fund (INVERMET) and a citysolid waste company (ESMLL) as well as 12 executive departments. INVERMET isMLM's trust fund set up to finance infrastructure improvements. Its main

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source of income is an earmarked transfer of national gasoline tax revenues,which totalled about US$7 million in 1983. Street maintenance is mainly aresponsibility of the districts, although the Transport Ministry maintainssome intercity roads. Retail markets are traditionally also a district res-ponsibility but wholesale markets are managed by a national body, the Whole-sale Market Corporation (DEMSA), under the Ministry of Agriculture withlittle coordination until now with other metropolitan activities. ESYML isresponsible for transfer of solid waste and the landfills in the metropolitanarea. The collection of solid waste is mainly done by the municipal dis-tricts; ESMLL collects only in the central business districts. Nationalcorporations are also in charge of city electricity, water, sewerage andtelecommunications, and act independently. To handle the transfer of keyfunctions from central to municipal government as mandated by the 1979 Con-stitution, a multisectoral commission was established. MIM has set up itsown planning office to replace the o-ae which operated in the National Housingand Urban Development Ministry, and is also establishing a metropolitan urbantransport office. They are thus in a position to assume responsibility forthe planning and transport functions, which have been transferred to thelocal level.

31. Historically, MLM has had few autonomous budgetary resources, yetCeentral Government transfers have been declining. Of MLM's total 1983 budgetof US$56 million (a low US$11.00 per capita), 15 percent was financed fzomCentral Government transfers compared to 22 percent in 1981. Most expendi-tures cover operating costs; only 11 percent went for capital outlays in1983. In the absence of increased financial resources and stronger financialmanagement, MLM's assumption of greater functional responsibilities is boundto proceed slowly.

32. Planning in Lima is presently limited to control of current devel-opment, based on the land use expectations of an obsolete 1912 comprehensiveplan. Unanticipated growth of peripheral slums and the assumptions that anurban rail system would be built (which never materialized) have altered pro-posed patterns of land use and density. The need for a comprehensive strat-egy to guide land use and transport development is urgent. With regard tostaffing, low municipal salary levels make it difficult to attract and retainqualified senior staff and managers, and no systematic training presentlyexists within MKM. The proposed project would provide training and technicalassistance to staff involved in project execution.

Urban Transport

33. All transport in Lima is by road. Traffic congestion, with resul-tant delays for passengers and goods and excessive fuel use, is common.Accident rates are high. The main cause of these problems is mismanagementand inefficient use of roadways, including poor signing and channelizationand uncoordinated traffic signals. Provision of road and bus service has notkept pace with demand, particularly for densely-populated low-income neigh-borhoods in the city outskirts, where streets are generally unpaved. This isworsened by the deterioration of the existing road network, as a result ofinadequate maintenance.

34. Buses are the main transport mode for low-income groups, butserious lack of capaci_y has caused excessive waiting times to travel onovercrowded buses. Recently, in an effort to correct this, the Government

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allowed importation of new buses; imports of 1,300 have been contracted sofar. Route structure has evolved into a system of winding routes all enter-ing the central area. Fares have been control-Led and the leading privateoperator is reporting losses. While two sep.rate stud-es (1972 and 1982)recommended mass transit systems for the city (ucderground or light rail),available data do not permit proper evaluation of mass transit alternatives.Therefore, it was agreed that a study of such alternatives would be financedunder the Bank's Public Sector Management Loan (2204-PE of December 16,1982). The Government and MLM would furnish the bank an impact analysis ofany resulting proposal to undertake a transport investment of over US$10million in the Lima area during project execution, and allow the Banic. an op-

* portunity to comment. Any such investment that would adversely affect thetransport subproject of the proposed project would be an event for suspensionof disbursements (Section 4.02 and 5.01(g) of the draft Loan Agreement).

Wholesale Markets

35. Wholesale marketing of fruits and vegetables, managed by EMMSA, ismainly carried out in two markets located within two miles of the citycenter. The main market was built in the 1940s and subsequent growth of thecity has created serious congestion problems as well as inadequate handlingcapacity for current consumption levels. Obsolete design also does notpermit introduction of modern handling and storage methods. In consequence,trucks, retailers and wholesalers experience waiting times in excess of fourhours. Wastage and pilferage generate loss of value, while the market'scurrent location has generally led to public health hazards. A new marketsite at Santa Anita, four miles east of the city center, was selected fol-lowing a 1964 study and feasibility studies were prepared in 1972 and updatedin 1982. The old markets should be closed down for wholesale operations, asmodernization would be extremely costly (para. 43).

Solid Waste Management

36. Refuse management throughout the city needs improvement. In cen-tral districts, trucks do not have efficient routes or schedules for ser-vicing collection areas. The lack of transfer station capacity means manycollection vehicles have to deliver directly to landfills up to 40 km. away,which limits them to one collection round per day. Lack of equipment hasprohibited adequate collection service in outer districts, while poor mainte-nance results in less than 60 percent of the fleet being available at any onetime. Finally, most refuse is deposited in open, smoking, unsanitary dumps.

Previous Bank Operations

37. In addition to the mass transit study mentioned above (para. 34),the Bank made an Urban Development Loan (1283-PE of October 12, 1976 forUS$21.6 million) which focused on Lima and Arequipa. It included sites andservices, water supply, sewerage, electrical connections, health facilitiesand industrial parks. After initial delays, the pace of execution picked upand the project was completed in early 1984. Because of inflation, negativereal interest rates have developed -which will inhibit the achievement of theproject's cost recovery objectives; however, the project has demonstrated thefeasibility of low-cost shelter solutions. Discussions leading to a newnational housing project center on the importance of a revised system to

- 10 -

adjust interest rates for the sector. Complementary to the Urban DevelopmentLoan, the Bank is helping finance water and sewerage in Lima through Loan2139-PE (of June 4, 1982 for US$40_6 million). Inadequate water tariffs andinstitutional weaknesses have kept this project from progressing at a satis-factory pace. However, during the first semester of 1984, the Governmentraised water tariffs 30 percent in real terms. It has also selected amanagement consultant to assist it in institutional improvements. The Cen-tral Government, rather than the Xunicipality of Lima, is responsible for thewater agencies and sector policies through its Ministry of Housing and UrbanDevelopment.

PART IV - THE PROJECT

38. This would be the second Bank-financed urban development project inPeru. The project was prepared by the multisecroral commission (para. 30)and by the Wholesale Market Corporation (EMMSA), in conjunction with thevarious offices and agencies expected to participate in the project. TheBank helped finance the feasibility study with funds provided under a ProjectPreparation Facility. A Bank mission visited Peru to appraise the projectduring April and May 1983. The appraisal mission's report entitled StaffAppraisal Report, Lima Metropolitan Development Project (No. 4871-FE, datedMay 29, 1984) is being distributed separately to the Executive Directors.Annex III contains a Supplementary Project Data Sheet. Negotiations wereheld in Washington from May 7 to 11, 1984 and the Peruvian Delegation washeaded by Mr. de Souza, the Ministry of Economy, Finance and Commerce rep-re-sentative on the Multisectoral Commnission. Lima's mayor also attended thenegotiations.

Project Objectives and Description

39. The proposed project would support the shift of administrative andfinancial responsibility for metropolitan management in Lima from national tolocal government through institutional strengthening of MLM as well as phys-ical improvements in the three critical sectors of transport, solid waste andwholesale marketing. Emphasis has been placed on rehabilitation and effec-tive utilization of existing transport and refuse systems, and on relocationof wholesale market activities to a new site permitting greater volui-n andef'iciency. The process of devolution of urban management is a long-term oneand the proposed project would represent a first stage in that process.

40. Specific subprojects within the project are:

(a) improvements in "rban traffic management, paving of about 100k1m. of unimproved streets in low-income areas, rehabilitationof roads, and technical assistance, studies and training forthe Guardia Civil (police) traffic control unit, for MLM'surban transport office (OMTU) and for INVERMET, which wouldundertake procurement for inter alia the proposed transportinvestments;

(b) construction of a new wholesale market to replace two existingmarkets and the provision of technical assistance to EMMSA;

- 11 -

(c) provision of vehicles, equipment and transfer station capacityfor refuse collection and development of two landfill sitesfor depositing solid wastes, plus technical assistance andtraining for ESMLL, the city's solid waste agency. and thedistricts' solid waste staff; and

(d) technical assistance and training to HIM in metropolitan plan-ning, municipal finance and coordination between differentgovernment levels, and support for project administration.

41. The urban transport subprojec. accounts for 59 percent of totalproject costs (excluding contingencies). This subproject would be executedby HIM through INVERZIET and OMTU. Traffic management along nurthern andsouthern corridors would be improved by the construction of segregated bu>-ways or lanes, median strips, crosswalks, marking, sidewalks and pedestriansignals. For downtown, a traffic circulation plan would be developed, atraffic signal control system for some 500 intersections would be designedand a principal avenue (Alfonso Ugarte) would be reconstructed to provide anunderpass and busways. Equipment would be installed for the Zirst stage (100intersections) of the traffic control system designed under the project. Un-improved streets (about 10O km.) in low-income neighborhoods would be paved,-to integrate them with the corridor improvements mentioned above. Wheredeferred maintenance has caused some deterioration in the existing road net-work, patching would be financed to bring about 24 km. of streets back to thecondition where regular maintenance could be performed. Road rehabilitationwould be financed for about 26 km. where more major resurfacing and repairare needed.

42. A road maintenance study for MLM, to be undertaken by INVERMET,would be funded to define equipment and manpower needs, standards, proce-dures, programming and financing. The results of this study would be con-veyed to the Bank for review and comment by December 31, 1985 (Section2 .U8(a) of the draft MLM Project Agreement). Prior to that, INVERMET woulddevelop a short-term plan for improving road maintenance activities in orderto resolve some of the more urgent problems. Equipment and technical assis-tance needed to implement the maintenance program would be provided. Atransportation survey of Lima's downtown (central) area would be funded, ascould a route rationalization and tariff study for the public transport net-work. These would be carried out by OMTU, the Municipal Transport Officewhich would be established under the project. Motorcycles, radios and otherequipment as well as technical assistance and training would also be providedto MLM for the traffic control unit of the Guardia Civil, to improve trafficenforcement and accident investigatiou and preveuticn. Vehicles, officemachines, traffic counting and drafting equipment needed by OMTU and INVERMETto implement the transport subproject would be financed under the project,and these two offices would also receive technical assistance and training inprocurement, supervision, traffic engineering, planning and public transport.

43. The wholesale market subproject would account for 24 percent oftotal project base costs. The new facility to be constructed in Santa Anitawould provide a capacity for 1.7 million metric tons of fruits and vegetableson about 30 hectares of land, with another 9.5 hectares for administration,services and on-site access roads. An additional 43 hectares adjoining thisfirst phase of the market would be available for future expansion. The

- 12 -

design and construction of the market would be the responsibility of EHMSAbut eventual transfer of ownership and operation to MUM would be foreseen.MLM and ENMSA would agree to cease operating the existing markets for whole-sale activities by December 31, 1986 (i.e., once the Santa Anita site wasoperating) (Section 2.12 of the draft MLM Project Agreement and 2.10 of thedraft EMMSA Project Agreement). UH! would furnish the Bank with its recom-mendations for alternative use of installations at the old market site byOctober 31, 1985 (Section 2.08(c) of the draft MLM Project Agreement).Experts would be hired and training provided under the project to assistEMMSA in design, construction, supervision, market management and operation,including accounting, and the relocation of 1,200 wholesalers to the newsite. Studies on long-term market location, alternative institutionalarrangements and modern packaging would also be financed. EMMSA is currentlyjust covering its operating costs, although it has quadrupled charges inrecent years. As it is unable to further raise tariffs at this time becauseof binding contracts with wholesalers, it would provide a contribution tocapital outlays by sale or lease of land it does not need for marketing,ctivities. Interest and other charges during construction would becapitalized as a project cost.

44. The solid waste management subproject would represent nine percentof total project base costs. A central facility for ESMLL has already beencompleted. The proposed project would provide office and maintenance equip-ment, mobile repair vehicles, tow trucks and field supervision vehicles forthe agency, as well as new collection vehicles, overhaul of existing vehiclesand spare parts. A new transfer plant would be provided and the capacity ofan existing plant expanded. Land for the new plant has already been obtainedby the Housing and Urban Development Ministry. MIM would agree to obtaintitle to this land no later than December 31, 1984 (Section 2.10 of the draftMIM Project Agreement). Two sanitary landfills would be developed andequipped on sites already owned by the city. These would have sufficientcapacity to receive Lima's solid waste for the next 20 years. The Germantechnical assistance agency, GTZ, has already begun technical assistance toESMLL. GTZ would continue this activity, and also provide assistance to themunicipal districts not included in ESMLL's jurisdiction--together withtraining for local staff and pilot recycling projects-as a co-financedelement of the overall project.

45. Urban Management and Project Administration (including project pre-paration costs) would account for about eight percent of total project basecosts. A planning study, based on the 1972 comprehensive Lima developmentplan, would be undertaken to produce strategies to guide long-term urbandevelopment, particularly for land use and transport in Lima and Callao (theadjoining port). Technical assistance and training to strengthen MLM's plan-ning office, OPDM, is also included. A major effort to establish city-widecadastral data and to assess cadaster and tax administration capacity isbeing financed under a separate French contract. The proposed project wouldprovide funds for experts to help MLM complement the work under the Frenchcontract effectively and to develop MLM data management capability for cadas-tral work. Parallel efforts to establish guidelines for a betterment tax(legislated in 1981) and to review local taxation within the national systemare being carried out with funding from the Bank's Public Sector ManagementLoan (2204-PE). Financing would be provided under the proposed project tocarry out recommendations of these studies. MLM's existing consolidatedfinancial planning system would be reviewed under the project in view of

- 13 -

expanding investment responsibilities. Another study on measures to achievemunicipal financial autonomy and a plan of action related to this would alsobe prepared and presented to the Bank (para. 59). Finally, funds would alsobe included (to supplement municipal funds on a transitional basis) tosupport hiring of incremental professional and support staff in MLM neededfor project implementation.

46. Technical assistance, training and studies financed under the pro-ject would include 1,391 months of consultant services. All consultantsfinanced under the loan would have qualifications acceptable to the Bank andwould be hired in accordance with Bank guidelines under terms and conditions

* acceptable to the Bank (Section 2.02 cf the draft MIM and -EMISA ProjectAgreements).

Project Cost and Financing

47. Total project cost including US$1 million for refinancing two Pro-ject Preparation Facilities, is estimated at US$132.8 million (in June 1984prices). Provision would be made for exemption from duties on equipmentimported under the project. Other identifiable taxes and duties, totallingUS$9 million, are included in this total project cost. The foreign exchangecomponent of the project is estimated at US$72.3 million or about 54 percentof total project costs. A total of US$9.8 million has been included forphysical contingencies, reflecting an average of fifteen percent of cost ofcivil works for the project. Price contingencies are calculated on US dollarbase values on the assumption that variations in the exchange rate wouldapproximately compensate for the difference between local and internationalinflation. Contingencies are estimated at three and a half percent for 1984,eight percent in 1985, nine percent in 1986 through 1988, seven and a halfpercent in 1989 and six percent thereafter.

48. Total financing required for the project (US$135.9 million) includes a US$206,000 front-end fee and US$2.9 million for interest duringconstruction of the wholesale market. The proposed Bank loan of US$82.5million equivalentwould represent about 65 percent of the estimated net-of-tax financial requirements for the project, including US$69.2 million inforeign costs, and US$13.3 million in local costs. Bank financing of localcosts is justified by: (i) the importance of the projei, in improving theefficiency of municipal financial management, infrastructure and services;(ii) the need to improve social conditions in the city; and (iii) the currentfiscal and balance of payments difficulties faced by Fee-i (psara. 17).

49. GTZ would provide the equivalent of US$1 million in technicalassistance for the solid waste subproject. Road maintenance and trafficsignal equipment (about US$5 million) would be financed through supplierscredits. The remaining US$47.4 million equivalent in project costs would beprovided by the Government, EMMSA and MLM through INVERMET. The MLM wouldagree to contribute from INVERMET funds up to US$4 million p.a. during theperiod 1984 to 1990 up to a total of US$20.2 million (Section 3.01(b) (ii) ofthe draft Loan Agreement and 2.01(a) of the draft MIM Project Agreement)while the Government would provide any amounts in excess of INVERMET's US$4million p.a. (Section 3.01(b)(iii) of the draft Loan Agreement). EMMSA wouldcontribute US$2 million to the capital costs of the market. The Government's

- 14 -

financial contribution is estimated at US419.4 million, with an additionalUS$5.8 million in-kind contribution in the form of the land for the market.Any shortfalls in financing from suppliers credits or EMHSA would be pickedup by the Government under its general commitment to provide necessary fundsfor the project (Section 3.01(a) of the draft Loan Agreement).

Project Execution and Coordination

50. The Republic of Peru would be the Borrower and would transfer fundsto the M1M on a grant basis (Section 3.01 (b) of the draft Loan Agreement)and would on-lend US$22.4 million (through a US$ denominated subsidiary loan)to EMMSA at the Bank's standard variable interest rate, repayable in 17 yearswith six years of grace (Section 3.01(c) of the draft Loan Agreement).Satisfactory subsidiary agreements between the Ministry of Economy andFinance ou the one hand and MIM and ENHSA on the other would provide for thetransfer of resources. Drafts of these agreements were reviewed at nego-tiations and their signature would be conditions of loan effectiveness (Sec-tion 6.01(a) and (b) of the draft Loan Agreement).

51. The MIM would execute the urban transport subproject throughINVEWLMET and OMTU, the solid waste subproject through ESMLL, and the urbanmanagement subproject directly through its cadaster, revenues, planning andbudget offices. EMHSA would undertake construction of the wholesale marketand arrange for the assumption of its operation. The establisbment of OMTU,including the definition of general policy guidelines, would be a conditionfor loan effectiveness (Section 6.01(c) of the draft Loan Agreement). AMunicipal Subproject Coordinator, satisfactory to the Bank, has been named tocoordinate the urban transport, solid waste and urban management subpro-jects. He would report to the Mayor through the Municipal Director'soffice. Subproject directors for INVERMET and EMMSA hlave also been selec-ted. The appointment of a solid waste (ESMLL) project director would be acondition of effectiveness (Section 6.01(d) of the draft Loan Agreement).Appointment of four implementation advisors (in road mLintenance, highwaydesign and procurement) for INVERMET would be a conditicn of disbursement forthe municipal subprojects (para. 4(b) of Schedule 1 of the draft Loan Agree-ment). MLM and the Guardia Civil would agree to appoint a subprojectdirector and that equipment under the project would be owned by MLM for useby the traffic safety unit of the Guardia Civil only for traffic managementand safety (Section 2.11 of the draft MIM Project Agreement). For the urbanmanagement subproject, the coordination of the planning study would be under-taken through a steering committee comprising representatives from MLM, theMinistries of Transport, Finance, Interior and Agriculture, the Province ofCallao, and the bus companies. This steering committee, to be set up byDecember 31, 1984, would be a working group of and responsible to the Multi-sectoral Coordinating Commission (para. 52) (Section 3:02 of the draft LoanAgreement).

52. Coordination of the overall project would be the task of the Multi-sectoral Coordinating Commission (CMC), set up to help with the process ofdevolution. The CMC has representatives of the Ministry of Economy andFinance (from which the head of the Commission is drawn), the Public CreditDepartment of that Ministry, MIM, and the Ministries of Transport and Agri-culture (the latter because of its role in wholesale marketing). The CMCitself would retain an oversight function to assure smooth project execution

- 15 -

and financing and would prepare regular reports on project progress, based onreporting from the Municipal Subproject Coordinator and EMMSA. The Borrowerwould agree to maintain CIC for these functions during the period of projectexecution (Section 3.01(e) of the draft Loan Agreement). Loan funds wouldfinance incremental staff salaries of CKC during that period.

53. Preliminary designs have been prepared for all physical componentsof the project. Final designs for the first year's program of paving, roadrehabilitation and deferred maintenance programs have been completed as havefinal designs for the first year work on the market. Outline terms of refer-ence for technical assistance, training and studies have also been prepared.

Disbursements and Procurement

54. The proposed loan would be disbursed over 7-1/2 years against thefollowing eligible expenditures: (i) 60 percent initially and then 31 per-cent of expenditures on civil works for municipal subprojects and 84 percentof civil works for the market subproject; (ii) 100 percent of foreign and 85percent of local expenditures for equipment and supplies; (iii) 100 percentof expenditures for consultant services and training; and (iv) a decliningshare (from 100 percent to 20 percent) of salaries of incremental staff.Interest and other charges during construction of the market, accrued throughMarch 14, 1987 for up to US$2.7 million, would be financed. Costs of finaldesigns some equipment and technical assistance incurred after January 1,1984 would be financed retroactively, up to a total of US$1.1 million. Forcontracts under US$500,000 and local purchases under US$10,000, disbursementswould be made against statements of expenditures.

55. Procurement would be in accordance with the following table:

Procurement Method

ICB LCB Other Totalu$ss millions)

Civil works 49.5 35.7 - 85.2Equipment 11.8 2.6 - 14.4Consultants 15.6 6.3 2.6 24.5

56. Government agencies in Peru have sometimes had difficulty in exe-cuting Bank projects in the past because they have not had the funds neededto pay contractors promptly while waiting to be reimbursed by the Bank. Inorder to permit more rapid provision of funds for the project, two dollar-denominated special accounts would be established, on terms and conditionssatisfactory to the Bank, in the Banco de la Nacion into which funds from theproposed Bank loan would be advanced, one for municipal subprojects and onefor the market (Section 2.02(d) and (e) and Schedule 5 of the draft LoanAgreement). These accounts are expected to contain an amount equal to anestimated three months of disbursements from the Bank loan at any giventime. EMMSA and MLM would also establish two revolving funds-in the Bancode la Nacion and on terms and conditions satisfactory to the Bank--whichwo- ld be used to pay the local contribution to project expenses. These

- 16 -

revolving funds would consist of not less than two months estimated paymentneeds (initially USS400,000 in each case) and would be replenished by EMMSAand ML (through INVERMET) each time a payment was made (Section 2.01(b) ofthe draft MLM Project Agreement and 2.01(c) of the draft EIMSA Project Agree-ment). The Bank's initial deposit into the Special Accounts would not takeplace until EMHSA and M1M had established their respective revolving fundsand deposited their advances (Schedule 5, para. 3 of the draft Loan Agree-ment).

Financial Analysis

57. Extensive review of local revenue administration is to be under-taken in the context of the proposed project, particularly with regard toproperty taxes, which now represent only 15 percent of the operating budget.It is expected that significant improvements in revenues would occur as aresult of better billing and enforcement of property taxes already underwayand a revised cadaster being prepared under the French contract. Other cur-rent actions on municipal finance include an increase in rental tees forretail markets and better collection of charges to districts for use of thesolid waste transfer plant.

58. ESMLL service charges for solid waste collection covered only about27 percent of service costs in 1981. These charges were raised 25 percent in1984. Further improvements are anticipated following installation of betterservice costing systems in ESMLL. This would be based on a review of thefinancial performance of ESMLL and solid waste activities of municipal dis-tricts. MIM would agree to (i) complete this review by December 31, 1984,(ii) prepare recommendations for strengthening ESMLL's operational efficiencyand self-financing capacity, including a timetable, to be furnished to theBank for review and comment by December 31, 1985, and (iii) carry out suchrecommendations (Section 2.08(e) and 2.09 of draft MLM Project Agreement).MIM would also furnish the Bank for review, by March 30 of each year, ESMLL'sdraft operating budget, and that of municipal districts, related to solidwaste activities for that year to assure adequate cost recovery during pro-ject execution (Section 2.08(d) of the draft MIM Project Agreement).

59. Finally, MLM would prepare an assessment of measures proposed toimprove municipal financial autonomy and would furnish this to the Bank forreview and comment by December 31, 1984 (Section 2.08(f) (i) of the draft MLMProject Agreement). Fiscal autonomy here implies an increase in municipalrevenues so that (a) real increases in operational Central Government trans-fers (in excess of 1984 transfers) are not required to fund recurrent munici-pal expenditures and (b) resources of INVERMET will be sufficient withoutfurther Central Government budget allocations, to cover any increase in theMunicipality's investment program and debt service requirements. A plan ofaction and a consolidated timetable for achieving such financial autonomywould be formulated, endorsed by Government and furnished to the Bank byDecember 31, 1985 (Section 2.08(f) (ii) of the draft MLM Project Agreement).MLM would agree to carry out these recommendations (Section 2.09 of the draftMLM Project Agreement). Results of an MIM review to identify and implementsystem improvements in financial and investment planning would be furnishedto the Bank for review and comment by December 31, 1986 (Section 2.08(g) ofthe draft MLM Project Agreement).

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60. The new wholesale market would dominate EMKMSA's operations throughthe late 1980s. Once the Santa Anita market is operational in 1987, EMMSAwould agree to increase user charges from existing levels in real terms so asto achieve rates of return on net fixed assets in operation of 8 percent by1989 and 12 percent thereafter (Section 4.06 of the draft EMMSA ProjectAgreement). These new user charges are also expected to yield rates ofreturn of six percent for the first two years of market operation. EMMSAwould agree not to incur any debt unless estimated net revenues would be atleast 1.1 times the estimated debt service requirements for the currentfiscal year (Section 4.03 of the draft EMMSA Project Agreement). EMKSA ownsthe site for the Santa Anita market. The portion to be used for the firstphase of the market (financed under this proposed project) is valued atUS$5.8 million. Since the La Victoria district owns the existing marketsites, MIM would present to the Bank by October 31, 1985 for review and com-ment, the plans for use of these sites after they were closed to wholesalemarketing (Section 2.08(c) of the draft Ml* Project Agreement). EMMSA wouldestablish a reserve fund to cover major periodic maintenance costs, com-mencing January 31, 1988, for on-site access roads and parking at the newmarket (Section 4.04 of the draft EMMSA Project Agreement), and would notundertake new capital investment in excess of US$1 million equivalent in anyone fiscal year without prior consultation with the Bank (Section 4.05 of thedraft EMMSA Project Agreement). Financial proje-tions indicate that on thesebases, EMMSA would be able to recover investment costs (including land at itscurrent value) and to repay its subloan to the Government, although it wouldrequire an extra two years of grace (making a total of six years) beforerevenues from the Santa Anita market would permit amortization. EMMSA wouldappoint a qualified financial executive by March 3U, 1985, to advise it onfinancial policies (Section 2.01(b) (ii) of the draft EMMSA Project Agree-ment).

Project Benefits

61. The overall rate of return on project costs with quantifiable bene-fits (78 percent of total costs) is estimated at about 70 percent. The mainquantifiable benefits which would occur as a result of the project are des-cribed in para. 62. Sensitivity analysis shows that if project costs wereincreased by 25 percent and project completion were delayed by up to threeyears, the economic rate of return would still exceed 23 percent.

62. The project would have a substantial influence on the efficiency ofLima's economy through infrastructure and service developments and thestrengthening of metropolitan planning and management. The urban transportsubproject would reduce vehicle operating costs and generate time savings.The solid waste subproject would allow transfer of loads from small trucks tolarge trucks at strategic points, causing substantial savings in travel coststo sanitary landfills. The market benefits would include reduced handlingcosts, lower wastage and reduced waiting time by truckers, wholesalers andretailers, as well as the release of valuable land at the existing marketsite. These savings would thus permit most beneficiaries to afford the in-creased market charges, although truckers might have to pass on some of thehigher charges to the sellers.

63. Benefits would accrue to all income levels of the city's popula-tion. hiowever, about 53 percent of project benefits and 56 percent of pro-ject costs would accrue to the relatively poor (those households with monthly

- 18 -

income under US$225 in 1981 prices). Moreover, road paving and improvementsin the northern and southern corridors and expanded refuse collection ser-vices would serve directly the lower-income neighborhoods. The market wouldbenefit some two-thirds of the low-income population of the metropolitanarea. Improved metropolitan management would benefit all residents. Theenvironmental impact on the city would be positive through cleaner streetsand the closing of unsanitary existing markets.

Project Risks

64. Because the project involves both Central Government Ministries andthe MLM, coordination has been carefully provided for. The CMC's coordi-nating role has proven effective during the final stages of project prepa-ration and it should continue to provide the necessary liaison with allentities involved. The currently severe fiscal constraints of the CentralGovernment and the weak revenue system of the MIM could mean a risk of inade-quate local fiuancial contributions. By basing local funding heavily on theearmarked revenues of INVERMET, this risk should be reduced considerably.Furthermore, for the municipal works, Bank loan disbursements have beenfront-loaded to minimize financial requirements from the Central Governmentduring initial years, when resource constraints will continue to be severe.Finally, the possible difficulties in recruiting and maintaining adequateprofessional staff in the MLM should be kept to a minimum by providingsubstantial technical assistance and training, as well as support for thesalaries of incremental staff through the proposed project. For the largestsubproject--urban transport-additional assurances of execution capabilitywould be provided through the contracting of advisors to OM4TU and INVERMET.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

65. The following documents (i) draft Loan Agreement between theRepublic of Peru and the Bank; (ii) the draft Project Agreements between theBank and the Municipality and the Bank and EMMSA; and (iii) the Report of theCommittee previded for in Article III, Section 4 (iii) of the Bank's Articlesof Agreement are being distributed to the Executive Directors separately.

66. Special features of the project are referred to in the text of thisreport and in Annex III. Special conditions of effectiveness would be (i)the signing of the subsidiary agreements between the Borrower on the one handand MLM and EMSA, on the other; (ii) appointment of the ESMLL projectdirector; (iii) establishment of OMTU, including preparation of satisfactoryoperation guidelines, and (iv) registration of the Loan Agreement by thePublic Credit Department (a standard requirement in Peru). A specialcondition of disbursement for the MLM subprojects would be the signing ofcontracts for four implementation advisors for INVERMET.

67. I am satisfied that the proposed loan would comply with theArticles of Agreement of the Bank.

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PART VI - £KCOMMkNDATION

68. I recommend that the Executive Directors approve the proposedloan.

A. W. ClausenPresident

Washingtou, D.C.

June 1, 1984

- 20 -ANNEX I

rA 1 I 3' Page 1 tf 6PERU - SOCIAL INDICATORS DATA SKEET

rERU REFERENCE CROUOS (WEICGTED AVERAGES'. 7-

M1OST (MIST RECENT ESTIMATE) /b

lb bRECENT MnDDLE I NCOME MIDDLiE lNCQ-E196t,__ 19 70t ESTIETA - tAT. MItERICA & CAR1 EUROPE

AREA (TOAID SQ0. KM)TOTAL 1285.2 1285.Z 1285.2ACR[CIJLTrRAL 306.1 299.3 305.2

CNP PER CAPITA (M55) 330.0 540.0 1170.0 2088.2 2453.6

RI3C ODCM0PION PER CAPITA

(KILOCRANA OF COAL EOUIVALEKT) 433.0 707.0 807.0 1407.6 1580.8

pOPULATIOU ANI VITAL STATISTICSPnpL'LATION.!I!D-YEAR (TNOUSANDS) 9665.0 12833.0 17031.0

URBAN YOPULATION (Z OF TOTAL) 46.3 59.5 65.9 65.9 47.8

POPULATION PRO2ECTlONS

POPULATION IN YEAR 2C00 (HILL) 26. ,

STATIONARY POPULATION (M.LL) 5O.,

YEAR SIATIURARY POP. REACIIED 2110

POPULATION DENSITYPFR SQ. EN. 7.5 10.0 12.9 35.6 82.0

PER SQ. I;!. ACRI. LAND 31.6 42.9 54.4 93.2 157.2

POPIULATION AGE STRUCTURE (2)0-16 Yqs 43.6 44.3 '2.4 40.1 31.u

15-64 YRS 52.0 51.S 54.1 55.8 b0.'65 A.ND ABOVE 4.4 3.9 3.5 6.1 7.

POPUL.ATION GROWTH RATE f:)

TOTAL 2.5 2.8 2.6 Z.3 1.6URIAN 5.2 5.3 3.5 I..7 3.4

CRUDE RIRTH RATF (PER TNOUS) 45.5 61.5 36.3 31.5 25.0CRUDE DEATH RATE (PER TIOUS) 18.3 14.6 11.1 8.1 9.1CROSS REPRODUCTION RATE 3.2 3.0 2.5 2.0 1.7

FAMILY PLANNINGACCEPTORS, ANNUAL (THOUSl) .. ..

USERS (I OF MARRIED WOMDE) .. ..

YOtD AaD WNRITIOIINDEX OF FOOD PROD. PER CAPITA

(1969-71.100) 96.0 102.0 87.0 113.0 108.4

PER CAPITA SUPPLY OF

CALORIES (% OF REqUIROIENTS) 103.0 102.0 99.0 111.3 129.6

PROTEINS (GRAMf PER DAY) 67.0 63.0 60.0 67.9 92.3

OF WHICH ANnMAL AND PULSE 29.0 26.0 2

5.01c 34.1 36-6

CHTLD (ACES 1-4) DEATH RATE 37.9 20.2 8.9 5.3 10.f.

HEALTH

LIFE EXPECT. AT BIRTH (YC.ARS) 47.5 53.4 57.9 64.6 67.2

INFANT PORT. RATE (PER THC.S) 162.9 119.7 85.4 62.6 71.4

ACCESS TO SAFE WATER (%POP)

TOTAL 14.6 35.0 48.3td 64.8

URBAN 30.2 58.0 60.07d 77.8

RURAL 0.8 8.0 25.07i 44.3

ACCESS TO EXCRFTA DISPOSAL(2 OF POPULATION)

TOTAL .. 36.0 34.01d 54.6

IRBAN .. 52.0 5t.o07d 69.8 ..RURAL - 16.0 ,, 29.8

POPULATION PER PHYSICIWN 1910.0 1820.0 1390.0 1776.0 1094.8

POP. PER NURSING PERSON 2210.01f 720.0 690.01d 1012.2 762.5

PoP. PER HOSPITAL BED

TOTAL 400.0 450.0 520.0k 477.0 334.0

URBAN 260.0/e 520.0 400.d7 667.5 216.0

RURAL .. 2800.0 5610. 07 1921.6 .

ADIISSIONS PER HOSPITAL BED .. 19.0 23.01c 27.2 20.0

INWSINGAVERAGF SIZE OF HOUSEHOLD

TOTAL 4.9 4.8/URBAN 4.8 4 . . ..

RURAL 4.9 4.67j . .. .

AVERATE NO. OF PERSONSfROOM

rOTAL 2.3 1.9

/gURBAN 2.0 1.71i ..RURAL 2.7 2.4...

ACCESS To ELECT. (2 OF DWELLINGS)TOTAL 2b.0

32.

0/ .

URBAN 50.7 54.3...RUtAL 4.2 2...

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _._ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

- 21 -

ANNEX £Page 2 of 6

PERU - SOCIAL INDICArUS DATA SPUMTPERU RCFCRltNCE OUPS (ZIRTD AUVRURS) to

MOST (PST RICENT ESTIMATE) lbb RECENT MIDDLE INCOME PEDDLE rItI E

1 b6 0 b 1970-b ESTIMATb LAT. AJIERICA a CAMlS MCO

IDWUTICOIFADJUSTED ENROLLMENT RATIOS

PRtIMARY: TOTAL 83.0 105.0 112.0 105.0 t02.2MALE 95.0 113.0 116.0 106.3 107.2FEMALE 71.0 97.0 108.0 103.6 97.9

SECONDARY: TOTAL 15.0 30.0 56.0 40.0 56.5MALE 18.0 35.0 60.0 38.6 63.4FUEALE 13.0 26.0 53.0 41.2 48.9

VOCATIONAL (2 OF SECONDARY) 19.9 17.1 15.1/d 34.0 22.4

PUPIL-TEACHER RATIOPRIMARY 34.0 35.0 39.0 30.7 24.7SECONDARY 12.0 17.0 29.0/d 16.7 22.1

ADULT LITERACY RArE (C) 61.0 72.51S 80.0 79.5 69.7

PASSENCER CARS/THOUSAIID POP 8.2 18.0 19.4/c 65.6 52.9RADIO RECEIVERSITHOUSAND POP 113.8 141.7 165.6 228.2 165.5TV RECEIVERS/THOUSAND POP 3.4 30.6 51.2 108.3 124.2NEWSPAPER ("DAILY CENERIL

INTERESr) CIRCULAT1ORPER THOUSAND POPULATION .. 129.4 53.5/c 64.1 96.3

C;NMU ANNUAL ATTENDANCE/CAPITA 6.7 .. .. 2.9 2.9

LABS PtCTOTAL LABOR FORCE (THQIS) 3025.0 3710.0 5076.0

FEUALE (PERCENT) 21.2 20.0 23.4 24.8 34.5ACRICULTURE (PERCENT) 52.5 48.0 39.2 31.3 40.7INDUSTRY (PERCENT) 19.6 18.4 18.2 23.9 23.4

PARTICIPATION RATE (PERCEST)TOTAL 31.3 28.9 29.8 31.3 42.0!5ALE 49.6 45.8 45.6 49.8 55.2FCMALR 13.2 12.0 14.0 14.8 29.1

ECONOMIC DEPENDENCY RAlIO 1.5 1.7 1.5 1.4 0.9

1INUS DISTRIRUr10PERCENT OF PRIVATE INCOMERECEIVED BY

NIGHEST 5Z OF HOUSEIOLDS 39.0HIGHEST 202 oF HOUSEWLDS 66.4 61.04 .LOWEST 20Z OF HOUSEHOLDS 2.5 1 .97jLOWEST 402 OF HOUISEHLDS 8.0 7. OA

POVURT TAUT QROPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (UIS PER CAPITA)

URBAN .. .. 235.Ofe 289.8RURAL .. .. ioo.ofl 184.5

ESTIMATED RELATIVE POVERTY lNCOMELEVEL (U55 PER CAPITA)

URBAN * * 2

93.Olc 519.8RURAL .. .. 200.07 372.1 409.0

ESTIMATED POP. BELOW ABSOLUlTEPOVERTY INCOME LEVEL (Z)

URBAN . . .4

9.0/cRURAL ..

NOT AVAILABLE. OT APPLICABLE

N 5 T E S

/a The group averages for eoch Indicator are populautonwelghted arithmetic mans. Covermge of coattries innig tneIndicators lepends on avaIlability of data and La not uniform.

lb Unless otherwlse noted, -Data for 1960- refer to any year between 1959 and 1961; -Dat. for 1970- between 1969 and1971; and data for "float Recent Eatinste between 1979 and 1951.

/c 1977; /d 1978; Ie 1962; /f 1964; jA 1972; lh Personal Income within labor force.

May 1983

haflaC 0..l.1144M W *t0.:-w 'I-.-.. 41i a~~~~~~..~a .... .f.. --- ia *....4 9w aJa....

C-1- sla) I--. ~ ~ ~ ~ ~ ~ ~ ~ -.--- .aa9T.*~wi ~. - . .

'ZIZ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~9- a..- *b--. -1- a -4. .a44-4Ta4

-Ij ~ ~ ~ ~ ~ ~ ~ ~ .. at.I 4. 4 1al-

-a ... 4~-~.. * .. fV. 49,-a- 4 4::.iaai4 4

- 4;...'- - 4**4'J a-- a40a... **Z4-a- l.lia;.- a

wi.i -~~~4 ma; palIaaa -I ~~~~~al-- -- ii.; *aia-i4~~~~~- l.44 -, a-.---: ~~~~~ -. ........-..: . ..

.14a-..a...a...a-, :---l3-.a4- Z-a :w;a. a

- li am -(wa4~aaCT14.) I..:a.-~: 4a..4i*1a--aa-an:.-~P'49a4-a44. .. i.. .;.- a-a:-aa---, ,*;- -

Z I .;r.,. 4

- i -. r .i.- *4TC._- le. -. -';-i' -- c4.nl -- ~---t;T- 4

Ia..:al.Ialaacr-aa......tT..aae. ;t a . '.4..t.a.t...T: ,--.a--' . ~ M'

.4;.4at-%I9lia -*9149

l . -- ,..:-aaTa .4--~'-;a .. *I ... *. a *:.a *..9-

9;***j C ~al- -'*4t1 94li.~ *-a ~a;*i '4Z91.,Z

- lao4-dlta~d- a:..aa-. ~ u.-a-a -:;aa,.41 w~ .. n.a ~ta .a..- a- 4-.;. 1 a. . . . t9.-;- :4.

* ..-... ~~~--a~~a-3a.l..I11aaa.-ai- 9. .. 44a)4 .. 1 ' .). ;

T-a.. 1 at4ali-l, -aa: i lt 4aid ,.--- . -- .. :.a-'.:-i- 4 C .

9.. aalt.. ana..; .4.iw a-q.- (..`-,4 *aTiliwI- u; p. i.....- PL- j -pa

-a'.,aaw~;a- paUt.n. -. *?4;iawl.;.~ 7 lF :. ~..I-- - -- i -. -- ai- .c Z-,.~ -.j;-n

Jo l .. a.. ll: I'.- TI 0. Z -- 4!O- a a111 0Pi I41'a 'u~ i .. 99

T lia..ii; 77-.. a~..t T .a..' ' ~ p a- . 44w 4 i . - . . .

pal--im 17.5 =id Ii 9W ' of 6per Cqita tES 1.250 (19) - 23 -

~m h C?e

1oficaor 0112120. IES Act FAciint PhjeZeG.Teat fties

1982 Ic 191 1919 1989 iSI m 981 1SB9 19119 19f 1989 1962

* GM= Q wm. tic Pm21 62S2 -1 4.6 3. 3.6 1.0 -9.9 2L0 5.2 4.4 4.3Aw m_ 1,79L3 -41 AA -6.5 lLY9 2.4 -9. 40 8.0 5.0 50Ijbzy & R1uiz 8.AS. -0.7 5.5 5.0 -. 0 0.1 2.0 4.3 4.5 3.7

5vic U.Z3 -1.0 3.8 4.7 4.0 1.3 -84 1.6 5. 4.2 46

C* 18.5626S -5.6 3.5 7.7 8.9 Z.6 -9.9 -4 4.9 3.6 4.6GM= lameenim 3695 1.98 4llJ8 39.J 19.A -164 -259 3.8 6D0 6.0 6.3

:tu o63 1E CM 4 1.6 15.9 -148 L3 12i -8 123 3.5 S4 1LAYqm= of 3S 4767 -31.0 tQ;_ 426 4.6 3.2 -X22 -LO 2 3_3 4.0

CCIMB A,ti2I 1.8 13. 0.4 4D0 -J35.8 -L7 -4.2 41.3 12.5 13.3 714

06 Ddrfl 2.3 36.2 633 100.0 13.2 23. - - - -1Im3e 11e 697f. 1S.3 2.6 207 49 697.6 1,6Z5. - - - -

Shoe of 06 at 111bf Prio (C) AC Asan IMCCMl (2)(a Olm ftices)Ib Cat *t 5IK dm._J)

1910 1975 1910 195 1990 10.75 1975-80 19108 19540

AP - 316. 12.8 7.9 9.0 9. 0.6 0.2 1.5 LO1atry & Ib 3S0 36.4 4.2 37.3 36.7 54 2.6 -22 3.9

Set AL0 48.5 42.0 43.0 43.5 6.5 1.4 -42 46

C_dmi 8. 89.0 79.0 8.0 81.s 5.3 1.7 -0.7 4.3-c=@ T _ 3 19.6 174 14.2 16.0 17.8 -7.0 -4.7 6.3

&Pcts of 0w5 17.6 10. 2L6 2.0 26.0 -7.8 6.4 Lb6 zoE On5 14.0 19.e 1I2 21.6 21.5 8. -3A6 -0.7 3.8

_ lAticMuSm 15.9 9.8 VA17 1318 14_8 1.7 -. 4.7 9.6

As a Z of GOP

1975 1989 198

chzzmt ff~ 30.5 56.0 45.7xv-t ;u _nma 314 53.2 46.5

Suxph C or Deficit -) -0.9 0.8 4.8Cqdtal 3qudine 8.5 9.6 11.0

16 FbFeigm rzmciq 5.3 Z.2 7.8

1910-75 19- 190.4 1915-90

or GMtbh RAte CZ) 4.6 0.8 -L2 4.6CM Per CWizA 1Mth Ae (I) 1.8 -1.6 -3.5 2.6

1=E 3.8 9.1 76.0 3.4lWiaml PA- 0 0.1 0.2 0.3rlwt Eiaticity 0.3 -Z3 0.9 0.9

Iak pat , im: c uilt nt r machm of mc im1ICt c * liis'-lb Peujecctd y at mt pi-Ic CiowDiMaad 1tablc SatC.

LAC1Dnay 15. 1581

pi1l 17.S 6f11 . oif, mid PAW 5 of 6GP F Cqoi 0 W5 l.Zi 09.

M1 cw l9m CP(at mtt1960 Pricm)

ludi=MW MITI;=~UL~ 8$ at Akt1 latimtaf AujactoG B Pm..)

1sz8 1978 1979 19 1981 19 198Z 195 18 19& 1967

Neiue hIIn 3Z30 14.5 27.3 -9.6 -1.6 14.4 -16.7 1.3 3.0 4.9 1.0prqy 2172.0 14.1 2L5 -14.4 4.6 15.2 -12. 11.5 2.0 4.3 -0.5

759.0 17.6 75.6 14.1 -5 11.0 -33.9 25. 8.0 80 8o .

ncbiae a 3767.0 -42Z 6.4 44.9 32.5 3A -273 -2.3 1.5 2.5 4.0Fld 359.0 -25.0 18.Z 63.1 5.1 -10 216 -25. -6.3 -6.9 -01Pwtmm 34.0 -P4 -l4 tL03 -25.6 5L.2 67.1 26 5.7 4. 4.31b a f IquiZ t 172. -17.2 35.6 50.1 39.6 0.5 -3 5.0 6.5 6.0 6.3

19d0 35.5 -1.9 36.9 64.5 9.5 -5 3.0 0.1 3. 3.1

Et Pie 75.0 57.0 L1.0 10L0. 84.7 75.0 77.9 a3.5 90L6 1m 1U}113pt= Pkic T7 90A 1.0 92.0 1000 93. 04 913 96b.0 103 13.0 15

of 7a 83.0 70.4 8L1 100LO 9D3 g3.0 853 87-0 87.7 88.7 9Q2

Cmitim of N# dim Tale CD 4-e I IF e ()(at 0mtPrice.) (at Qontm 196 price.)

1970 1975 1910 1985 1990 197075 * 1975W 1918 1985-9

_qu~ta 10O0A IOQO 100.0 1.0 1O.O -641 8.6 1.4 2.197.0 92.J 78.7 83.1 78. -7.5 91 3.2 0.7

_ rfac~ues 3.0 L 213 16.9 22D0 183 412 -4D Lo

l10O 0L0O 100.0 100L 223 -103 -3.7 3.6Focd 7.0 12.0 14.9 10.3 6.9 1.2 1.7 -3.1eK~ llA.0 1.0 1.8 1.8 35.7 -0.7 2Z.0 4.3

1hIy E ;Dipt 31.0 37.0 37.8 43.1 29.3 -3.9 -4.2 63oti-3 51.0 50.0 45.5 44.8 15.2 -63 -1.4 3.2

9ae of Taae wth 9M of TMe vuh Qwf of Trae with1n*utria1 C }mtrle(z) De3opi, Cmtriam CZ) cq,hul sup oa O a)

l970 1975 1980 1970 1975 1960 1970 1975 198D

Dm8: (IF M

ammis 84.1 58.6 65.9 .9 23.0 20.6 0.5 1.0 1.4

77.3 76.9 79.7 20.6 16.8 16.4 1.0 4.6 0.9

* ~tt gzmtb ste for 1972-1975.

2,DMay 29. vbt4

AMN I

Ibpilaial 17.5 (zillica. mid 1982 - 25 - e 6 of 6QIP P Capita: US 1,250 (1992)

PERU - MICE(F (E . D=L ASMhEZ AND .

(million $SS at icpr)

Actzm Esti.zei PzojintadPmi

1978 1979 98D :_m 1982 1983 1984> 195 1990

MIAIIZ CF 8SLMI

Ej - of rods & Serwices 216 4143 4851 4223 4185 3662 435 48* Q124Of :&iih: isrc ie Ois 1951 3491 3856 3249 3293 2848 ;-59 3BE5 7225

Tzuozta of Goads & serwc 2664 356 4923 6088 598 4980 5212 5700 967OE %idzh 3ez1dii oe- 1601 195 3062 3805 3791 2 258 3124 5577

Nt fe 56 122 135 161 167 235 200 211 278

O=reat lc-n Belane -192 729 63 -1705 -1636 -1083 -656 613 -259

Dirert rimte Invest 25 71 27 125 48 31 30 10 88III LTm (get) 585 668 341 839 911 834 642 765 849

Official -- -- -- 89 553 360 465 46 591Private - - -- -- 750 358 474 177 319 258

Otbr Caial -336 111 300 154 809 118 85 -12 -3683ine in Beaev (--imcrease) -82 -579 -71 584 -12 100 -I10 -150 -300

TmTtiml haezv 243 1822 2553 1969 2101 2001 2101 ZZi1 3118s ba of lapoc 1.2 6.2 6.2 3.9 4.2 4.8 4.8 4.7 3.9

EMML CAPT AND DM a/

Gkms D isse s 843 112D 1416 247 230Dofficial Gait -- - - -- 2 21Cocesim.l Tms 236 143 232 197 251PiC 11 113 107 95 1

Otber 125 30 125 101 129lo-;_C fsU1 LM 607 977 1184 28 201BOfficial Eprt Crmeits 213 152 219 102 544IniD 26 61 140 76 72Othr 25stil1txa 13 19 58 71 113Private 355 745 767 1978 1259

Ptem1 DebtDebt Ozstmdlig 5 Diabursed 5403 5934 6169 9378 9289official 2542 2735 3158 3246 3799Private 2851 3199 3011 5132 5450

Ud3iabirsed Det 1206 2103 1698 290 73

Debt SeiceTotal Dbt Sevice Psysnts 750 919 1501 2355 2154

hnereat 317 437 544 768 786Pay.ez at 7 of Esports 31.1 22.2 3D.9 55.8 51.5

Avekge lhtereat Rate an raw Ta (Z) 7.6 9.5 9.3 12.6 12.2Official 6.7 6.1 7.4 8.6 9.6Private 9.1 11.9 10.6 15.6 13.5

&mmge 1hatuity of -. w Ioan (YTeas) 10.7 11.3 12.1 11.9 10.2Official 11.6 14.4 15.1 16.8 15.6Private 9.1 9.1 10.1 8.1 7.4

lbce: A double dab atsuds for it availble"..l 1978-1990 emelude priwte aW -iaset; probble 1984 reaclidulirgs nt iIEIsW.

I 1DMay 29, 1984

- 26 -

ANNEX IIPage 1 of 2

THE STATUS OF BANK GROUP OPERATIONS IN PERU *|

A. STATEMENT OF BANK LOANS (as of March 31, 1984) 1/

AmountLoan (less cancellations)

Number Year Borrower Purpose Bank Undisbursed- US$ million -

32 loans fully disbursed 561.2 4

1196 1976 Republic of Peru TrAnsport 76.5 8.81403 1977 Republic of Peru Agriculture 25.0 12.4S-11 1978 Republic of Peru Preinvestment 8.8 0.81771 1980 Republic of Peru Irrigation 56.0 33.91806 1980 PETROPERU Petroleum Prod. 32.5 6.51812 1980 Republic of Peru Rural Dev. 15.0 10.01888 1980 Republic of Peru Preinvestment 7.5 3.8S-19 1980 SIDERPERU Technical Asst. 5.0 3.61963 1981 CORPAC Aviation 58.0 55.71968 1981 COFIDE Industry 60.0 35.42018 1981 ELECTROPERU Power 25.0 19.92064 1981 Central Reserve Bank Industry 26.0 16.82091 1982 Republic of Peru Transport 93.0 92.72117 1982 PETROPERU Industry 5.3 5.02139 1982 SEDAPAL Water Supply 40.6 36.82150 1982 Republic of Peru Agriculture 40.6 36.32179 1982 ELETROLIM& Power 81.2 74.42195 1982 PETROPERU Petroleum 81.2 78.52204 1982 Republic of Peru Technical Asst. 10.2 4.92208 1982 Republic of Peru Education 17.3 17.02211 1982 Republic of Peru Health 33.5 32.42219 1982 Republic of Peru Rural Develop. 30.0 24.62302 1983 Republic of Peru Agriculture 130.0 122.6

Total 1,519.4of which has been repaid 241.7

Total now outstanding 1,277.7

Amount sold 18.3of which has been repaid 18.3 - )

Total now held by Bank 1,277.7

Total undisbursed 732.8

1/ On March 27, 1984 the Board approved a US$40 million loan for the Chanchamayo-Satipo Rural Development Project.

*/ The status of the projects listed in Part A is described in a separate reporton all Bank/lDA financial projects in execution, which is updated twice yearlyand circulated to the Executive Directors on April 30 and October 31.

- 27 -

4NNEX II

Page 2 of 2

B. STATEMENT OF IFC INVESTMENTS

Type ofYear Obligor Business Loan Equity Total

1960 Industrias Reunidas, S.A. Home Appliances 0.2 - 0.2

1960 Luren S.A. andLadrillos Calcareos, S.A. Bricks 0.3 - 0.3

1960 Durisol del Peru, S.A. BuildingMaterials 0.3 - 0.3

1960; 1962 Fertilizantes Sinteticos, S.A. Fertilizers 4.1 - 4.1

1962; 1968 Cemento Andino, S.A. Cement 2.3 0.2 2.5

1964; 1967 Cia. de Cemento Pacasmayo Cement 1.1 0.5 1.6

1975 Southern Peru Copper Corp. Mining 15.0 - 15.0

1978/83 Cia. de Minas Buenaventura mining 6.0 0.5 6.5

1980 Cia. Minera San Ignaciode Morococha, S.A. Mining 2.7 0.5 3.2

1981 Sogewiese Leasing 3.0 0.1 3.1

1981 Consorcio Energetico de Power-uancavelica Transmission 4.5 - 4.5

1982 Palmas del Espino Palm Oil 15.0 - 15.0

Total gross commitments 54.5 1.8 56.3less cancellations, terminations,

repayments and sales 40.6 0.6 41.2

( Total held by IFC 13.9 1.2 15.1

Total undisbursed incl.participants' portion 4.4 - 4.4

1982 1/ Sociedad MineraGran Bretana S.A. Mining 3.0 0.5 3.5

1984 2/ Compania Minera San Ignaciode Morococha Mining 4.0 - 4.0

1/ Approved by Board on July 6, 1982, but not yet signed.

2/ Approved by Board on March 13, 1984 but not yet signed.

March 31, 1984

- 28 -

ANNEX IIIPage 1 of 2

PERU

LTMA METROPOLITAN DEVELOPMENT PROJECT

SUPPLEMENTARY PROJECT DATA SHEET

Section I: Timetable of Key Events

(a) Time taken by the country to prepare project: 3 years

(b) Project prepared by: a Multisectoral Commission withfunding from PPF

tc) First presentation to the Bank: 1979

(d) Departure of Appraisal Mission: April 1983

(e) Completion of Negotiations: May 11, 1984

(f) Planned Date of Loan Effectiveness: October 1984

Section II: Special Bank Implementation Action

None.

Section III: Special Conditions

(a) Government and MA to provide Bank with impact analysis of any major urbantransport investment in the Lima Metropolitan area exceeding US$10 millionand allow the Bank opportunity to comment. Any such investment that wouldadversely affect the transport subproject would be an event for suspensionof disbursements (para. 34);

(b) MLM to conduct road maintenance study and furnish results to the Bank forreview and comment by December 31, 1985 (para. 42);

(c) MLM to furnish Bank with its recommendations for alternative use ofinstallations at the old market site by October 31, 1985 (para. 43).

(d) IMM to acquire title to land for new solid waste transfer station byDecember 31, 1984 (para. 44).

(e) MLM to undertake review of existing financial planning system and furnishresults to Bank by December 31, 1986 (para. 59);

(f) MLM to contribute, from INVERMET funds, up to US$4 million p.a. during pro-ject execution up to a total of US$20.2 million (para. 49);

(g) Borrower to transfer funds to MLM as grant and to EMMSA as subsidiary loanat Bank's interest rate repayable in 17 years with 6 years grace. Signa-ture of satisfactory subsidiary agreements between Borrower and M1M andEMMSA, respectively, would be conditions of effectiveness (para. 50);

- 29 -

ANNEX IIIPage Z ot 2

(h) MLM to appoint ESMLL Project director and to to establish OMITU asconditions for effectiveness and to appoint INVERMET implementationadvisors as condition of disbursement for the MLM subprojects (para. 51);

(i) MIX to agree with Guardia Civil on appointment of subproject director andMLIX ownership of equipment to be used by traffic safety unit only fortraffic management and safety in Lima (para. 51);

(j) A steering committee to be appointed including representatives of theProvince of Callao, inter alia, to establish coordination for the LimaDevelopment Plan (para. 51);

(k) Borrower to maintain COC for overall coordination and oversight of projectexecution (para. 52);

(1) Special Accounts for the HLM subprojects and for the market subproject tobe established to receive Bank loan advances, with respective revolvingfunds for local contributions (para. 56);

Em) MLM to (i) prepare review of financial performance of ESMLL and solid wasteactivities of municipal districts and present to Bank by December 31, 1984and (ii) prepare recommendations for strengthening ESMLL's operationalefficiency and self-financing capacity, with a timetable, by December 31,1985 and to agree to carry them out, and to furnish to the Bank for commentdraft ESMLL and district solid waste budgets by March 30 each year (para.58);

(n) M1M to (i) prepare an assessment of measures proposed to improve municipalfinancial autonomy and furnish this to the Bank by December 31, 1984; and(ii) prepare a plan of action and timetable to achieve financial autonomy,endorsed by Government, and to furnish them to the Bank by December 31,1985. MLM would also agree to carry out such plan of action (para. 59);

Co) EMMSA to agree not to incur any debt unless estimated net revenues would beat least 1.1 times the estimated maximum debt service requirements for thecurrent fiscal year; MLM, in coordination with EMMSA, to close existing

s. market sites for wholesale activities once new market is open; EMMSA not toundertake any new capital investment in excess of US$1 million equivalentwithout prior consultation with Bank; to establish reserve fund to cover

f major periodic maintenance costs, beginning January 31, 1988, for on-siteaccess roads and parking; to set tariffs so as to achieve an eight percentreturn on net fixed assets in operation in 1989 and a twelve percent returnthereafter; and to appoint qualified financial executive by December 31,1984 (para. 60); and

(p) MLM to furnish Bank for comment its plans for alternative use of sites ofold wholesale markets (para. 60).

IBRD 17613

\7 ~~~~~~~~~~PERU

4 \ ~LIMA METROPOLITAN DEVELOPMENT PROJECT

Prpo Existing

A \ *TransFer StationsS * Landfills

* U * MarketsAMaor Roads

Roads to be imnproved as port of Protect

Central Area Traffic Management Schemes(D e w ond TraFfic Signal System

Transport Corridors which tnclude Low Incofne\- J- __X Area Paving Programs

KILOMETERS I IS

12'X(

5I/l 'X t~_ _ ( \tl\\t\\~~~~~~~~~~~~~iZ*~, i2\

f~~~~~~ £o.w,w

rs/o-d~81

._ _ , _ _ _. _ _ _

_ ~~~_ __ _ _ '7.