public disclosure authorized 46934 · 2016-07-15 · results framework and outcome indicators to...

PERU: Vilcanota Valley Rehabilitation and Management Project PROJECT RESTRUCTURING PAPER

DATA SHEET Date: November 17, 2008 Country: Peru Project Name: Vilcanota Valley Rehabilitation and Management Project Project ID: P082625

Task Team Leader: Ivo Imparato Sector Manager: Guang Zhe Chen Country Director: Carlos Felipe Jaramillo Original Environmental category: B Revised Environmental category: A*

Borrower: Republic of Peru Responsible Agency: Ministerio de Comercio Exterior y Turismo (MINCETUR) Address: MINCETUR, Avenida Uno, CORPAC, San Isidro, Lima Contact Person: Viceministro de Turismo, VMT, Pablo López de Romaña Revised estimated disbursements (Bank FY/US$m) FY 2005-2006 2007 2008 2009 2010-2011 Annual 0.17 0.16 0.95 1.50 2.20 Cumulative 0.17 0.33 1.28 2.78 4.98 Current closing date: 06/30/09 Revised closing date: 06/30/11 Indicate if the restructuring is: Board approved X RVP approved ___ Does the restructured project require any exceptions to Bank policies? Have these been approved by Bank management? Is approval for any policy exception sought from the Board?

__Yes X No __ Not Applicable __ Yes X No

Revised project development objective/outcomes: The Project Development Objective remains the same as in the original PAD; however, the PAD outcome indicator framework has been modified. The proposed restructuring includes: (a) transferring project execution from the Ministry of Foreign Trade and Tourism (MINCETUR) to the regional government of Cusco (GRC) through its experienced executing agency Proyecto Especial Regional Plan COPESCO Cusco (COPESCO); (b) streamlining and simplifying project implementation procedures; (c) refocusing on a limited number of high-priority subcomponent to make effective use of limited funds; (d) strengthening institutional counterpart capacity for managing project fiduciary and safeguard responsibilities; (e) enhancing Government ownership and creating additional accountability mechanisms by introducing an inter-institutional Steering Committee; (f) modifying the project’s results framework and outcome indicators to reflect the above changes; (g) reallocating funds among disbursement categories and realigning disbursement percentages to reflect modifications to project subcomponents; and (h) extending the closing date by 24 months, from June 30, 2009, to June 30, 2011. __

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Revised project development objective/outcomes continued: Technical Feasibility Clearance Mechanism. The inter-institutional Steering Committee will review and ensure that prospected project activities comply with specific technical feasibility requirements gatillos (triggers) for specific subcomponents as specified in the project paper. Safeguards and Disclosure. The restructured Project is expected to have a lower risk of producing negative environmental and social impacts than did the original Project design. However, the Project has been reclassified from Category "B" to Category "A." This change is based on the realization, through consultations and work during the first phase of the project, that the environmental and social sensitivity of the area warrants a Category “A” rather than the “B” that was earlier assessed to be appropriate. Additionally, OP 4.10 (Indigenous Peoples) and OP 4.04 (Natural Habitats) have been triggered. The updated PID, ISDS, the Environmental and Social Management (EA) and Indigenous Peoples Instrument (IPP) have been disclosed at the InfoShop in Washington. In addition, Spanish language versions of these documents have been made available by the Borrower for public review at convenient locations in Cusco and the Vilcanota Valley as well as in the MINCETUR and COPESCO websites. Does the restructured project trigger any new safeguard policies? *The restructured Project is expected to have a lower risk of producing negative environmental and social impacts than did the original Project design. However, due to the sensitive nature of the environment in which the Project operates, it has been reclassified from Category "B" to Category "A." Additionally, OP 4.10 (Indigenous Peoples) and OP 4.04 (Natural Habitats) have been triggered. The updated PID, ISDS, the Environmental and Social Management (EA) and Indigenous Peoples Instrument (IPP) have been disclosed at the InfoShop in Washington. In addition, Spanish language versions of these documents have been made available by the Borrower for public review at convenient locations in Cusco and the Vilcanota Valley as well as in the MINCETUR and COPESCO websites.

Revised/Original Financing Plan (US$) Source Local Foreign Total

Borrower IBRD/IDA Others Total

3.22 3.80

7.02

1.18

1.18

3.22 4.98

8.20

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PERU: Vilcanota Valley Rehabilitation and Management Project

A. INTRODUCTION

1. This Project Paper seeks the approval of the Executive Directors to restructure the Peru, Vilcanota Valley Rehabilitation and Management Project, Loan Number 7257-PE, Project ID 082625 (the Project), and accompanying amendments to the Project’s legal documents. The proposed changes are to: transfer from the Ministry of Foreign Trade and Tourism (MINCETUR) to the Cusco

Regional Government (GRC) the execution of several specific subcomponents; streamline and simplify Project implementation procedures; reallocate funds among disbursement categories so as to better reflect modifications of certain

Project subcomponents; as a result, Schedule 1 to the Loan Agreement has been modified to reflect adjustments to counterpart funds;

include changes in the nature of certain subcomponents to better fit expected outcomes and available funds, refocusing the Project on a limited number of high-priority subcomponents;

strengthen institutional counterpart capacity for managing project fiduciary and safeguard responsibilities;

enhance Government ownership and create an additional accountability mechanism by introducing an inter-institutional Steering Committee;

modify the Project’s Results Framework and outcome indicators, and extend the Closing Date by 24 months.

2. Project outcomes are expected to be achieved as a result of: (i) strong political will in the GRC to become involved in the Project and in MINCETUR and the Ministry of Economy and Finance (MEF) to transfer execution of relevant project activities to the regional government; (ii) high liquidity in the GRC from tourism fees and hydrocarbon and mining royalties, allowing for the GRC to provide 100% of counterpart funding for the activities it will execute, thus compensating for shortages in MINCETUR counterpart funds; (iii) the fact that GRC has an experienced executing agency, Proyecto Especial Regional Plan COPESCO (COPESCO) with the necessary capacity to accelerate Project implementation; and (iv) strong political will within MINCETUR to reverse previously poor Project performance by restructuring its Project Implementation Team (PIT). 3. The objectives for the Project’s Restructuring (the Restructuring) are to: (i) improve and accelerate Project implementation by decentralizing and transferring specific Project subcomponents from MINCETUR to the GRC; (ii) adjust Project subcomponents to the changes in local circumstances and Government priorities that have taken place since Project inception, making better use of the Project’s limited funds by financing feasibility studies and engineering designs that will generate an infrastructure project pipeline for the Vilcanota Valley; (iii) restate the Project Results Framework and outcome indicators accordingly; and (iv) improve fiduciary and safeguards performance. While the proposed changes do not affect the Project Development Objective (PDO), Project outcomes and indicators are more clearly defined and aligned with the proposed activities.

B. BACKGROUND AND REASONS FOR RESTRUCTURING

4. The Project in the amount of US$4.98 million approved on September 14, 2004 became effective on May 9, 2005. The PDO is to support the Government of Peru’s (GoP) efforts to enhance the environmental and socio-economic sustainability of historical, cultural and

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ecological assets in the Vilcanota Valley, including the Historic Sanctuary of Machu Picchu (HSMP) and the Sacred Valley of the Incas, through: (i) consultation with local stakeholders to establish a shared vision for the future of the

Valley and to ensure that Project design and implementation reflect community priorities; (ii) capacity building of municipal government authorities, local communities, and the

private sector in areas such as tourism, municipal financial management, urban service provision, disaster mitigation and local economic development;

(iii) targeted infrastructure investments and provision of urban services; and (iv) capacity building in tourism services and management, and the providing of necessary

tourism infrastructure, in compliance with key UNESCO World Heritage Sites guidelines.

5. The Project is deemed to carry a global reputational risk for the Bank, and the proposed Restructuring of the loan is intended to mitigate that risk. Presidents Toledo and Wolfensohn conceived the Project in 2003 in response to UNESCO’s warning that it might put Machu Picchu and the Sacred Valley on its list of endangered World Heritage Sites. However, the country’s debt ceiling at the time limited the loan to US$ 5 million. To mitigate the risk posed by the mismatch between the expectations raised by the Project and its insufficient resources, the Restructuring refocuses the Project on strategic studies and investments aimed at leveraging other resources, establishing the basis for future investments. This Project is a great opportunity for the Bank, but it also carries significant risks. Given the heightened attention to Machu Picchu's unique international and national cultural heritage value, the proposed restructuring will endeavor to mitigate project risks through intensive supervision, capacity building and to ensure the highest possible degree of achieving successful development outcome. 6. The Project’s implementation delays resulted largely from: (i) a nine-month legal dispute after effectiveness with the national procurement agency, Consejo Superior de Contrataciones y Adquisiciones del Estado (CONSUCODE), as to whether Bank or national procurement procedures would apply1; (ii) a subsequent three-month freeze on all procurement processes before the 2006 national elections; (iii) the complex nature of the original Project design, which contemplated a large number of small sectoral subcomponents with different stakeholders; (iv) MINCETUR’s complex administrative procedures, coupled with its lack of experience implementing infrastructure projects, especially externally-financed ones; and (v) MINCETUR’s attempt to implement the Project from Lima, with less than adequate human and material resources. Furthermore, the original four-year Project implementation schedule appears in retrospect to have been overly optimistic. 7. Until the Implementation Status and Result Report (ISR) filed in May 2007, Project progress towards the PDO had been rated “Moderately Satisfactory,” and implementation progress (IP), “Moderately Unsatisfactory.” In December 2007, the Project was downgraded to “Unsatisfactory”, both in terms of PDO and IP. In addition to the reasons given above, the causes of such unsatisfactory Project performance were: (a) an insufficiency of counterpart funds available from MINCETUR; (b) an overly complex and ambitious Project design resulting in lengthy procedures for MINCETUR regarding financial and procurement management; and (c) an excessively centralized implementation structure and lack of relevant qualifications and experience in the PIT and in other MINCETUR departments involved. In addition, evaluation of Project performance was based on incomplete information regarding safeguards compliance and 1 The resolution of this issue involved a change in the law, which now establishes that the lender’s procurement procedures apply, regardless of the proportion of a project that is externally financed.

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fiduciary responsibilities. At the time of Mid Term Review in June 2007, only about 3% of loan proceeds had been disbursed. Since that time, implementation performance has greatly improved due to staffing changes in the PIT, with disbursement having reached 30% by the end of Q1 FY09. As a result, the most recent ISR (June 2008) upgraded the overall implementation progress to “Moderately Unsatisfactory”.

C. PROPOSED CHANGES

8. The proposed changes are a response to a joint request by MINCETUR and the GRC, endorsed by MEF. The Vice Minister of Tourism and the President of the GRC explained to the Task Team during the Mid Term Review that the request stemmed from an agreement between the GRC and MINCETUR. This is well documented in the Aide Memoires of Bank missions in June, July, September and November 2007, and July 2008. The Restructuring took more than a year to process, due to the following: (i) the long process of consultations with Municipalities, community representatives and other local stakeholders, the GoP and GRC over the course of several Bank missions on the nature and extent of the proposed changes; (ii) the processing within Peru, including the preparation of a new Proyecto de Inversión Pública (PIP) document and its approval by the Sistema Nacional de Inversión Publica (SNIP) (MEF’s economic analysis tool); (iii) the preparation and clearance by the Bank of subsidiary agreements governing the relationships between MEF and GRC and between MINCETUR and GRC; (iv) the need to considerably strengthen the Project’s safeguards frameworks and related legal covenants, which had to be negotiated with the Borrower. 9. The proposed changes involve: (a) transferring responsibility for the execution of several Project subcomponents from MINCETUR to the GRC (as shown in Table I below); (b) streamlining and simplifying Project implementation procedures; (c) reallocating funds among disbursement categories to reflect modifications of certain Project subcomponents; (d) including changes in the nature of certain subcomponents to better fit expected outcomes and available funds (See Annex 1); (e) strengthening institutional counterpart capacity to manage Project fiduciary and safeguards responsibilities, (f) creating additional accountability mechanisms by introducing an inter-institutional Steering Committee; (g) modifying Project outcome indicators; and (h) extending the Project closing date by 24 months. The extension of the closing date is required to make up for delays due to the 12-month period during which the procurement process was frozen (see paragraph 4 above), and to allow additional time for the GRC’s executing agency COPESCO to become familiar with Bank procedures. 10. COPESCO has 40 years’ experience in project planning and implementation in the Cusco Region, and has more recently begun to execute projects for governments in neighboring regions. It was founded as a joint initiative between UNESCO and the GoP for the preservation and enhancement of the historical, cultural and ecological assets of the Cusco Region and in particular the Vilcanota Valley. Given COPESCO’s unique expertise and experience with this kind of work, the Project will introduce Force Account for implementation of works, to allow the agency to carry out small and scattered preservation and restoration works in remote locations throughout the Sacred Valley of the Incas. 11. In addition to the aforementioned changes, a Technical Feasibility Clearance Mechanism (or triggers) has been identified in some subcomponents to comply with feasibility requirements. The Steering Committee will review and ensure that prospected Project activities comply with specific criteria and technical feasibility requirements, as detailed in Annex 2. The Committee -to

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be officially established by the Borrower prior to the restructuring effectiveness date- will be comprised of representatives of MEF, MINCETUR and COPESCO, with overall responsibility for providing policy oversight and guidance for the implementation of the Project. Its powers are defined in the Project’s Operational Manual (OM). Among the responsibilities established for the Committee are: (a) the provision of institutional support and of a coordination framework for the implementation of the Project, (b) the establishment of strategic guidelines for the implementation of the Project, including the review of the Project’s annual operational plans, (c) reviewing the overall progress and implementation of the Project by MINCETUR and COPESCO, including a review of the Project’s audits, (d) evaluating Project activities and overseeing compliance with Project norms, feasibility studies and objectives, including the analysis and consideration of those activities under the Project that may require pre-feasibility studies, and (e) conducting the selection process of the Project Coordinators within MINCETUR and COPESCO, following competitive selection procedures in accordance with the Bank’s consultant guidelines. 12. The main proposed changes in terms of reallocation of execution responsibilities and components include: Component I: Tourism Capacity Building and Infrastructure Development the addition of a subcomponent 1.2 for the design of a road and rail bypass around the

historic town of Ollantaytambo2, which will include pre-feasibility and feasibility studies to be approved by the SNIP, as well as detailed engineering designs and bidding documents;

Component II: Urban Services and Infrastructure Rehabilitation the solid waste subcomponent (2.5) will no longer include any works. It will include pre-

feasibility and feasibility studies for the proposed solid waste management and disposal system, as well as detailed engineering designs and bidding documents. The pre-feasibility and feasibility studies are expected to be approved by the SNIP;

the elimination of the activity originally proposed under Project subcomponent 2.4, Urban Upgrading in Machu Picchu Pueblo (MPP), since it is no longer desirable or feasible. Instead, this subcomponent will now focus on the design and implementation of an early warning system and other risk management measures, according to the findings of a comprehensive risk assessment in MPP. This study is being carried out by the University of Maryland, Baltimore County, through a US$230,000 grant provided by the Global Facility for Disaster Reduction and Recovery (GFDRR). The objectives of the study are to examine geohazards around MPP, quantify the vulnerability of the town, develop an early warning system for flash floods and landslides and advise on a detailed risk management strategy. With the Restructuring, the resources available in subcomponent 2.4 of the Project will finance the execution of priority activities under this strategy.

13. The following table shows the proposed reallocation of Project subcomponents and respective amounts between COPESCO and MINCETUR. The subcomponents in the Project Procurement Plan are those shown in Schedule 2 of the proposed restructured Loan Agreement. Under the original project design, MINCETUR was responsible for carrying out the subcomponents now destined for execution by the GRC through COPESCO.

2 Currently, 15-ton trucks, carrying agricultural produce and building materials to and from Quillabamba, pass directly through the town’s historic center, including the main square and Inca bridge, producing vibrations which are damaging the only Inca stone dwellings that have been continuously occupied since Pre-Conquista times. The current location of the railway station, near the town center, also generates congestion and undesirable traffic patterns.

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Table 1. Reallocation of Project Subcomponents under the Restructured Loan Agreement

Procurement Plan Components

MINISTRY OF FOREIGN TRADE AND TOURISM

MINCETUR / DNDT

Loan Agreement Schedule 2,

Parts:

Subcomponent total in US$

1. Tourism Capacity Building and Infrastructure Development 1.2 Detailed feasibility and engineering studies and

bidding documents for the construction of a road and rail bypass around the historic town of Ollantaytambo

A 5 600,000

1.7 A tourism awareness program for children and communities A 4 (a) 160,094

1.10 Production of Geotourism maps for visitors and local residents, highlighting the history, culture and attractions of the Vilcanota Valley

A 4 (b) 291,524

1.13 Carrying capacity study for the Inca Trail A 2 (d) 45,000

2. Urban Services and Infrastructure Rehabilitation 2.1 Preliminary assessment on regional solid waste

management to identify appropriate strategies and investments

B 1 (a) 91,016

2.2 Provision of financing to allow municipalities to fulfill their obligations in relation to archaeological chance find procedures for water and sanitation works in small towns and rural communities

B 3 10,000

3. Local Economic Development (LED) 3.2 Design, construction and provision of equipment for

community information and communication technology centers in selected municipalities

C 1 593,328

3.3 Financing of LED subprojects through small grants for beneficiaries in selected municipalities C 2 322,147

4. Strategic Planning and Municipal Capacity Development 4.1 Strategic environmental assessment for the Vilcanota

Valley D 1 98,316

4.3 Municipal capacity-building programs in municipal finance, management of urban services and disaster prevention

D 3 262,238

5. Project Management 5.1 Project operations and management by Project

Implementation Team of MINCETUR (including technical, administrative, legal, safeguards, communications, procurement and financial management).

E 1 859,137

Subtotal 3,332,800

Procurement Plan Activities

COPESCO Loan Agreement Schedule 2,

Parts:

Subcomponent total in US$

1. Tourist Capacity Building and Infrastructure Development 1.1 Pedestrian access to historic monuments in the

Vilcanota Valley (with the exception of the HSMP) A 2 (b) 210,000

1.4 Tourist services on the Inca Trail within the HSMP A 2 (a) 310,000 1.5 Signage system for historic monuments A 2 (c) 150,000 1.6 Construction of Visitor Interpretation Centers A 1 154,000

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1.11 Restoration and preservation of historically significant architecture A 3 (a) 240,000

1.12 Restoration and preservation of historic agricultural and hydraulic infrastructure A 3 (b) 400,000

2. Urban Services and Infrastructure Rehabilitation 2.3 Rehabilitation of existing urban storm drainage

systems in selected municipalities B 4 330,000

2.4 Urban upgrading and disaster management in Machu Picchu Pueblo B 2 1,093,428

2.5 Detailed pre-feasibility and feasibility studies, engineering designs and bidding documents for the Vilcanota Valley’s solid waste management and disposal system

B 1 (b) 790,000

4. Strategic Planning and Municipal Capacity Development 4.2 and 1.8 Municipal Land Use Plans for the municipalities of

Pisac, Calca, Urubamba, Ollantaytambo, Machu Picchu, Chinchero and Santa Teresa; a Vilcanota Valley Multiprovincial Territorial Plan and norms and regulations for the above-mentioned municipalities3

D 2 (a) and (b) 330,000

4.4 Municipal street address system in selected municipalities within the Vilcanota Valley D 2 (c) 145,000

5. Project Management 5.1

Project operations and management by Project Coordination Unit (PCU) of COPESCO (including technical, administrative, legal, safeguards, communications, procurement and financial management)

E 2 (a) 468,490

5.3 Monitoring, evaluation and follow-up studies E 2 (b) 100,000

Subtotal 4,720,918

3Original subcomponents 1.8, 4.2 and 4.4 were merged in the restructuring to include Land Use Plans, Norms and Regulations and Street Addressing in one package.

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SAFEGUARDS 14. Although the Project’s Safeguard Category was originally rated B, during Restructuring it has been upgraded to A. It should be noted that the restructured Project will have lower environmental impacts than envisaged under the original Project design, due to the fact that many subcomponents will now focus on studies and engineering designs rather than financing works. This change is based on the realization, through consultations and work during the first phase of the project, that the environmental and social sensitivity of the area warrants a Category “A” rather than the “B” that was earlier assessed to be appropriate. The upgrade to Category “A” was due not to the expected impacts of the proposed works, but rather to the great archeological, historical and cultural significance of the Project area, which includes the HSMP, a UNESCO World Heritage Site. 15. The Project area is located in the Vilcanota Valley, which encompasses the HSMP. In turn, part of the Inca Trail, as well as the Machu Picchu Citadel, which contains the famed archeological structures commonly referred to simply as Machu Picchu, are located within the HSMP. No Project-financed works or activities will take place in the Machu Picchu Citadel proper. Some of the Project’s works and activities are focused on the nearby town of MPP, also known as Aguas Calientes, which is also located in the HSMP. 16. With an A rating, the Project will be subject to correspondingly higher standards of stakeholder consultation, analysis and disclosure. The safeguard policies on Natural Habitats (OP 4.04) and Indigenous Peoples (OP 4.10) have been triggered under the Restructuring; these policies were not triggered under the original project. The original Project had already triggered the policy on Environmental Assessment (OP 4.01) and Cultural Property (OPN 11.03, now OP 4.11, Physical Cultural Resources). On the other hand, the policy on Involuntary Resettlement (OP 4.12) is no longer triggered under the Restructuring, since all resettlement actions have been eliminated, and a screening mechanism was developed to guard against any future resettlement impacts. In summary, the following policies are triggered under the Restructuring:

Environmental Assessment (OP 4.01); Natural Habitats (OP 4.04); Indigenous Peoples (OP 4.10); and Physical Cultural Resources (OP 4.11).

17. The Restructuring has significantly reduced the Project’s potential environmental and social impacts. Certain originally planned works have been eliminated, and others replaced with feasibility studies and engineering designs to prepare for future works to be executed with adequate funding and implementation capacity. For example, the Project will no longer finance construction of landfills, an activity which would require a great deal of environmental supervision and for which the resources available under the Project were clearly not sufficient. The Project will instead finance studies on how best to manage the Vilcanota Valley’s solid waste, as well as the pre-feasibility and feasibility work, engineering designs and bidding documents deriving from such studies. Another activity under the original Project design, the improvement of the road from Pisac to Ollantaytambo, was financed by other sources and was eliminated altogether from the Project under the Restructuring. 18. Environmental Assessment (OP 4.01). As the Project involves minor works, some temporary low-level environmental impacts (noise, dust, construction waste, alteration of natural drainage, etc.) are expected during construction. The client has prepared instruments (discussed below) to manage these impacts in compliance with Bank Safeguards.

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19. Natural Habitats (OP 4.04). Although the Project will not significantly convert or adversely impact any natural habitats, some minor works will be executed in or around the HSMP (a natural protected area) or its buffer zone. Also, the Project area is located next to the Abra Malaga Private Conservation Zone. The Environmental Framework for Minor Infrastructure Works contains screening mechanisms to identify works in protected areas, and includes directions for implementation to ensure that these activities will be carried out in accordance with the area’s environmental management plan. 20. Indigenous Peoples (OP 4.10). Although this policy was not triggered under the original Project, it has been activated under the Restructuring. As indigenous peoples have been determined to constitute a majority of the affected population, however, no stand-alone Indigenous Peoples instrument will be prepared for this Project. Rather, the policy’s superior standards of “free, prior and informed consultation,” “social assessment,” “culturally appropriate benefits,” and “broad community support” will apply to the entire Project in a blanket manner. Specifically, the following principles will be taken into account in designing and implementation of future Project actions:

1) Free, prior and informed consultation. Consultation under the original Project was extensive,4 and the proposed Restructuring is itself the product of an ongoing process of consultation with diverse stakeholders.5 Adequate prior consultation, in accordance with OP 4.10, is one of the “technical feasibility clearance (trigger) requirements” for all subcomponents. As consultations under the original Project raised local expectations in ways that implementation failed to meet, new consultations will be undertaken with sensitivity, and carefully sequenced with the achievement of visible, concrete Project results on the ground.

2) Social assessment. Social Assessment (SA) activities are currently underway.6 3) Culturally appropriate benefits. Each financed activity will aim to ensure, via input from

the two above-mentioned processes, that local stakeholders receive justly distributed and culturally appropriate benefits.

4) Broad community support. This involves mechanisms and processes for the gauging of local responses – both positive and negative – to Project actions, and relying upon local decision-making and consensus-building means.7

21. As this is an ongoing project, these existing activities will be progressively strengthened under the Restructuring, in reorienting the Project to explicitly respond to the requirements of the policy. So far, MINCETUR and COPESCO have undertaken: (a) a review of the entire Project consultation process to date; (b) an identification of all gaps with regard to the policy; (c) an

4 This process included consultations with key stakeholders on the Project’s environmental aspects. However, it was also unsystematic, unevenly documented, and limited to certain activities (such as the Geotourism Map and the Ferias de Desarrollo LED small grants program). The consultation process has now been documented, and a summary disclosed, according to the Bank’s standards. 5 This process, beginning in January, 2007, included consultation of the Strategic Environmental Assessment in November and December of 2007, via conversations, interviews and participatory workshops in Sicuani, Urubamba, Quillabamba and Cusco, with mayors, other city officials, NGOs and local residents (the results of these workshops are recorded in the final SEA report). The TORs for the Ollantaytambo Bypass Road study were subjected to public consultations in March 2008, along with multi-stakeholder discussions of the various safeguards aspects of the Project. This process has also been documented and a summary disclosed according to the Bank’s standards. 6 These include a public opinion poll, to establish baseline information on local stakeholders (e.g., a demographic profile, communication needs and barriers), and a Stakeholder Engagement Plan, to identify key stakeholder groups and build a regular, constructive dialogue with local communities and institutions. 7 These aspects are treated at greater length in the Indigenous Peoples Instrument disclosed by COPESCO, MINCETUR and the Bank, as well as in the revised PEC, to be completed and disclosed as a “trigger” to the initiation of any future works in the Project.

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analysis of existing Project institutions and capacity with regard to application of the policy; and (d) the development of a strategy for filling those gaps through existing, modified and or/newly created institutional arrangements. 22. All consultation and social analysis activities related to safeguards compliance will be under the responsibility of COPESCO, working in close collaboration with the Strategic Communication Plan (“Plan de Comunicación Estratégica,” or PEC), and with additional staff and resources from the Project as necessary.8 To build on existing work, and avoid parallel structures and redundant activities, COPESCO’s safeguards specialists will develop, together with MINCETUR’s Communications Specialist, a joint strategy for strengthening and complementing the PEC’s existing activities with additional activities, and determining any additional Project staff and financial resources that these modifications may require. Revision and disclosure of the PEC, including this strategy and all other modifications related to OP 4.10, are among the “technical feasibility clearance (trigger) requirements” for all subcomponents. 23. Instruments. The following safeguards instruments have been prepared and will be updated for the restructured Project:

An Environmental Framework for the Construction of Landfills was developed, to guide the design of a Regional Solid Waste Management System. Under the Restructuring, subcomponent 2.5, Studies for Solid Waste Management in the Vilcanota Valley, will only finance feasibility studies, engineering studies and preparation of bidding documents. Therefore, this framework will now be used to guide the development of feasibility studies and detailed engineering plans, as necessary, rather than works.

An Environmental Framework for Minor Infrastructure Works was also developed to govern all other works in the Project, including: (i) a guide for the categorization of works (based on type and level of sensitivity, taking into account Bank safeguard policies); (ii) a fieldwork checklist to determine the potential social and environmental impacts of infrastructure works; and (iii) an environmental manual for infrastructure works (addressing site selection, norms for contractors engaged in construction activities, community information and outreach, supervision and monitoring, etc.). It also includes chance find procedures and other measures for managing works at archeological sites.

A specific environmental assessment was also conducted for the Inca Trail—“Gestión Ambiental del Camino Inca a Machu Picchu” (December, 2003)—which includes proposals addressing key issues such as waste management. This will be a key input for, and will be complemented by, the planned study of the carrying capacity of the Inca Trail (subcomponent 1.13).

The OM, which includes the above frameworks, and integrates environmental and social concerns into all phases of the Project.

A regional Strategic Environmental Assessment (SEA), Project subcomponent 4.1, was completed and presented to stakeholders in August 2008. The SEA addresses the likely medium- to long-term environmental impacts in the Vilcanota Valley and HSMP from tourism, industrial activity, agriculture and related demographic and resource use patterns. It includes: (i) risk prevention and mitigation plans; (ii) natural resource management; (iii) economic and cultural activities; (iv) sustainable tourism development of the Vilcanota River Basin; and (v) a suggested program to resolve inter-institutional governance conflicts in the Basin. It specifically addresses the conservation of historical structures, works of art and other physical or intangible cultural assets (archeological sites, historic villages, sacred sites, living culture, museums and other aspects of the

8 Funded through an initial US$ 90,000 grant from the Italian Government Culture and Sustainable Development Trust Fund, the PEC is currently engaged in data collection activities.

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Vilcanota Valley cultural heritage), updating an inventory of cultural assets in the Valley (prepared in collaboration with INC), and policy recommendations for the protection of tangible and intangible cultural heritage resources. The urban and rural land use plans that will be developed for the municipalities of Machu Picchu, Ollantaytambo, Santa Teresa, Chinchero, Urubamba, Calca and Pisac under Project subcomponent 4.2 will be based on this SEA.

24. Disclosure. The environmental frameworks have been available on the Bank’s website since 2003 and 2004. MINCETUR has made the SEA available to the public in October, 2008. The revised environmental frameworks will also be made available online through both the Bank and the implementing agencies’ websites. The updated PID, ISDS, and the relevant safeguards Annexes of the Project Paper have been disclosed to the InfoShop in Washington. In addition, Spanish language versions of these documents have been made available by the Borrower for public review at convenient locations in Cusco and the Vilcanota Valley, as well as in the MINCETUR and COPESCO websites. The same will be done when the revised environmental frameworks become available. Such revised environmental frameworks, acceptable to the Bank, are a disbursement condition for the works to be executed by COPESCO under the amended Loan Agreement. Upon approval, the Project Paper will be disclosed in its entirety. 25. Institutional Arrangements and Capacity. Several modifications have been made under the Restructuring in the Project’s institutional arrangements that have significant safeguards implications. 26. Under the Restructuring, COPESCO has assumed responsibility for safeguards compliance in the Project. COPESCO’s tasks will include: reviewing the restructured Project and existing environmental frameworks to determine any gaps and propose any necessary additions or revisions;

(a) screening of all proposed works to ensure their compliance with the applicable Environmental Management Frameworks, the OM and safeguards policies, including involuntary resettlement.

(b) screening potential works for resettlement and other safeguards compliance issues, and supervision responsibilities, as detailed in the environmental frameworks and OM;

(c) reviewing all studies, technical plans and related ToRs to ensure their compliance with applicable Environmental Management Frameworks, Operations Manual and safeguards policies;

(d) submitting all new or revised environmental frameworks, and environmental management plans for individual works (as necessary), to the Bank for no-objection; and

(e) ensuring that the above-described standards of OP 4.10, on Indigenous Peoples, are properly and reasonably applied; and

(f) any other safeguards supervision responsibilities as detailed in the environmental frameworks and OM.

27. In order to fulfill these obligations, COPESCO is currently in the process of hiring two safeguards specialists (one for environmental and one for social safeguards), so as to develop the necessary capacity to execute this and future Bank-financed operations (their ToRs are included in the OM). Once hired, these specialists will be provided adequate safeguards training and support, beginning with a series of workshops planned for December, 2008. Additional training and support activities will be added as necessary.

12

28. The Project Steering Committee, consisting of representatives of MEF, MINCETUR and COPESCO, will be responsible for providing policy guidance and oversight to Project implementation, including safeguards compliance, staffing and coordination, and submission of all studies and plans for proposed works to the Bank for safeguards analysis and no-objection. Upon completion of initial studies, the Steering Committee will select a small number of works to be financed under the Project, based on factors including estimated budget and compliance with safeguards screening criteria and other eligibility requirements. The Steering Committee’s powers and responsibilities are defined in the OM. 9 29. A new mechanism has been built into in the Loan Agreement, consisting of a “technical feasibility clearance” (trigger, or gatillo), for particular sub-component categories, and including the following set of “transversal” conditions, to be verified for all sub-project components involving works (see Annex 1). Listed in the Operational Manual, the transversal conditions are:

1) the screening out of all involuntary resettlement impacts, according to OP 4.12; 2) the adequacy of free, prior and informed consultation, in accordance with OP 4.10; 3) revision and disclosure of the PEC, once revised, in compliance with OP 4.10; 4) prior to the start of works by COPESCO, an updated version of the Project’s

Environmental Management Framework (as reflected in the OM) for the restructured Project which has received Bank approval, must be in effect;

5) prior disclosure of all relevant documents; and 6) the existence of adequate capacity for safeguards implementation (i.e., the hiring of two

safeguards specialists by COPESCO—one social and one environmental—and the start of their training activities).

30. All proposed works will be subject to prior review by the Steering Committee, to ensure their compliance with these technical feasibility clearance requirements. The Bank will then review and confirm compliance with the technical feasibility clearance requirements before giving its no-objection. All Bank-financed studies must comply with Bank safeguards as appropriate, regardless of whether the actual works deriving from such studies would be Bank-financed or not.

D. ANALYSIS

31. The lessons learned over three years of implementation made it clear that project implementation needs to follow a more effective division of roles and responsibilities in order to achieve the proposed outcomes. This is the main objective of this Restructuring, which is expected to enhance Project execution because of: (a) the GRC’s high level of liquidity, due to hydrocarbon and mining royalties, which is expected to ensure counterpart funds; (b) the GRC’s strong presence in the Vilcanota Valley and influence in the local municipalities; and (c) COPESCO’s implementation capacity and its experience in infrastructure and tourism related projects. 32. A revision of the Project’s Proyecto de Inversión Pública (PIP) document under the SNIP, was conducted with the new information from the Restructuring, including the modification of the subcomponents where applicable, the new Project closing date and the proposed institutional

9 They include: (a) provision of institutional support and a coordination framework for Project implementation; (b) establishment of strategic guidelines for the Project implementation, including review of annual operational plans, (c) review of overall progress in Project implementation by MINCETUR and COPESCO (including a review of audits), and (d) evaluation of Project activities and oversight of compliance with Project norms, feasibility studies and objectives (including analysis and consideration of which Project activities might require pre-feasibility studies).

13

arrangements. The SNIP includes economic and financial analyses, a sensitivity analysis and a review of sustainability arrangements. At a discount rate of 11%, the financial evaluation presents a 31% IRR, while the economic evaluation shows a 34% IRR for the restructured Project, indicating that it is both financially and economically viable. 33. Preparation for the proposed Restructuring has involved intensive stock-taking, including: (i) a review of the original loan preparation safeguards instruments and fiduciary and economic studies, including the SNIP; (ii) an assessment of COPESCO and MINCETUR’s capacity to undertake their proposed fiduciary and safeguards responsibilities; (iii) a review of stakeholder consultations already undertaken and analysis of future consultation needs; and (iv) a review of the institutional relationships and responsibilities with regard to FM, procurement and safeguards. PROCUREMENT 34. A review of Procurement procedures led by the Project’s then Procurement Specialist, Evelyn Villatoro, was carried out on April 14, 2008. At the time, the Project was classified for Procurement as Moderately Satisfactory. 35. The review was conducted on a sample of contracts selected from a list submitted by the PIT. The list contained thirty-eight (38) contracts funded by the Loan Agreement, seven (7) of which were subject to "prior review" while thirty one (31) were not. As the Project was in the process of restructuring, the review focused solely on Component 1, which was the only activity recorded during the review period. 36. The Bank team reviewed the implementation capacity of the PIT and noted the following:

The PIT is adequately staffed and adheres to the organizational structure defined in the OM. It was evident that Procurement processes are systematized and that documentation is well organized, thorough, securely kept and easily accessed.

Most risks or problems relating to Procurement have been mitigated by (i) the hiring of a specialist trained in Procurement, and (ii) attendance of a Bank-offered training course for Procurement staff in Lima in March 2008.

The results of the review were moderately satisfactory, as it was evident that Procurement processes are in compliance with the provisions of the Loan Agreement. However, procurement activity has not been particularly active, and consisted of small-scale contracts only.

Of the contracts selected for review, one was above the threshold amount defined in the Loan Agreement, i.e. Contract No. 17-2007/BIRF 00/00/2007 "Geo Tourism Guide Maps and Related Services". This contract was awarded to National Geographic Society under sole source recruitment. The file was reviewed and the Bank team found that all appropriate steps and justifications for this contract were well documented.

The thirty eight (38) contracts reviewed were included in the Procurement Plans for the periods March-December 2006 and January-December 2007 (which had been approved via No Objection in November 2007).

While it was found that Procurement staff were familiar with Bank Procurement guidelines, they expressed some doubts in regards to some practical aspects of Procurement. In response, a week-long working session with Bank Procurement Specialist Francisco Rodriguez was held in May 2008.

Prior to the effectiveness of the Amendment to the Loan Agreement, it will be necessary for MINCETUR to submit an updated Procurement Plan, satisfactory to the Bank, which

14

consolidates both MINCETUR’s and COPESCO’s activities under the proposed Restructuring.

FINANCIAL MANAGEMENT 37. As part of the preparation process for Project restructuring, a financial management assessment for the new implementing entity, COPESCO, has been undertaken, in accordance with OP/BP 10.02 and the FM Manual “Financial Management Practices in World Bank Financed Investment Operations.” The objective of the assessment was to determine whether COPESCO has the capacity to properly manage and account for Project activities transferred to COPESCO under the new implementation arrangements and to produce timely, accurate and reliable financial information for general and special purposes. 38. In addition to the FM assessment of COPESCO, and to complement the restructuring process, an FM supervision mission was undertaken in May 2008, to evaluate the continuing adequacy of the financial management arrangements under the current implementing entity, MINCETUR. As a result of the mission, the FM team concluded that, although there has been progress in the FM arrangements (in terms of staff rotation, internal controls, compliance with submission of interim financial reports, and submission of audit reports for the period 2006), there are still improvements to be adopted in order to achieve the desired results and ensure that resources are being used for the intended purposes. For this reason, the FM ISR rating assigned to the Project after the mission was Moderately Satisfactory. This rating will be revised in the near future, once the new implementation arrangements are in place and progress has been assessed for both implementing entities (MINCETUR and COPESCO).

E. EXPECTED OUTCOMES

39. As noted in Section D, the proposed changes do not affect the PDO, which is to support the GoP’s efforts to enhance the environmental and socio-economic sustainability of its historical, cultural and ecological assets in the Vilcanota Valley.

40. Overall Project implementation and, in particular, the rate of disbursements are expected to improve significantly once the Restructuring is finalized. The proposed reformulated outcome indicators and target dates will be incorporated into Schedule 7 of the restated Loan Agreement (see Annex 3). Outcomes will be monitored using the updated Project baseline.

41. Involvement of the GRC in the Project is expected to leverage a number of additional investments by the central, regional and local governments beyond the scope of the Project. In this connection, the GRC has already agreed to finance some key investments arising from Project subcomponents. Among such infrastructure investments are the financing of part of the construction of the Ollantaytambo road and rail bypass in partnership with the Ministry of Transport and the Ollantaytambo municipal government, and the implementation of the solid waste management and disposal system for the Vilcanota Valley.

42. Other minor investments are expected to be mobilized, such as façade enhancement by homeowners to fit traditional architectural patterns, after the municipal building codes are drafted and approved; and investments in urban infrastructure and service delivery as a result of the urban planning, street addressing and municipal capacity building components of the Project. It is also

15

expected that the Geotourism Guide being prepared by National Geographic could lead to tourism-related investments in poor rural communities, as well as increasing the Valley’s international visibility, which could foster strategic alliances with National Parks in other countries for knowledge exchange.

F. BENEFITS AND RISKS

43. The proposed changes are intended to improve Project implementation on three fronts: (i) strengthening of implementation capacity at the central and regional government levels; (ii) simplification and streamlining of implementation procedures; and (iii) leveraging of counterpart funds. The Team expects to address these challenges by involving the regional and national governments in the implementation of the subcomponents in Table 1, under the enhanced coordination and accountability that will be brought about by the creation of the Steering Committee. There are, however, some risks involved in the introduction of COPESCO as executing agency for the regional government. These are primarily related to COPESCO’s lack of familiarity with Bank procurement, financial and safeguards procedures, and its possible effects on Project implementation within the revised time frame. To mitigate this risk, i) a draft OM has been prepared, based on the procurement and financial management assessment of COPESCO undertaken by Task Team and, ii) COPESCO has participated in a procurement and financial management training with Bank fiduciary specialists. A follow-up Plan for COPESCO and MINCETUR on fiduciary responsibilities has been developed and its adoption is one of the proposed Amendment’s effectiveness conditions.

44. As the Restructuring entails transferring the implementation of a significant number of components to the GRC, agreements between the GRC and the other institutions involved, such as MEF in the case of the Convenio de Traspaso de Recursos, and MINCETUR in the case of the Convenio Subsidiario, are conditions of effectiveness of the proposed Amendment. The GRC, MINCETUR and MEF have yet to sign these covenants, but final versions of both agreements, approved by all parties, already exist, and signing is expected to take place as soon as the Amendment Letter is signed. 45. The Project was not in the Country Assistance Strategy, and the country’s debt ceiling limited the loan to US$ 5 million, when at least five times that amount would have been necessary. To mitigate the risk posed by the mismatch between the expectations raised by the Project and its insufficient resources, the Restructuring refocuses the Project on strategic studies and investments aimed at leveraging other resources, establishing the basis for future investments. The proposed Restructuring also focuses on delivering key results on the ground to maintain trust and encourage the counterparts to continue working towards those future investments. 46. As mentioned above, the Project is deemed to carry a global reputational risk for the Bank, and the proposed Restructuring of the loan is intended to mitigate that risk. The central issue in this connection is the small size and poor implementation of the loan in comparison to the Vilcanota Valley’s needs and the unabated growth of tourism. Presidents Toledo and Wolfensohn conceived the Project in 2003 to address UNESCO’s warning that it might put Machu Picchu and the Sacred Valley on its list of endangered World Heritage Sites. The underlying cause of the sites’ decline was the dramatic increase in tourism traffic, which has doubled in the past decade, to almost one million visitors annually. The Valley’s population has correspondingly increased, due to the arrival of migrants from around the country, with no roots in the local culture and often no knowledge of Quechua.

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47. Tourism in the Vilcanota Valley continues to grow rapidly, with more than 80% of visitors entering the country coming exclusively to visit Cusco and Machu Picchu, a trend likely to accelerate with Machu Picchu’s 2007 election as one of the new Seven Wonders of the World. UNESCO’s World Heritage Committee, in its latest meeting, held on July 10, 2008, declared grave concerns over governance of the site and noted urgent problems with deforestation, the risk of landslides, and uncontrolled urban development. The Committee has asked that “reinforced monitoring” be applied to four properties on UNESCO’s World Heritage List, including Machu Picchu. The Bank has a major role to play in mitigating some of the issues raised by UNESCO, through close monitoring and supervision of the Project, and using its convening power to involve other key players. This is a great opportunity for the Bank, but it also carries significant risks. There is heightened attention being devoted to Machu Picchu and the Vilcanota Valley, both by the international community and the Peruvian public. The key aim of the proposed Restructuring is precisely to work towards mitigating project risks through intensive supervision, capacity building and to ensure the highest possible degree of achieving successful development outcome.

Annex 1 – Reformulation of Project Sub Components and Technical Feasibility Clearance Requirements (Triggers)

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Component Component / activity Responsible Party Goals Amount per Goal (US$)

Technical Feasibility Clearance Requirements (Triggers) Date

1.1

Pedestrian access to historic monuments in the Vilcanota Valley (with the exception of the Citadel)

PER COPESCO – CRG

a. Study on Pedestrian Access in San Juan - Yucay b. Study on Pedestrian Access in Chillca - CA Cusichaca - Ollantaytambo c Study on Pedestrian Access in nevados de Pitusiray, Sahuasiray y Maquimaqui en el VS - Calca d. Study on Pedestrian Access in Nevado Chicón - Urubamba e. Works to Pedestrian Paths selected by the Steering Committee based on the above-mentioned studies

Study: 18,979 Works: 191,021

Decision: Works will be selected based on the budgets presented in the studies Requirement: 4 approved studies Selection Criteria: Works will be selected based on the budget presented in the engineering studies. If the budget were not sufficient to fully implement any of the works, the one which poses most progress within the limited budget will be selected. Responsible Party: Steering Committee for PIP (composed of MINCETUR, COPESCO, MEF) Communication: Decision will be communicated to MEF (DGPM and DNEP)

15 months after signature of Restated Loan Agreement

1.3 Improvement of Pisac-Ollantaytambo road

This activity has been eliminated because it has been executed by another public entity (CRG - PER COPESCO)

----------------- ----------------- -----------------

1.8 Zonning and building codes This activity has been

incorporated into 4.2 ----------------- ----------------- -----------------

1.9

Communication campaigns on the history and culture of the Andean people

This activity has been eliminated because the objective is being carried out under activity 1.7

----------------- ----------------- -----------------

1.11

Restoration and preservation of historically-significant architecture

PER COPESCO -- CRG

a. Engineering studies for Huchuy Qosqo b. Engineering studies for Canchis Pujio - Calca c. Engineering studies for Cocha Suntur-Valle del Chicón d. Restoration and preservation of

Engineering Studies: 22,239 Works: 217,761

Decision: Selection of works based on the estimated costs assigned in the technical studies. Requirement: 3 engineering studies approved Selection Criteria: Works will be selected based on the budget presented in the engineering studies. If the budget were not sufficient to



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architectural structures selected by the Steering Committee based on the results of preliminary research and technical studies.

fully implement any of the works, the one which poses most progress within the limited budget will be selected. Responsible Party: Steering Committee for PIP (composed of MINCETUR, COPESCO, MEF) Communication: Decision will be communicated to MEF (DGPM and DNEP)

1.12

Restoration and preservation of agricultural and hydraulic infrastructure

PER COPESCO – CRG

a. Engineering studies for restoration of the inca terraces de Patapata - Písac - Calca b. Engineering studies for restoration of inca terraces and adoratorio inca - Urco - Calca c. Engineering studies for restoration of the prehispanic channel Quebrada de Chichón - Urubamba d. Engineering studies for restoration of the inca channel of river Tullumayo - Urubamba e. Restoration and preservation of hydraulic, agricultural and architectural structures selected by the Steering Committee based on the results of preliminary research and technical studies.

Engineering Studies: 36,250 Works: 363,750

Decision: Selection of works based on the estimated costs assigned in the technical studies. Requirement: 4 technical studies approved Selection criteria: Works will be selected based on the budget presented in the engineering studies. If the budget were not sufficient to fully implement any of the works, the one which poses most progress within the limited budget will be selected. Responsible Party: Steering Committee for PIP (composed of MINCETUR, COPESCO, MEF) Communication: Decision will be communicated to MEF (DGPM and DNEP)


2.1

Preliminary assessment on regional solid waste management to identify appropriate strategies and investments

EIP MINCETUR

This activity will end with the termination of the contract, which is currently under arbitration due to non-compliance with deliverables by the consultant. The objective of this activity will be fulfilled by activity 2.5, Studies on Solid Waste Management in the Vilcanota

Maximum expected cost:: 91,016

----------------- -----------------


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Valley.

2.4 Urban upgrading and disaster management in Machu Picchu Pueblo

PER COPESCO -- CRG

a. Installation of Early Warning System b. Execution of Disaster Management and Risk Reduction Activities This subcomponent originally included the resettlement of 60 families in MPP, but this activity is no longer feasible given the following reasons: (i) There is no available land in MPP for resettlement; (ii) The families live in consolidated houses and they don’t want to be resettled; (iii) There is no political will to undertake this action; (iv) The families to be resettled were selected without a comprehensive study and there are other families in high risk areas in MPP.

1,093,428

Decision: Selection of works based on the land slide risk assessment Selection Criteria: The study on landslide risk assessment in the Vilcanota Valley that is being undertaken by the University of Maryland, will propose an early warning system and other mitigation works. The results of this study will determine: (1) Estimated costs for the installation of an early warning system and feasibility studies (2) Estimated costs for mitigation Works and feasibility studies. . Requirement (1) Landslide risk assessment completed by the University of Maryland by May 09. (2) Urban Plan for MPP will take into account the results of the landslide risk assessment and prioritize mitigation works Responsible Party: Steering Committee for PIP (composed of MINCETUR, COPESCO, MEF) Communication: Decision will be communicated to MEF (DGPM and DNEP)


2.5

Detailed pre feasibility and feasibility studies, engineering and bidding documents identified in the regional solid waste management study

PER COPESCO -- CRG

a. Feasibility Study b. Detailed Engineering Plans

(This activity will be executed by one consultant) 790,000

----------------- -----------------


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3.1 Capacity building program for tourism service providers

This activity does not have a goal as it has been eliminated. Currently, private operators offer this service in the Valley. Amongst such operators is DIRCETUR Cusco, which has sufficient resources to execute this activity. The cost/amount noted here corresponds to a contract under which the TOR’s were created prior to the PIP reformulation.

3,200 ----------------- -----------------

4.4

Municipal street address system in the selected municipalities within the Vilcanota Valley

PER COPESCO -- CRG

a. Satellite Images of the Vilcanota Valley b. Installation of street address system in three (3) district or provincial capital municipalities

Satellite Images: 49,813 Municipal street address system: 145,000

Requirement: Approved municipal street address system for 7 urban areas (Machu Picchu, Calca, Santa Teresa, Urubamba, Pisac, Ollantaytambo, y Chinchero). The design of the system is a product of activity 4.2. Decision: Selection of the urban areas where the street address system will be implemented. Selection Criteria: Urban areas will be selected based on the budgets presented in the study. Responsible Party: Steering Committee for PIP (composed of MINCETUR, COPESCO, MEF) Communication: Decision will be communicated to MEF (DGPM and DNEP)


5.1

Project operations and management by Project Implementation Team of MINCETUR (including technical, administrative, procurement and financial management).

EIP MINCETUR and PER COPESCO --CRG

a. EIP MINCETUR Administrative Expenses b. PER COPESCO Administrative Expenses

EIP MINCETUR: 875,167 PER COPESCO: 468,490

----------------- -----------------


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Project operations and management by Project Coordination Unit of COPESCO (including technical, administrative, procurement and financial management).

5.3 Impact Evaluation System

PER COPESCO -- CRG a. Baseline of PIP 100,000 ----------------- -----------------

To ensure compliance with feasibility and safeguards requirements, a mechanism has been included in the Loan Agreement, consisting of a “technical feasibility clearance” (trigger or gatillo), for particular sub-component categories. The Steering Committee will review all proposed works to ensure that the proposed activities comply with these conditions before authorizing works. The Bank will also review compliance with the triggers before giving its no-objection. In addition to the technical feasibility clearance requirements listed in the chart above, the following conditions will apply to all sub-components involving works and/or studies for future works:

1) screening out of all involuntary resettlement, according to OP 4.12; 2) adequacy of consultation, according to OP 4.10; 3) revision and disclosure of the PEC, once revised, in compliance with OP 4.10; 4) prior to the start of works, an updated version of the Environmental Management Framework as reflected in the OM for the

restructured Project which has received Bank approval, must be in effect; 5) prior disclosure of all relevant documents; and 6) existence of adequate capacity for safeguards (i.e., the hiring of two safeguards specialists by COPESCO—one social and one

environmental—and the start of their training activities).

Annex 2 – Reformulation and Reallocation of funds for Project Sub Components

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Component # Executing Agency Sub Component / Activity

Before (US Dollars )

Proposed (US Dollars )

Subject to Technical Feasibility Clearance

Notes

1. Tourism Capacity Building and Infrastructure Development

1.1 COPESCO Pedestrian access to historic monuments in the Vilcanota Valley (with exception of the Sanctuary) 210,000 210,000 x

1.2 MINCETUR Feasibility Studies and Engineering Designs for Ollantaytambo Road and Rail Bypass 210,000 600,000

Formerly known as “Acceso Tambuchaca – Estación Ollanta – Km 4"

1.3 Restoration of bridges on the Pisac-Ollantaytambo highway -- Mejoramiento de obras de arte Eje Vial Pisac-Ollantaytambo

210,000 ELIMINATED

1.4 COPESCO Tourist Services on the Inca Trail within the Sanctuary 310,000 310,000

1.5 COPESCO Signage system for historic monuments in Pisac and Ollantaytambo 150,000 150,000

Formerly known as "Sistema de Señalización de Monumentos, Camino Inca y Valle Sagrado"; activities redefined but not line item amount

1.6 COPESCO Construction of Visitor Interpretation Centers 230,000 154,000

1.7 MINCETUR Tourism awareness program for children and community 160,000 160,094

1.8 Zoning Code and Municipal Regulation Program -- Programa de Programa de Reglamento y Normatividad 125,000

ABSORBED BY SUBCOMPONENT 4.2

1.9 Program on Rediscovery of Cultural Identity -- Programa de Revaloración de la Identidad Cultural 125,000

ELIMINATED

1.10. MINCETUR Production of Geotourism maps for visitors and local residents, highlighting the history and culture of the Vilcanota Valley

225,000 291,524

1.11 COPESCO Restoration and preservation of historically-significant architecture 240,000 240,000 x


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Notes

1.12 COPESCO Restoration and preservation of historic agricultural and hydraulic infrastructure 300,000 400,000

1.13 MINCETUR Carrying Capacity study for the Inca Trail 45,000 45,000

Formerly known as "Plan de Uso Turístico del SHMP"

COMPONENT 1 SUBTOTAL: 2,540,000 2,560,618

2. Urban Services and Infrastructure Rehabilitation

2.1 MINCETUR Preliminary assessment on regional solid waste management to identify appropriate strategies and investments

100,000 91,016

2.2 MINCETUR

Provision of financing to allow municipalities to carry out their PRONASAR obligations in relation to archaeological chance find procedures assessment for sustainable water and sanitation in small towns and rural communities

150,000 10,000 This subcomponent has been 100% executed

2.3 COPESCO Rehabilitation of existing urban storm drainage systems in selected municipalities 330,000 330,000

Formerly known as “EIA y estudios de ingeniería de detalle de la ampliación de sistemas de agua potable, desagüe, alcantarillado e inversiones para el desagüe pluvial urbano”.

2.4 COPESCO Urban upgrading and disaster mitigation in Machu Picchu Pueblo 1,170,000 1,093,428

Two activities were eliminated: resettlement and work related to the Collpani Bridge, which was completed by the municipality.


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Notes

2.5 COPESCO

Detailed feasibility study and engineering designs for the implementation of strategies and investments identified in the regional solid waste management study

1,300,000 790,000

Formerly known as "Programa de Residuos Sólidos del Valle de Vilcanota"

COMPONENT 2 SUBTOTAL: 3,050,000 2,314,444

3. Local Economic Development

3.1 MINCETUR Training Program for Tourism Service Providers -- Programa de Capacitación a Prestadores de Servicios Turísticos

160,000 2,969 ELIMINATED

3.2 MINCETUR Design, construction and provision of equipment for community telecenters in selected municipalities 502,500 593,328

3.3 MINCETUR Financing of LED projects through Small Grants for Beneficiaries in selected municipalities 300,000 322,147

COMPONENT 3 SUBTOTAL: 962,500 918,444

4. Strategic Planning and Municipal Capacity Development

4.1 MINCETUR Strategic environmental assessment for the Vilcanota Valley 100,000 98,316

This subcomponent has been 100% executed

MINCETUR

Municipal Territorial Plans to be adopted by the municipalities of Pisac, Calca, Urubamba, Ollantaytambo, Machu Picchu, Chinchero and Santa Teresa; and a Vilcanota Valley Multi provincial Territorial Plan of the above-mentioned municipalities

124,000 16,238

This line item represents expenditures under MINCETUR prior to the Restructuring; the execution of the subcomponent is being transferred to COPESCO 4.2

COPESCO

Multi provincial Territorial and Zoning Plans and Municipal Territorial Plans to be adopted by the municipalities of Pisac, Calca, Urubamba, Ollantaytambo, Machu Picchu, Chinchero and Santa Teresa

330,000 x


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Notes

4.3 MINCETUR Municipal capacity-building programs in municipal finance, management of urban services and disaster prevention

300,000 262,238

MINCETUR Aerial Satellite Photography 500,000 49,813

This line item represents expenditures under MINCETUR prior to the Restructuring ; the execution of the subcomponent is being transferred to COPESCO

4.4

COPESCO Municipal street address system in the selected municipalities within the Vilcanota Valley 145,000 x

COMPONENT 4 SUBTOTAL: 1,024,000 901,605

5. Project Management 5.1 MINCETUR Project Administration and Management 520,000 859,137 5.1 COPESCO Project Administration and Management 468,490 5.2 MINCETUR Auditors' Fees -- Consultoría de Control (Auditorías) 78,238 52,338

5.3 COPESCO Monitoring , evaluation and follow-up studies -- Sistema de Evaluación de Impactos del Proyecto 0 100,000

Subcomponent did not exist prior to Restructuring

COMPONENT 5 SUBTOTAL: 598,238 1,504,865

FRONT END FEE: 24,900 24,900

TOTAL: 8,200,000 8,200,000

Annex 3. Updated Results Framework Project Development Objective and Outcome Indicators

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PDO Outcome Indicators Use of Outcome Information Support the Government of Peru’s efforts to enhance the environmental and socio-economic sustainability of historical, cultural and ecological assets in the Vilcanota Valley including the Historic Sanctuary of Machu Picchu (HSMP) and the Sacred Valley of the Incas (this is the original PDO, which is being maintained under the restructuring)

Improved inter-institutional coordination amongst MINCETUR, COPESCO and the Municipalities of the Vilcanota Valley to manage historical, cultural and ecological assets in the Vilcanota Valley measured by: (1) the adoption by the Municipalities of the planning tools generated by the Project; (2) a Memorandum of Understanding signed to finance the construction of the Ollantaytambo road and rail bypass and the solid waste collection and disposal system. Feasibility Studies approved by MEF according to SNIP requirements for the Ollantaytambo road and rail bypass and the construction of a solid waste collection and disposal system10.

The proposed outcome indicators measure improvement of Government capacity at all levels. A satisfactory outcome would lend credibility to the requests for further support that are coming to the World Bank Group, especially from the Regional Government of Cusco, and could open the way to consideration of Bank involvement in future efforts to manage and enhance the Valley’s assets.

Intermediate Results: One per Component Results Indicators for Each Component Use of Results Monitoring Component One Tourism Capacity Building and Infrastructure Development MOU signed between local (Municipality of Ollantaytambo), regional (GRC/COPESCO) and national institutions (MEF, MTC, MINCETUR) for the construction of a road and rail bypass in Ollantaytambo

Feasibility study approved by SNIP and engineering designs for a road and rail bypass around the historic town of Ollantaytambo Number of historic architectural, agricultural and hydrological structures restored Signage system for archaeological sites in Pisac and Ollantaytambo in place Interpretation centers built and operating in

Achievement of the results envisaged for this component would signal an improvement in management of key assets and prepare the ground for crucial investments to be undertaken in future in partnership by the three levels of Government. A satisfactory performance of this component, as measured by the proposed indicators, would lend credibility to requests for further support and could open the way to consideration of Bank involvement in future efforts to manage and

10 SNIP is the MEF system for vetting and approving all publicly-financed investments.


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Ollantaytambo and Urubamba enhance the Valley’s assets

Component Two Urban Services and Infrastructure Rehabilitation MOU signed between COPESCO and Municipalities for the construction of a regional landfill and/or other solid waste management facilities to be financed by COPESCO

Solid waste study approved by SNIP and proposal for solid waste management system in the Vilcanota Valley, complete with engineering designs Early warning system installed and operating in Machu Picchu Pueblo

Achievement of the results envisaged for this component would signal an improvement in management of key assets and prepare the ground for crucial investments to be undertaken in future in partnership by the three levels of Government. A satisfactory performance of this component, as measured by the proposed indicators, would lend credibility to requests for further support and could open the way to consideration of Bank involvement in future efforts to manage and enhance the Valley’s assets

Component Three Local Economic Development (LED) Small grants awarded to at least 40 community projects

Number of community projects still functioning at the end of the Project Number of telecenters operating at the end of the Project

Achievement of the results envisaged for this component would signal an improvement in Government capacity to support local economic development. A satisfactory performance of this component, as measured by the proposed indicators, would lend credibility to requests for further support and could open the way to consideration of Bank involvement in future efforts to promote LED in the Valley’s municipalities

Component Four Strategic Planning and Municipal Capacity Development Number of people trained in Municipal Management (at least 200)

Number of municipal urban land use plans completed and approved by Municipal Councils

Achievement of the results envisaged for this component would signal an improvement in management of key assets and prepare the ground for crucial investments to be


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Number of district municipalities’ urban areas with street addressing systems installed

undertaken in future in partnership by the three levels of Government. A satisfactory performance of this component, as measured by the proposed indicators, would lend credibility to requests for further support and could open the way to consideration of Bank involvement in future efforts to manage and enhance the Valley’s assets

Component Five Project Management Project funds disbursed according to plan, with satisfactory technical, safeguards and fiduciary performance

Improved capacity of MINCETUR and COPESCO, measured by: (i) project funds 100% disbursed according to plan by Project closing date; (ii) financial and audit reports received in a timely manner; (iii) ISRs with Satisfactory PDO, IP, safeguards, procurement and fiduciary ratings.


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Arrangements for Results Monitoring Baseline Values Target Values

Results Indicators for Each Component

October 31, 2008 June 30, 2010 June 30, 2011

Component one: Feasibility study approved by SNIP and engineering designs for a road and rail bypass around the historic town of Ollantaytambo Number of historic architectural, agricultural and hydraulic structures restored Signage system for archaeological sites in Pisac and Ollantaytambo in place Interpretation centers built and operating in Ollantaytambo and Urubamba

Component two: Solid waste study approved by SNIP and proposal for solid waste management system for Vilcanota Valley, complete with engineering designs Early warning system installed and operating in Machu Picchu Pueblo

Component three: Number of Telecenters built and operating Number of small grants awarded to community projects

Component four:

Number of people trained in Municipal Management (subcomponent completed before Restructuring) Number of municipal urban land use plans completed Street address systems installed in urban areas of municipalities

None

None

None

None

None

None

None

41 grants to community projects

(70% disbursed)

237 trained people

None

None

Feasibility study submitted to

SNIP

2 historic structures restored

2 signage systems designed

2 interpretation centers built

Feasibility study submitted to SNIP

Early warning system installed

& tested

2 Telecenters

45 grants to community projects (100% disbursed)

237 trained people

7 draft municipal plans submitted for discussion

3 municipal systems designed

Feasibility study approved by SNIP +

engineering designs approved

6 historic structures restored

2 signage systems in place

2 interpretation centers operating fully

Feasibility study approved by SNIP + engineering designs approved

Early warning system in full operation

6 Telecenters

45 grants to community projects (100% disbursed)

237 trained people

7 municipal plans completed and approved

3 municipal systems

installed

Annex 4. : Consultation, Social Assessment, and Social Action Plans

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1. Introduction OP 4.10, Indigenous Peoples, applies to the project. Since indigenous communities have been determined to be the overwhelming beneficiary of the project, the entire project qualifies as an Indigenous Peoples Project and no stand-alone Indigenous Peoples Plan (IPP) will be required, as per the requirements of the World Bank’s Disclosure policy. Rather, the policy’s more rigorous standards of engagement with local stakeholders and respect for local cultures will apply to the entire Project. Among the core principles of the policy that have been incorporated into the Restructuring is that of “free, prior and informed consultation,” leading to “broad community support.” As this is an ongoing Project, the consultation process will continue to play an important role under the Restructuring. In addition to the requirements of OP 4.10, the project restructuring reflects the change in Environmental Categorization from “B” to “A”. This change is based on the realization, through consultations and work during the first phase of the project, that the environmental and social sensitivity of the area warrants a Category “A” rather than the “B” that was earlier assessed to be appropriate. Consequently a great deal of work has been done to strengthen and undertake further diagnostic work and consult with different stakeholders. MINCETUR has agreed to undertake: (a) a review of the existing consultation process to date under the Project; (b) a gap analysis with regard to policy equivalence issues; (c) an analysis of existing Project institutions and capacity with regard to the policy’s application; and (d) the development of a strategy for filling the identified gaps through existing, modified and or/newly created institutional arrangements. An initial review of the consultation process under the Project to date has already been undertaken by MINCETUR, with support from the Bank’s social and environmental specialists. The results are detailed in the document, “Resumen de la Politica para Pueblos Indigenas,” and duly disclosed, both in-country by the respective agencies, and in the Bank’s InfoShop, according to Bank disclosure policy. A brief summary of the findings reported in the initial review, and their operational implications for the Restructuring are summarized below. 2. Summary of the Process to Date The review confirmed that consultation under the original Project was an ongoing and extensive process, starting from the beginning of the Project’s preparation in 2003, involving diverse categories of local actors, and including consultations with key stakeholders on the Project’s environmental aspects. The process was also found, however, to be somewhat unsystematic, unevenly documented, and largely confined to particular activities (such as the Geotourism Map and the Ferias de Desarrollo LED small grants program). In the context of delayed implementation and low disbursement that led to this Restructuring, these consultations raised local expectations in ways that Project implementation failed to meet. As a result, new consultations undertaken under the Restructuring will have to be conducted with great sensitivity, and carefully sequenced with the achievement of concrete results on the ground. The proposed Restructuring is itself the product of an ongoing process of multi-stakeholder consultation, beginning in January, 2007, and including consultation of the Strategic Environmental Assessment in November and December of 2007, which included conversations, interviews and participatory workshops in Sicuani, Urubamba, Quillabamba and Cusco, with mayors, other city officials, NGOs and local residents (the results of these workshops are

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recorded in the final SEA report). The TORs for the Ollantaytambo Bypass Road study were also subject to public consultation in March 2008, along with multi-stakeholder discussions of the Project’s safeguards aspects. Other consultations may be found in the documentation cited above, which has been duly disclosed, according to Bank policy standards. This extensive process of multi-stakeholder consultations on the nature and extent of the proposed changes, which took place over the course of several Bank missions, has been identified as one of the main reasons why the Restructuring took over a year to process. 3. Institutional Changes under the Restructuring with Regard to Consultation Building upon the history interactions to date with local institutions and communities, a number of significant changes have been made under preparation for the Restructuring, as a direct consequence of local demand and ongoing consultations. Among them the:

strengthening of MINCETUR’s Project Implementation Team (Equipo de Implementación de Proyecto, or EIP) in Cusco, and the involvement of the Regional Government of Cusco (Gobierno Regional de Cusco, or GRC), via Plan COPESCO, as Co-Executing Agency of the Project;

simplification and consolidation of the Project components; cancellation of the contract of the consultants who were conducting the the solid

waste management study; inclusion of the new feasibility study for the Ollentaytambo Bypass Road; formation of a multi-institutional Project Steering Committee; formation of a multi-institutional Ad-Hoc Committee, to accompany the process

of the Ollentaytambo Bypass Road; elimination, from the subcomponent on MPP, of the resettlement of 60 families;

and need to have these changes themselves discussed with the relevant stakeholders,

which is being planned as part of the ongoing process under the Restructuring. Apart from these changes, several new institutional and legal mechanisms have been created under the Restructuring specifically to ensure compliance with OP 4.10 and other Bank safeguards. Among these changes is the inclusion in the Loan Agreement of a set of “technical feasibility clearance” requirements, or “triggers” (gatillos), to ensure compliance with specific policies. Under the amended Loan Agreement, all sub-components involving works and/or studies for future works must be reviewed by the Project Steering Committee for compliance with these triggers, as well as by the Bank in giving its no-objection, before their authorization for financing. It should be noted that “adequate prior consultation, in accordance with OP 4.10,” is one of these triggers. All consultation and social analysis activities related to safeguards compliance will be under the responsibility of COPESCO, working in close collaboration with the Strategic Communication Plan (Plan de Comunicación Estratégica, or PEC), and with additional staff and resources from the Project, as necessary. Funded through an initial US$ 90,000 grant from the Italian Government Culture and Sustainable Development Trust Fund, the PEC is currently engaged in data collection activities that are extremely pertinent to the types of social analysis and consultation activities required under the OP. These include a public opinion poll, to establish baseline information on local stakeholders (e.g., a demographic profile, communication needs and barriers), and a Stakeholder Engagement Plan, to identify key stakeholder groups and build a regular, constructive dialogue with local communities and institutions. Revision and disclosure of

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the PEC, including this strategy and all other modifications related to OP 4.10, are among the “technical feasibility clearance (trigger) requirements” for all subcomponents. To build on this substantial existing process, and to avoid the creation of parallel structures and redundant activities, COPESCO’s safeguards specialists (currently being hired), together with MINCETUR’s Communications Specialist, will develop a joint strategy for strengthening and complementing the PEC’s existing activities with additional activities, and determining any additional Project staff and financial resources that these modifications may require.

4. Planned Future Consultations Future consultations and related activities under the Project are planned in two phases: (i) short-term actions concerning the Project as a whole, and (ii) medium-term actions concerning specific and as-yet unidentified works.

Planned short-term actions include:

consultations of the Restructuring; actions to disseminate and consult the revised environmental frameworks (a

condition for disbursement for the first works to be financed under the Restructuring);

consultation of the Project-wide triggering of OP 4.10; and capacity building and technical assistance in Bank safeguards for the Project

team.

Planned medium-term actions include: participation of local stakeholders in the selection of specific subprojects to be

implemented; and dissemination and consultation of all social and environmental plans to be

implemented under the Project.

public disclosure authorized 46934 · 2016-07-15 · results framework and outcome indicators to...

Documents