PROGRAM INFORMATION DOCUMENT (PID)

CONCEPT STAGE

Report No.: AB5805

Operation Name / Peru Third Programmatic Environmental Development Policy Loan
Region / LATIN AMERICA AND CARIBBEAN
Sector / Mining and other extractive (25%);General energy sector (25%);Health (25%);General transportation sector (25%)
Project ID / P118713
Borrower(s) / MINISTRY OF ECONOMY AND FINANCE
Ministerio de Economía y Finanzas - MEF
Lima
Peru
Tel: 511.4269458/311 5958
Implementing Agency / MINISTRY OF ECONOMY AND FINANCE
Date PID Prepared / June 7, 2010
Estimated Date of Appraisal Authorization / June 16, 2010
Estimated Date of Board Approval / July 29, 2010

1.  Key development issues and rationale for Bank involvement

The Government of Peru (GoP) has requested the proposed Third Programmatic Environmental Development Policy Loan (ENVDPL 3) for US$75 million, as the final operation in a series aimed at supporting the government’s efforts to improve the efficiency and effectiveness of environmental governance and institutions in Peru, and to mainstream environmental sustainability into the development agenda of key sectors (mining, urban transport, and fisheries). The actions supported in this operation build on those in ENVDPL 1 and ENVDPL 2 and work toward strengthening the government’s environmental agenda. The ENVDPL program is one of the key pillars of the 2006 Country Partnership Strategy (CPS) for Peru and of the government’s strategy to strengthen its sustainable development policies, and will contribute to Peru’s efforts to achieve certain environmental Millennium Development Goals (MDGs).

While Peru has made important strides towards building institutional capacity to protect the environment and manage its natural resources, the country continues to face serious challenges and threats to its air, water resources, land, and biodiversity, consequently affecting its development potential. Public awareness of the adverse impacts of environmental pollution and depletion of natural resources has been growing and is contributing to rising social conflicts in the country. In a major move to raise the profile of environmental issues, the GoP created a new Ministry of Environment (MINAM) to lead efforts to address Peru’s mounting environmental challenges. The timing of the programmatic environmental DPL program was therefore particularly opportune in that it supports the continuation/consolidation of environmental policy reforms, in the context of a strengthened legal framework, and with the recent approval of the National Environmental Policy.

Recognizing the need to move the environmental agenda higher up in the country’s priorities, the five-year Country Partnership Strategy (CPS) with Peru for FY07–FYI1 (Report PE-37913, December l9, 2006) included a potential set of Development Policy Loans (DPLs) aimed to enhance public environmental investments and strengthen the institutional framework. Actions supported by ENVDPL 3, as well as the expected outcomes from ENVDPL 1 and ENVDPL 2 are fully aligned with the CPS pillar of economic growth and related cluster of activities to make growth environmentally sustainable. The environmental DPL program directly contributes to this objective by supporting government efforts at strengthening environmental governance as well as improving environmental mainstreaming in key growth sectors (such as mining, urban transport, and fisheries). The series of three DPL operations also contribute to achieving CPS outcomes[1] by: (a) supporting the increase of financing for protected areas, which enhances and rationalizes its management and area under conservation; (b) supporting the anchoveta vessel quota system, which rationalizes the fisheries sector and addresses overcapacity; and (c) supporting activities that will improve fuel quality and vehicle performance, contributing to improvements in air quality and its associated health impacts.

2.  Proposed objective(s)

The objectives of the ENVDPL program are (1) institutional strengthening for environmental governance, including regulation and enforcement; and (2) mainstreaming of environmental sustainability principles in the mining, fisheries, and urban transport and energy sectors. The first loan (ENVDPL 1) focused on the enactments of laws, and issuances of various decrees to define roles, set environmental standards, and approve regulations improve environmental sustainability in the mining, urban transport and fisheries sectors. The second loan (ENVDPL 2) built on the previous operation, and supported the development and implementation of various programs, strategies and initiatives to strengthen environmental governance, and address environmental concerns in the key sectors. This proposed operation (ENVDPL 3) continues efforts to boost environmental sustainability, and enhance capacity and public participation.

3.  Preliminary description

This proposed Environmental Development Policy Loan (ENVDPL 3) for US$75 million to the Government of Peru (GoP) will be the last (third) in a series of three loans. The overarching objectives of the proposed ENVDPL are to support the government’s efforts to achieve the following: (a) improve the efficiency and effectiveness of environmental governance and institutions in Peru; and (b) mainstream sustainability principles in the development agenda of key sectors (mining, urban transport, and fisheries).

The timing of this DPL program is opportune given Peru’s economic growth, the promising outlook for key sectors in which environmental issues are receiving government attention, the recent creation of a Ministry of Environment (MINAM), and the approval of the Free Trade Agreement with the United States that includes environmental aspects. This operation will be presented for Board approval in July 2010.

Through the Environmental Development Policy Loan Program, the World Bank is supporting the GoP’s efforts to improve the efficiency and effectiveness of environmental governance and institutions in Peru, and to mainstream environmental sustainability into the development agenda of key sectors (mining, urban transport, and fisheries). This operation, the last in a series of three, builds on the actions supported by ENVDPL 1 and ENVDPL 2, and aims to consolidate and deepen the policy reforms being undertaken by the government. Table 3 lists progress made (as of now) towards prior actions under ENV DPL 3.

Table 3. ENV DPL 3 Prior Actions

Environmental Governance / Progress (to be updated at preparation) /
Implementation of post-license monitoring system (by MINAM), and approval of decree to improve transparency, accountability and public participation in environmental licensing system. / Approval of the regulations (i) for aligning environmental screening and analysis under the National System for Public Investment (SNIP) with the regulation of the SEIA, (ii) for registration of environmental certifications, (iii) of entities authorized to undertake EIAs, and (iv) on internal guidelines containing technical procedures and legal criteria for randomly reviewing approved EIAs.
Implementation of the Sustainable Financial Strategy of SINANPE. / Approval (Resolución Presidencial N° 052-2010) of SERNANP’s Action Plan, and corresponding budget allocation, to implement SINANPE’s Financial Strategy and Master Plan.
Implementation of incentives for private sector financing and management of NPAs. / Establishment of new Private Conservation PAs
Implementation of air quality management action plans based on results from air quality monitoring data. OEFA establishes procedures (such as regulations to typify violations, impose sanctions and fine ranges) to fine violators of environmental regulations. / Approval of the following OEFA’s regulatory instruments: (i) regulation with classification of environmental infractions, (ii) regulation of the administrative regime for imposing fines, (iii) regulation for incentives, and (iv) regulation for inspections
Mainstreaming Principles of Sustainable Development in Key Sectors
Mining Sector
Approval of priority projects for MELs remediation and development of technical guidelines and indicators for adequate MELs remediation. / Approval through Resolución Directoral N° 124-2010-MEM/AAM of guidelines for MELs Closing Plan
Approval through Resolución Ministerial N° 129-2010-MEM/DM of MELs remediation program in Hualgayoc (Cajamarca)
Monitor and register the level of local participation in environmental issues linked to the mining activity cycle. / Guidelines for participation of citizens in mining
Incorporation of programs and actions on citizen participation in the monthly reports that the mining companies submit to MEM.
Urban Transport Sector
Evidence of readiness to invest in distribution of low sulfur content diesel (<50 ppm) in at least 30% of gas stations in main urban centers. / Signed contracts for the modernization of Petroperu’s refinery in Talara and investment plans. Report on REPSOL’s investment plans for modernizing its refinery in La Pampilla
Continued promotion of natural gas vehicle conversion program through the use of economic incentives for converting to NGVs/purchase of new NGVs. / Approval of a legal norm that will allow for light vehicles to benefit from the vehicle scrappage program
Continue implementation of Vehicle Inspection and Maintenance System according to the timetable based on license plate numbers in Lima and in three additional cities (Arequipa, Chiclayo and Trujillo). / Approval through Resolución Directoral N° 3041-2009-MTC/15 of technical specifications of informatics and communication systems used by I&M centers
Approval of a modification to the regulation (Decreto Supremo N° 015-2010-MTC ) on I&M that incorporates as mandatory the use of filming equipment.
Fisheries Sector
Distribution of quotas and enforcement of the quota system, and continued application of the pension fund. / Approval through Resolución Ministerial N° 100-2010-PRODUCE of fishing quota allocations for the first season fishing in 2010 for the north-central region.
Approval of Supreme Decree N° 002-2010-PRODUCE that extends the scope of the “Programa de Vigilancia y Control de la Pesca y Desembarque en el Ámbito Marítimo”.
Report on FONCOPES’ performance on social issues

4.  Environment Aspects

The objectives of the entire environmental DPL program has been to support the government in its efforts to mainstream environmental concerns in key economic sectors, as well as strengthening the country’s environmental governance. By their very nature, the policy reforms supported by the three operations are likely to have significant positive effects on the country’s environment, while also helping to internalize environmental and social safeguards issues at the macro level.

In terms of environmental governance, the DPL program including ENVDPL 3 supports the definition of roles and responsibilities under the newly created Ministry of Environment (MINAM), and related Environmental Impact Assessment (EIA) through the issuance and approval of legislation and decrees. Also supported are various reforms and activities being undertaken by the GoP to strengthen institutional capacity and for biodiversity conservation, the financial sustainability of Natural Protected Areas (NPAs); to approve environmental quality standards and maximum permissible emission levels for air and water; and to strengthen air quality monitoring. In terms of sectoral reforms, the environmental DPL program supports government reforms aimed at (i) updating the Mining Environmental Legacies (MELs) inventory and assessing priority MELs in key watersheds; improving urban air quality through actions to promote the availability of cleaner fuels, to shift vehicles to clean natural gas, and scrap older polluting vehicles.

Several analytical studies have provided critical inputs into the design of the environmental DPL program. Consultations within the framework of the proposed policies of this DPL have been carried out through: (a) the Country Partnership Strategy (CPS) review, (b) the Country Environmental Analysis, and (c) the Study on the Environmental and Social Dimensions of the Mining Sector. These consultations were carried out with all government sectors involved, representatives of regional and local governments, and with NGOs, academic institutions, representatives of municipalities and communities affected by mining operations, and the private sector.

5.  Tentative financing

Source: / ($m.)
Borrower / 00.0
International Bank for Reconstruction and Development / 75.0
Total / 75.0

6.  Contact point

Contact: Juan C. Belausteguigoitia

Title: Lead Environmental Economist

Tel: (202) 473-8809

Email:

Contact: Anjali Acharya

Title: Sr. Environmental Specialist

Tel: (202) 458-5298

Email:

[1] The CPS lays out six clusters describing estimative outcomes for making growth environmentally sustainable by the end of the CPS period for: (a) biodiversity, (b) fisheries, (c) deforestation rate, and (d) health impacts from air pollution.