Peru - El Nino Emergency Assistance Project

Report No. PID5751 Project Name Peru-El Nino Emergency Assistance Project Region Latin America and the Caribbean Sector Multi-sector Project ID PEPE54667 Borrower Republic of Peru Implementing Agencies Sector Ministries and Public sector bodies through a Project Coordination Unit (PCU) Date of this PID October 17,1997 Appraisal Date October 21, 1997 Board Date December, 1997 The El Nino Emergency El Nino is an abnormal tropical Pacific Ocean weather pattern occurring every 4-11 years. It results in an elevation of surface water temperatures that causes significant changes in rainfall followed by devastating floods and droughts on a global scale, including South America. The most recent El Nino hit Peru in 1982/83: there was massive flooding in Northern areas and a severe drought in the South. Several sectors were affected, including the fishing industry, agriculture and urban infrastructure. About 6 million people were directly touched by it. GOP estimates the direct losses in the range of $500 million to $1 billion; the subsequent reconstruction effort, which required several years, was at least as costly. Modern forecasting models developed over the last decade by the international scientific community have improved our understanding of the El Nino phenomenon. They are still unable, however, to provide accurate forecasts of the likely evolution of the 1997/98 El Nino much beyond 3 months. Surface water anomalies in excess of 5 C have been observed since May of this year off the Peruvian coast. If these anomalies continue until late December 1997 or early 1998, they will likely result in heavy rainfall in Peru's northern coast and may also result in below-normal rainfall in southern Peru's Altiplano. In contrast to 1982/83, when no significant steps were taken to prevent the effects of El Nino, GOP decided to take early steps to reduce the potential consequences. On June 19, 1997, 9 departments were declared in a state of emergency; their number was subsequently increased to 14, comprising Tumbes, Piura, Cajamarca, Lambayeque, La Libertad, Ancash, Arequipa, Moquegua, Tacna, Puno, Ayacucho, Apurimac, Huancavelica and Cusco. GOP ordered an end to the fishing of anchovies, whose numbers were falling rapidly. In addition, GOP began to carry out an aggressive program of preventive works aimed  at reducing the impact of possible floods in the north and possible drought in the south. It is expected that by end-December 1997, GOP will have spent and/or committed about $150 million. In order to keep aggregate public expenditures under control, GOP had to temporarily reallocate budgetary resources away from their original uses. It is in this context that GOP would like to ensure that expenditures originally programmed in the 1997 budget be carried out and, as a result, has requested aid donors (mainly the Bank and IDB): (a) to provide financial resources that would allow it to carry out all the originally programmed expenditures without unfavorable macroeconomic consequences; and (b) to make available additional resources for use during the emergency and reconstruction phases. Rationale for Bank Involvement Prevention phase (approximately June-December 1997). Bank's assistance would allow GOP to carry out, without resorting to deficit financing or using reserves, all the expenditures that had been originally included in the 1997 budget. This assistance would be provided as retroactive financing of expenditures related to the prevention phase. Emergency phase (approximately January-April 98). Given the Bank's limited experience in relief work, it is expected that specialized international and local relief agencies would play the lead role in this phase. GOP, however, has requested Bank's help to finance some items (to be defined) that may be required during the emergency phase. Reconstruction phase (May 98-December 99). Bank involvement in this phase would help ensure the technical and economic soundness of GOP's investment reconstruction program, and would help address issues related to the sustainability of some of the ongoing and proposed activities. GOP has requested Bank involvement in those sectors where the Bank has had a long standing presence and development role. Finally, the Bank is expected to help strengthen Peru's national, regional and local capacity to forecast the impact of future El Nino phenomena and prepare for disaster relief in the future. Objectives of the Proposed Operation The main objectives of the emergency operation would be: -- Help reduce the loss of human life and a deterioration of living standards that might result from the floods and/or droughts that may result from the 1997/98 El Nino. -- Help reduce the loss of, or damage to, economic and social infrastructure that might result from similar events. -- Help increase Peru's capacity to forecast and respond to future El Nino phenomena. -2-  Project Description The proposed emergency project has been structured in three phases: (a) the prevention phase; (b) the emergency phase; and (c) the reconstruction phase. The prevention phase consists of two components: (a) Flood-protection measures in northern Peru, e.g., river dredging, strengthening of river defenses, cleaning/construction of storm drainage canals in urban and rural areas, bridge strengthening, construction of temporary housing, temporary resettlement of about 10,000 families, protection of archeological sites, etc. This component includes civil works as well as heavy machinery required to carry them out; and (b) Drought-mitigation measures in southern Peru's Altiplano: (i) rehabilitation of existing water and irrigation systems (deep tubular wells in small irrigated areas, small shallow intended to produce water for human and animal consumption, and existing irrigation infrastructure that is not at present fully operational); (ii) a forage production program aimed at ensuring the availability of food for animal consumption so as to prevent the decimation of livestock herds; (iii) a seed production that would provide an ample supply of good quality seed for the sowing season following the drought; and (iv) a labor-intensive program aimed at strengthening the sustainable agricultural capacity of drought-prone areas in the long run, while providing income to poor people affected by the drought and who would otherwise migrate out of the areas in search of employment elsewhere. The emergency phase, which is expected to consist of standard disaster response activities during the immediate aftermath (90-100 days) of the disaster being declared, may include a small amount of Bank financing for goods and services to be defined. The reconstruction phase. The full impact of the 1997/98 El Nino event will not be ascertained before 1998 (floods in northern Peru and/or drought in southern Peru's Altiplano). Until then, it is not possible to define the scope and content of a rehabilitation program. Only its broad outline can be identified at this point, taking into account the damage caused by the 1982/83 El Nino. In view of this, this phase is likely to include the reconstruction and restoration of critical infrastructure and services: (a) hospitals, health posts, schools; (b) roads (primary, secondary and rural), bridges and urban streets; (c) irrigation and drainage systems; - 3-  (d) water supply and electricity; and (e) river training, defenses and embankments. Investment subprojects to be financed under the reconstruction phase would have to meet the following eligibility criteria: (a) the damaged infrastructure and/or service existed before the disaster and was used for its intended purpose; (b) there is a clear "cause-and-effect" relationship between the damaged physical assets and the occurrence of the El Nino event; (c) a competent agency has been identified that will execute the subproject, with adequate resources, and on the basis of an acceptable timetable; (d) subproject design is supported by an acceptable technical study, an economic analysis, and an environmental assessment; (e) direct beneficiaries and/or stakeholders of the subproject have been involved in the process leading to the identification and design of the subproject; and (f) to the extent possible, labor-intensive technologies have been built into subproject design and execution modality. The reconstruction phase would also include a small institutional support component (e.g., scientific equipment, specialized consulting services and training) aimed at: (a) strengthening local institutions to enable them to better monitor and predict the local impact of future El Nino events; and (b) strengthening the capacity of national, regional and local institutions to prepare for, and respond to, future similar disasters. Project Implementation Individual sector ministries (and their regional offices) will be responsible for project implementation. Their activities would be coordinated by a single unit, the Project Coordinating Unit (PCU) which is to be created as soon as possible . The PCU will have administrative and technical review functions, and operate with a small but highly qualified staff, comprising accounting, administrative and information systems specialists as well as technical specialists acceptable to the Bank, and may be supported by a consulting firm. It is crucial that the PCU be established in a way that will ensure its ability effectively to coordinate the implementation activities of sector ministries. Among other things, the PCU will: (a) coordinate effectively the implementation of the project across different sector ministries; (b) request, allocate and monitor the use of budget resources, as needed to implement the project; (c) possess adequate authority as required to make day-to- - 4 -  day decisions regarding project implementation without further consultation; and (d) ensure that subproject selection takes place according to agreed-upon criteria. It is probable that the PCU will be located in the Ministry of Economy and Finance (MEF). Confirmation of this decision will be required at appraisal (expected to begin around October 21, 1997), together with a specific timetable for the establishment of its internal systems and its staffing. Other public sector ministries and authorities participating in the implementation of the project are the following: Ministries of Civil Defense (INDECI), Transport, Communications and Housing (MTCV), Agriculture (MINAG), Education, and Health; Instituto Nacional de Desarrollo (INADE), National Food Program (PRONAA), Regional Governments; Consejos Transitorios de Administracion Regional (CTARs); Banco de Materiales; and municipal authorities. Procurement Procurement modalities will be defined during appraisal, taking into account the scope and nature of this operation. The proposed operation would finance mainly civil works (some of which would be undertaken by force account), equipment and consulting services. Project Costs Project costs have been estimated as follows: (a) Prevention phase: US$ 150 million. This estimate is based on the investment requirements presented by sector ministries and public sector bodies in early July 1997 to address the emergency. (b) Emergency phase: to be estimated. (c) Reconstruction phase. No reliable estimates of the emergency reconstruction phase can be made until the extent of any damage resulting from the 1997/98 El Nino event is known. At this time, all of them are based on the direct damage sustained during the 1982/83 El Nino event (in the range of $500 million to $ 1 billion). Although the prevention-related investment that is being undertaken at present should reduce the extent of any damage, it is important to bear in mind that the replacement cost of the region's productive and infrastructure assets is much higher now than in 1982/83. In sum, while it is difficult at this time to estimate the cost of the damage that may result from the 1997/98 El Nino event, a figure of $500 million is not unreasonable, assuming that this year's episode will be "moderate" to "severe" in intensity. Project Financing GOP has requested US$ 150 million each from the Bank and the IDB to help finance this project. GOP has also requested aid from Japan. Prevention phase, consisting mostly of retroactive financing of prevention measures currently being carried out by GOP: - 5 -  Source US$ million IBRD 50 IDB 50 GOP 50 Total 150 Emergency phase: up to US$ 1 million Bank financing has been requested by GOP. Reconstruction phase. As noted above, the financing requirements of the emergency reconstruction phase have been preliminarily estimated at US$ 500 million. The financing plan would be as follows: Source US$ million Sectors (tentative) IBRD 100 Agriculture, drainage (urban and rural), housing, energy, fisheries, health, education. IDB 100 Transport (roads, ports, airports), water and sewerage, historic monuments. Japan TBD TBD GOP TBD TBD Participation. Subprojects being carried out during the prevention phase were identified by GOP on the basis of proposals submitted by CTARs. These proposals, in turn, relied heavily on technical information (risk maps based on the experience of the 1982/83 El Nino event) and took into account, to the extent allowed by the urgent nature of the emergency, inputs from local communities in relevant areas. A full-scale disaster preparedness simulation took place in August 97. It was organized by the Instituto Nacional de Defensa Civil and UNDP observers were in attendance. This simulation indicated an acceptable degree of participation by stakeholders. It also put in evidence the adequate coordination among the many agencies whose involvement would be crucial during the emergency. Finally, the simulation helped identify organizational and logistical weaknesses and, as a result, helped map out the steps required to overcome them. Participation of local communities and beneficiaries will be ensured during the reconstruction phase, particularly in the identification of subprojects. Sustainability -6-  Most subprojects in the prevention phase have been, or will soon be, carried out by sector ministries and agencies. The same approach will be followed during the reconstruction phase. As a result, the subprojects will become part of the current activities of each ministry and/or agency, and will be subject to the standard operation and maintenance practices currently in force in the public sector. Risks The main uncertainty associated with the proposed operation is that the subprojects being carried out during the prevention phase might not be exactly those that would have been carried out with the benefit of hindsight, i.e., had it been possible for GOP to know ahead of time the exact location and severity of the effects of the 1997/98 El Nino event. This risk is, to some extent, mitigated by the fact that the bulk of expenditures GOP is carrying out are justifiable even in the absence of a severe El Nino event this year for the following reasons: -- they constitute backlog/deferred maintenance which should have been undertaken at an earlier date and are belatedly being carried out; -- the bulk of works are aimed at bringing infrastructure back to original specifications or to overcome original shortcomings in design; and -- they will help reduce the negative consequences of future El Nino phenomena. It is worth noting that the institutional component of the proposed project aims to address precisely this risk by reducing, in future, the high level of uncertainty associated with El Nino-related predictions. Another risk is that subproject design, including the associated technological choices, may not be adequate. This risk is relatively small with regard to flood-protection civil works in northern Peru. It is likely to be higher, however, with regard to drought-relief activities in the southern Peru's Altiplano; these activities will be thoroughly reviewed during appraisal. Another risk is that the quality of construction may be suboptimal, as might result from inadequate force account procedures, the use of labor-intensive technologies without sufficient quality supervision, etc. These risks will be addressed during the reconstruction phase by means of an Operational Procedures Manual, using a similar approach to the design of social investment funds projects. Economic Analysis During the prevention and emergency phases, no standard economic analysis is possible nor required. It is, however, reasonable to assume that the significant participation of stakeholders has by and - 7 -  large led to sound subproject selection. The appraisal mission will look at the adequacy of unit costs being practiced. During the reconstruction phase, the Operational Procedures Manual will require an economic justification of individual subprojects. Social and Environmental Considerations The main social and environmental issues arising from the preparation of this project are the following: (a) Temporary (or, in some cases, permanent) resettlement of up to 10,000 families living in vulnerable locations in several urban centers (e.g. Tumbes, Piura, Paita and Negritos); (b) Minor environmental damage by heavy machinery used for river training, dredging, widening of urban drainage canals and river defense works; and (c) Ecological damage from silting to coastal mangroves in the Tumbes area. Lessons Learned from similar emergency operations For the prevention and emergency phase: -- Keep it simple, well focused, avoid unnecessary add-ons. -- Rapidity of response is of the essence. For the reconstruction phase: -- Need for a strong coordinating and/or executing agency with real authority. -- Experience with the design of social investment funds will be helpful. -- Full design of this phase does not have to be completed before Board. -- It can be part of the activities leading to the start of the reconstruction phase. These lessons are being integrated into the design of the proposed emergency operation. Contact Point: The World Bank InfoShop 1818 H Street, NW Washington, DC 20433 Telephone No.: (202) 458 5454 Fax No.: (202) 522 1500 - 8 -  Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by the World Bank InfoShop week ending November 14 1997. Full technical name: El Nino-Southern Oscillation (ENSO) Until end-August 1997, the coordinating role during the prevention phase was exercised by the Comision Nacional de Emergencia (CONAE), headed by the Minister of the Presidency. -9-