Peru - Urban Sites and Services Development Project

Report No. 106sa-PE FILE COPY CIRCUUTNG COPY R t-BE RETURNED TO REPORTS DESK Appraisal of the Urban Sites and Services Development Project Penr RETURN TO REPORTS D:ESK May 24, 1976 WITHIN Transportation and Urban Projects ONE WEEPK-- Urban I FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit Sol de Oro (SI.) 1 US$ S/. 45.0 S/.1 = US$ 0.0222 S/.1 ,000 US$ 22.22 S/.1,000,000 = US$ 22,222.22 US$1,000= S/. 45,ooo US$1,000,000 = S/ 45,0Oc,o0o UNITS AND MEASURES mm millimeter (0.03937 inches) cm = centimeter (0.3937 inches) m meter (39.37 inches) km = kilometer (0.62 miles) cm2 = square centimeter (0.1550 square inches) m2 = square meter (10.764 square feet) ha = hectare (2.471 acres) km2 = square kilometer (0.386 square miles) I3 = cubic meter (264 US gallons) 1 = liter (0.264 US gallons) 1/cd = liters per capita per day l/sec = liters per sec. (15.833 US gallon per min) m3/sec = cubic meters per sec. (86,400 m /day) m3/day = cubic meters per day (264 US gallons per day) W = watt V = volt He = hertz kW kilowatt kWh = kilowatt hour kV = kilovolt kVA = kilovolt-ampere ABBREVIATIONS AND ACRONYMS AID Agency for International Development BVP 5 Banco de la Vivienda del Peru COFIDE = Corporacion Financiera del Desarrollo CONAPS = Comision Nacional de Propiedad Social DGC Direccion General de Construcciones (MVC) DGOS = Direccion General de Obras Sanitarias (MVC) DG PROG. = Direccion General de Programacion (MVC) DG PROY. Direccion General de Proyectos (MVC) DOS Direccion de Obras Sanitarias EEA = Empresas Slectricas Asociadas (also EKEAA) ELECTROLIMA = Electricidad de Lima (EX-EEA) ELECTROPERU = Electricidad del Peru EMA.DI = Epresa de Adinistracion de Inmuebles (MVC) ESAL = Empresa de Saneamiento de Lima  FM OFFCL Uti ONLY ABBREVIATIONS AND JCRONYMS (continued) ESAR = Empresa de Saneamiento de Arequipa IDB Interamerican Development Bank INIE = Instituto Nacional de Investigaciones Energeticas INCOSUR = Industrias del Cono Sur INP = Instituto Nacional de Planificacion MEF = Ministerio de Economia y Finanzas MEM = Ministerio de Ehergia y Minas MIT Ministerio de Industria y Turismo MS Ministerio de Salud MVC = Ministerio de Vivienda y Construccicin CNDEPJOV = Oficina Nacional de Pueblos Jovenes ORAMS = Oficina iiegional de Apoyo a la Movilizacion Social OSP Oficina Sectorial de Planificacion OZAMS = Oficina Zonal de Apoyo a la Movilizacion Social PLANDEMET = Plan de Desarrollo de Lima Metropolitana SEAL = Sociedad Electrica de Arequipa, Ltda. SENATI = Servicio Nacional de Aprendizaje y Trabajo Industrial Fiscal Year Biennial Period, January 1 - December 31 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   PERU APPRAISAL OF THE URBAN SITES AND SERVICES DEVELOPMENT PROJECT Table of Contents Page No. SUMMARY AND CONCLUSIONS ....... . . . ................... ........ .. i-iii I. INTRODUCTION ........................... ..... . ... ...*.. 1 II. BACKGROUND .. * * ...................... ..................... 2 III. THE PROJECT ........... ...................* ............ 7 A. Project Description ... .... . . . . . . ............. ............ 7 B. Detailed Features ............ ... .............*... 9 IV. COST ESTIMATES, FINANCING, COST RECOVERY AND PRICING... 16 A. Cost Estimates ......... ..... ...... ... , 16 B. Financial Arrangements ....... ............ o.. 17 C. Cost Recovery and Pricing ... ..................... 19 D. Procurement * ........... .......................... 20 E. Disbursements . ....... ............. .... ........ . 20 F. Accounts and Audits . ...... .............. 21 G. Supervision o............................... o... ..o... ... 21 Vo THE BORROWER . . ..... ..... ....... ... . . . ......... ...o... .... . 21 Ao BVP Functions ... ..... .. .......... ... . . ....... . 22 B. Lending Program and Procedures ................... 22 C. Financial Aspects . ......... .... ... . . 24 D. Project Execution ......o. . . . . . . ....... . . ......o... 25 VI. ECONOMIC AND SOCIAL JUSTIFICATION .... o .............. o 25 VII. RECOMMENDATIONS ........... o .... .oo..o. .......o 27 This report was prepared by Messrs. R. A. Sison, M. F. Rothchild and J. Freed- man of the Bank; and R. Chavez and K. Strong (Consultants).  Table of Contents (Continued) ANNEXES 1 Urban Development Plans 2 Project Cost t,stimate Tables 3 Subprojects - Detailed Features 4 Banco de la Vivienda del Peru 5 Financial Arrangements 6 Cost Recovery and Pricing 7 Estimated Schedule of Disbursements 8 Technical Assistance 9 Economic and Social Justification CHARTS World Bank 15488 Consolidated Implementation Schedule World Bank 15489 Organization Chart of the Banco de la Vivienda dnI Peru MAPS 11714 Peru, Lima - Pueblos Jovenes and Subproject Location 11715 Peru, Arequipa - Pueblos Jovenes and Subproject Location 11716 Peru  PERU APPRAISAL OF THE URBAN SITES AND SERVICES DEVELOPMENT PROJECT SUMMARY AND CONCLUSIONS i. By 1980, one out of every two Peruvians (in a population of 19.3 million) will live in urban areas. Of these, 35% will be classified as urban poor. Most of the urban poor now live in low-income areas called pueblos jovenes (young settlements), where they lack adequate levels of water supply, electricity, transport, sewerage, health and, above all, jobs. Government has acted positively to work with the urban poor in solving their problems. It has legalized the tenure of pueblos jovenes residents, and has supported the creation of community organizations within pueblos jovenes to identify needs and provide a structure through which self-help activities can be organized and demands for public infrastructure can be expressed. ii. The Government's ability to respond has not kept pace with recent and expected increases (at the rate of 13.7% a year) in pueblos jovenes population and in the expected number of labor force entrants. Government efforts in developing job training centers, in suppplying water and other basic necessities are still hampered by the lack of a defined and efficient system for delivering urban services to these areas. iii. Consequently this project focuses on institutional development. By providing assistance initially in Lima and Arequipa it will help to strengthen Government's program to work with the urban poor to achieve basic services and employment opportunities, and increased productivity. iv. The project's components are outlined below: (a) Basic and productive support infrastructure in pueblos jovenes in Lima and Arequipa: water, sewerage, electrification, upgraded existing roads and new access roads, and health and nutrition centers. (b) Directly productive investments in Lima and Arequipa: industrial, commercial, and residential sites and services and supervised credit. (c) Technical assistance: (1) to establish a technical assistance unit in the Ministry of Housing and Construction to assist settlers primarily in the construction of dwelling and shop/stores;  - ii - (2) to provide advisory assistance for the planning, manage- ment and monitoring of the industrial sites and services in Lima; (3) to assist in the review of plans and in the preparation of a water supply and sewerage project in Arequipa; (4) to provide advisory assistance as well as vehicles and equipment for the development of a training program for community health and nutrition in pueblos jovenes; and (5) to assist the Banco de la Vivienda del Peru (BVP) in overall project implementation, financial planning and related studies for the mobilization of additional resources for urban development programs and future projects. v. The proposed loan of US$21.6 million would cover 50% of the total project cost (US$43.2 million) of the three-year project. The balance of the project cost would be provided by the Banco de la Vivienda del Peru (US$19.1 million) and down payments from project beneficiaries (US$2.5 million). The foreign exchange component reflecting both direct and indirect costs repre- sents 35% of total project cost. vi. The Banco de la Vivienda del Peru would be the borrower and as executing agency would be responsible for the overall implementation of the project. The loan would be guaranteed by the Government of Peru. BVP would work through existing agencies, relending loan funds to participating agencies and to individuals for carrying out the purposes of the project. Subsidiary loan agreements, which would be subject to Bank approval, would be entered into between BVP and participating agencies. BVP would also have a loan contract with individual households who are the beneficiaries of the loan. The borrower is experienced in the variety of techniques that have been used in providing housing and construction for the urban poor and has the capabil- ity to expand its lending program. Through financial control and technical supervision of project design and execution, BVP would be an effective agent in the delivery of urban services insuring appropriate pricing and efficient implementation. vii. Contracts for civil works and for the supply of equipment would be awarded on the basis of international competitive bidding in accordance with Bank guidelines. Self-help and mutual aid techniques are incorporated wherever possible, to reduce costs and increase community participation. Disbursements of the Bank loan would be against: 1007 of the CIF cost of imported vehicles and equipment plus installation or 10(7i,' of ex-factory price of domestically rmanufactured goods; 48% of the cost of civil works and standard buildings; 50% of disoursements against the credit program; 7502 of consultants' services for studies, detailed engineering and design and supervision; and 50% of technical assistance.  - iii - viii. Recovery of costs for the project would come mainly from charges and sales to final users except in the case of access roads, health and nutrition centers, and technical assistance where costs would be recovered from general tax revenues. The Government would directly recover about 65% of original investments. ix. The overall rate of return on the quantifiable elements of the pro- ject is about 30%. The project would result in direct permanent employment for about 6,000 persons and generate about 13,000 man-months of temporary jobs during the construction period. About 200,000 residents in pueblos jovenes would directly benefit from improved services. In addition, there would be important non-quantifiable project benefits. The project would help institu- tionalize an efficient delivery system for urban services to low-income areas by establishing effective working arrangements between BVP and other govern- mental agencies. The project would encourage the active participation of the communities served in the various phases of planning and construction. In the case of the provision of health services over 900 health promoters would be trained who would significantly assist the Government's program of preventive medicine and community nutrition. The electrification of the pueblos jovenes would permit the use of electrical machinery in small artisan shops and the use of refrigeration in local food stores and restaurants. The improvement of roads would facilitate the delivery of merchandise, thereby encouraging the establishment of retail businesses. The project would thus stimulate a form of "import substitution" by which neighborhood enterprises would capture the business that would otherwise be transacted outside the pueblos jovenes. It is estimated that the jobs created in this manner might increase total employ- ment in the pueblos jovenes by 5%. Finally, training would also be provided to the management and work force in industrial sites to increase their produc- tivity. X. Subject to the agreements in paras 7.01 and 7.02, the project is suitable for a Bank loan of US$21.6 million to the Banco de la Vivienda del Peru for a term of 20 years including a grace period of 3 years.   PERU APPRAISAL OF THE URBAN SITES AND SERVICES DEVELOPMENT PROJECT I. INTRODUCTION 1.01 The Government of Peru, in pursuance of its stated objective to achieve a more equitable distribution of wealth and economic opportunity, has requested Bank assistance in implementing a program of urban sites and serv- ices development. The program has as its major objectives the establishment of an institutional capability for the delivery of basic services to the urban poor, generation of employment opportunities for low-income workers, and improvement of the productive capacity of a growing segment of residents in pueblos jovenes (young settlement). 1.02 A Bank mission to Peru in November 1974 reviewed the Government's urban development program and found that its objectives and strategies for developing urban areas were basically consistent with Bank policies. This finding was reaffirmed by a preappraisal mission in July-August 1975, which agreed with the Government's own emphasis on increasing its capability both to provide employment and to make essential services and facilities available to low-income groups in urban areas on a replicable basis. 1.03 The program calls for financing of improvements in public water supply, sewage disposal, electrification and transportation to give the residents of low-income settlements the basic necessities of urban life. Self-help by residents in pueblos jovenes is expected to make an important contribution to the program, not only by reducing costs, but as a source of employment for the high proportion of pueblos jovenes residents who are now unemployed or underemployed. 1.04 The emphasis of the Government on improvement of pueblos jovenes is based on its experience with these communities. From this experience has come knowledge of how households and communities perceive their needs, how they assign priority to needs, and how they can help themselves. Policies and procedures for regularization of land tenure, provision of basic services on a replicable basis, training and assistance to expand job opportunities have developed from Government dealings with pueblos jovenes. Along with this has come mutual recognition by Government and pueblos jovenes residents of the necessity for affordable standards, mobilization of joint public-private- individual efforts in comprehensive programs for physical, social and economic improvement. The fact that a formal socio-political structure exists in all pueblos jovenes makes it possible for residents to deal with Government, to make commitments for the services they need and the work or financing they will contribute.  - 9- 1.05 The diverse needs of pueblos jovenes are presently being dealt with by appropriate branches of Government with special competence in the fields be it water and sewage, electrification, transport, health, credit or some other specific task. A comprehensive and coordinated approach which would insure affordable standards and replicability needs to be established. The Banco de la Vivienda del Peru (BVP), which has expertise in many aspects of urban development both in pueblos jovenes and in Peru as a whole, could per- form this valuable function. 1.06 The proposed Bank assistance would initially support programs in Lima and Arequipa, partly because of Government's priorities for meeting existing needs and partly because institutional capability in both cities is much more organized. Project components were selected on the basis of Govern- ment's urban development priorities, the pueblos jovenes felt needs, and the readiness of projects in terms of physical preparation and institutional arrangements. Additional projects involving transport improvements, indus- trial sites, markets, planning assistance and utility services would be prepared during the course of the implementation of this project and should form a suitable basis for a follow-up project. 1.07 The project is based on government-sponsored plans and feasibility studies aided in part by foreign private consultants. Project preparation was coordinated through the Ministry of Housing and Construction and the BVP. This report is based on the findings of an appraisal mission comprised of Messrs. R. A. Sison (Chief of Mission), M. Rothchild and J. Freedman of the Bank; and R. Chavez and K. Strong (Consultants) which visited Peru from November 3 to 21, 1975. II. BACKGROUND Urbanization Trends 2.01 By 1970, after a decade of rapid urbanization, 31% of Peru's city dwellers (1.5 million of the 4.7 million population in major cities) were living in pueblos jovenes on the outskirts of cities. While the national population (14.1 million in 1972) has increased at an average rate of 3.1% a year, the urban population has increased at 5.1%, and the pueblos jovenes population had increased at 13.7% a year. Estimates are that Peru's popula- tion will increase from 14.1 million in 1972 to 27.2 million in 1990. The urban population as a whole is projected to increase to 18 million and Lima's population alone to 8.1 million over the same period. The increase in urban population has been related, in large part, to government policies of rapid industrialization. 2.02 Migration into areas of large urban concentration and industrial activity, located principally along the coastal region have surpassed pre- vious migrations to mining areas located in the interior. The extreme topo- graphy in much of Peru gives the coastal urban centers, Piura, Lima, Arequipa, Trujillo, Chiclayo, Chimbote and Ica locational and distributional advantages  for industrial development (Map WB 11716). Cuzco and Huancavo, and the interior river port Iquitos experienced rapid growth based on agriculture and petroleum. Population increase from migration has almost matched the average natural increase in major cities of Peru over the past five years. 2.03 Employment opportunities, higher income (the average labor produc- tivity in agriculture was less than one-fourth of that for all other sectors) and greater access to basic services and facilities have drawn increasing numbers of rural poor into Lima and other major cities. In 1971, secondary and tertiary sectors of employment, for the most part in urban areas, account- ed for half of the country's 4.4 million employed: 14.7% in manufacturing, 3.2% in construction, 11.1% in commerce and 21.5% in services. Estimated effective unemployment (mainly under-employment) in these sectors was 15% in manufacturing, 9% in construction, 21% in commerce and 22% in services. The greatest numbers of unemployed and under-employed were found in pueblos jovenes. National Urban Programs 2.04 National urban development programs and related infrastructure in- vestments are coordinated through the Ministry of Housing and Construction (MVC). MVC is responsible for the formulation of policy, preparation of urban plans, coordination of public and private housing investments as well as for government investments in general construction, water and sewerage, and infra- structure for low-income areas, particularly pueblos jovenes. One of the urgent problems for which the Government proposes solutions in its program is geographic. To deal with this imbalance, the Government has approved a National Urban Development Plan to establish 13 urban industrial centers throughout the country, both through public investment projects and through cooperation with the private sector (Annex 1). 2.05 Private and public investment in housing totalled US$150 million in 1974, and provided for the construction of roughly 50,000 dwelling units--half of the demand for housing calculated on the basis of total household popula- tion and estimated required housing replacements. Public sector investment in housing accounts for 11% of total housing investment in the country. The Banco de la Vivienda del Peru (BVP) accounted for about 40% of total housing invest- ments made by financial institutions in 1974. BVP also carries out a housing program through 17 savings and loan associations under its supervision. In addition, BVP has had experience with contracting foreign loans including a 1969 IDB loan of US$12.8 million for housing and sites and services, a USAID housing investment guaranty loan of US$28.2 million for housing reconstruction following the 1970 earthquake, and another AID direct loan of US$15 million for housing construction, rehabilitation and utility services in the earth- quake zone. 1/ I/ The earthquake reconstruction programs were undertaken with foreign assistance, and were located in Tumbes, Piura, and Puno-Juliaca.  - 4 - The housing provided under the above programs, however, has been moderate, not low, in cost. Of the 3,371 houses constructed in 1974 through savings and loa. associations, two-thirds cost US$7,400 or more, a price which can only be afforded by middle-income families. BVP has also been active in programs to upgrade tugurios (city slums) and to provide basic infrastructure and services to pueblos jovenes. 2.06 The Government's housing program for 1975-76 accords a high priority to developing a housing and finance system for low-income families. Increased credit availability and rationalization of construction activities involving greater use of local materials and labor intensive methods of construction are designed to narrow the gap between purchasing power and housing costs. About SI. 116 million is proposed in the next two years for credit and assistance programs for the construction of housing and for procurement of materials for upgrading housing in pueblos jovenes. Programs for providing water and waste disposal services are also to be coordinated and integrated into the total housing investment plan. Metropolitan Lima 2.07 With the exception of housing reconstruction and of rehabilitation of earthquake zones to the north, Government urban development programs in the past have favored the Lima metropolitan area where exceptionally high concen- trations of urban poor and exceptionally great disparities in conditions have attracted priority. The Plan (called Plan de Metropolitano Lima--Callao a 1980) estimates an increase of 1.4 million people in pueblos jovenes around Lima by 1980. Within the metropolitan area the urban poor are clustered in either pueblos jovenes or tugurios. Tugurios are generally temporary rental quarters and makeshift dwellings which, in Lima, offer about 400,000 persons only the advantages of short distances to work and wider choices of casual employment. Migrants to the cities, and to Lima in particular, often find their way first to the tugurios with the hope that at a later stage they may move to pueblos jovenes. Although advantages to be found in Lima exist to a markedly lesser degree in other major urban industrial areas, the advantages of any such urban area attract the rural 43% of the total population, who for the most part have no access to basic services and who are dependent on dwindling agricultural incomes. 1/ Within Lima and other cities, there is a wide difference in income between rich and poor. In Lima, in 1970, for example, 40% of "the economic labor force" received only 5.4% of total income, while a mere 8% received 43.1%. 1/ Value added per worker in agriculture, fell from SI. 21,000 in 1961 to S/. 20,000 in 1971. IBRD Report No. 136-PE, May 10, 1973, page 8.  -5- Pueblos Jovenes 2.08 The population of pueblos jovenes is largely made up of families with young children. Living conditions in them are poor compared to those obtained in Metropolitan Lima and other urban centers around which they are located. They reflect their origin as settlements by organized squatter invasion of public land. In a decade the number of cities above 5,000 popu- lation with substantial pueblos jovens populations increased from 10 to 23. Their location, generally on the outskirts of the city, complicates the provision of services. Although public transportation is usually available, it is irregularly scheduled, overcrowded and slow. Because both access and internal roads in many pueblos jovenes are in disrepair, being sandy and hard to maintain, buses stop at the entrance to the settlement and riders generally have to walk 1 km to catch a bus. In Villa el Salvador, a relatively recently established pueblo joven about 30 km south of Lima, there is no industry. This means about 80% of the working force, or about 20,000 people, must travel between three and four hours a day to their places of work. Only 43% of the households have running water. The rest must buy from vendors through truck delivery at a cost of up to 25 times the piped-in rate. Electricity supply available to over 80% of Lima metropolitan area dwellings cover only about 40% of pueblos jovenes dwellings. Health facilities, available in Lima at a far greater rate than elsewhere in Peru are in short supply in pueblos jovenes where the incidence of respiratory disease is exceptionally high. Schooling and school facilities are strained to capacity by the pueblos jovenes popula- tion, 50% of whom are under 15 years of age. In like manner, because they are outside established commercial areas, residents of pueblos jovenes must pay more than city residents for food, cooking equipment, clothing and for other consumption goods. 2.09 The Government began a program to legalize land tenure of pueblos jovenes residents in 1963, and the present Government has accelerated the effort. The legalization of ownership has fostered a sense of community and, encouraged the planning efforts of the residents. A local self-government system has evolved over several years, focusing in successive stages on (a) organized land invasion, (b) economic development through the creation of cooperatives, (c) urban community social development, and (d) self-managed communal social, economic, and administrative development. The structure of self-government within the pueblos jovenes has been formalized, and the Peru- vian Government has given credence, promotion and direction to the pueblos jovenes institutions and programs through the establishment, in April 1972, of the Sistema Nacional de Apoyo a la Movilizacion Social (SINAMOS) an agency for support of social mobilization. Through SINAMOS, the pueblos jovenes have made their priorities known to the Government, among them the need for jobs above the need for housing, and more recently, the need for establishment of socially owned industrial enterprises within pueblos jovenes. Other basic requirements urgently called for at this time include the upgrading of serv- ices, particularly water supply.  - 6 - 2.10 The form of government assistance in urban development is much in- fluenced by the critical importance of job creation. Employment opportunities for pueblos jovenes residents have limited income potential. While income per capita in the cities is higher than the average for the country, the distribu- tion of urban income is badly distorted. In Lima, for instance, average per capita income in 1973 was estimated at US$117 compared to US$87 for the country as a whole. But within pueblos jovenes average per capita income was US$78. 1/ 2.11 The age distribution in Peru's cities makes the problem of employment increasingly difficult due to growing numbers of labor force entrants (46,000 in 1971). In 1970, 27.7% of the total urban population in Peru was less than 15 years of age while, in pueblos jovenes, half of the population was under that age and three quarters were under 25 years of age. Unemployment is greatest among the young; in 1969, 35% of the unemployed (omitting the large category of underemployed) was between 15 and 30 years of age. 2.12 A 1973 survey of one pueblo joven in Lima shows that less than 1% of the "economic labor force" had received any technical or higher education and only 16% had received secondary education; one-third considered themselves "workers" (mainly in handicrafts, commerce, construction); 47% had "independent" occupations and only 1% were professionals. 2/ Underemployment in that pueblo joven was estimated at 26%, a typical situation in such communities. 2.13 Because they are relative newcomers, workers living in pueblos jovenes are forced to compete for jobs with workers who are already established. Also, the fact that pueblos jovenes populations have more young workers in their number than do the populations of urban areas as a whole tends to reduce still further their chances of getting well-paying jobs. 2.14 The Government is committed to the difficult task of generating income and employment opportunities especially in pueblos jovenes both in and outside of Lima. National industrial plans calls for creation of industrial zones within selected pueblos jovenes as well as establishment of employment training sectors. The National Service for Training in Industry (SENATI) under the Ministry of Industry and Tourism has already set up three regional vocational training centers--in Lima, Arequipa and Chiclayo. Plans are now approved to establish training facilities and programs similar to SENATI designed specifi- cally to support the needs of those small- and medium-sized industries best suited to pueblos jovenes. 1/ Peru, Ministerio de Trabajo, Oficina Technica de Estudios de Mano de Obra, Tabulaciones de Algunos Aspectos Socio Economicos de la Poblacion en el Peru, Encuesta Regional Urbana Rural de Mano de Obra (August-October 1973), Lima April 1973. 2/ Of the remaining employed, 5% worked at home, 11% were employees, and 4% were retired.  -7- 2.15 The industries proposed for pueblos jovenes are designed to have major employment-creating effects, and are to be worker-owned enterprises. In Lima, plans include the development of five new industrial zones which will provide an estimated 275,000 new jobs in manufacturing by 1980. Industrial parks are planned in 13 different cities identified by industrial type in national urban plans. Further public investments projected in the national urban development plan are intended to provide employment for about 16% of the additional economically active population, creating a total of 680,000 new jobs. Bank-Assisted Projects 2.16 Over the past five years, the Bank has financed projects in agricul- ture, transportation and education sectors in support of government efforts to expand production and broaden popular participation in growth benefits. These projects, especially those for education and transport, have had important urban impacts. The Bank has also approved a loan for power distribution for the Metropolitan Lima area which would quadruple the number of service connec- tions in pueblos jovenes. 2.17 The proposed project is designed to support Government's efforts towards developing viable solutions in meeting the problems of large segments of the urban poor particularly those in pueblos jovenes. It initiates a process for dealing with the problems of access to basic services and provi- sion of jobs that would affect the present population as well as the antici- pated increases in population. In affording such support, the project would be complementary to Bank activities in other sectors. Through assistance to enlarged programs outside the Lima area, and intensified efforts within that area, the project would help develop Government capability for increasing the ability of cities to effectively execute approved programs to benefit the urban poor. III. THE PROJECT A. Project Description 3.01 The project is an integral part of the Government's program aimed at providing the urban poor with basic facilities and employment opportunities to increase their capacity to be productively absorbed in the urban economy. The project focuses on three areas of assistance--basic and productive support in- frastructure, directly productive investments, and technical assistance--and institutionalizes a delivery system for urban services to low-income areas. The project, details of which are listed in Annexes 2 and 3, and shown in Maps WB 11714 and 11715, consists of:  -8- (a) Basic and productive support infrastructure: (i) water and sewerage for pueblos jovenes in Lima and Arequipa providing about 7,200 water and 11,300 sewer household connections; (ii) electrification of 16,300 households in pueblos jovenes in Lima and Arequipa; (iii) access roads of 86.1 km to connect pueblos jovenes to main roads and upgrade existing roads in these settle- ments; and (iv) health and nutrition centers in pueblos jovenes in Lima. (b) Directly productive investments: (i) industrial sites and services (about 63.5 ha) in Lima and Arequipa; (ii) housing and commercial sites and services in Lima; and (iii) supervised credit in Arequipa. (c) Technical assistance: (i) to establish a technical assistance unit in the Ministry of Housing and Construction to assist settlers primarily in self-help construction; (ii) to provide advisory assistance for the planning, manage- ment and monitoring of the industrial sites and services in Lima; (iii) to assist in the review of plans and in the preparation of a water supply and sewerage project in Arequipa; (iv) to provide advisory assistance as well as vehicles and equipment for the development of a training program for community health and nutrition in pueblos jovenes; and (v) to assist the Banco de la Vivienda de Peru (BVP) in over- all project implementation, financial planning and related studies for the mobilization of additional resources for urban development program and future projects.  - 9 - B. Detailed Features Water Supply and Sewerage 3.02 The water supply and sewerage subprojects in Lima and Arequipa are both designed to extend the distribution system, provide individual connec- tions and improve the effective use of the service to pueblos jovenes. The project consists of the extension of water trunk lines, on-site water and sewerage reticulation and individual dwelling connections benefitting resi- dents in pueblos jovenes. Presently communities in pueblos jovenes rely on water vendors for their water needs, paying as much as 25 times higher than those who obtain water from metered connections. The subprojects provide the basis for supplying water and sewerage services at an economic cost. It facilitates differential pricing that benefits the urban poor through a block tariff structure. 3.03 In Lima, the project component forms an integral part of the Empresa de Saneamiento de Lima's (ESAL) water supply and sewerage program for Metropolitan Lima covering the period 1974-1980 of which investments of about S/. 3,500 million are planned. The works proposed for Bank financing would substantially benefit about 116,000 persons in pueblos jovenes through direct connection to the system and improvements in the level of service. The water demand for pueblos jovenis to be served by this project component is ex- pected to be about 3.4 m /sec which would be met from the ESAL's syst m. By 1980, overall demand for the metropolitan area is estimated at 17.6 m /sec which would be supplied from the expansion of existing treatment plant, addi- tional grountwater sources, and infiltration galleries that is expected to produce 19 m /sec. In addition, ESAL has instituted a program to install water meters and adjust tariffs in order to reduce water losses and improve its operations. Beyond 1980, studies by ESAL have concluded that the least costly source for the augmentation of water supply for Lima would be the diversion of water from the Mantaro river. Feasibility studies have been completed by the consultants Binnie and Partners and the Bank has scheduled a project preparation mission to consider the proposals. 3.04 The water supply component in Lima would include the construction of two trunk mains (Annex 3). The Atarjea-Rimac trunk main would conduct water from the treatment plant to the Rimac and San Martin districts and the pueblos jovenes in the north zone of Lima (Chart WB 11714). The main would be 13.7 km in length, and 600 mm to 1,400 mm in diameter. The other main, Monterrico Surquillo, which would strengthen the distribution network in the south zone of Lima would be 19.4 km in length, 500 mm to 1,000 mm in diameter, and have two pressure reducing stations. Four pueblos jovenes would receive new water and sewerage services. Approximately 6,000 metered water and 10,500 sewer connections would be installed. In Arequipa, the water and sewerage component is also part of the Empresa de Saneamiento de Arequipa (ESAR) program and is designed to extend services to eight pueblos jovenes. Approximately 1,200 water and 1,400 sewer connections would be installed.  - 10 - 3.05 Detailed engineering of the water supply and sewerage subprojects are virtually complete. Design standards for the water supply and sewerage facilities were prepared by ESAL for Lima and by the Empresa de Saneamiento de Arequipa (ESAR) for Arequipa. The Lima design was based on average per capita consumption of 300 I/day for city residential areas and 200 1/day for pueblos jovenes. The minimum size for distribution lines is 75 mm. Similarly, designs for the sewer collection and transmission network and facilities in- cluding minimum and maximum velocities, manhole location and accessory struc- tures have been completed. In the Arequipa subproject, the water and sewer- age design is based on an average per capita consumption of 150 1/day and 210 1/day depending on the characteristics of the particular zone in pueblos jovenes. The sewer system design follows the accepted practice of minimum and maximum velocities. The design standards are appropriate and acceptable. Both implementing agencies for the project components, ESAL in Lima and ESAR in Arequipa are competent and experienced. The technical supervision and control for the execution of the proposed works are adequate. Upon completion, the works are to be operated and maintained by ESAL and ESAR. Both agencies have had previous experience with works involving the extension of water and sewerage facilities to pueblos jovenes and have encouraged the participation of local community labor in carrying out civil works. Specific aspects of ESAL's management would require strengthening and its collection record needs improvement. In particular, ESAL's leak detection program, installation of meters and improvements of its accounting, billing and collection practices deserve immediate attention. In its subsidiary loan agreement with ESAL, which is subject to approval by the Bank, BVP would require ESAL to accelerate its leak detection program and the installation of meters, complete its tariff studies and undertake studies to improve its collection record. This was confirmed during negotiations. In spite of apparent weaknesses in some areas of operation, ESAL has improved its service considerably over the past five years. It has recruited suitably qualified engineers and has been able to retain good technicians from predecessor agencies. Water and sewerage block tariffs were increased by about 40% during 1975 and a further increase of 20% in 1977 is proposed. These increases in the water and sewerage rates would greatly improve ESAL's ability to finance its projected investments. Electrification of Pueblos Jovenes 3.06 In over 30 of the pueblos jovenes in Lima and Arequipa over 60% of the homes do not have electrical services. The Government's inability to provide this essential service has led many of the pueblos jovenes to seek financing at relatively high costs. In Lima, the project consists of provid- ing 220 V low tension electrical service including distribution networks and individual dwelling connections (underground wiring, ducts at street cross- ings, meters, etc.), and primary 10 kV networks, where necessary, to about 12,400 lots in the pueblos jovenes in Lima. In the case of Arequipa, similar works would be undertaken for nine pueblos jovenes benefitting about 3,900 lots. Details of both subprojects are described in Annex 3. One of the salient features of this subproject would be the participation of the com- munity in providing non-specialized labor for carrying out portions of the civil works.  - 11 - 3.07 The subprojects for both Lima and Arequipa have detailed engineer- ing which have been approved along with design standards, by the Ministry of Energy and Mines as required by government regulations. The design for the systems are considered adequate. The subproject would be implemented by Electricidad del Peru (ELECTROPERU) and Electricidad de Lima (ELECTROLIMA) in the case of Lima, and by Sociedad Electrica de Arequipa, Ltd. (SEAL) and SINAMOS in the case of Arequipa. In both cases, SINAMOS would be responsi- ble for organizing the communities and would provide technical assistance to families. Access Roads 3.08 Access roads in the pueblos jovenes are crucial in linking these settlements to the main roads and in providing efficient public and private bus and minibus services within the pueblos jovenes. The subproject involves construction and improvement of about 86 km of existing secondary road net- works in eight pueblos jovenes located in south Lima and one in the north. It consists of: (i) access roads in the Cono Sur: this component provides improved access roads to five pueblos jovenes on either side of the via Pachacutec, the main road between the Cono Sur and downtown Lima. The pro- posal involves improvement of internal roads designed to provide adequate vehicular access to the settlements; and (ii) upgrading of internal road network: this component provides for the upgrading and paving of internal roads in four older pueblos jovenes (Annex 3). 3.09 Detailed engineering of the proposed access roads was prepared by MVC. Design criteria for speed, critical grade length, minimum vertical curves, and minimum horizontal radii were adopted from the Ministry of Trans- portation and Communications' standards. The access roads will have a 7.2 m wide asphalt surface with a variable width shoulder depending on the right of way. The thickness of the granular base is on the average 15 cm with an asphalt surface of 5 cm. On the internal road network the width will vary from 5.0 m to 6.6 m. The granular base for these types of roads is 15 cm with a 5 cm asphaltic surface. The implementation of civil works would be the responsibility of the Direccion General de Construccion under MVC. The DGC has ample experience in the supervision of works of this type and they would be assisted by the Technical Department of BVP in the review of documents, specifications, and procurement. Health and Nutrition Centers 3.10 The proposed subproject consists of the construction of three new health centers and the expansion of two existing ones to assist in the Govern- ment's health development plan for 1975-1980. These centers will primarily serve the areas in south Lima where the newer pueblos jovenes are concen- trated. The centers will provide training, preventive medicine and nutri- tion services. Two existing health centers in the pueblos jovenes of lueva Esper2nza and Villa Maria del Triunfo would be expanded by about 390 m and 430 m , respectively. In the case of Villa Mfaria del Triunfo the demand for health services by 1980 are expected to involve 134,000 consultations, 1,400  - 12 - hospitalizations, the distribution of 19,400 nutrition rations, 71,000 immun- izations and about 5,000 actions related to environmental health activities. New health centers which will be built in Ciudad de Dios (890 m ) and Villa el Salvador (1,490 m ) are designed to cater to the needs for health and nutri- tion services of about 150,000 people. One of the centers to be constructed in Villa el Salvador is particularly innovative in that it is closely coor- dinated with the needs and priorities of the community as defined by the people themselves. Starting from its design, through construction and actual operations, the center will enlist maximum feasible participation from the community served. Over 900 health promoters will receive paramedical training in this center to work for the improvement of health and nutrition standards in Villa el Salvador. Industrial Sites and Services 3.11 The proposed subproject consists of the development of 50 ha (out of a total 420 ha which would be developed in stages) on an industrial site in Lima and another 13.5 ha in Arequipa which forms an integral part of an existing industrial zone. Both projects are expected to generate direct employment opportunities for 6,000 persons. The subproject is designed to benefit residents in pueblos jovenes by making industrial sites accesible as places of employment and in the case of the Villa el Salvador industrial site in Lima enable the "organized informal" sector to participate in the development of plants and factories within a framework of Social Property. 11 The development of enterprises categorized as Social Property have been given the highest priority by the Government. 3.12 In the proposed Villa el Salvador site sufficient demand exists that would ensure the viability of the industrial site. All of the planned first stage covering an area of 50 ha, has been reserved for industries which already have discussed interest in acquiring serviced land. Among these in- dustries are: manufacture of typewriters, bicycles, electrical components, mimeographic machines, and a plant to produce electrical poles. Additional enterprises considered for the first stage include the manufacture of build- ing and construction materials (bricks, sanitary appliances, light aggregates) 1/ Social Property is defined under Peruvian law as any autonomous, self- contained and self-sustaining enterprise operated for profit by the workers in the enterprise itself. Under this scheme, initial capital is provided by the National Social Property Fund and subsequently re- paid to the Fund. Enterprises under the social property system are a novel form of industrial ownership system developed by Peru's Revolu- tionary Government. It is largely in an incipient and experimental phase; the longer term intention is that it is to coexist with private and public ownership in manufacturing, agriculture and the service in- dustries. It is basically an attempt to create worker managed and owned enterprises.  - 13 - as well as food processing, glass and textile. The Government has agreed that although Social Property enterprises would be given preference in the industrial area it would permit the sale of land to other industrial enter- prises (private or cooperative). Assurances to this effect were obtained during negotiations. 3.13 In Arequipa the industrial sites and services essentially forms a third stage (the first two stages consisted of the development of 52 ha of industrial land) located adjacent to an existing industrial site and easily accesible to pueblos jovenes. The project consists of the financing of infra- structure, water, sewerage, electricity, roads, land preparation and related facilities. All of the proposed sites are already in demand. From the private sector nine firms have applied for 44% of the saleable land. Firms considered as Social Property have solicited 36% of the saleable land. SENATI--a quasi- government training center for industrial workers--would occupy about 20% of the land. 3.14 Implementation responsibility for the subproject rests with the Empresa de Administracion de Inmuebles del Peru (EMADI). Construction of civil works which would be carried out through qualified contractors would be supervised by DGC. The Technical Department of the BVP would assist DGC in the review of documents, specifications and overall procurement. Upon completion of the sites, EMADI would manage sale of industrial land and pro- vide overall management and maintenance of common facilities in the site. Housing and Commercial Sites and Services in Lima 3.15 The proposed subproject is a pilot scheme consisting of 867 serviced plots, supervised credit for the construction of dwelling units (initially of low cost straw mat material) on self-help basis and the construction of core shops or stores. The proposed subproject, located in Fundo Vasquez in Lima, supports the Government's efforts to expand low-income housing stock and generate employment opportunities by integrating small commercial ven- tures in housing sites. A first stage development initiated by MVC has com- pleted 200 serviced plots and the construction of 43 shop-dwellings. Site development would permit the maximum utilization of self-help efforts. 3.16 The proposed layout is efficient. A single through road provides access to all residential areas and community facilities. The emphasis with- in the settlement is on pedestrian circulation which combines recreational and green areas. Community facilities are grouped to permit multiple use of buildings. Proposed plot sizes of 120 m and 200 m were judged as appropri- ate after considering the spatial patterns in Fundo Vasquez and adjacent land subdivisions. Of the total number of plots 706 would be 120 m and 161 would be 200 m . The larger plots have been reserved for c Ire shops or stores which would be built at one end of the double fronted 200 m plots. The larger plots would be suitable for the development of a nucleus of commercial and re- tail services that would serve the community. Out of the 161 sites allocated  - 14 - for this purpose about half would be devoted to the establishment of repair shops for automobiles, radio, household appliances and the supply of spare parts. The other half of the lots would be used for retail and services functions. As there is an existing industrial site with about 20 factories located adjacent to Fundo Vasquez, the provision of retail and business services would have sufficient customers. Details of the site layout and design standards are shown in Annex 3. 3.17 A technical assistance unit would be established by MVC which would be responsible. for the selection of settlers and to assist them in the con- struction of dwelling units or for shops/stores. The Unit would also assist BVP in supervising the provision of credit to settlers. The establishment and staffing of the Unit with suitably qualified and experienced personnel was discussed and agreement was reached during negotiations that it would be a condition of effectiveness of the loan. 3.18 Community facilities such as schools, health posts and community centers are designed to serve the needs of the population at full develop- ment. The market and recreational facilities which would be commercially operated would serve the needs of 1,000 families in the settlement plus an additional 1,200 families in neighboring areas adjacent to the project area. 3.19 Unit costs for serviced plots of 120 m2 would be about S/. 54,529 (US$1,212) which includes allowances for contingencies. Credits for core shelter would range from SI. 7,296 (US$162) to S/. 51,072 (US$1,135). With a 20-year mortgage at 12% interest and with a 10% downpayment, the monthly payments for amortization and for water, sewerage and electricity would range between SI. 740 (US$16) to S/. 1,200 (US$27). With these monthly payments about 90% of Lima's population could afford units with core dwellings and about 75% could afford to build a core dwelling plus a shop or store. 1/ Supervised Credit in Arequipa 3.20 In Arequipa, the subproject involves the provision of 1,000 indi- vidually supervised credits for the construction of core ho2sing units which would permit future expansions from an initial core of 45 m . These units will be built through mutual aid by groups of about 20 participants wherein the group as a whole would build the foundation and roof of all units while each participant builds the walls and the necessary finishing work. Of the total, 500 individual supervised credits would be earmarked for poorer resi- dents o5 pueblos jovenes who are expected to build core units of approximately 10-15 m and improve them in stages as their incomes permit. The project component will be reaching the poorest 10% in the income distribution scale. SINAMOS working with BVP would be responsible for the implementation of this project component. 1/ Based on 1973 Ministry of Labor Income and Expenditure data adjusted by the Mission for 1976 estimates.  - 15 - Technical Assistance 3.21 The Government has requested about 95 man-months of technical assistance to five key institutions associated in the implementation of the project. Advisory assistance would be required for training, project plan- ning and preparation, project management, financial planning and for monitor- ing and evaluation. The general scope of work for consultants is shown in Annex 4. 3.22 Consultants' services would be employed by MVC in the establishment and operation of a Technical Assistance Unit within six months from the date of the loan agreement. The Unit would be responsible in assisting settlers in Fundo Vasquez in the construction of core dwellings, shops and stores based on self-help efforts. 3.23 Assistance would be provided to EMADI for the planning, management and monitoring of the Villa el Salvador industrial site in Lima. Consultants would be employed within twelve months from the date of the Loan Agreement. Likewise, consulting assistance would be employed by ESAR within six months of the Loan Agreement to review future water supply and sewerage needs for Arequipa's metropolitan area as well as for the preparation of a project. 3.24 Advisory assistance would be extended to the BVP--the borrower, for overall project implementation and related studies concerned with the mobil- ization of additional resources to expand its urban development program and for future projects. Consultants would be employed within twelve months from the date of the Loan Agreement. 3.25 Assistance for training, including a small physical facility and appropriate equipment, is proposed for the Ministry of Health to carry out the purposes of the health and nutrition centers subproject. Consultants would be employed within six months from the date of the Loan Agreement for this purpose. 3.26 Consultants would be employed on terms and conditions satisfactory to the Bank and that their qualifications are acceptable to the Bank. These arrangements were agreed upon during negotiations.  - 16 - IV. COST ESTIMATES, FINANCING, COST RECOVERY AND PRICING A. Cost Estimates 4.01 The estimated total cost of the project, inclusive of land cost, is S/. 1,943.8 million (US$43.20 million). The direct and indirect foreign ex- change costs will be equivalent to US$15.24 million (35%). The cost estimates are detailed in Annex 2 and summarized below: in S/. Millions In US$ Millions Subprojects Local Foreign Total Local Foreign Total A. Water & Sewerage in Lima 255.7 239.3 495.o 5.68 5.32 11.00 B. Water & Sewerage in Arequipa 34.6 22.9 57.5 0.77 0.51 1.28 C. Electrification in Lima 90.1 24.7 11h.8 2.00 0.55 2.55 D . Electrification in Arequipa 22.9 8.6 31.5 0.51 0.19 0.70 E. Acs. Rds.to pueblos jovenes inLira130.6 50.7 181.3 2.90 1.13 4.03 F. Health & Nutr. Centers in Lima 41.8 20.3 62.1 0.93 0.45 1.38 G. Industrial Site in Lima 155.5 50.0 205.5 3.45 1.11 4.56 H. Industrial Site in Arequipa 26.3 4.6 30.9 0.59 0.10 0.69 I. Commercial & Housing Sites and Services in Lina 114.5 36.0 150.5 2.54 0.80 3.34 G. Supervised Credit in Arequipa 54.3 5.o 59.3 1.21 0.11 1.32 H. Technical Assistance 6.3 25.2 31.5 0.14 0.56 0.70 Subtotal 932.6 487.3 1419.9 20.72 10.83 31.55 Professional Services (a) Detailed Engineering 23.9 11.2 35.1 o.53 0.25 0.78 (b) Supervision 31.8 14.3 46.1 0.71 0.32 1.03 Subtotal 55.7 25.5 81.2 1.24 0.57 1.81 Contingencies (a) Physical 99.7 61.5 161.2 2.22 1.37 3.59 (b) Price Escalation 1/ 170.2 111.3 281.5 3.78 2.47 6.25 Subtotal 269.9 172.8 442.7 6.oo 3.84 9.84 Total Cost of Project 2/ Including Land Cost 1258.2 685.6 1943.8 27.96 15.24 43.20 1/ Price escalation is compounded annually on base construction cost and physical as follows: 1976 1977 1978-80 (a) Civil Works 16% 14% 12% p.a. (b) Equipment 114% 16% 12% p.a. 2/ Land acquisition cost for subprojects F, G, H and I above amount to S/. 8.2 million.  - 17 - 4.02 The overall cost estimates are based on detailed engineering for a number of the subprojects (i.e. water supply and sewerage, access roads, in- dustrial site in Arequipa) and advanced preliminary engineering on the rest of the subprojects. Unit prices and local construction costs were based on information on most recent projects and quotations as of December 1975. The cost estimates are considered realistic. 4.03 Physical and price contingencies together comprise about 23% of estimated total cost. This is considered adequate because of the advanced stage of designs, the short period required for implementation of civil works, and because most of the land is owned by the Government. Allowances for physical contingencies range from 15% to 20%. Price contingencies have been compounded annually (ranging from 12% to 16%) on base construction costs plus physical contingencies. These estimates are considered appropriate and real- istic. Annex 2 provides details on the assumptions and notes on the cost estimates. B. Financial Arrangements 4.04 The overall financing plan for the project, details of which are described in Annex 5, is shown below: Cost Financing Down S/. Millions IBRD BVP Payment A. Water Supply and Sewerage for Pueblos Jovenes in Lima 657.7 328.9 295.6 33.2 B. Water Supply and Sewerage for Pueblos Jovenes in Arequipa 75.5 37.8 30.1 7.6 C. Electrification of Pueblos Jovenes in Lima 189.3 94.7 75.7 18.9 D. Electrification of Pueblos Jovenes in Arequipa 46.2 23.1 18.5 4.6 E. Access Roads in Lima 246.3 123.2 98.5 24.6 F. Health and Nutrition Centers 93.8 46.9 46.9 - in Lima G. Industrial Sites and Services in Villa Salvador 288.2 144.1 144.1 - H. Industrial Sites and Services in 47.4 23.7 23.7 - Arequipa I. Housing and Commercial Sites and Services in Lima 187.1 93.6 79.9 13.6 J. Supervised Credit in Arequipa 80.8 40.4 32.3 8.1 K. Technical Assistance 31.5 15.8 15.7 - S/. Total 1,943.8 972.2 861.0 110.6 US$ Total 43.2 21.6 19.1 2.5 Percentage 100% 50% 44% 6%  - 18 - 4.05 The Bank loan to the Banco de la Vivienda del Peru (guaranteed by the Government of Peru) would be SI. 972.2 million (US$21.6 million) or 50% of total project costs. BVP would provide S/. 861.0 million (US$19.1 million) or about 44.0% of the total project cost. Downpayments from project benefici- aries would amount to SI. 110.6 million (US$2.5 million) or about 6.0% of the total project cost. The exchange risk would be borne by the Government. The Government would contribute to BVP's share capital an aggregate amount equiva- lent to US$19.1 million in accordance with a schedule satisfactory to the Bank. This was confirmed during negotiations. BVP would relend, at the same terms as the Bank loan, part of the proceeds of the loan to ESAL, ESAR, EMADI, the Ministry of Housing and Construction, and Ministry of Health to carry out their respective shares of the project. 4.06 BVP, with the agreement of the Government of Peru, will establish a revolving fuiiu for the purposes of the project. It is estimated that the revolving fund could be started with US$500,000. One of the purposes of the revolving fund is to insure that BVP has adequate flexibility in providing the required funds in the execution of the various elements of the project. Likewise, in the case of small-scale works (e.g., laying of trenches for water pipes), the participating agencies will utilize local contractors who will employ a large percentage of underemployed residents in pueblos jovenes. The establishment of a revolving fund with an initial deposit would be a con- dition of effectiveness of the loan. This was agreed during negotiations. As project expenditures are made out of the revolving fund, the Government re- plenishment through BVP would be made according to an agreed schedule that would be satisfactory to the Bank. During negotiations, details for the estab- lishment and operation of the revolving fund and the respective roles of the Government and BVP were spelled out and agreed. 4.07 Water Supply and Sewerage Subprojects: Funds for the construction of facilities will come from BVP. ESAL and ESAR would be responsible for civil works construction. Financing of trunk mains would be provided by BVP and repaid by ESAL. For the reticulation system and house connections in pueblos jovenes, the household would have a loan contract with BVP directly. The terms would be for 20 years with a 10% downpayment and an interest rate of 12% on the unpaid balance. These financial terms would insure that at least one basic service (e.g. water) can be afforded by the lowest income groups. BVP has established these terms based on household income and ex- penditure surveys. ESAL and ESAR would collect on behalf of BVP monthly payments from households which would reflect both the capital costs for the construction of facilities as well as costs of water consumed. 4.08 Electrification of Pueblos Jovenes: BVP will finance the capital costs for the low voltage distribution network, individual connections and part of the cost of the high tension networks. The rest of the high voltage distribution network would be financed by ELECTROLIMA in Lima and SEAL in Arequipa. As in the case of water supply and sewerage subprojects, BVP would have loan contracts with households. Civil works would be carried out by parti- cipating agencies, ELECTROPERU and ELECTROLIMA in Lima and SINAMOS and SEAL in Arequipa. Upon completion of the works, both ELECTROLIMA and SEAL would  - 19 - collect on behalf of BVP from individual households a single monthly payment, covering amortization of household connections and the secondary network as well as the charge for electricity consumption. Installation loans to indi- vidual households would be for 10 years at an annual interest of 12% with a 10% downpayment. 4.09 Access Roads: BVP would finance the access roads subproject through lIiVC. The communities benefited would contribute about 10% of the total cost of the subproject to be deposited with the BVP prior to the start of construction. The Government will reimburse BVP 90% of the cost Of construction. 4.10 Health and Nutrition Centers: The financing arrangements for this subproject would be made by BVP. Given the nature of this subproject, only a very small percentage of the operating cost could be recovered through con- tributions by the beneficiaries. Presently, payments for medical consulta- tions and pharmaceuticals only cover 5% of operating cost. The Government would reimburse BVP for expenditures incurred on this subproject. 4.11 Industrial Sites and Services: BVP would provide funds to EMADI (which is under the Ministry of Housing and Construction) for the construc- tion, operation and sale of industrial sites in Lima and Arequipa. The Direccion General de Construccion (DGC) would be responsible for the construc- tion and supervision of both subprojects. EWADI would repay BVP for all ex- penditures according to an agreed schedule which would be stipulated in a subsidiary loan agreement between BVP and EMADI. 4.12 Housing and Commercial Sites and Services in Lima: BVP would finance the construction and development of sites and services as well as credits for construction of core dwelling units and for core shop/stores. BVP would provide funds to MVC for the development of the site, infrastruc- ture, and community facilities. The Government would reimburse BVP for parts of the cost of land acquisition, infrastructure development and for the full cost of some on-site and off-site infrastructure. Each household would enter into a loan contract with BVP for the repayment of allocated costs including land, infrastructure and credits for construction of dwelling units or core shops/stores. The terms for individual households would be for 20 years at an interest of 12% with a 10% downpayment. 4.13 Supervised Credit in Arequipa: BVP would extend properly super- vised credit to individual households who are members of a group organized by SINAIIOS. Each household participant would enter into a loan contract with BVP. Disbursement of the credit would be made in installments to individual households first with an initial amount corresponding to 10-15% of the total loan and succeeding installments depending on work (e.g. foundation, floors and walls) progress as it is completed and certified by SINAMIOS. BVP loans would be for a term of 20 years at an interest of 12%. C. Cost Recovery and Pricing 4.14 In general, utility services in Peru are under tariff policy direc- tive from Government to recover capital, operating and maintenance costs, plus debt service. Although this policy is not always carried out, upward  - 20 - revision in the tariff structures for water, sewerage and electricity combined with a closer examination of financial data indicates a direction towards full cost recovery. 1/ Already there are salient features in both water and electri- city tariffs in the manner in which differential pricing is reflected (e.g. for water, the block tariff gives preference to the low volume user and for electri- city, an 8% discount is given pueblos jovenes and lower rates for those who use off-peak and higher voltage service). 4.15 Recovery of costs for the project would come mainly from charges and sales to final users with the exception of subprojects on access roads and health and nutrition centers in Lima, and technical assistance which would be recovered from general tax revenues. The Government would recover about 65% of original investments and the remaining would be recovered indirectly from general tax revenues. Annex 6 shows the details of the cost recovery and pricing for each of the subprojects. D. Procurement 4.16 Contracts for civil works and equipment would be awarded on the basis of international competitive bidding in accordance with the Bank guidelines, except for up to $80,000 worth of locally manufactured equip- ment (mainly water and electrical meters for Lima), and up to $160,000 worth of locally manufactured electrical facilities for Arequipa, because Peruvian legislation effectively prevents international competitive bidding for industrial products manufactured in Peru, but also because of reasons of efficiency, standardization and availability of repair facilities; build- ing materials provided by BVP to individuals to upgrade or erect modest shel- ter units through a program of mutual aid will also be procured on the basis of domestic competitive bidding for obvious reasons. E. Disbursements 4.17 Disbursements of the proposed Bank loan would be made against the following items: 1/ Technical assistance funds is provided in the Fifth Power Project for tariff structure studies designed to determine incremental cost of providing service to various customer classes.  - 21 - (a) 100% of the CIF cost of imported vehicles and equipment or 100% of the ex-factory cost of locally manufactured goods; (b) 48% of the cost of civil works and buildings; (c) 50% of amounts disbursed by BVP to individuals participating in the supervised credit program; (d) 50% of consultants' services for studies, detailed engineering and design, and supervision; and (e) 50% of technical assistance. 4.18 Savings in any category under the allocation of proceeds would be made available for cost overruns in any other category. In the event, how- ever, the expenditure should exceed the present estimated cost of S/. 1,943.8 million (US$43.20 million) such excess would be met by the Government. A schedule of estimated Bank disbursements appears in Annex 7. In order to facilitate project implementation and insure a reasonable schedule of con- struction, retroactive financing mainly for detailed engineering of proposed works of up to US$100,000 is recommended after December 1975. Documentation for disbursements under the credit programs will not be submitted to the Bank but retained by BVP for periodic review by Bank project supervision missions. F. Accounts and Audits 4.19 A separate project account would be maintained by BVP. As facil- ities are completed the participating agencies would submit to BVP quarterly financial reports on pertinent subprojects. During negotiations, agreement was reached that an annual audited record of BVP and for the project account should be made available to the Bank no later than six months following the close of the Borrower's fiscal year, until the completion of project implemen- tation. G. Supervision 4.20 About 80 man-weeks of Bank staff time is scheduled for supervision work during the three-year implementation period (Chart WB 15488). V. THE BORROWER 5.01 The Banco de la Vivienda del Peru (BVP) will be the Borrower of the Bank loan and act as executing agency for the implementation of the project. The Government would guarantee the loan. BVP would relend loan funds to participating agencies and to individuals for carrying out the purposes of the project. Subsidiary loan agreements, which would be subject  - 22 - to Bank approval, will be entered into between BVP and participating agen- cies. The substance of individual contracts between BVP and households would likewise be subject to Bank approval. The Borrower is experienced in the variety of techniques that have been used in providing housing and construc- tion for the urban poor and has the capability to expand its lending program. Through financial control and technical supervision of project design and execution, BVP will be an effective agent in the delivery of urban services ensuring appropriate pricing and efficient implementation. A. BVP Functions 5.02 BVP is a semi-autonomous agency under the supervision of the Ministry of Economy and Finance. It was created in 1962 to establish and administer savings and loan associations. In 1969, it received authority to mobilize funds (through issuance of mutual development bonds) and to extend credits for housing and construction. Since then it has participated in programs to pro- vide basic services to ten pueblos jovenes in Lima. A total of about 37,500 lots are currently being provided with basic infrastructure. BVP has also had experience in lending for urban renewal and housing reconstruction, rehabil- itation and utility services (following a major earthquake in 1970), for the development of construction industries and for special projects such as PREVI-- an experimental program initiated with the assistance of the United Nations for the study of sites and services, building materials and rehabilitation of central city slums. BVP actively promotes public, private and foreign investment for housing and construction. 5.03 BVP is managed by an eight-member Board (four members representing the Ministry of Economy and Finance, four representing the Ministry of Housing and Construction) headed by a president, who also acts as Chairman of the Board (Chart WB 15489). The present chairman is Dr. Raymundo Morales Ureste, a respected banker with more than 25 years of experience and prior to being named to his new post was vice chairman of the Industrial Bank of Peru. The senior staff and middle management personnel are suitably qualified and experienced. Operations are directed by a General Manager, working through four Central Managers: administration, commercial credit, operations (medium- and long-term credit) and supervision. In addition, each of the departments may draw as needed on the services of four advisory departments (economic, legal, management and technical) for specific expertise in special situations as they arise. Of particular importance at this time is the technical depart- ment. It needs strengthening both in numbers and technical capability if it is to fulfill the demands that will be put upon it as BVP expands its activi- ties in large-scale program of low-cost housing and related infrastructure. The savings and loan system has 17 associations with US$172 million (1973) in savings. The system has been one of the most successful in Latin America. B. Lending Programs and Procedures 5.04 BVP accounts for about 40% of total housing investment by housing finance institutions. It carries out six basic types of lending programs:  - 23 - lending to the savings and loan associations, lending to housing coopera- tives (which borrow for the purchase of land), lending to public and private developers for large-scale programs of land development and housing construc- tion, lending for direct programs of urban renovation and redevelopment in low-income settlement areas (tugurios and pueblos jovenes), lending for special experimental projects in building materials and lending for development of construction industries (Annex 8). 5.05 BVP loans to savings and loan associations and to cooperatives have been at an interest rate ranging from 6% to 8% with the latter rate being charged for loans obtained from foreign sources. By law, the associations have a maximum relending rate to their clients of 14% p.a. Loans to govern- ment agencies for public housing have been at 8.5% p.a. Similar loans for pueblos jovenes for the provision of electrification, water and sewerage services carried an interest rate of 8.5% p.a. for a term of 5 to 7 years. Housing loans were made at an interest rate ranging from 10% to 12% over a period of 20 years. BVP lending procedures for pueblos jovenes projects are well established. BVP lends directly to the authority that is providing the services to the project area, for example to ESAL, a regional water company or to MVC. A contract is also signed between BVP and the beneficiary house- hold. The authority collects from individual beneficiaries of the project for repayment of the loan. BVP makes a loan on the basis of a plan which SINAMOS, a government agency which acts as an intermediate agent between pueblos jovenes organizations and public authorities and for which SINAMOS has gained inter-ministerial support. The plan submitted to BVP by SINAMOS contains the names of at least 70% of the families who will participate in the project, as well as the name of the authority (ministry or regional agency) that will execute the plan and be responsible for collections. After BVP's technical department reviews the plan and evaluates its feasibility, BVP signs a con- tract with the authority which becomes the supervisor, executor and collector for the loan. BVP provides a model of the contract to be signed by individual family for the receipt of services and burden of debt. The authority, ESAL, for example, ensures collection by including the amortized installment for the loan in the monthly payment for service. In the event of default, the service is cut off. 5.06 During implementation, BVP makes disbursements to the authority or for certain small items directly to the supplier on the basis of invoices. The authority is responsible for selection of the contractor, and for reviewing with SINAMOS and with BVP's technical department the contractor's estimate of the works. Disbursements are made on work in progress. All projects are in- sured against natural disasters by private companies; the cost is charged to the project. Two independent external auditors are normally employed to examine BVP's financial statements. One is appointed by the Government's auditing office following an invitation from qualified firms and the other is selected by BVP's board of directors.  - 24 - C. Financial Aspects 5.07 BVP's recovery record with respect to its loans has been reasonably good. Of the loans made as of December 1974 of SI. 3,464 million, about SI. 17.5 million or 5% represent loans in arrears of which the amount in arrears is about SI. 6.5 million. Annex 8 describes in detail BVP's financial perform- ance and prospects. During the period 1971 to 1974, BVP's total assets doubled from SI. 2,907 million to SI. 5,743 million, while long-term loans increased 3-1/2 times from S/. 987 million to SI. 3,465 million. This growth in assets was financed from three main sources: deposits, long-term debt and capital and reserves. Of these sources, long-term debt was the most important, increasing three times from SI. 1,007 million in 1971 to S/. 3,063 million in 1974. At December 31, 1974, BVP had the following debt equity position: SI. million % Deposits 1,294 24 Long-term debt 3,063 57 Capital and reserves 1,017 19 5,374 100 5.08 From 1971 to 1974 BVP's revenue doubled from S/. 191 million to S/. 370 million (Annex 8, Table 1), However, operating income for the same period decreased from S/. 48 million to S/. 16 million. This decrease in operating results can be attributed to a greater use of long-term debt rather than deposits, which has resulted in an increased borrowing rate. Administra- tion expenses as a percentage of average total assets has remained low -- ranging from 2% to 2.7% between 1972 to 1974. At the same time the average income on lendings has remained constant at about 10%. BVP's net lendings are forecast to increase from SI. 3,455 million in 1974 to S/. 8,326 million in 1980 and operating results will improve through a better interest spread on these lendings (Annex 8, Table 2). Interest earnings are forecast to increase from an average of 9.9% on loans in 1974 to 10.7% in 1980 while the average cost of borrowings is forecast to remain constant at 8.2%. In addition, the interest spread between the Bank loan and BVP's relending rate (estimated to be 3.5%) would be sufficient to cover administrative costs for the project, defaults and generate a surplus. 5.09 Because the repayment terms of the Bank loan are longer than the terms to be extended by BVP to individuals or participating agencies, it is expected that surpluses would be generated which could be utilized for further loans. During negotiations assurances were obtained that surplus funds arising from BVP's loans being paid before the Bank loan payments are required should be relent for projects, similar to those being financed, to pueblos jovenes. 5.10 During the years 1976 to 1978 BVP will contribute S/. 300 million from internal cash generation while the Government will contribute S/. 578 million through share capital for lending purposes. Cash available balances are forecast to increase from SI. 368 million in 1974 to S/. 1,302 million in  - 25 - 1980. This would enable BVP to expand its urban development program especially into pueblos jovenes. BVP's expansion into low-income settlement development is an appropriate policy direction. New resources, including those generated from external sources, would be increasingly utilized for projects designed to improve facilities in pueblos jovenes and other low-income settlements through- out Peru. D. Project Execution 5.11 As executing agency for the project, BVP would discharge overall management for the implementation of the project. The responsibilities of participating agencies in the execution of individual subprojects would form an essential part of the subsidiary loan agreements to be entered into between BVP and these agencies. The implementation responsibilities as well as mainte- nance obligations are described in Annex 3. During negotiations, assurances were obtained from BVP that subsidiary loan agreements would be subject to the Bank's approval. 5.12 Within BVP, the technical department would be responsible for the overall coordination during project execution, monitor progress of works, supervise the selection of consultants and contractors as well as procure- ment. It will also be responsible for the preparation of other urban pro- jects designed to extend services and credit to the pueblos jovenes. In view of this added responsibility and the complexity of the work involved it would be necessary, as a condition of loan effectiveness, to expand the technical department with at least four professionally qualified and experi- enced staff. During negotiations, assurances were obtained from BVP to this effect. VI. ECONOMIC AND SOCIAL JUSTIFICATION 6.01 The primary objective of the project is to contribute to the econ- omic and social well-being and mobility of the residents of pueblos jovenes in two of the largest cities of Peru, Lima and Arequipa. This project has been designed as part of the Government's efforts to extend essential services, provide basic employment and training, and increase the productivity of the urban poor. In order to achieve these goals, the project concentrates on components that have a direct effect on economic performance, while strength- ening the social conditions that are a prerequisite for the success of this objective. Thus, the project integrates components such as the provision of water and sewerage, electrification, access roads and health services, with other measures such as training facilities and new industrial areas which are designed to increase technical skills and provide additional employment oppor- tunities.  - 26 - terms of employment opportunities, the project would make a direct contribu- tion of about 6,000 new permanent jobs. 1/ During implementation about 13,000 man-months of work would be generated for the construction of various elements in the project. Many more jobs are expected to be generated through the multiplying effects of the subprojects. 6.03 An innovative feature of this project is the active participation of the communities served, both in the design and construction of the individual components. Such participation not only reduces to a significant degree the cost of the proposed works, and thus makes these services available to a much larger number of people, but it also has an important social effect in the resulting community cohesion. 6.04 The overall economic rate of return on the quantifiable elements has been estimated to be about 30.0%. Because the target population for the project is in the lowest income levels, the social rate of return would be substantially higher. For the individual subprojects, the economic rates of return calculation is shown in Annex 9 and the results are tabulated below: Water and Sewerage in Lima and Arequipa 17.0% Electrification in Lima and Arequipa 23.7% Access Roads in Lima 29.2% Industrial Sites in Lima and Arequipa 34.4% Sites and Services in Lima and Supervised Credit in Arequipa 32.2% Total for all Project components shown 29.7% 6.05 The sensitivity of the total project's rate of return to assumptions on cost and benefit variations is shown below. Under 15% 15% 25% Present Increase in Decrease Increase Project Construction in in Assumptions Cost Benefits Benefits Project Total 29.7% 26.6% 26.1% 36.1% 6.06 In estimating the rates of return on the Water and Sewerage sub- projects, the benefits were valued in terms partly on the differential price and partly on the average rate of the volume of water consumed as a result of the project, while the costs were based on detailed construction and main- tenance cost estimates made during appraisal plus physical contingencies. 1/ 5,000 in Lima's and 1,000 in Arequipa's industrial sites and services subprojects.  - 27 - The calculation of benefits in the electrification subproject was based on the estimated savings in the costs of alternatives to electric power for lighting. 1/ Costs were computed in a similar manner to the procedure used in the water and sewerage subproject. Benefits in the access roads subproject were derived by estimating the savings in the operating costs of vehicles as a result of better roads. The corresponding costs refer again to detailed con- struction and maintenance cost estimates plus physical contingencies. For the industrial sites and services subproject, benefits were estimated on the basis of increased land values, while costs were measured by adding the opportunity cost of land to the capital investments needed to develop the required infra- structure and complementary civil works plus physical contingencies. Finally, benefits for the housing sites and services and supervised credit subprojects were calculated on the basis of imputed rental value of completed housing units. The corresponding cost streams refer to the opportunity cost of land, detailed construction cost and maintenance estimates, both for the initial core units and for the planned expansions plus physical contingencies. 6.07 It is to be recognized, however, that the rate of return calcula- tions of some of the above components represent only rough orders of magni- tude since they are based on the assumption that prices currently paid by consumers and to be paid for services to be provided under the project re- flect their long-term marginal cost and substantial uncertainties exists regarding those costs. 6.08 One of the important non-quantifiable benefits of the project is the development of an effective delivery system for urban services to low in- come areas. Through the Banco de la Vivienda del Peru, which would exercise financial control and technical supervision on project design and execution, basic services wouldbe provided for the urban poor which would insure appro- priate pricing and efficient implementation. VII. RECOMMENDATIONS 7.01 During negotiations, assurances from BVP and the Government were obtained that: (a) the Government would permit the sale of industrial land to other sectors (e.g. comunidad industrial, cooperatives) in addition to enterprises in the Social Property Sector in order to ensure its economic viability (para 3.12); 1/ In pueblos jovenes the use of candles for lighting purposes is common. The computed benefits do not include additional non-quantifiable advan- tages made possible through the use of electric power such as ironing, cooking, refrigeration, sewing, small-scale manufacturing, etc.  - 28 - (b) the Government and BVP would employ consultants on terms and con- ditions satisfactory to the Bank (para 3.26); (c) the Government would contribute to BVP's share capital an aggregate amount equivalent to nineteen million one hundred thousand dollars (US$19.1 million) in accordance with a schedule satisfactory to the Bank (para 4.05); (d) the Government and the BVP would establish and operate a revolving fund for the project on terms and conditions satisfactory to the Bank, the details of which were spelled out and agreed upon, defin- ing respective roles for the Government and BVP (para 4.06); (e) the Government would define in specific terms the role of the BVP in procurement and that the Bank's approval would be sought for the proposed equipment and vehicle lists to be used in the project (para 4.16); (f) a separate account would be maintained by BVP for the project and the annual audited record of BVP and the project account would be available to the Bank not later than six months after the end of the Government's fiscal year (para 4.19); (g) subsidiary loan agreement between BVP and participating agencies and the substance of proposed contracts between the Bank and individual households would be subject to the Bank's approval (paras 5.01 and 5.11); (h) surplus funds arising from BVP's loans being paid before the Bank loan payments are required should be relent for projects, similar to those financed under the loan, to pueblos jovenes (para 5.09); 7.02 As conditions for loan effectiveness, (i) the Government would establish a technical assistance unit within the Ministry of Housing and Con- struction to assist settlers in the Lima site in the construction of self-help housing, shops and related activities (para 3.17); (ii) BVP will establish a Revolving Fund with an initial deposit of the equivalent in soles of US$500,000 (para 4.06); and (iii) BVP will employ, in its technical department not less than four additional technicians whose qualifications and experience shall be satisfactory to the Bank (para 5.12). 7.03 Subject to the above conditions, the proposed project is suitable for a Bank loan of US$21.6 million equivalent to the Banco de la Vivienda del Peru, which would be for a term of 20 years, including a grace period of 3 years.  ANNEX I Page 1 of 7 PERU APPRAISAL OF THE URBAN SITES AND SERVICES DEVELOPMENT PROJECT Urban Development Plans A. National Urban Development Plan 1. Since 1968 the Government of Peru has made an effort to encourage the decentralization of economic activities in order to stem the flow of migrants into the coastal region in general and into the Lima metropolitan area in particular. One of the instruments for effectuating such a program is the National Urban Development Plan which was prepared under the auspices of the Ministry of Housing and Construction. The National Urban Development Plan (NUDP) is essentially derived from Peru's more general national economic and social development plan which assigns to the housing sector the following objectives: (a) establish norms for the development of urban population centers; (b) formulate, analyze and approve urban development plans; (c) for- mulate, analyze and/or execute projects and integrate housing and facilities' programs; and (d) promote and/or execute infrastructure works. The plan establishes targets for the period 1980-2000. 2. In trying to understand the dynamics of demographic shifts in Peru it is convenient to start with the 1950's. During this period, and aided by a relatively strong economic growth, the population from rural areas and small towns began to shift into economically active regions. Most of these migrants were attracted to the coastal region in Peru although some of them also settled in a few large centers in the sierra (mountains). The region with the highest migration loss was the sierra itself (Cuzco 43.8%, Huancayo 43.7%, Abancay 42.4%, Yauli 41.3%, Huaraz 37.7%, Huancavelica 31.7%). On the other hand, the centers of attraction were Lima-Callao (35.9%), the larger cities in the sierra (33.5%), other coastal cities (23%) and smaller cities in the selva (7.6%). By 1972, urban concentrations along the coastal strip (Metropolitan Lima, Piura, Trujillo, Chiclayo and Chimbote) as well as in cities in the sierra like Arequipa, Huancayo and Cuzco accounted for the bulk of urban population. 3. The total population of Peru is expected to reach 27.2 million inhabitants by 1990. The urban and rural populations will number 18.8 and 8.4 million respectively. The urban population will be concentrated in 301 urban centers with more than 2,000 inhabitants, 225 of which will have populations above 5,000. Lima alone is expected to have about 8.1 million inhabitants by 1990. The distribution, past, present and expected, of these centers by geographic area is given in the following table:  ANNEX 1 Page 2 of 7 Urban Centers with 2,000 or More Inhabitants Region 1961 1971 1980 1990 North 128 127 117 113 Center 122 117 111 111 South 63 69 56 56 East 21 21 21 21 Total 334 334 305 301 4. The Plan has carved the country into four geographic regions and assumes that specific regional development policy actions will be taken. In the North, 1/ these actions will include: (a) acceleration and conclusion of the agrarian reform; (b) development of new cultivated areas; (c) establishment of automobile-related industries; and (d) consolidation of the population in the Chiclayo- Trujillo-Chimbote axis. In the Center, 2/ efforts are planned to create the conditions that will decentralize economic activity and thereby promote migration flows away from the Lima metropolitan region. The main actions considered refer to the strengthening of other urban centers in the region, specifically by providing these alternative centers with high levels of infrastructure and job oppor- tunities. In the South, 3/ the main elements of development include: (a) strengthening Arequipa as a major urban center; (b) create propitious conditions for the development of Cuzco into a second major urban center; and 1/ Includes the departments of Tumbes, Piura, Lambayeque, La Libertad, (part of) Ancash, Cajamarca and San Martin. 2/ Departments of Lima-Callao, Ica, Junin, Pasco, Huanuco, Huancavelica, Ayacucho and Ancash (the last without the provinces of Santa and Casma). 3/ Departments of Arequipa, Moquegua, Tacna, Puno, Cuzco, Apurimac and Madre de Dios.  ANNEX I Page 3 of 7 (c) strengthening of two main development axes, one along the coast (Arequipa-Ilo-Moquegua-Tacna), and the second in the sierra (Cuzco-Juliaca-Puno) . In the East, 1/ the development plans call for the following actions: (a) changing the economy of the region from its agrarian-extractive base towards industrialization; (b) increasing the population of the region by a mass program of colonization; and (c) linking the region effectively to the rest of the country. 5. A major role in helping to achieve these regional goals is assigned to the pattern of public investments over the coming years. These invest- ments are intended to provide employment for about 16% of the additional economically active population expected by 1990. The Government intends to participate in 125 large public investment projects. These investments are expected to provide around 680,000 new jobs, of which 64% would be in the rural sector (435,000), and 36% (245,000) in urban areas. 6. Based on the results expected from these investments as well as the other policies enacted by the Government, the Ministry of Housing and Construction has revised the population projections as follows: Summary of Total (Normative) Expected Population (in Thousands) (1980-1990) 1980 1990 Region Urban Rural Total Urb. Urban Rural Total Urb. North 2,978 2,437 5,416 55 4,747 3,155 7,902 60 Center 2/ 6,794 3,706 10,500 67 11,469 3,486 14,955 77 South 1,314 1,349 2,663 49 1,853 1,419 3,272 57 East 445 298 742 60 776 305 1,081 72 Total 11,531 7,791 19,322 61 18,844 8,365 27,210 69 1/ Most of the Department of Loreto. 2/ In this classification, the Center includes the Lima Region.  ANNEX 1 Page 4 of 7 7. In its efforts to organize the implementation of its urban policies systematically, the MVC has divided the country's territory into five urban macro-systems each containing a major urban center. These five macro-systems with their respective centers: North (Trujillo), Center (Huancayo), South (Arequipa); East (Iquitos), and Lima (Lima). 8. The National Urban Development Plan has also ranked all urban centers by degree of importance to the national economy. Each city would be assigned economic, social and administrative roles according to its ranking. The 1st Rank (Metropoli Nacional) is reserved for Metropolitan Lima which is assumed to reach 8.0 million people by 1990. In order to accomplish this goal and avoid reaching the population of over 9.5 million projected origin- ally, the rate of population growth will have to be reduced from the 5.9 rate of the 1961-1971 period to a rate not above 4.2. The 2nd Rank (Principal Centers of Urban Macro-Systems) will be composed of the cities with populations ranging from 400,000 to 1,200,000 inhabitants. 1/ These are to become the site for the establishment of "Heavy" and most "Large" industries. The 3rd Rank (Principal Centers of Urban Systems) will consist of cities between 100,000 and 500,000 inhabitants. They will be the seat of "Large" and most "Light" industries. The cities in this group will be: in the North: Piura, Chiclayo, Bagua, Cajamarca and Tarapoto; in the South: Cuzco and Puno; in the Center: Ica, Huaraz and Huanuco; in the East: Pucallpa The 4th Rank (Principal Centers of Urban Subsystems) will receive "Light", "Elemental" and "Complementary" industries. They will be cities that will vary in size from 50,000 to 100,000 inhabitants. There are four additional ranks of urban areas, each rank defining cities with a specific role and size range. The smallest urban center (8th Rank) identifies concentration with at least 500 inhabitants. I/ These ate Trujillo, Huancayo, Arequipa and Iquitos which were earlier defined as major urban centers.  ANNEX 1 Page 5 of 7 B. Lima Metropolitan Development Plan 9. The development of Metropolitan Lima 1/ has been formally defined in the Plan de Desarrollo Metropolitano Lima-Callao a 1980 (PLANDEMET), a set of official documents designed to guide the future growth of the city. This plan has been developed in close coordination with the National Urban Develop- ment Plan and assumes that the growth of the city, and, in particular, migra- tion related growth, will slow down in the future. 2/ Based on this assump- tion, by 1980 the population of the city should reach 5.7 million people, and an employment figure of over 1.7 million. 3/ The city would then extend over an area of 32,700 ha 4/ and contain 1.2 million housing units and 410,000 private cars. 10. In practical terms, the plan serves as a development framework enforced through very detailed normative guidelines that are meant to control all building activities in Metropolitan Lima. The plan has been developed to perform the following functions: (a) consolidate and increase the density of the already built-up areas of the city core; (b) concentrate further urban growth along "preferable" development axes, and within these, establish additional concentrations of population on the periphery of the metropolitan area; and (c) establish a consolidated administrative unit to regulate the development of the greater Metropolitan Lima area. 11. The low density of Lima's built-up areas is a product of both of the fact that the city has often been affected by earthquakes, and of lenient property tax laws and other fiscal rules regulating land use. Plans to increase the density in the city's core assume that better construction techniques and changes in the property tax laws will be established. If all the changes to fill up existing vacancies in the city as well as the plans to increase densities as envisaged in PLANDEMET are carried out, it would add approximately 592,000 new dwelling units.5/ 1/ Which includes Callao. 2/ To an annual rate of growth of approximately 4.2%. 3/ 310,000 in manufacturing, 798,000 in services, and 628,000 in "other" (residual). 4/ 24,360 ha for residential use, 3,092 ha for industry, and 5,257 for other uses. 5/ 107,000 in the consolidation of empty areas in Maranga and Limatombo, and 485,000 through increases in density all across the city's core.  ANNEX I Page 6 of 7 12. The plans to concentrate additional future growth along preferable development axes establish the following locations: (a) highway to Ventanilla (north); (b) Panamericana Norte and highway to Canta (north/east); (c) Canto Grande - Collique (north-northeast); (d) Carretera Central (east); and (e) Panamericana Sur and highway to Acocongo (south/south-east). PLANDEMET estimates that these developments could add another 2,953,000 people to the city. Altogether, a total of 3,545,000 additional people could be accommodated through the consolidated and expansion measures envisaged in the plan. 13. In terms of industrial employment, PLANDEMET estimates that by 1980 the city will have over 3,500 ha of industrial areas which should by then provide a total of approximately 275,000 jobs. The location of these industrial zones, their area and potential total employment figures are: Location Area (in has.) Potential Employment (a) Highway to Ventanilla 1,510 121,000 (b) Panamericana Norte 540 43,000 (c) Canto Grande 230 18,000 (d) Carretera Central 810 65,000 (e) Panamericana Sur 420 28,000 Total 3,510 275,000 Additional industrial employment is, and will in the future be, provided by smaller enterprises located in areas not expressly allocated to industry. A large portion of new industrial areas is located near the new residential areas in the periphery o' the city, a fact that should improve the accessi- bility ol these laige ccncentrations of people to new sources of employment. 14. Efforts to establish a consolidated development agency for all Metropolitan Lima are currentLy under way, although no definitive solution has been found to this issue.  ANNEX 1 Page 7 of 7 C. Urban Development in Arequipa 15. The urban growth of Arequipa is formally controlled by means of an appropriate set of official documents 1/ which envisages that by 1980 the city will have a population of approximately 500,000 people. The rapid in- crease of population in Arequipa 2/ has been, and is expected to continue to be, mainly the result of migration from the interior of the country. The newcomers have predominantly settled in pueblos jovenes in the eastern peri- phic areas along the main highway from Puno into the city. It is estimated that about 60% of the city's population lives and will continue to live, in pueblos jovenes, of which there were 93 by 1975. 3/ 16. One of the main goals of the urban development plans is to improve the accessibility of available employment opportunities located in the west of the city, to the residents of the pueblos jovenes concentrated in the eastern sections. To achieve this, the proposed highways systems is based on a new East-West axis complemented by additional traffic-diverting roads. 17. New areas of urban expansion have been tentatively identified to the north of the city at Ciudad de Chachani (or Nueva Arequipa), and to the south on the Pampas de Chuco in Characato. Because these are relatively distant and isolated areas, new sources of employment would be developed simultaneously with the creation of new residential neighborhoods. 1/ This is the Plan Director, approved in 1974, and which includes a Plan de Expansion Urbana (Urban Expansion), Plan Vial (Highways System), Plan de Equipamiento (Public Facilities), and a Plan General de Zonificacion (Zoning Code). 2/ The yearly growth rate between 1961 and 1971 was 5.4%. 3/ With a population of over 200,000 people.  ANNEX 2 Page 1 of 12 PERU APPRAISAL OF THE URBAN SITES AND SERVICES DEVELOMPENT PROJECT Project Cost Estimate Tables - Summary Project Costs - Water and Sewerage for Pueblos Jovenes in Lima - Water and Sewerage for Pueblos Jovenes in Arequipa - Electrification of Pueblos Jovenes in Lima - Electrification of Puebos Jovenes in Arequipa - Access Roads in Lima - Health and Nutrition Centers in Lima - Industrial Sites and Services in Lima - Industrial Sites and Services in Arequipa - Supervised Credits for Sites and Services - Supervised Credit in Arequipa  ANNEX 2 Page 2 cf 12 SUMMARY PROJECT COSTS in SI. Millions In US$ Millions Subprojects Local Foreign Total Local Foreign Total A. Water & Sewerage in Lima 255.7 239.3 495.0 5.68 5.32 ill.00 B. Water & Sewerage in Arequipa 34.6 22.9 57.5 0.77 0.51 1.28 C. Electrification in Lima 90.1 24.7 114.8 2.00 0.55 2.55 D. Electrification in Arequipa 22.9 8.6 31.5 0.51 0.19 0.70 E. Acs. Rds.to pueblos jovenes nLirva130.6 50.7 181.3 2.90 1.13 4.03 F. Health & Nutr. Centers in Lima 41.8 20.3 62.1 0.93 o.45 1.38 G. Industrial Site in Lima 155.5 50.0 205.5 3.45 1.11 4.56 H. Industrial Site in Arequipa 26.3 4.6 30.9 0.59 0.10 0.69 I. Commercial & Housing Sites and Services in Lima 114.5 36.0 150.5 2.54 o.80 3.34 G. Supervised Credit in Arequipa 54.3 5.o 59.3 1.21 0.11 1.32 H. Technical Assistance 6.3 25.2 31.5 0.14 0.56 0.70 Subtotal 932.6 487.3 1419.9 20.72 10.83 31.55 Professional Services (a) Detailed Engineering 23.9 11.2 35.1 0.53 0.25 0.78 (b) Supervision 31.8 14.3 46.1 0.71 0.32 1.03 Subtotal 55.7 25.5 81.2 1.24 0.57 1.81 Contingencies (a) Physical 99.7 61.5 161.2 2.22 1.37 3.59 (b) Price Escalation 1/ 170.2 111.3 281.5 3.78 2.47 6.25 Subtotal 269.9 172.8 442.7 6.oo 3.84 9.84 Total Cost of Project 2/ Including Land Cost 1258.2 685.6 1943.8 27.96 15.24 43.20 1/ Price escalation is compounded annually on base construction cost and physical as follows: 1976 1977 1978-80 (a) Civil Works 16% 14% 12% p.a. (b) Equipment 14W, 16% 12% p.a. 2/ Land acquisition cost for subprojects F, G, H and I above amount to S/. 8.2 million.  WATER AND SEERAWGE FOR PUEBLOS JOVENES IN LIMA In S/. Millions In US$ Millions Project Component Local Foreign Total Local Foreign Total A. Civil Works 1. Trunk Mains - Atarjea to Rimac and Surquillo 126.4 118.6 245.0 2.81 2.64 5.4h 2. Distribution - a. Reticulation & Collector Systems 102.8 96.0 198.8 2.28 2.13 4.42 b. Individual Connections 26.5 24.7 51.2 0.59 0.55 1.14 Subtotal 255.7 239.3 h95.0 5.68 5.32 11.00 B. Professional Services 1. Detailed Engineering 7.1 4.8 11.9 0.16 0.11 0.26 2. Supervision - 10-.7 7.1 t7.-8- 0.24 0.15 0 -4: Subtotal 17.8 11.9 29.7 0.40 0.26 0.66 Direct acsts Before Contingencies 273.5 251.2 524.7 6.08 5.58 11.66 C. Contingencies 1. Physical 15% /a 23.8 20.8 4h.6 0.53 0.46 0.99 2. Price EscalatTon /b 47.1 41.3 88.4 1.05 0.92 1.96 Subtotal 70.9 62.1 133.0 1.58 1.38 2.95 Subproject Cost with Contingencies 344.4 313.3 657.7 7.66 6.96 14.61 /a Materials are estimated to constitute 60% of civil works. 7 Price escalation is compounded annually on base construction cost and physical as follows: 1976 1977 1978-80 (a) Civil Works 16% 14% 12% p.a. (b) Equipment 1)4 16% 12% p.a. 'I 0  IATER AND SEWERAGE FOR PUEBLOS JOVENES IN AREQUIPA In S/. Millions In US$ Millions* Project Component Local Foreign Total Local Foreign Total A. Civil Works 1. Zona "A" Hunter 4.0 2.6 6.6 0.09 0.06 o.15 2. Ampliacion Paucarpata 6.1 h.o 10.1 0.14 0.09 0.23 3. Apurimac 3.1 2.1 5.2 0.07 o.o5 0.12 4. Manco Capac 3.9 2.6 6.5 0.09 0.06 0.15 5. La Tomilla, Acequia Alta y Fco Bolognesi 6.1 4.o 10.1 o.14 0.OS 0.23 6. California. 3.9 2.6 6.5 0.09 0.06 0.15 7. San Juan de Dios, Hunter 6.5 4.4 10.9 o.l4 0.10 o.24 8. E1 Penon, Alfonso Ugarte 1.0 o.6 1.6 0.02 0.01 0.03 Subtotal 34.6 22.9 57.5 0.77 0.51 1.28 B. Professional Services 1. Detailed Engineering 0.9 0.5 1.4 0.02 0.01 0.03 2. Supervision 1.3 0.9 2.2 0.03 0.02 o.o5 Subtotal 2.2 1.4 3.6 0.05 0.03 0.08 Direct Cost Before Contingencies 36.8 24.3 61.1 0.82 o.54 1.36 Contingencies 1. Physical 15% /a 3.8 2.3 6.1 0.09 0.05 o.14 2. Price Escalation /b 5.4 2.9 8.3 0.12 0.06 0.18 Subtotal 9.2 5.2 14.4 0.20 0.12 0.32 Subproject Cost with Contingencies 46.o 29.5 75.5 1.02 o.66 1.68 /a Materials are estimated to constitute 70% of civil works. /b Price escalation is compounded annually on base construction cost and physical as follows: 1976 1977 1978-80 (a) Civil Wvorks 16% 14% 12% p.a. (b) Equipment 14% 16% 12% p.a. CD * Details may not add up cdue to rounding off. 0 N F'J  aLECTAIFICATION OF PUEBLOS JOVNEN1 IN LIMA In S/. Millions In US$ Millions Project Component Local Foreign Total Local Foreign Total A. Civil Works 1. Post, Cables, etc. 42.6 18.2 60.8 0.94 0.4i 1.35 2. Labor (Specialized) 26.0 - 26.0 0.58 - 0.58 3. Labor (Unskilled) 6.4 - 6.4 o.14 - 0.14 4. Expansion Fund /a 2.1 0.9 3.0 0.05 0.02 0.07 5. Connection to Dwellings 13.0 5.6 18.6 0.29 0.12 0.41 Subtotal 90.1 24.7 114.8 2.00 0.55 2.55 B. Professional Services 1. Detailed Elhigineering 2.3 - 2.3 0.05 - 0.05 2. Supervision 3.4 _ 3.4 0.08 - o.08 Subtotal 5.7 - 5.7 0.13 - 0.13 Direct Costs Before Contingencies 95.8 24.7 120.5 2.13 0.55 2.68 Contingencies 1. Physical 20% 11.5 5.0 16.5 0.26 0.11 0.37 2. Price Escalation /b 36.6 15.7 52.3 0.81 0.35 1.16 Subtotal 48.1 20.7 68.8 1.07 o.46 1.53 Subproject Cost with Contingencies 143.9 45.4 189.3 3.20 1.01 4.21 /a In lieu of required high tension works. /b Price escalation is compounded annually on base construction cost and physical as follows: 1976 1977 1978-80 (a) Civil Works 1 1 12 p.a. (b) Equipment 14h; 16g 12% p.a. 0 ro  ELECTRIFIGATION OF PUEBLOS JOVENES IN AREQUIPA In S/. Millions In US$ Millions* Project Component Local Foreign Total Local Foreign Total A. Civil Works 1. Posts, Gables, etc. 12.2 5.3 17.5 0.27 0.12 0.39 2. Labor (Specialized) 3.7 - 3.7 0.08 - 0.08 3. Labor (Unskilled) 1.8 - 1.8 o.o4 - 0.04 4. Expansion Fund /a 0.7 0.3 1.0 0.02 0.01 0.02 5. Connection to Dwellings (3,912 lots) 4.1 1.8 5.9 0.09 0.04 0.13 Subtotal 22.5 7.4 29.9 0.50 o.16 o.66 B. Equipment - 1.2 1.2 - 0.03 0.03 C. Promotion of Community Groups 0.4 - 0.4 0.01 - 0.01 D. Professional Services 1. Detailed Engineering 0.6 - o.6 0.01 - 0.01 2. Supervision 0.9 - 0.9 0.02 - 0.02 Subtotal 1.5 1.5 0.03 - 0.03 Direct Cost Before Contingencies 24.4 8.6 33.0 0,54 0.19 0.73 Contingencies 1. Physical 20% 3.4 1.5 lj. 9 0.08 0.03 0.11 2. Price Escajation /b 5.8 2.5 8.3 0.13 0.6 0.19 Subtotal 9.2 4-.o 13.2 0.21 0.09 0.30 Subpro.ject Cost withi Continigencies 33.6 12.6 4~6.2 0.75 0.28 1.03 /a In lieu o+' required high tension works. Price escalaticn is compounded annually on base construction cost and physical as follows: 1976 1977 1978-80 (a) Civil Works 16e 14% 1 2% p.a. (D (b) Equipment ih% 16% 12, p.a. a 4* Details may not add up due to rounding off.  ACCE6iS ROADS IN LII4A In S/. Millions In US$ Millions Project Component Local Foreign Total Local Foreign Total A. Civil Works 1. Earthwork 58.1 24.9 83.0 1.29 0.55 1.84 2. Paving 45.7 19.6 65.3 1.02 o.43 1.45 3. Sidewalks and Parking 9.5 1.7 11.2 0.21 o.o4 0.25 4. Footpaths 2.3 o.5 2.8 0.05 0.01 0.06 5. Berms (sardineles) 4.6 o.8 5.4 0.10 0.02 0.12 6. Water & Sewer Reconditioning 7.6 3.2 10.8 0.17 0.07 0.24 7. Repair of Connections (Estimate) 2.8 - 2.8 0.06 - .6 Subtotal 130.6 50.7 181.3 2.90 1.13 4.03 B. Professional Services 1. Detailed Engineering 1.6 o.6 2.2 0.03 0.02 0.05 2. Supervision 2.2 1.0 3.2 0.05 0.02 0.07 Subtotal 3.8 1.6 5.4 0.08 0.o4 0.12 Direct Costs Before Contingencies 134.4 52.3 186.7 2.98 1.17 4.15 Contingencies 1. Physical 20% Ia 18.7 8.o 26.7 0.42 0.18 0.60 2. Price Escalation /b 23.7 9.2 32.9 0.53 0.20 0.73 Subtotal 42.4 17.2 59.6 o.95 0.38 1.32 Subproject Cost with Contingencies 176.8 69.5 246.3 3.92 1.55 5.47 /a Materials are estimated to constitute 74% of civil works. /b Price escalation is compounded annually on base construction cost and physical as follows: 1976 1977 1978-80 (a) Civil Works 167 14S 12% p.a. (b) Equipment 14% 16% 12% p.a. 0 H-  HEALTH AID NUTRITION CITaIUS IN LIMh In SI. Millions In US$ Millions* Project Component Local Foreign Total Local Foreign Total A. Land Acquisition 1.3 - 1.3 0.03 - 0.03 B. Construction of Centers 1. Ciudad de Dios 6.1 1.1 7.2 0.13 0.02 0.16 2. Nueva Esperanza 2.6 o.5 3.1 o.o6 0.01 0.07 3. Villa Maria del Triunfo 4.6 0.9 5-5 0.10 0.02 0.12 4. Villa Salvador I 6.1 1.1 7.2 0.13 0.03 o.16 5. Villa Salvador II 2.8 o.5 3.3 0.07 0.01 0.07 Subtotal 22.2 4.1 26.3 0.49 .o09 0.58 C. Infrastructure 5.1 0.9 6.0 0.11 0.02 0.13 D. Equipment 13.2 8.8 22.0 0.30 0.20 0.5O E. Vehicles - 6.5 6.5 - 0.14 0.14 Subtotal (Civil 'Works, Squipment and Vehicles, B-B) 40.5 20.3 60.8 .045 1.35 F. Professional Services 1. Detailed Eigineering 1.5 o.5 2.0 0.03 0.01 o.o4 2. Supervision 1.2 o.5 1.7 0.03 0.01 0.04 Subtotal 2.7 1.0 3.7 0.06 0.02 0.08 Direct Cost Before Contingencies (Excluding Land Cost) 43.2 21.3 64.5 0.96 071.143 Contingencies 1. Physical 20,0 4.8 3.2 8.o 0.11 0.07 0.18 2. Price Escalation /a 12.0 8.0 20.0 0.26 0.18 0.44 Subtotal 16.8 11.2 28.0 0.37 0.25 0.62 Subproject Cost with Contingencies cc 6P.p 32.5 93.8 L.16 0.72 2.013 o /a Price escalation is compounded annually on base construction cost and physical as follows: 1976 1977 1978-80 (a) Civil Works 16% 14h 12% p.a. (b) Equipment 14% 16% 12% p.a. * Details may not add. up due to rounding off.  INDUSTRIAL SITES AND 6ERVICES IN LIMA In S/. Millions In US$ Millions Project Component Local Foreign Total Local Foreign Total A. Land Acquisition 0.5 - 0.5 0.01 - 0.01 B. Civil Works 1. Wdater Supply 42.2 14.1 56.3 0.94 0.31 1.25 2. Sewerage 6.7 2.3 9.0 0.15 0.05 0.20 3. Electric Power and Public Lighting 32.3 10.8 43.1 0.72 0.24 0.96 4. Road Construction 31.9 10.8 42.7 0.71 0.24 0.95 5. Green Areas 5.9 - 5.9 0.13 - 0.13 6. Common Services 6.o 2.0 8.o 0.13 0.04 0.17 7. Standard Factories 30.0 10.0 40.0 o.66 0.23 0.89 Subtotal 155.0 50.0 205.0 3.44 1.11 4.55 C. Professional Services 1. Detailed Engineering 5.2 3.7 8.9 0.12 o.o8 0.20 2. Supervision 7.0 3.5 10.5 0.16 o.o8 0.24 Subtotal 12.2 7.2 19.4 0.28 0.16 0.44 Direct Cost Before Contingencies (Excluding Land Cost) 167.2 57.2 224.4 3.72 1.27 14.99 Contingencies 1. Physical 20% /a 20.0 6.7 26.7 o.44 0.15 0.59 2. Price Escalation /b 27.5 9.1 36.6 0.61 0.20 0.81 Subtotal 47.5 15.8 63.3 1.06 0.35 1.41 Subproject Cost with Contingencies 215.2 73.0 288.2 4.78 1.62 6.40 / Materials were considered to constitute 65% of civil works. \ Price escalation is compounded annually on base construction cost and physical as follows: 0 1976 1977 1978-80 (a) Civil Works 116% 12% p.a. (b) Equipnent 114% 16% 12% p.a.  INDUSTRIAL SITES AND SERVICES IN AREQUIPA In S/. Millions In US$ Millions Project Component Local Foreign Total Local Foreign Total A. Land Aquisition 4.8 - 4.8 0.10 - 0.10 B. Civil Works 13.9 1.4 15.3 0.31 0.03 0.34 C. Complementary Works 7.6 3.2 10.8 0.17 0.07 0.24 Subtotal 2.3 30.9 O.5U 0.10 TM D. Professional Services 1. Detailed Engineering 0.5 o.6 1.1 0.01 0.01 0.02 2. Supervision o.8 o.8 1.6 0.02 0.02 0.04 Subtotal 1.3 1.4 2.7 0.03 0.03 o.o6 Direct Costs Before Contingencies (Excluding Land Cost) 22.8 6.o 28.8 o.61 0.13 0.74 Contingencies 1. Physical 20% 4.1 1.2 5.3 0.09 0.03 0.12 2. Price Escalation /a 6.8 1.7 8.5 o.15 o.o4 0.19 Subtotal 10.9 2.9 13.8 0.24 0.07 0.31 Subproject Cost with Contingencies 38.5 8.9 47.4 o.85 0.20 1.05 /a Price escalation is compounded annually on base construction cost and physical as follows; 1976 1977 1978-80 (a) Civil Works 16% 14% 12% p.a. (b) Equipment 14% 16% 12% p.a.  HOUSING AND COMMERCIAL SITES AND SERVICES IN LIMA In S/. Millions In US$ Millions Project Component Local Foreign Total Local Foreign Total A. Land Acquisition 1.6 - 1.6 .4 - 0.04 B. Site Preparation 4.6 .5 5.1 0.10 0.01 0.11 C. Infrastructure 1. Water 6.7 2.2 8.9 0.15 0.05 0.20 2. Sewerage 5.5 1.8 7.3 0.12 0.04 0.16 3. Electricity 11.0 3.7 14.7 0.25 0.08 0.33 4. Roads 8.3 2.8 11.1 0.19 o.o6 0.25 D. Green Areas .5 .2 .7 0.01 0.01 0.02 E. Other On-Site Costs (Relating to Future 2.9 1.0 3.9 0.07 0.02 0.09 Expansions) F. Off-Site Costs 2.6 6.1 8.7 0.05 0.14 0.19 G. Community Facilities 53.2 17.8 71.0 1.18 o.40 1.58 H. Supervised Credits 13.2 4.3 17.5 0.29 0.10 0.39 Total Civil Works (B-H) 1o8.5 40.4 148.9 2.41 0.90 3.31 I. Professional Services 1. Detailed Engineering 3.4 - 3.4 0.07 - 0.07 2. Supervision 3.5 - 3.5 0.08 - o.o8 Subtotal 6.9 - 6.9 0.15 - 0.15 Direct Costs Before Contingencies (Excluding Land Cost) 115.4 40.4 155.8 2.56 0.90 3.46 Contingencies 1. Physical 20% /a 9.5 4.2 13.7 0.21 0.09 0.30 2. Price Escalatlon /b 11.2 4.8 16.o 0.25 0.11 0.36 Subproject Cost with Contingencies 137.7 49.4 187.1 3.06 1.10 4.16 0 /a Materials are estimated to constitute 50% of civil works. /b Price escalation is compounded annually on base construction cost and physical as follows: 1976 1977 1978-80 (a) Civil Works 16 _Tu p.a. (b) Equipment 14% 16% 12% p.a.  SUPERVISED CREDIT IN AREQUIPA In SI. Millions In US$ Millions Project Component Local Foreign Total Local Foreign Total I. 500 Units "Ayuda Mutua" A. Civil Works 44.5 1.9 46.4 0.99 0.04 1.03 B. Vehicles and Equipment 1.6 3.1 4.7 0.03 0.07 0.10 C. Professional Services 1. Detailed Engineering 1.0 - 1.0 0.02 - 0.02 2. Supervision 1.7 - 1.7 0.04 - 0.04 Subtotal 48.8 5.0 53.8 1.08 0.11 1.19 II. 500 Units "Material Fund'' A. Construction Materials 7.5 - 7.5 0.17 - 0.17 B. Professional Services 1. Detailed Engineering 0.3 - 0.3 0.01 - 0.01 2. Supervision 0.3 - 0.3 0.01 - 0.01 Subtotal 8.1 - 8.1 0.19 - 0.19 Direct Cost before Contingencies 56.9 5.0 61.9 1.27 0.11 1.38 Contingencies 1. Physical 20% 7.6 1.1 8.7 0.17 0.03 0.20 2. Price Escalation_b_ 9.2 1.0 10.2 0.20 0.02 0.22 Subtotal 16.8 2.1 18.9 0.37 0.05 0.42 Subproject Cost with Contingencies 73.5 7.1 80.8 1.64 0.16 1.80 0i /a Materials were estimated to constitute 80% of civil works. l f Price escalation is compounded annually on base construction cost and physical as follows: 1976 1977 1978-80 (a) Civil Works 1 4 p.a. (b) Equipment 14% 16% 12% p.a.  ANNEX 3 Page 1 of 39 PERU APPRAISAL OF THE URBAN SITES AND SERVICES DEVELOPMENT PROJECT Subprojects - Detailed Features A. Water Supply and Sewerage in Pueblos Jovenes in Lima and Arequipa Background 1. The Direccion General de Obras Sanitarias (DGOS), under the Ministry of Housing, has overall responsibility for urban water supply and sewerage throughout the country. Its duties and functions are to promote, design, build and administer water supply and sewerage programs as well as provide technical assistance. It is presently administering 140 systems. 2. The DGOS was formed from the Bureau of Sanitary Works (DOS) of the Ministry of Development and Public Works. In 1969, DOS was incorporated in the newly formed Ministry of Housing. The water supply and sewerage systems of Arequipa and Lima are administered by local autonomous agencies under the general supervision of DGOS. Lima Subproject 3. During the 1960's, organized low-income groups began to settle on the outskirts of Lima, far from the possibility of the immediate provision of water supply and sewer facilities. The growth of these marginal settle- ments known as pueblos jovenes has been very rapid and they have now a pop- ulation of over a million inhabitants. The morbidity and mortality rates from waterborne diseases are very high because of a lack of adequate water supply and sewerage. In many cases, the water to cover the most basic needs is purchased from vendors with trucks in small quantities of doubtful quality and at high prices. In some areas wells have been drilled, but having small yields provide a limited amount of water at best. 4. The expansion of the water and sewer systems within Lima itself was carried out in a haphazard fashion and did not keep pace with the growth of new urban areas. These areas were either incorporated into the city's water and sewer systems, aggravating the general service condition or were served with separate local systems. The local systems were not placed under the administration of the Empresa de Saneamiento de Lima (ESAL), but were operated by the individual developers. 5. By 1970, when ESAL began operating, the situation had become very serious. The rapid growth of the city, of new pueblos jovenes, and of other areas with private water and sewer systems created a condition under which ESAL was only serving about two-thirds of the population. In some areas of  ANNEX 3 Page 2 of 39 the city, especially the low-income areas, the supply of water became unreliable and poor. Because of this, it was decided to take action to attain the following objectives: - the provision of adequate water and sewer facilities to the pueblos jovenes; - the improvement and expansion of the existing water and sewerage facilities in the low-income districts; and - the transfer of the administration and operation of the private local water and sewer systems to ESAL. 6. To meet these objectives, the Planning Office of ESAL prepared a "Program of Water and Sewer Works for Metropolitan Lima--1971". The pro- gram which was originally estimated at S/. 2,000 million is now estimated at S/. 3,500 million as more detailed cost estimates have become available, material and labor costs have increased, and more pueblos jovenes and works added. 7. Financing for an initial part of the program (Program with Local Resources) was obtained through a loan of S/. 550 million from the Banco de la Vivienda del Peru (BVP). Following this, a loan from the Government of Federal Republic of Germany was requested for another part of the program (Complementary Program). In 1974, an updated program was prepared, "Feasi- bility Study, Program of Water Supply and Sewer Works for Metropolitan Lima-- 1971", which covers the estimated requirements for the 1974-1980 period and has been approved by the National Planning Institute and other government agencies. This subproject is a part of this program and is intended to improve and extend water and sewerage services to low-income groups within Lima and the neighboring pueblos jovenes. The program complies with the growing needs of the city and appears to be adequate. Water Supply - Existing Facilities 8. The metropolitan area of Lima is supplied by water obtained from the Rio Rimac, infiltration galleries, and wells throughout the area. ESAL operates the major installations and a few private developers operate small well systems. The major source is the Rio Rimac. The Rio Rimac is regulated by the power company and has a minimum flow of 13 m3/sec. The water pro- duction facilities consist of a diversion dam, intake works, desilting basins, storage reservoir of 500,000 m3 capacity to supply the treatment plant during periods of excessive turbidites in the river, a rapid sand filter plant, and chlorinators. From the plant the water flows into the system by gravity. The plant has been producing 7.8 m3/sec but is being modified and expanded to have a capacity of 10 m3/sec. The work is scheduled to be completed by March 1976.  ANNEX 3 Page 3 of 39 9. Additional water is obtained from infiltration galleries, 3,000 m in length, located near the plant. The water from the galleries is conducted by an old canal to a reservoir in the distribution system where it is mixed with chlorinated water from the treatment plant. The present production of the galleries is 0.4 m3/sec and construction work is planned to extend them and increase the production to 1 m3/sec. A considerable amount of water is also obtained from more than 150 wells scattered throughout the area. These wells feed directly into the distribution systems. The majority have yields of 20-50 1/sec but some yield as little as 5 1/sec or are out of ser- vice. The average yield of the wells in operation is 3.9 m3/sec. There are also private systems supplying water to about 224,000 people. These systems consist of wells, elevated tanks, local distribution systems with pipes of 100 mm to 300 mm diameter. ESAL is gradually taking over these local sys- tems, and within two years plans to have a unified water supply system. The ESAL system has 247,000 connections through which it serves an estimated 2,700,000 consumers. Of these connections approximately 85% are metered. lhe distribution network of Lima has trunk mains ranging in size from 250 mm to 1,800 mm and secondary lines with a minimum diameter of 75 mm. A trans- mission main 700 mm in diameter connects the Lima network with that of Callao. Lima has 6 reservoirs with a total capacity of 117,600 m3 and Callao, 2 reservoirs with a total capacity of 15,000 m3. Because of the topography the Lima system is divided into five pressure zones controlled by 29 pres- sure reducing stations. Demand 10. The low-income areas in Lima and the pueblos jovenes to be benefitted by the project are expected to require a water supply of 3.4 m3/sec by 1980 which would be met from the water system operated by ESAL. The average per capita water requirements for Metropolitan Lima are expected to continue to decline to about 350 1/day in 1980 because of ESAL's (a) program to install meters on the remaining 15% unmetered connections; (b) leak detection and control program; and (c) new tariff implemented in August 1975. By 1980 ESAL estimates that it will be serving 3,800,000 people who under the most favor- able conditions would require 17.6 m3/sec. The water needs until 1980 would be supplied from the Atarjea Plant and groundwater sources, whose combined production would be increased to about 19 m3/sec. The Atarjea Plant would be expanded to produce 10 m3/sec, private system wells would be incorporated into the ESAL system and existing wells improved and re-equipped raising the capacity to 7.8 m3/sec, and a new infiltration gallery would be built in- creasing this capacity to 1.4 m3/sec. Future Source of Water 11. The present sources - groundwater and the Rio Rimac - will be able to supply the needs of Metropolitan Lima until 1980. The treatment plant is being expanded and financing has been obtained to extend the infiltration galleries to help meet these needs. After that date, based on studies of  ANNEX 3 Page 4 of 39 various alternatives, it has been concluded that the least costly source would be the diversion of water from the Mantaro River on the Atlantic side of the Andes, to the Rio Rimac on the Pacific side. 12. In the headwaters of the Rio Rimac and the Rio Santa Eulalia, there are a series of lakes whose discharge is controlled to regulate the flow in the rivers. Since 1958 water has also been diverted from the Mantaro River on the Atlantic slope to the Pacific, averaging 3.6 m3/sec to augment the flows in the dry season. As a result, the Rio Rimac at the Atarjea Treat- ment Plant has a minimum flow of 13 m3/sec. Together with 5 m3/sec from the groundwater this can provide 18 m3/sec which will satisfy the needs in 1980. After 1980 additional water would be obtained from the Mantaro Basin by build- ing two large pumping stations, canals and related works, and enlarging the tunnels which now carry the water in the dry season. The water would also be used to produce electricity in the Sheque hydroelectric plant which would require 8 m3/sec in 1981 for a first stage, and an additional 8 m3/sec in 1983 for a second stage. The power produced would meet the needs of the capital and the interconnected system of the central region of the country until 1985. 13. Feasibility studies are being completed by Binnie and Partners under financing by the British Government. ESAL and ELECTROPERU are paying the local costs. The studies are being done under the supervision of a multi- sectoral commission headed by a representative of INP with delegates from ESAL, ELECTROPERU, INIE, and the Ministries of Housing, Health, Energy and Mines, and Agriculture. The secretary of the commission is the ESAL delegate. 14. Augmentation of the Lima water supply is assured with the comple- tion of these works which are estimated to cost US$120 million. Sewerage - Existing Facilities 15. In 1945, a basic scheme for the main sewers of the city covered a triangular area bounded by the Rio Rimac, the coast and the foothills of the mountains to the east. The scheme has been slowly developed and is now nearly complete. There are two main discharge points, one north of the Rio Rimac and the other at the south beach at Punta Conchan. The trunk sewers (main collectors) are 0.60 m to 1.80 m in diameter; the secondary collectors are 0.30 m to 0.60 m in diameter and the street sewers are of 0.20 m to 0.25 m in diameter. The sewers serve about 2,500,000 people or 76% of the total population in the area. 16. There are two drainage systems for Lima and Callao. The south system drains the eastern part of the city by means of the Surco interceptor sewer. This area has developed at a higher density than originally planned, so that it has become necessary to modify and improve the sewer system. Studies have been made, and in order to relieve the load on the Surco inter- ceptor a new collector sewer, Collector Circunvalacion, has been planned and is included in the program. The north system covers a large part of the city of Lima, extending from the Rio Rimac, to the sea, to the Callao sewer limits, and to the area served by the Surco interceptor. There are  ANNEX 3 Page 5 of 39 three trunk lines draining the center of the city. Two of these (Nos. 6 and 19) are along each bank of the river and discharge near its mouth, the other (Interceptor Avenida Argentina) runs along the coast of the southwest part of the city and discharges into the sea in the San Miguel district. There is another trunk main, the Colector Comas which serves the pueblos jovenes and urban development of the north zone and discharges into the sea. The Callao system consists of a series of trunk sewers which drain to a pumping station which discharges the sewage to the sea through an ocean outfall. Demand 17. The sewer capacity required to meet the present needs of the 2,300,000 inhabitants served by ESAL and the pueblos jovenes included in the project is 20.85 m3/sec. In 1980, the population to be served would be 3,902,000 and the sewage flows would amount to 29.79 m3/sec. Accordingly, additional trunk sewer capacity of 4.69 m3/sec would be needed for 1980. An addition to the secondary collection networks would be required in the pueblos jovenes to serve a present population of 216,000 inhabitants expected to grow to 395,000 in 1980. This has been provided for in the overall pro- gram and engineering is well advanced. Description of the Subprojects 18. The subproject would provide for the improvement of water supply in low-income areas of Lima and the extension of water and sewerage services into the presently unserved pueblos jovenes. In all pueblos jovenes about 116,000 residents would be benefitted directly. 19. The water supply component would include the construction of two trunk mains. The Atarjea-Rimac trunk main would conduct water from the treatment plant to the Rimac and San Martin districts and the pueblos jovenes in the north zone of Lima. The main would be 13.7 km in length, and 600 mm to 1,400 mm in diameter and a reservoir of 35,000 m3 capacity. The zone has low-income residents and service is very deficient and is limited to part of the area. The other main, Monterrico Surquillo, will strengthen the distri- bution network in the south zone of Lima where there are also low-income residents. The main would be 19.4 km in length, 500 mm to 1,000 mm in dia- meter, and have two pressure reducing stations. The population growth in this zone has exceeded the capacity of the existing mains and prevented providing service to the pueblos jovenes there. 20. Four pueblos jovenes will receive new water and sewerage services. Pamplona Alta will be supplied with water from the Atarjea--Villa Maria del Triunfo trunk main which will feed a new local reservoir of 4,000 m3 capacity. Distribution lines, 52 km in length, and 75 mm to 350 mm in diameter will be installed and approximately 6,000 metered water and 10,000 sewer connec- tions will be made:  ANN EX - Page 6 of 39 (a) Jose Carlos Mariategui (1lth and 12th Sector) will be provided with water from the Atarjea--Villa Matia del Triunfo trunk main. A 10" force main, 3.9 km in length and booster station, from reservoir R-1 in Villa Maria del Triunfo to a new local reservoir with a capacity of 1,200 m3 will be constructed. A distribution network with 3,300 metered house connections will be built. This will replace the present public faucet system supplied from the wells. A sewer collection network and 3,300 sewer connections to serve this area will also be built. These sewers will discharge into the main collector from Villa Maria del Triunfo which is part of the Lima sewer system; (b) Villa Poeta Jose Galvez (llth and 12th Sector) and Villa el Salvador (5th Sector) will be supplied by a pipeline connected to the Atarjea-Villa Maria del Triunfo trunk main. Water distribution lines and sewer collection lines with 2,200 house connections will be installed. The Villa Poeta Jose Galvez sewers will discharge through a 14" diameter pipeline into sewage stabilization ponds for the upper south zone. The Villa el Salvador sewers will also discharge into these ponds through a 600 mm and 700 mm diameter outfall line; (c) The 7th and 8th sectors of Villa Maria del Triunfo will be supplied with water from the Atarjea-Villa Maria del Triunfo trunk main. A 12" force main will be built from reservoir 5A to conduct the water to a new reservoir 7A from which it will be pumped into the distribution network. The distribution network will include 14" to 8" diameter trunk mains, smaller diameter lines and 2,700 metered house connections. A sewer collection network will be installed. This sewer network will discharge into the trunk sewer, Collector Villa Maria; and (d) Pamplona Alta (lst and 2nd stages) will be provided with 5,000 house connections, laterals and 12" trunk sewers that will drain through a 16" line into the Villa Maria Collector sewer. Design Standards 21. ESAL has prepared design standards for water supply and sewerage facilities, based on good engineering practice and the local conditions. For the city residential areas the per capita consumption used is 300 1/day and for the pueblos jovenes 200 1/day. The variation in consumption and storage requirements has been studied and the results applied in practice. The minimum size for distribution lines is 75 mm. Fire protection require- ments are also established. Similarly, standards have been set for the sewer collection and transmission network and facilities. These include  ANNEX 3 Page 7 of 39 minimum and maximum velocities, manhole location, and accessory structure design. Location of pipelines is also specified. The design standards cover the various aspects of the works to be included in the project and are acceptable. Implementation Responsibilities 22. ESAL has successfully completed the construction of similar works and of a greater magnitude. It has been gaining experience and improving its procurement and construction experience since 1970. The works will be done by private contracts awarded through public biddings in accordance with the local regulations. 23. For each bidding ESAL prepared a set of documents which include a description of the bid, the general conditions, pro-forma of the contract, detailed breakdown and description of the work items and quantities, techni- cal specifications, and the special conditions for each bid. The procedure and documents represent good practice and are acceptable. Supervision and Control 24. ESAL has established the "Oficina del Programa de Obras de Ampliacion" to supervise and control the construction of the works presently under way and those that will be carried out under the project. This office has a total staff of 100 and provision has been made to expand it by about 20. The staff includes 10 engineers and administrators as well as surveyors, inspectors, and auxiliary personnel. Field offices are maintained at the construction sites and inspection is carefully exercised. Progress is evaluated daily, and periodic orders for contractor payment are certified. Cost records are prepared on site and reported to the main office at ESAL headquarters. The staff is competent and capable of supervising the works to be done under the project. Operation and Maintenance 25. The facilities to be built will form part of the water supply and sewerage systems now operated by ESAL. The water facilities require the operation and maintenance of large diameter trunk mains supplied by gravity from the Atarjea Treatment Plant, pumping stations to lift the water to a series of reservoirs in the Villa Maria del Triunfo area, and of secondary distribution lines and house connections. The sewer facilities are gravity lines, house connections and small stabilization ponds. ESAL can easily operate and maintain such facilities with its present staff. Cost Estimates 26. The estimated total cost of this subproject is S/. 657.7 million, the foreign exchange component is estimated to be about 48% of the total. An allowance of 15% for physical contingencies is included. Price contin- gency was calculated on the basis of 16% for 1976, 14% for 1977, and 12%  ANNEX 3 Page 8 of 39 for the period 1978-80 for civil works; and on the basis of 14% for 1976, 12% for 1977, and 12% for 1978-80 for equipment. Because detailed design is available and the experience of ESAL in this type of work in these locations, the above contingencies are considered adequate. The implementation schedule is shown in Chart WB-15488. Arequipa Subproject 27. The water and sewer systems of Arequipa are administered by the Empresa de Saneamiento de Arequipa (ESAR). A master plan was prepared and the services improved and expanded in 1969-73 under a multi-city loan from IDB to the Government of Peru. The total cost of the works was US$2.7 million. 28. Water is obtained from the Bedoya Springs with an average flow of 220 1/sec and the expanded La Tomilla Treatment Plant with a capacity of 750 1/sec. The treatment plant takes water from the Zamacola main irrigation canal, derived from the Chili River, and ESAR has acquired rights to 1,000 1/sec guaranteeing an adequate supply for the city. 29. The distribution network was expanded by additional reservoirs of 5,225 m capacity, 3 pumping stations and approximately 100 kms of 3" to 12" pipe in the pueblos jovenes of Paucarpata, Saubandia, Zona 4, Zone C, Cerro Julio, San Martin, Bolivar, Zamacola, Acequia Alta, La Tomilla and Francisco Bolognesi. The sewer system was extended to the pueblos jovenes of Paucar- pata, Sabandia, Zona A, Zone C, Cerro Julio, San Martin, Bolivar, Zamacola and Acequia Alta. The expansion included the installation of 82.7 kms of collector lines of 6" to 12" in diameter, a main pumping station, and 8" and 10" outfalls for the Chilpina drainage basin. The sewer system has adequate capacity to handle the load from the proposed sub-project. There are 32,300 connections to the water system and 29,070 connections to the sewer system. Detailed Description 30. The subproject would be in accordance with the master plan and provide for the installation of water and sewer lines and house connections in the pueblos jovenes of Ampliacion Paucarpata, Apurimac, La Tomilla, Ace- quia Alta, Francisco Bolognesi, California and el Penon Ugarte; water lines and house connections in Manco Capac and sewer lines and house connections in Zone A Hunter, Sn. Juan de Dios and the rest of Hunter. It would benefit about 12,000 people through 1,171 water and 1,396 sewer connections. The water lines would be of asbestos cement pipe and range in size from 3" to 6". Approximately 17 kilometers would be installed. The sewerage lines would be of plain concrete with slip on joints, 8" in diameter and approximately 24 kilometers in length. Approximately 376 manholes would be included. These extensions would be connected to the trunk mains and sewers in the district or adjacent to it.  ANNEX - Page 9 of 39 Design Standards and Engineering 31. The water system design is based on an average per capita con- sumption of 150 1/day and 210 1/day depending on the characteristics of the particular zone. Because of the type of construction used in Arequipa, there is an allowance for fires. The sewer system design follows the accepted practice for minimum and maximum velocities with a minimum diameter of 8". The materials and installation specifications are based on AWWA and ISO standards. 1/ The standards used are reasonable and acceptable. Operation and Maintenance 32. Upon completion, the works are to be operated and maintained by ESAR as part of the water and sewer systems it now operates. ESAR is a competent organization that has been able to expand its services, establish good customer relations and provide satisfactory service to its customers. With its present staff and organization it is capable of operating these small extensions. Implementation Responsibilities 33. The Technical Division of ESAR with the assistance of local con- sultants has prepared the engineering plans and will supervise the execution of the works. The acquisition of materials and construction of the works will be done under contracts awarded through public bidding. The benefi- ciaries are expected to provide labor for the installation of their house connections. The implementation schedule is shown in Chart WB-15488. ESAR is considered capable of carrying out the works in Arequipa, having success- fully completed the system expansion under the IDB loan. In 1974-75 ESAR carried out a S/. 15 million program for the installation of water, sewerage and house connections in four pueblos jovenes. Cost Estimates 34. The estimated total cost of this subproject is S/. 75.5 million, the foreign exchange component is estimated to be 39% of the total. Price contingency was calculated for civil works on the basis of 16% for 1976, 14% for 1977 and 12% for 1978-80; and for equipment on the basis of 14% for 1976, 16% for 1977 and 12% for 1978-80. Because of the short construction period and the experience of ESAR in a recent program in pueblos jovenes, the above contingencies appear adequate. A detailed description of the cost estimates is shown in Annex 2. 1/ AWWA, acronym for the American Water Works Association; ISO, International Standards Organization.  ANNEX 3 Page 10 of 39 B. Electrification of Pueblos Jovenes in Lima General 1. In Metropolitan Lima, about 478,000 or 81% of the households had public-service electricity supply in 1974. By comparison, of the 25% of Lima's households located in pueblos jovenes, about 55,000 or just over 40% had electrical service in the same year. The Government's inability to cope with the increasing demand for the service is leading many pueblos jovenes to seek commercial financing 1/ at relatively high rates. 2. The objectives of this subproject are to provide an essential service at reasonable cost to the low and very low-income population of Metropolitan Lima and to complement the impact of other subprojects in the area being considered separately for financing by the Bank. This subproject would benefit about 74,000 persons. Detailed Description 3. The project consists of providing 220V low tension electrical service including distribution networks and individual dwelling connections (underground wiring, ducts at street crossings, meters, etc.), and primary 10 kV networks where necessary, for 12,400 lots in the following pueblos jovenes of Metropolitan Lima: Senor de los Milagros, Bernardo Alcedo, 5 de Mayo, Micaela Bastidas, Inca Pachacutec, Cruz de Armatambo, Villa el Salvador (60 sector, Gr. 6 y 7), San Antonio del Pedregal Alto, Perla del Sol, Cerro del Pino, Villa Hermosa, El Agustino (zona 1), Alfredo Palacios, San Rafael, Anexo 40 Ciudadela Chalaca, Ramon Castilla-Callao, Porras Barrenchea-La Flor- Vallecito, El Progreso (10, 20, 30 y 40 sector), Ramon Castilla-Alta, Deli- cias de Villa, Ampliacion Arenal Alto, 7 de Octubre (3), or such pueblos jovenes as: Pilares Azules, Santa Cruz-Collique, Collique V zona, 7 de Octuber (lra, 4a, 5a, 6a zona). 4. Although a total of 12,400 lots would be electrified under this proposal, a reserve of 5,600 lots is being maintained as substitutes for any of the settlements that may have resorted to commercial financing by the time the loan is approved. 5. The three line single phase (220V 60 Hz) systems are designed for loads of 800 W per lot, 1 kV for community facilities and mixed 250 and 500 W lamps for street lighting . These loads have been determined based on actual 1/ Between the Identification mission in May 1975 and the Evaluation mis- sion six months later, 7 of 24 pueblos jovenes initially identified had gone through this process.  ANNEX 3 Page 11 of 39 consumption levels over the past several years. The use of underground wiring is required by regulations established by the Ministry of Energy and Mines (MEM) for Lima, and has been used widely in the metropolitan area. The components of the subproject have detailed engineering, approved by the MEM. Implementation Responsibilities 6. The Banco de la Vivienda del Peru would provide funds for civil works to ELECTROPERU and ELECTROLIMA for the execution of the low and high tension components respectively. 1/ Two agreements would be drawn up: one between the BVP, ELECTROPERU and the communities represented by SINAMOS, de- termining the responsibility of each of the participants in the construction of the low tension network; the second agreement between ELECTROPERU, ELECTRO- LIMA and the beneficiaries represented by SINAMOS, would specify terms for provision of the service and repayment of the individual loans. 7. The role of SINAMOS is to carry out a household survey and a regis- try on the basis of which individual contracts would be drawn up; to organize the community to contribute voluntary non-specialized labor, and to coordinate these activities with those of the other agencies. ELECTROLIMA is the con- cessionaire who provides the service once a project is completed. The amor- tization payments and the consumption charges are collected simultaneously through a single bill by ELECTROLIMA, who in turn reimburses ELECTROPERU for the amount that corresponds to the low tension network. The overall super- vision of the civil works would be in the charge of ELECTROPERU's Unidad de Construccion para Pueblos Jovenes No. 14, 2/ assisted by the BVP's technical department. The implementation schedule for the subproject is shown in Chart WB-15488. Cost Estimates 8. The cost estimates are based on the most recent project undertaken by ELECTROPERU. Detailed cost estimates are shown in Annex 2. The estimated cost of the project including construction of low tension and partially of high tension networks, professional services, and physical and price con- tingencies, amounts to S/. 189.3 million. Physical and price contingencies are shown in Annex 2 and are considered adequate. 1/ The Banco only provides ELECTROLIMA with the contribution (a token S/. 240 per lot) made by the settlers to the Fondo de Ampliaciones. The Fondo de Ampliaciones, or fund for public domain installations, finances the expansion of the primary 10 kV distribution networks. The contribu- tion that the pueblo joven residents make is considerably lower than the real cost of the 10 kV lines per lot. The subsidy is covered by ELECTROLIMA and upper income levels that make larger-than-their-share contributions to the fund. 2/ The Unidad No. 14 has ample experience in the execution and supervision of this type of project. In recent months over 30 pueblos jovenes have been electrified in coordination with ELECTROLIMA and SINAMOS.  ANNEX 3 Page 12 of 39 C. Electrification of Pueblos Jovenes in Arequipa General 1. Almost 60% of the 350,000 inhabitants in Arequipa are concentrated in 93 pueblos jovenes located in the peripheries of this, Peru's second lar- gest city. The provision of electrical services is one of the highest prior- ities as defined by the pueblos jovenes, not only because of the obvious benefits derived from these, but also because the alternatives used to com- pensate for their omission are often much more expensive. Thus, for example, the practice of using common wax candles for house lighting purposes has been estimated to cost over two times more than electric current. 1/ Also, the monthly burden of repaying the cost of the required networks is not considered to be excessive and is well within the paying capacity of most settlers. 2. This subproject will promote a program to make electric supply available to pueblos jovenes. The program will be limited to those settle- ments that have projects already approved by the Ministry of Energy and Mines. Taking advantage of the mutual-help feature in this subproject, it is expected that this program will also promote the training of future skilled workmen for this sector. Project Description 3. The present subproject will provide for the electrification of 3,912 lots distributed in nine pueblos jovenes of Arequipa. This is the first stage in a program that will eventually include 7,469 lots in 21 settle- ments of Arequipa and nearby towns. Specifically, the work to be carried out consists of the construction of low voltage (380/220 V) distribution networks, including public lighting and primary 10 kV segments wherever necessary, and the extension of individual dwelling connections. The settlements included in the subproject with the corresponding number of lots to be connected are the following: Ampliacion Simon Bolivar (138) Miguel Grau - II Etapa (324) Hunter Zona B (156) Ciudad Blanca Zonas B, C y D (954) Rio Seco - II Etapa (265) Alto de la Libertad - Terminacion (1,024) Tres de Octubre (278) Victor Andres Belaunde - Terminacion (683) Atalaya - II Etapa (90) 1/ Using only one candle per day, at SI. 8 per candle, for 30 days would cost SI. 240. The average electric consumption in the pueblos jovenes of Arequipa is estimated at less than S/. 100 per month.  ANNEX 3 Page 13 of 39 4. The detailed design standards used in the construction of the distribution networks are defined in the official document "Resolucion - Directorial No. 062-71-EM/DOE del 5/5/1971". Implementation Responsibilities 5. Organization of community groups for the project would be carried out by SINAMOS. Besides organizing these groups, SINAMOS would prepare the documentation and related information that will be necessary to approve individual household application for credit. Among the most important do- cuments to be prepared by SINAMOS is the list of participants (Padron) subscribing to each electrification scheme. SINAMOS usually does not ini- tiate a new project unless at least 90% of the perspective participants have signed this Padron. SINAMOS has had experience with about ten pro- jects over the past three years, and is well equipped, both in terms of technical and managemen capacity to cover the present subproject. 1/. 6. The responsibility for the execution of this subproject is also with SINAMOS 2/ whose "Oficina de Infraestructura de la ORAMS IX" supervises and coordinates the work of both the settlers that provide their labor for this purpose, as well as the work performed by the necessary skilled staff. The works are executed under the overall supervision of SEAL (Sociedad Elec- trica del Arequipa Ltda.) which on completion does a final technical review and then proceeds to connect the new installations to the main network. 3/ 7. On approval of the credit to finance a given component of an electrification subproject, two contracts are normally signed between the financing organization (BVP in this case), the community represented by 1/ The technical staff required for the execution of the subproject includes one engineer and one technician (for all the subprojects), plus two skilled electricians per group (i.e., pueblos joven). The management capacity is given by the office staff presently employed by SINAMOS. 2/ SINAMOS does this in place of the Unidad Catorce of ELECTROPERU which does not operate in Arequipa's pueblos jovenes. 3/ Prior to the initiation of new installations, the project has to be approved by the Direccion de Electrificacion del Ministerio de Energia y Minas through a Resolucion Directorial. Simultaneously with such approval, the Ministry establishes maximum electric consumption allowed for each lot and for the project as a whole, as well as the amount to be paid to the Fondo de Ampliacion (Expansion Fund of SEAL). This payment has to be made before SEAL proceeds to connect the new instal- lations. The Ministry also requires from SEAL as a precondition for project approval proof that the installed high tension capacity is sufficient to cover the new project.  ANNEX 3 Page 14 of 39 SINAMOS and SEAL. One of these contracts refers to the financing and execution of the civil works, spelling out the responsibilities of each participant, and the second to the repayment of the individual loans. Cost Estimates 8. SINAMOS 1/which is the promoting and executing agency in the program, has estimated the cost of this subproect based on most recent estimates of cost per lot. The elements to be paid by the individual house- holds include the costs of the (low voltage) distribution network (including public lighting), of the dwelling connections, and a share of the high voltage network. The basic costs of these three elements are S/. 5,600, SI. 2,400 and SI. 240 2/ respectively. If the amounts required for promotion of the sub- project, professional services and contingencies are added, the total cost of the subproject is approximately SI. 46.2 million or US$1.03 million. Of this sum, US$280,000 (or 27%) is the foreign component. Further details of these costs are described in Annex 2. 1/ Sistema Nacional de Apoyo a la Movilizacion Social. 2/ This amount is set according to a progressive key and is probably below real average cost of providing electrification in pueblos jovenes. The difference is financed by other consumers of electric power, most notably the industrial sector. In the Fondo de Amplia- cion (Expansion Fund) SEAL had by mid-1975 a balance of S/. 13.0 million and expected additional payments of S/. 9.0 million by the end of the year, thus no problems were anticipated regarding ex- pansion of the main networks.  ANNEX 3 Page 15 of 39 D. Access Roads General 1. The two major areas where pueblos jovenes are concentrated in Lima lie to the north and to the south of the city with populations of about 290,000 and 460,000 inhabitants respectively. The areas are served by two major roads which are used by most of the working population of these settle- ments that commute to Lima every day. From Villa el Salvador alone (pop. 130,000), the Ministry of Transportation has calculated some 30,000 trips are made daily into Lima. Public transportation is provided by the Munici- pality only along the northern and southern highways; a number of small companies usually owned and run cooperatively link the pueblos jovenes to the municipal system, and go into the city as well. An important part of their routes are within the settlements themselves, as illustrated again by the case of Villa el Salvador: between 25% and 40% of the total distance covered by eight companies is within the community itself. 2. The deficient service provided by the bus and minibus cooperatives is attributed largely to the very poor conditions of the roads in the pueblos jovenes, and between them and the highways. This situation not only deter- mines the very slow movement of traffic and the rapid deterioration of the vehicle fleets, but affects the health of the communities where the dusty environment is responsible for a high incidence of respiratory diseases. The objective of this subproject is to improve the overall performance of the combined internal and main road system. Detailed Description 3. This subproject attempts to deal with the problems outlined above by upgrading 86.1 km of existing secondary road networks in eight low-income settlements of the Cono Sur and one in the north. It consists of two compo- nents which respond to the needs of pueblos jovenes at different levels of development: (a) Access roads in the Cono Sur: this component provides paved access roads to five pueblos jovenes on either side of the Via Pachacutec, the main road between the Cono Sur and down- town Lima. The proposal consists of paving internal roads designed to provide adequate vehicular access to the settle- ments. The population of these communities directly benefitted by the roads would be of approximately 165,000 inhabitants. (b) Upgrading of internal road network: this component involves the paving of internal roads in four older low-income settle- ments or "urbanizacione populares", that already have access roads but require expansion and improvement of their circula- tion network. The population benefitted by this component is of over 40,000 inhabitants.  ANNEX 3 Page 16 of 39 4. The breakdown of network lengths for each pueblo joven is as follows: Access Roads Network Length (km) Pamplona Alta 7.126 Mariano Melgar Micaela Bastidas 2.138 Hogar Policial 3.514 Villa el Salvador 13.289 Upgrading of Internal Roads Tahuantinsuyo 38.035 Cd. de Dios, Pamplona Baja & El Arenal 22.025 Total 86.127 Design criteria and standards are based on those prescribed by the Ministry of Transportion and are suitable for these purposes. Implementation Responsibilities 5. The implementation of civil works would be under the responsibility of the Direccion General de Construcciones 1/ of the Ministry of Housing and Construction. The DGC would supervise the execution of detailed engineer- ing, contract tendering, and of the construction itself. The organization of the communities for cooperation on the subproject would be the responsibi- lity of the ORAMS IV of SINAMOS. The implementation schedule for the sub- project is shown in Chart WB-15488. 6. The DGC has ample experience in the supervision of works of this type and they would be assisted by the technical department of the BVP in the review of documents, specifications, and overall procurement. The Lima- based ORAMS IV of SINAMOS is one of the original promoters of this project and probably the agency with the greatest experience in dealing with pueblos jovenes on issues regarding community organization and project execution. Cost Estimates 7. The estimated total cost of the subproject is S/. 246.3 million, with a foreign component of about 28%. Allowances for physical and price contingencies are shown in Annex 2. These contingencies are judged adequate considering the experience of the agencies involved and the relatively short period of construction for most of the work. Due to the fact that the pro- posal consists largely of upgrading existing networks, there are no land acquisition costs. 1/ Certain reconditioning of the service networks required prior to project execution would be coordinated by the DGC but under the direct respon- sibility of the respective agencies.  ANNEX 3 Page 17 of 39 E. Health and Nutrition Centers in Lima General 1. The health and nutrition standards in Lima's pueblos jovenes are considered to be below acceptable norms. One study, for example, shows that 18.5% of the sampled children suffered from malnutrition. 1/ Respira- tory diseases account for a large proportion of both morbidity and deaths. Trauma and illness connected with pregnancies, deliveries and related aspects of child birth are most frequent causes of medical consultation and hospita- lization. 2. In order to improve this situation, the Ministry of Health has included a specific program for this region as part of its development plan for 1975-80. This program envisages the expansion and/or construction of seven new health centers for ambulatory services, as well as the construction of two new hospitals. 2/ 3. This subproject has been designed to support the program of the Ministry of Health for the pueblos jovenes of Lima's south by contributing to the expansion of two existing health centers and to the construction of three new health centers in this region. These centers are primarily dedi- cated to preventive medicine and nutrition programs. 4. A particularly innovative aspect of this subproject involves the establishment of one new health center which in its design, construction and operation reflects the active participation of the community it is to serve. Upon its activation this center will become the first component of a new approach to preventive medicine, an approach that will integrate the efforts and aspirations of the participating communities in this area, while at the same time alleviating the burden on one of the most expensive social services provided by the Government. Detailed Description 5. The five health centers included in this subproject are all located in the San Juan de Miraflores and the Villa Maria del Triunfo districts of 1/ Study conducted in 1971 and covering 2,287 children in Pamplona Alta. 2/ One maternity hospital ("Maria Auxiliadora") with 440 beds in San Juan de Miraflores, and one 540-beds general hospital ("Hospital General de Santiago") in Surco. In addition to these, the Peruvian Social Security Service is about to initiate the construction of a new 400-bed general hospital located between the two institutions mentioned above.  ANNEX 3 Page 18 ci 39 Lima's Cono Sur. Besides the construction of the necessary civil works, the subproject will include the provision of necessary equipment and some vehicles. 6. Two existing health centers in the pueblos jovenes Nueva Esperanza and Villa Maria del Triunfo will be expanded, while the three new centers will be built, one in Ciudad de Dios and two in Villa el Salvador. The location of each center has been clearly defined and the required areas secured. 7. All the centers are primarily concerned with activities related to preventive medicine and nutrition programs, in addition to which the ex- panded Villa Maria del Triunfo center also functions as a maternity ward. The centers will provide services in the areas of general medicine, gynecology- obstetrics, pediatrics, outpatient treatment, and odontology. Xray equipment will be provided for use in programs associated with the prevention and con- trol of respiratory diseases, of which a high incidence has been observed in the region. Furthermore, in Villa Maria del Triunfo this equipment will be essential in detecting potentially complicated child births, which in some cases would have to be referred to a central hospital. 8. 2 The expanded 2center in Nueva Esperanza will have a total area of 451 m , of which 389 m will be new construction. It is the smallest com- ponent of the subproject and the level of its anticipated operations for 1980 include about 40,000 consultations and approximately 15,000 immuniza- tions per year. Of the planned consultations, approximately 25,000, 10,000 and 5,000 will be for medical, odontological and home visits respectively. 9. The center in Villa Maria del Triunfo differs from the other com- ponents of the subproject in that it also includes a 19-bed maternity ward. When the2envisaged expansIon is completed the center will have a total area of 830 m , of which 430 m will be new construction. The level of activities expected by 1980 includes approximately 134,000 consultations, 1/ 1,400 hospitalizations, the distribution of 19,800 nutrition rations, and about 5,000 actions related to environmental health activities. In addition, over 71,000 immunizations will be conducted annually from this center. 10. The new health center in Ciudad de Dios is one of the two centers of the same type that will be built as part of this subproject. 2/ This is a standard type often established by the Ministry of Health. It has a 1/ 50,000 are medical, 79,000 odontological, and 5,000 house consulta- tions. 2/ The other center to be located in Villa el Salvador.  ANNEX 3 Page 19 of 39 building over an area of aproximately 890 m with an additional open inner courtyard of about 70 m2. By 1980 the activities assigned to this center are expected to include approximately 58,000 medical consultations, 40,000 odon- tological cases, 8,250 home visits, the provision of 20,000 nutrition rations and 7,500 environmental health activities. Furthermore, due to its location along a very intensive traffic artery, the center has been planned to cope with about 10,000 emergency cases annually. In terms of immunizations, this facility will administer programs covering more than 130,000 cases. 11. In Villa el Salvador, two new centers will be established as part of the subproject. One of them is identical in its design and similar in the distribution of activities to the previous facility described for Ciudad de Dios, the second center has been conceived, and will be operated by the community itself. Starting with its design, through its construction and up to the actual operation completed, the center is based upon the active parti- cipation of the served community. This involvement will be specifically realized through the delivery of health care to patients of the center by over 900 "health promoters". The "promoters" will be volunteers from the community, trained as paramedical personnel, not, as in other centers, paid professionals from the Ministry of Health. It is expected that over time this program will increasingly improve the hygienic conditions as well as the responsiveness of the community to preventive health measures, diminishing through this process the eventual need for much costlier curative medicine programs. 12. The equipment that will be provided to the various centers includes standard medical and office implements. In addition, in the three centers Ciudad de Dios, Villa Maria del Triunfo, and in Villa el Salvador equipment to be provided wil include Xrays. 13. The vehicles provided in this subjproject are of three types. Two ambulances will be necessary to transfer those cases that require hospitaliza- tion or specialized treatment to the appropriate institutions in Lima. Two mini-buses will be used as transportation for the professional staff employed in the centers, most of whom live at an hour's distance and more from these centers. Finally, seven jeeps and small pick-up trucks 1/ will be partly assigned to the centers and partly kept at the base hospital (Chorillos) to support field work such as immunization campaigns and environmental health programs. 1/ Two of these will be assigned to Villa el Salvador, one to Villa Maria del Triunfo, and one to the center in Ciudad de Dios. The other three vehicles will operate from the Chorillos hospital and serve the whole area under its jurisdiction.  ANNEX 3 Page 20 of 39 Implementation Responsibilities 14. The promotion of this subproject has been carried out by the Ministry of Health through its Oficina Sectorial de Planificacion in conjunction with the population in the pueblos jovenes where the new centers will be located. The overall responsibility for each component in this subproject rests with the Mistry of Health. 15. The provision of necessary staff as well as the operation of each and all centers will be the responsibility of the Ministry, which also provides the resources for appropriate maintenance. Cost Estimates 3/ 16. The total costs of this subproject (excluding land) amount to S/. 93.8 million or US$2.08 million. Of this sum, S/. 32.5 million or US$0.72 million correspond to the foreign component. The largest single cost item (US$0.71) is for the construction of civil works (including complementary infrastructure required), followed by an expenditure of US$0.50 million as- signed for the provision of required equipment. The third main item of this subproject, the provision of vehicles, will cost an estimated US$0.14 million. Appropriate allowances have also been made for professional services and con- tingencies, all costs are shown in detail in Annex 2.  ANNEX 3 Page 21 of 39 F. Villa el Salvador Industrial Site and Services General 1. In response to the Government's policy of decentralizing economic activities, and in particular industrial enterprises away from Lima, the city has allocated only a very few areas where new industrial firms can be estab- lished. One of these areas is located close to the pueblos jovenes in the south of Lima and is expected to become a primary source of new employment in the Lima metropolitan region. When fully in operation it should provide about 28,000 new jobs. 1/ This subproject has been designed to support the establishment of this new industrial area by financing part of the required infrastructure and a few complementary works. By doing so, it will both help to improve the overall social and economic conditions which will result from the additional income generated in the region, and also improve the utilization of abundant labor in pueblos jovenes. 2. A particularly innovative characteristic of this new industrial area will be its inclusion of enterprises operating under the new framework of Social Property (Propiedad Social). 2/ These types of enterprises have been given highest priority by the Government and have gained substantial support among the highest priority by the Government and have gained sub- stantial support among the popular masses of the country. The proposed industrial area will be one of the pioneering projects where the feasibility and capacity of these types of enterprises will be analyzed and evaluated. This subprojet will also become a training field for this new form of pro- duction, a form in which the Peruvian people have invested substantial resources. 3/ Detailed Description 3. The subproject proposed here consists of the development of 50 ha which constitutes an initial phase of a first 175 ha stage of the new in- dustrial area to be established in the Cono Sur of Lima. This area will 1/ When completed, the industrial zone will have an extension of appro- ximately 420 ha. 2/ This concept is similar to the Yugoslavian model of worker's-owned enterprises and has been identified by the Government as an area of highest priority. This decision is backed up by appropriate resource appropriations, for example, by a S/. 2,500 million loan recently allocated for Social Property enterprises. 3/ Because of the novelty of this new concept, the new industrial area will not be exclusively reserved for Social Property firms, but due provisions will also permit the establishment of other forms of in- dustrial enterprises.  ANNEX 3 Page 22 of ^x