Peru - Lima Metropolitan Development Project

Dma- -to The World Bank FOR OMWCLAL USE ONLY Rqmut N. 12397 PROJECT CMLEm ON REPORT PERUl LIMA METROPOLITAN DEVELOPMT PROJECT (LOAN 2451-PE) OCTOBER 13, 1993 MICROGRAPHICS Report No: 12397 Type: PCR Infrastructure Division Country Department I Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of tbeir official duties. Its contents may not otherwise be disclosed without World Ban authorization.  Currency Unit - Sol (S.) March 1983 July 1984 July 1985 July 1986 July 1987 US$1.00 1/. 1,63 1 3,47 I. 10.98 IJ13.95 U. 16.84 Welghts and Measures Metric system Fiscal Year January 1 - December 31 List of Acronms and Abreviatious CMC Comision Multisectorial Coordinadora (Multisectorial Coordmiating Commisn) EISMLL Empresa de Servicios Municipales de Umpieza de Lima (Uma Municipal Solid Waste Corporation) EMMSA Empresa de Mercados Mayoristas S.A. (Wholesale Marketing Corporation) GTZ German Technical Assistance Agency INVERMEl Fondo Metropolitano de Inversiones en Fideicomiso (Metropolitan Investment Fund) MEFC Ministerio de Economia, Fmanzas y Comercio (Ministry of Economy, Fmance and Commerce) MLM Municipalidad de Lima Metropolitana (Municipality of Metropolitan Lima) MTC Ministerio de Transporte y Comunicaciones (Ministry of Transport and Communications) OMC Oficina Metropolitana de Catastro (Metropolitan Cadaster Office) OMU Oficina Metropolitana de Transportes Urbanos (Metropolitan Urban Transport Office) PPF Project Preparation Faciity  FOR OFFICIAL USE ONLY THE WORLD BANK Wahngton, O.C.204 U.SA Offtce of Directo:-Oeneral Operatlons Evaluation October 13, 1993 * MORANDUM T1 TIMRXEROCUTI= DIRECTORS AND T PRESIDENT SUBECT: Project Completion Report on Peru Lima Metronolitan Deaelooment Pro1ect (Loan 2451-PR) Attached is the "Project Cogpletion Report on Peru -- Lima Metropolitan Development Project (Loan 2451-PE)" prepared by the Latin America and the Caribbean Regional Office with Part II contributed by the Borrower. The project did not achieve its objectives. The loan was suspended for five years following a decision by the Bank to cease all operations in Peru, and an undisbursed portion of the loan (US$57.78 million) was canceled in 1991. Overall, the project performed poorly and its objectives were only partially implemented. Macroeconomic Instability, institutional weaknesses and a complex project design are the main factors that account for- te poor performance of the project. Lack of continuity in Bank supervision compounded the problems. On balance, the project outcome is rated as unsatisfactory, its institutional development impact as negligible, and its sustainability as unlikely. In view of the unstable macroeconomic context, institutional weakness, and financial constraints, a better targeted and simpler operation would have been more appropriate. The PCR is candid about the overall project performance but includes no detailed account of project results. This lack of information confirms the weakness of monitoring and evaluation systems in the ccuntry. No audit is planned. Robert Picciotto This docunent has a restricted distribution nd may be used by recipi ats only n the p rfor0an of their official duties. its contents may not otherwise be di8ctoied wi hout Wortd Bank utorizatfon.  FOR OFM ClIL USE ONLY PRQ CX)NfPLEnlO REXR- (Low 2451-PE) hbeOf (:ontem PRIEFACE i EVALUATION SUMMARY ii PART k PROJECr REVIEW FROM BANKS PERSPECTTVE A. PrcectIdentity ......................................1...... B. Projec Background . c Project Objectives and Description .3 D Project Design and Organizaton . E. Project Implementation .7 F. Project Reslts .10 G. Project Sustainability .11 I. Bank Performance .................. 12 L Borrower Performance .12 J. Finding and Lessons Learned .13 . Project Relationship .13 L. Consulting Services ...14 AL Project Documentation and Data .14 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE A. Analysis of Key Issues and Main Fmdings .15 B. Bank's Performance and Lessons Leaned .18 C Borrower's Performance and Lessons Leaned .18 D. Project Relationship .19 E Evaluation of Co-financers' Performance .19 PART m-I STATISTICAL INFORMATION I. Related Bank Loans .20 2. Project lmetable. 21. 3. Loan Disbursements .22 4. Project mplementation .23 5. Project Costs and Fiancing .24 6. Project Results .2.5... 25 7. Project and Loan Covenants .26 & Use of Bank Resoures .30 This document ha a restsicted distribution and may be wd by reipients only in the performace of their omcial duties. Its contents may not otherwise be discksed without World Bank authoriztion.  PROJECT omPEOn E=T (Loan 2451-PE) MIEEACE This is the Project Copletion Report (PCR) for the Lim Metropolitan Development Project in Pera, which vas partially financed with a World Bank Loan 2451-PE in the amoumt of US$82.5 million, was approved on June 21, 1984, signed on February 15, 1985, and became effective on July 15, 1985. The project was designed to be implemented in seven years, beginning in mid-1984. Original closing date was December 31, 1991. In May 1987, loan disbursements were suspended following a decision by the Bank to cease all operations in PerG. On May 5, 1991, after five years of continuous loan suspension, the undisbursed amount of US$57.78 million was canceled in accordance with Section 6.03 of the General Conditions. The loan had been suspended for a continuous period of almost five years and it would have required a major reformulation and a reappraisal to reflect current conditions and priorities. The PCR was prepared by the Infrastructure Division of the Latin America and the Caribbean Region, Country Department I (Preface, Evaluation Summary, Parts I and III) and is based on the Staff Appraisal Reports the Loan and Guarantee Agreement; Supervision Reports; Project Files; and internal Bank memoranda. Part II of the report was prepared by the Borrower after reviewing Parts I and III.  - ii - PROMgT C LTIO PORu LIMA HELROPOLITAN DEVELOPMENT P COJECT (Loan 2451-PR) EVALUXXION SUMMARY Introduction This project was among the firet Bank financed operations for metropolitan development in the Latin American and the Caribbean region. The project supported the Government's decentralization program, with the main objective of strengthening local autonomy by shifting administrative responsibilities from the Central Government to the Municipality of Metropolitan Lima (HMX). The project comprised four subprojects: urban transport, solid taste management, wholesale market and urban management, and project administration. Although, the project achieved some of its objectives, overall it performed poorly. The urban management and the solid waste subproject were partially implemented--moderste benefits accrued from the microsanitary fills pilot program (see para. 24)--the transfer of urban administration functions from the Central Government to the Municipality of Lima did not materialized, and the wholesale market was not implemented at all. What's more, in 1990, the road maintenance and traffic management program--the most successful of all four subprojects--was abandoned. Four reasons explain this resultt (a) macroeconomic instability-- hyperinflation and stagnation created severe counterpart funding constraints delaying implementation of several components; (b) institutional weaknesses--a division of functions and responsibilities amcng different public agencies translated into complex institutional arrangements and management inefficiencies during project implementation; (c) project design--the multisectoral approach of the project imposed a complex and difficult institutional burden; and (d) general suspension of Bank loan disbursements. The erosion of sectoral institutions and policies during the Garcia administration led to the suspension of loan disbursements in May 1987. Because of lack of continuity of oupervision work, the Bank was not able to follow through on the actions taken by the Borrower. Given the institutional difficulties foreseen at appraisal, a more selective and closely focused operation could have yielded better results. Because of its multisectoral approach, the project was highly dependent on a supportive macroeconomic, institutional and political environment. Although some constraints could not have been anticipated, institutional weaknesses and financial constraints were apparent from the beginning.  Obi ectves The project was primarily conceived as an instrument to support a shift of administrative and fin4ncial responsibility from the central government to the MA in furtherance of tbe 1979 constitutional reform designed to pomote local autonomy. To achieve this goal, tho project focused ons (t) supporting the progressive transfer of urban administration to MII; (it) developing investment planning and infrasttucture management capability within &Mt (CM) improving WLA's fiscal autonomy; (iv) strengthe.n8g the institutional capacity of MLM in urban transport, wholesale markets, solid wasto collection and disposaYl and metropolitan management; and (iv) implementing selected high priority improvements in infrastructure and services in these sectors. IMOleazentation BxerienAc The project experienced considerable delays and other implementation difficulties. Protracted legal and administrative procedures and deferral in compliance with financial conditions in the Loan Agreement postponed project signing and effectiveness. Although the loan was approved on June 21 1984, it was signed on February 15, 1985--eight months later--and became effective on July 15, 1985. Implementation problems derived from two critical factors identified at appraisal: (i) the deteriorating macroeconomic conditions restricting counterpart funding; and (ii) the multisectoral nature of the project requiring complex institutional arrangements at the national and local levels. Also, because of the number of institutions involved in project execution, a strong and consistent 3ank involvement was crucial. However, because of the suspenaion of Bank operations in the country, no supervision mission were carried out after 1987. At that time, the project was behind its physical targets for solid waste, urban management and wholesale markets. The urban transport subproject, although partly executed, was later abandoned. Towards the end of the project, the solid waste subproject was partly executed with moderate success in improving sanitary conditions while the wholesale market subproject was not implemented. Sustalinabilitv A review of this experience suggests that the project had little chance of being sustainable unless its central objective of strengthening local autonomy was accomplished. The severe deterioration of institutions, policies, and the economy between 1986 and 1990, largely precluded the possibility of sustaining any public sector investment in Lima; much less an operation requiring such substantial administrative and institutional changes. However, given the fact that only 30 percent of the total amount of the loan was disbursed, it is very difficult to assess the prospect for sustainability of this operation. As it has been the case of most urban operations, management and resource mobilization were crucial to the project sustainability. Staff of the project  - iv - coordination unit (Comisi6n Multisectorial Coordinadora) wan disbanded and Pro Urban (tho Metropolitan Plannig Off ice) was abolished sad replaced by the Metropolitan Institute, of Planning (IMP). Also, many qualified professionals left INVERNT, the Metropolitan Trust Fund in cbarge of all operational work involved in the execution of the urban transport subproject. In sum, much of the project s efforts to strengthen Lima'a metropolitan institutions were wasted. In addition, lack of access to financial resources hampered not only the complation of the project, but the possibility to maintain the efficiency and productivity of the capital inoested. Findinf aand Leans Learned Three critical factore explained the fate of this projectt (i) unfavorable macroeconomic onvironment; (li) shortfalls in the institutional and managerial capacity of implementing agencies; and (iii) shortfalls in project design. Inappropriate macroeconomic policies created severe constraints in counterpart funds resulting in significant delays during implementation. At the time of project preparation, it was clear that the 1MA could not undertake the responsibilities for project implementation. Although institutional issues were difficult to anticipate, the appraisal failed to provide an adequate assessment of the feasibility of implementing institutional and fiscal reform at the pace required by the project. Furthermore, project design failed to capture the risks associated with constitutional change and political and economic instability. These factors, above all, were the main reason for the lack of success in implementing this project. Additional difficulties arose from ad hoc addition of project components enlarging the project scope without the necessary rigor in preparation. Because of the GOP's difficulties with institutional changes and reforms, special efforts should have been made to provide suitable training and technical assistance in the areas of municipal finances and resource mobilization. The multisectoral nature of the project made it highly dependent on a strong and competent management which at the time, did not exist. In this regard, an appropriate institutional structure centered on the Lima Metropolitan Government should have been identified and created to handle the multiple sub-projects. Instead, responsibility for implementation was distributed among nine executing agencies (parss. 18-20). Additional difficulties could have been avoided by simplifying project conditionality. For example, key changes needed for successful project implementation should have been made up front, before loan negotiations or loan effectiveness. These include improving MLMs managerial capacity, simplifying the legal procedures for constituting the Multisectoral Coordinating Commission (CMC), and giving the Metropolitan Investment Fund (INVERMET) the legal right to enter into project agreements. Future Bank assistance for the urban sector in Perti should focus on: (i) identifying main national factors that could adversely affect the success of the operation; (ii) resolving these issues during project preparation; (iii) reducing the vulnerability of the project to institutional changes by simplifying the scope and content of the project; improving the fiscal and managerial capacity  of Uwnlicpal goveYSu3ts by improv.ng efficiency In the allocatLou and use of resourcss1 (v) stren8thenin the management of urban infrastructure by inproviug the technical capacity of municipal institution.; and (vi) ensuring regular and timely Bamk supervision.  MROM=CT CONPLETION REPORT LIMA NETROPOLIANDEV%tOPMENT PR,pJECT (Loan 2451-PE) PART Is PROJECT REVIEW PROM IANR'L- PERSPECTIVE A. 2ro&ect.!dentitV Project sam I Lime Metropolitan Developmont Project Loan Number t L-2451-PE RVP Unit I LAI - Infrastructure Division Country t Pera Sector s Urban Development Subsector a Infrastructure and Services B. Project Background I. The Lima Metropolitan Development Project (L-2451-PE) followed major urban rehabilitation efforts undertaken by the Government in the post-1980 period. A major issue of national urban policy was the e-rong and pervasive role of the Central Government in the management of cities, including Lima. The need to revise this centralized system and to transfer responsibilities to local governments was recognized in the 1979 Constitution. The Law mandated the transfer of key planning functions in the transport sector from the central to local governments. Responsibility for metropolitan planning was transferred to local level in 1981/1982, and the control and regulation of public transport and the installation and maintenance of traffic control devices were formally transferred in December 1983; although at the time of appraisal, details of the transfer were still being worked out. 2. At the time of project preparation, urban management in Per61 was among the most centralized in Latin America. Furthermore, the role and responsibilities of municipalities was not clear. The Lima Metropolitan Development Project attempted to support the Government's decentralization program by supporting local autonomy, institutional development and functional efficiency in Lima.' 3. MLain Sectoral Issues in Metropolitan LIma. The three main concerns regarding municipal management in Metropolitan Lima (ELX) were: municipal finance, planning, and staffing. Municipal finances had largely deteriorated as a result of high inflation. In addition, MLM had very few autonomous budgetary resources which compounded with a 30 percent decline in the real value of local 1 During 1975-1980, the central administration backed a National Urban Development Plan to integrate Lima with the major towns of the Central region, especially those in the Sierra. However, no attempt was made to implement this Plan. Later, the Belafinde administration supported a "decongestion corridor" plan to promote urban growth north and south of Lima. Few actions were taken to implement this strategy other than the partial completion of a coastal expressway and the development of a new port near Pisco.  -2- revenues, and 50 percent in Government grants, contributed to the lowest por capita public expenditures among the large cities in the LAC region. In the absence of substantial increass in fluancial resources and stronger financial management at the metropolitan level, the transfer of new functional responsibilities was bound to proceed slowly. In terms of planning, the functional responsibilities of the MA were mostly limited to land-use regulations and building codas. This control was exercised by zonal offies. of MLM, whose mainly task was to handle development applications. Shortage of skilled city management staff was aggravated by austerity measures which inacreased the disparity between the public and private sector wages, and made It difficult to attract and retain qualified senior staff in public sector agencies. 4. The unanticipated growth of low-income neighborhoods, Pueblos J6venes, in the poriphery of Lima overrode the proposed land use and density regulations and created distortions in the distribution of urban services. The accelerated growth of population, of car ownership and of the urbanised area had placed tremendous demsads upon the metropolitan transport system. Uncontrolled urban expansion and rather low density rates had increased journey distances and neither the quality of the existing road system nor the level of available bus services had kept pace with demand. Serious neglect of the maintenance of infrastructure had increased traffic congestion, pollution and accident rates. Lack of personnel, equipment and finan(ial resources, and poorly defined institutional arrangements further hindered appropriate maintenance of existent infrastructure. Supply of transport facilities to hugh numbers of low-income dwellers on the city outskirts had become a major problem since the majority of secondary and local streets were not paved, or were in poor conditions. This had discouraged the entry of buses, refuse collection trucks and other service vehicles. In September 1983, the Bank and the GOP agreed on the need to study urban transportation options--to be financed through the Bank's Public Sector Management Loan (Loan 2204-PE)--to provide a detailed analysis of feasible alternatives to meet the growing urban transport demand and traffic problems tn the city. 5. Congestion in the wholesale market had created inefficiencies in commercial transactions. The unplanned growth of the city around and beyond the central market created additional problem; access roads had become crowded with local traffic and pedestrians increasing total waiting times in and out of the market to more than four hours. The GOP and the Bank agreed on the need to increase efficiency in wholesale transactions by investing in a central wholesale market under the management of the Wholesale Marketing Corporation (KMISA). 6. Improvements in refuse management were needed throughout the city. In the central districto, efficient truck routes and schedules for servicing the collection areas were lacking. Inadequate transfer stations resulted in journeys of up to 40 km each way for collection vehicles to deliver refuse directly to landfills. In the outer districts the problem was low coverage due to lack of transport equipment. The Bank and the GOP agreed on the need to improve the coverage and quality of refuse collection services giving priority to low-income neighborhoods.  -3- 7. Linka8es E.tween Proct. Sectorg. sd Haro-walo1ig Obi.ctiges. Overall project objectives were in line with the Oovernment policy of transferring responsibilities to local government, and Improving the efficiency of urban management for the supply and maitenance of urban services. Because of the increasing Importance of Um4a in the national econowy--accounting for almost half of Pero'l GDP--the development of a sound urban management system in the EL. became the cor. element of the national urban policy. The project was based on this promise with investments focused on urban transport, wholesale market, and solid waste. C. Proiggt Obiective_ and Description 8. The Lim Metropolitan Development Project (Loan 2451-PE) attempted to improve wanagerial capacities in Metropolitan Lima supporting the GOP's decentralization strategy. The project focused on strengthening institutional capacity to Improve the level of efficiency in the provision of urban infrastructure services bys (a) supporting the progressive transfer of urban administration from the Central Government to the Municipality of Metropolitan Limae (b) improving investment capacity within MW; (c) assisting MM's efforts to develop greater autonomy in tax administration and to increase its revenue base; (d) strengthening the institutional and managerial capacity of the En in the areas of urban transport, wholesale markets, solid waste management and municipal administration; and (d) implementing selected improvements of high priority infrastructure and services in the same areas. 9. Decentralization efforts were supported by providing funding for: (i) implementing an already enacted betterment levy; (ii) evaluating the state of municipal finances; (iii) Implementing improvements in accounting systems; and (iv) increasing efficiency in financial and investment planning. 10. In the areas of metropolitan finances and urban management, the main focus was on updating the cadastral system and providing technical assistance and training to strengthen KMIs' planning and resource allocation efficiency. 11. To respond to the basic infrastructure needs while re-directing government policies and investments for the urban sector, the project focused on: (i) strengthening MLM's institutional capacity; and (ii) increasing infrastructure and service coverage in predominantly low-income neighborhoods. Investments in the transport sector focused on linking the Pueblos J6venes with the Central Area, improving traffic circulation and pedestrian safety, and implementing reconstruction works and maintenance activities. Investments in the wholesale market included development of a new market to replace two small markets serving Lima. Improvements in solid waste management included construction of a new transfer station, development of two sanitary landfills, and provision of office, maintenance equipment, and collection vehicles.  12. Project Composents. The project included four subprojects: (a) Uisn Transport (US$60.2 million, or 59 percent of total project base costs) cmpriseds * design and construction of traffic managemet schemes linking low- income neighborhoods to the Central Area, * paving of about 100 km of streets in poor areas, * road rehabilitation and maintenance--patching and repair of 50 km of main roads, * traffic control and accident prevention program, and * technical assistance and training to the Metropolitan Urban Transport Office (OMTU) and the Metropolitan Investment Fund (INVEIMET) In procurement, supervision, traffic engineering, planning, and public transport to address existing institutional weaknesses. (b) Wholesale Market (US$24.7 million or 24 percent of total project base costs) comprised: * design and construction of a new market on an 83 hectares site, with about 30 hectares assigned to retail activities, and 9.5 hectares for administration, services and on-site access roads. An additional 43 hectares were reserved for future expansion; and * technical assistance and training to support the Wholesale Marketing Corporation (EkMSA) in design, construction supervision, market management and operation, and financial and accounting procedures. (c) Solid Waste Management (US$9.4 million, or 9 percent of total project base costs) comprised: * provision of office and maintenance equipment, mobile repair vehicles, tow trucks, field supervision, and new solid waste collection vehicles, and overhaul for existing fleet and spare parts; * construction of a new transfer station, * development of sanitary landfills with capacity to receive all of Lima'e solid waste over 20 years, * technical assistance and training--partially co-financed by the Deutsche Gesellschaft far Technische Zusammenarbeit (GTZ)--to strengthen the efficiency of the Lima Municipal Solid Waste Corporation (ESMLL) in project implementation, and to improve the  -5- skill of district staff engaged in the collection of solid waste, and to promote public awareness, and education; and * implementation of pilot projects to develop safe, effective systems for recycling and cost-effective techniques for refuse ce '.ection. (d) rbaMYyuanagement and Prolect Admnistration (US$6.4 -million, or 8 percent of total project base costs) comprisedt * improvement of fivancial planning and management, * studies to support the development of a city-wide cadastral information system, enforcement of a betterment levy, and the review and execution of additional fiscal measureso * studies to guide long-term strategy planning for urban development in Lima, and * technical assistance and training to strengthen the Metropolitan Development Planning Office (OPDM) of EM. D. Prolect Desima and O rani ation. 13. The process of project preparation was in itself a complex endeavor which, to a certain extent, explains the difficulties later encountered at the implementation phase. Ad hoc addition of components were made to the project initial design without the necessary rigor in preparation. Originally, the project's main focus was on improving urban transport management through the creation of the Metropolitan Office for Urban Transport (OMTU). Decentralization efforts were prouoted through transferring responsibilities for investment planning and maintenance from national to municipal agencies. Responsibility for project preparation was under the staff of the Joint Transport Commission '. Final design was planned to be completed in the third quarter of FY82. Board presentation was scheduled for FY83. 14. In December 1981, the GOP requested Bank's financing for a solid waste manaSeinent Proaram In Metropolitan Lima. Three options were discussed in connection with this proposal. The first was to include the solid waste management program as a new subproject in the urban transport project. The second was to include the program in a proposed urban development project, under preparation. And the third possibility was to finance the program under a separate loan. Although the first option was agreed upon, in December 1982, just two months before appraisal, the final design for the solid waste management 2 This multidisciplinary interagency commission was established in January 1981, and included representatives from the Ministry of Transport, the Ministry of Housing, the Ministry of Agriculture, and the Municipality of Lima. Its main responsibility was to guide the transfer of functions from the national government to the metropolitan council of Lima.  subproject had not been clearly defined yet. Only design criteria for landfills and the transfer stations were agreed at appraisal. 15. In February 1982, additional changes were made in the design of the project to include the construction of a wholesale market. By the end of March 1982, the project had a multisectoral scope and comprised five quite different subprojects, namely: urban transport, wholesale market, solid waste management, city administration and urban rail transit (i.e. suburban railway--final design work ouly). By July of that year, the proj sct scope bad changed from urban transport to metropolitan development with a corresponding change in project title. The context of the project by now was changed substantially, although the project objectives remained the same. The most significant transformation Was the change in focus from a single sector project (urban transport) to an integrated, multisectoral, urban development project with ambitious institutional goals. The loan amount was increased from the original US$60 million equivalent to US$82.5 million equivalent. 16. The changes mentioned above brought about delays in project preparation. The appraisal date was moved from September 1982, to March, 1983. The entire project preparation unit was transferred from the Ministry of Transportation to the Municipality of Lima, and Board Presentation was moved from December 1983 to June 1984. In addition, because of its multisectoral scope, the project bicame heavily dependent on institutional and organizational efficisncy and very close and intensive supervision by the Bank. The attempt to address simultaneously a broad range of subsectors, problems and institutions made this project particularly susceptible to economic and political instability. 17. Finapckng. Sixty five percent of the project total financing was expected to be covered by the IBRD loan, including US$69.2 million in foreign costs and US$13.3 million in local costs. Total financing was distributed as followst US$1 million from GTZ for technical assistance and training in the solid waste subproject; US$5 million from suppliers credits for traffic signals and road maintenance equipment; US$17.5 equivalent from the GOP, to help finance the municipal subproject; up to US$20.2 million equivalentlyear from the MLM, through INVERMET funds'; and an investment of US$2.0 million equivalent by EMMSA from the sale or lease of surplus land or other sources, and US$1.9 million equivalent from EM SA--through a loan from the GOP--for the market subproject. 18. Oraanlzation. Overall project coordination was under the Multisectoral Coordinating Commission (CEC) specially created for this project and chaired by a representative of the Ministry of Economy, Finance and Commerce (MEFC). It also included representatives from ML9M the Public Credit Department of MEFC, the Ministry of Transport and Telecommunications (MTC) and the Ministry of Agriculture. 3 INVZRMZT reoeived funds from fuel tax and vehicle license fees. As the metropolitan finance institution it had the financial and executive authority to enter into and supervise contracts for urban infrastructure on behalf of ML4.  -7- 19. A Municipal Subproject -Coordinator (CMN) had overall responsibility for coordinating the municipal subprojects and reported to the Mayor of Lima through the Municipal Director. The main activities of CMP includedt (i) auditing of project progress; (ii) preparing progress reports to CMCI (iti) identifying supervision and monitoring problemst and (iv) proposing solutions to implementation problems. However, no record of effective participation--or even the existence--of CM? in the coordination of the municipal subprojects was found in project files. According to these files,.all coordinating activities were under CMC. Responsibility for procurement for the municipal subprojects was under MLN, acting through INVERMET. 20. light public agencies were in charge of project executiont INVERMET and the Metropolitan Urban Transport Office (OMTU), responsible for the urban transport subproject; the Municipal Solid Waste Corporation (ESMLL) responsible for the solid waste subprojects the Wholesale Market Corporation (EMMA), responsible for the construction and operation of the wholesale market; and the Metropolitan Cadastre Office (OMC), the General Revenue Office (DGR), the Metropolitan Planning Office (OPDM), and the Budget Unit (UP) responsible for the urban management subproject. E. Prolect Implementation. 21. The project Implementation process was marred from the beginning with persistent difficulties, namely: protracted bureaucratic procedures to legally constitute CMC and to give INVERMET the legal right to enter into project agreements; shortage of counterpart funds; and political changes amidst a continuous economic crisis. As a result, project execution proceeded very slowly. Because of the cumbersome legal formalities and lack of counterpart funds, loan siring took eight months after Board approval (from June 1984, to February 1985) . The loan became effective in July, 1985, five months after loan signature, due to delays in meeting conditions for effectiveness'. The GOP was to transfer funds to the Municipality and to EMSSA. In addition, the 4 In January 1984, the GOP confirmed its intention to go forward with the project despite uevere austerity measures. The Government committed itself to finance 40 percent of total cost. However, at the last minute, one of the financing agencies (Corporaci6n Andina de Fomento) was unable to provide the resources it had been promising and the Government could not afford the full additional amount from its own budget. During negotiations the Bank agreed to a US$82.5 million loan, while the Peruvian delegation agreed to an overall financing plan, including US$5 million in supplier credits, higher Government contribution, and a commiltment from EMMSA to provide US$2 million to fill financing the gap. 5 Conditions for effectiveness included: (i) delivery to the Bank of legal opinions regarding loan agreement, the municipality project agreement and the EMNSA project agreement; (Li) execution of the subsidiary loan agreement between the Borrower and NMQSA; and (iii) registration of the Loan Agreement by the Direcci6n General de Cr4dito PCblico.  -8- Ministry of Economy failed to provide OamU the agreed permanent funding for operations and mangement of the Urban Transport Subproject. This coumitment never materialized and despite the relatively successful implementation experience of the Urban Trasnport Subproject, disbursemento lagged appraisal estimatea. Finally, E2SSA failed to allocate and maintain in the Bank Special Account the agreed sum of US$400,000. Imediately after loan effectiveness, EMMSA asked for a delay in the opening of the Special Account. Serious underfinacitg due to the general suspension of Bank loan disburseomets and lack of continuity In Bank supervision after May 1987,6 further frustrated project implementation. 22. The final result of the difficulties mentioned above (para 21) is that the Institutional objectives of the project were not achieved. The institutional strengthening of INVERMET and OMTU to Improve urban transport management in Lima did not materialize. Likewioe, the effort to develop greater autonomy ln tax administration to improve municipal finances was not successful. Most of the airphoto surveys were not processed and less than half of the City of Lima's cadastre system was updated. Until today, the Central Government administers the eadastre system and controls the property tax. 23. The Urban Transoort Suboroject was the project's major achievement (see table 4). Careful subproject preparation and efficiency in planning and management mostly explains this performance. Road rehabilitation and street paving in low-income areas were generally on schedule, and so was the technical assistance. These accomplishments notwithstanding, the Borrower's failure to officially notify the Bank of bidding for the first four sections of a transport improvement program--The Electric Train Project--prompted the Bank to request cessation of the construction of the bus corridors that were expected to be adversely affected by the electric train program. The GOP failed to inform the Bank of the proposed investment and to provide information on ite technical, economic, financial and institutional impact on the transport subproject. (Art. IV, Section 4.02 of the Loan Agreement). Studies carried out by CHC revealed a duplication of investment through the construction of the electric train and the Tupac AmarfiCaquet& and the Alfonso Ugarte bus corridors. Furthermore, the construction of these busways would no longer be physically possible as the train was to utilize almost all of the available right-of-way. The Bank canceled approximately US$12 million allocated to the construction of these corridors. This caused delays in the execution of engineering works for the bus priority routes which had been conceived as a low-cost, first step approach to solving some of Lima's most acute traffic problems. In 1986, MLM agreed with the Bank not to initiate works for the electric train on the Tomis Marseano and Pachacutec corridors until 1988/89. The train project, instead, was supposed to start in an area not covered by the Bank project. However, spurred by the promise of easy bilateral funding, the Government decided to disregard the agreement with the Bank. This certainly became a major issue given the disparity between the 6 Prom March of 1987 to May of 1991, no supervision missions were carried out.  -9- train's US$400 million estimated coat and the proven low-cost alternative offered by the Bank project. 24. $The iupl.mntation schedule of the Sglid Wasts subproject was adversely affected by lack of counterpart funds ond administrative and staffing problems. However, moderate results were achieved in the microsanitery fills pilot program as well a. in the construction of onm of the transfer stations. The microsanitavy fills pilot program wea to improve the disposal of traditionally abandoned refuse. This project component was also instrumental in identifying potential sites to bo used as large capacity, long-term macro sanitary land fills. A side effect of the pilot program was the creation of new public green areas replacing the previously abandoned lots. The trash bins pilot program was also successful. Through this program some 60 trash bins were strategically placed near key Intersections. This subproject also benefitted from the technical assistance provided by GTZ. 25. Administrative and financial difficulties hindered the implementation of the Urban Management subproject. This was especially the case for the Lima eadastre. Lack of counterpart funds and skilled personnel eventually jeopardized the whole implementation effort. 26. Implementation of the Wholesale Market subproject failed. Early during project preparation there were clear indications that this subproject was going to be problematic. Lack of counterpart funds was a chronic problem. 1MM1& repeatedly postponed the opening of the special account needed to begin construction (para 21) even though the Bank had already given its approval. 27. Two main issues affected project implementation: (i) the lack of adequate and reliable counterpart financing; and (ii) the inefficient managerial capacity of the implementing agencies. In retrospect, the project design failed to accurately address two central questions first, whether the MM had the capacity and the will to address its management problems; and secondly, to what extent fiscal reform and improving local financial capacity were feasible at the pace envisaged under this rather complex project. 28. Proiect Risk Assessment. Four major potential risks were correctly identified at appraisal: (i) difficulties in generating local counterpart funds; (ii) difficulties in recruiting and maintaining adequate professional staff; (iii) problems associated with the participation of the Central Government and the MIM in the project; and (iv) possible implementation delays. In retrospect, however, the Bank was too optimistic in regard to the viability and timing of the institutional changes as well as GOP's commitment. to the project. Counterpart funding was to be assumed by linking local funding to the earmarked revenues of INVERMET, and earmarked fuel taxes would provide at least US$20 million. Also, improved tax collections, new taxes and enhanced revenues shared with the Central Government were considered key elements to overcome the acute shortage of funds at the local level. Furthermore, for the municipal works, loan disbursements were front-loaded to minimize financial contributions from the Central Government during the initial years of project implementation. The possible difficulties in recruiting and maintaining adequate personnel was expected to be solved by providing substantial technical assistance and training. Risks associated with the joint participation of the Central Government and the MLM in project  10' - implementation would be minimixed by establishing CMC as the overall coordinating body. Because the physical components of the project were considered very simple in nature, no major difficulties were anticipated during the proposed implementation schadule of seven years. However, judging by the project implementation experience, it is clear that the possibility of project failure on financial and institutional grounds was quite high. 29. Lack of detailed information combinod vith the fact that only a small part of the project was implemented has made it difficult to ascertain the final status of the subprojects . However, from the available data it is possible to advance some conclusions regarding overall project performance. 30. The inadequate level of institutional development and the lack of GOP's commitment played a central role in determining the performance of the project. Institutional goals were not achieved. The progressive transfer of urban administration functions from the Central Government to the Municipality did not take place. The Borrower lacked the essential political commitment to set overall targets for the fiscal performance of municipal administrations so as to effectively carry out the transfer of responsibilities. As a result, much of the project's efforts to strengthen Lima's metropolitan institutions was wasted. 31. The economic environment during project implementation (critical changes in policy, sharp falls in government revenues, hyperinflation, reduction in public expenditures) explains the project's limited achievements; the eand result of which was the suspension of Bank disbursements in May 1987, followed by the cancellation of most investments programmed under the project. Consequently, most of the expected benefits did not materialize. For example, investments in infrastructure remained incomplete; the wholesale market subproject was not implemented, and only a small part of the Lima's cadastre system was completed. These failures notwithstanding, the project showed some positive results. The road maintenance, traffic management sad the solid waste management programs did accomplish some selected objectives. About 98 percent of paving of unimproved streets in low-income areas as well as 100 percent of the road maintenance and traffic management program were completed (table 4). These two programs together have improved traffic circulation and accessibility of the poorer suburbs to the Central Area. The solid waste management subproject also achieved some results. Construction of the new transfer station was completed and 77 percent of the programmed office, maintenance and transport equipment was procured. The change in Lime's administration in 1990, led to a shift in investment priorities in favor of more "visible" works, such as nw roads and interchanges while programs such as improvements in the system of refuse collection and processing were abandoned. 7 The last reports received by the Sank--Data Report as of September 1, 1990, and six Month Report for the period ending June 30, 1990--contained less than detailed description of civil works.  -'}1 - 32. Because of the cbaracteristics of the transport subproj.ct--mainly maintenance and improvements in traffic efficiency--the project was expected to have a very high rate of return (over 70 percent). Benefits were expected to accrue to all segments of the city's population, although 56 percout of project costs and 53 percent of its benefitv wore attributed to the relatively poor (those households with monthly Income under U$225 In 1981 prices). Road pavtng and improvements in the northern and southern corridors and expanded refuse collection services were supposed to serve directly the low-incaome neghborhoods, while the wholesale market was expected to benefit some two-thirds *f the low- income population of the metropolitan area. The main benefits from all the transport subproject components were expected to be higher travel speeds, producing savings in passenger time and vehicle operating costs. Also, this subproject was expected to have a direct effect oan improving Per6's bslance of payments through reduction of fuel usage and reduced vehicle operating costs $. However, because of partial completion of the project and lack of reliable data, there is no practical way to estimate the project's real impact on the national economy and on the efficiency of the Lima economy. The same applies to the distribution of the project's social benefits. G. Proecgt Sustainabilitv 33. A review of project implementation experience suggests that the project had a chance to be sustainable if the institutional changes envisaged at appraisal had taken place. First, the proposed transfer of functional responsibilities