Peru - Infrastructure Concessioning Technical Assistance Loan Project

Report No. PID6054 Project Name Peru-Infrastructure Concessioning Technical Assistance Loan (+) Region Latin America and the Caribbean Region Sector Private Sector Development Project ID PE-PA-55231 Borrower Government of Peru Implementation Agency Private Concessions Promotion Commission (PROMCEPRI) Date this PID Prepared October 14, 1997 Planned Appraisal Date April 1998 Planned Board Date June 1998 Background: 1. Since 1991, the Government of Peru has undertaken an ambitious program of deregulation and privatization of $7 billion of state assets and the break-up of existing state monopolies in major infrastructure sectors of electricity, telecommunications, mining, minerals etc.. The privatization program in Peru has now moved on to a second phase where the Government no longer plans to privatize outright, but plans to invite private participation in infrastructure through concessions such as Build Operate Transfer arrangements, especially in sectors such as roads and airports, which are naturally more amenable to concessions than outright sale. 2. The concessions program now being planned is ambitious. In the next three years, the Government plans to prepare and bid out concessions for 12 toll road networks traversing the length of the Pan-American highway, 4 airports (including the Jorge Chavez airport in Lima), 4 ports (including Callao that carries 70 percent of the country's shipping and unloading activities), the Mantaro-Socabaya transmission line, the cellular band "B" for areas outside Lima as well as pilot model concession projects in social sectors that may be then duplicated by municipalities and other bodies. It should be noted that the majority of the concessions mentioned above, with the noted exception of the Pereferico around Lima will be for operation and maintenance and limited facilities improvement. 3. A general legal framework for the operation of concessions in the transport sector already exists. Decree Law 676, for example, declares the repair and maintenance of the country's road infrastructure a matter of national interest and allows concessions to be granted to private companies or individuals. However, a new Transport Law is currently in Congress to allow for a more optimal assignation of responsibilities and obligations between the public and the private sector. The Ministry of Transport, Communications and Housing is currently responsible for approving the rates to be charged concessionaires and to authorize and supervise the installation of toll stations. The law for the creation of a new  regulatory agency is also being drafted and the Government is refining its policy on the criteria for granting concessions, the pricing of transport services, the risk allocation between the public and the private sector and the creation and development of an independent regulatory regime, as exists in the other infrastructure sectors. The design and the establishment of the regulatory framework and regulatory agency is being supported through the Inter-American Development Bank. Project Objectives: 4. To assist in the implementation of this ambitious program of infrastructure concessions, the Government of Peru has requested the World Bank for a Technical Assistance Loan. The main objectives of this proposed project are: ? To improve the quantity, quality and economic efficiency of infrastructure through increased private provision and market competition, ? To free public resources from investment in economic infrastructure to other poverty targeted social programs, and ? To develop capacity the Government to design and implement the private management of public investment. Project Description: 5. As currently envisaged, the project will have three components: a. Concessioning - This component will support specialized consulting services for pre-feasibility studies and the design and bidding of concession contracts for infrastructure facilities. An initial pipeline of concessions has been defined, largely in toll roads, ports and airports. However, the project design will be flexible and may also support concessions in other sectors as warranted. In particular, the project may support pilot or model concessions in social sectors such as education and health, though it is unlikely to support the concession contracts planned for the electricity transmission, cellular telefony and irrigation sectors. b. Institutional Strengthening - Development of institutional capacity of PROMCEPRI and its Special Committees in charge of specific concession transactions. c. Improving Market Competition in Infrastructure - Specialized consulting services to assist the concessioning agency or regulatory agencies in undertaking market structure studies for designing concessions and/or studying sectoral regulation for promoting market competition and efficiency. Project Financing: 6. The overall project is expected to cost $46 million, of which about $15 million is likely to be financed by the World Bank. Another $3 million is likely to be financed through the IDB, largely for the support of the development of the regulatory framework and the setting up of the regulatory agency. The rest is likely to be -2 -  financed by the Government. Project Sustainability: 7. PROMCEPRI sees its role as a catalyst of devising approaches for privatizing public investment, and plans to organize networks among government entities at all levels to decentralize the preparation of such innovative approaches. To achieve this goal, the project will also include activities to share experiences from the first concessions and to train staff in other Government agencies. Sustainability of project concessions will be achieved by ensuring the development of an appropriate and independent regulatory framework. Project Implementation: 8. The project will be executed by PROMCEPRI, an entity established through Decree Law 839 as the sole agency responsible for the concessions program in Peru. PROMCEPRI consists of a small Executive Secretariat and several Special Committees and is overseen by a high level inter-ministerial commission. The organization of PROMCEPRI is modeled on the very successful experience of COPRI, the agency which implemented the privatization program and the Bank's Privatization Technical Assistance Loan. This model for project execution includes the following features: ? A high level inter-ministerial committee to provide strategic policy guidance, decision-making and political support. This Committee is comprised of the President of the Cabinet Council, the Minister of the Presidency, the Minister of Economy and Finance, and the Minister of Transport, Communications, Housing and Construction. ? A small Executive Secretariat within PROMCEPRI headed by a well respected senior official and experienced staff, many of which have participated in previous privatization transactions. ? Decentralized Special Committees in charge of the actual transactions in different sectors. The Special Committees have public and private sector members. The dual approach of a centralized secretariat and decentralized committees allows for sectoral variations and innovations while benefiting from the coordinating role of the Executive Secretariat. ? Specialized external consultants to support each Special Committee. ? Defined mechanisms to ensure coordination between the design of concession transactions and the sectoral policies being set by Ministries. ? All project expenditures and disbursements managed by a special procurement agent - UNDP, Lima. Contact Point: The InfoShop The World Bank 1818 H Street, N.W. -3-  Washington D.C. 20433 Tel: (202) 458 5454 Fax: (202) 522 1500 Note: This information is for an evolving project. Certain components may not necessarily be included in the final project. Processed by the InfoShop week ending February 27, 1998 - 4 -  Annex Environmental Aspects: The project will not undertake any direct investment in infrastructure sectors. Nevertheless, it will support the provision of technical assistance to undertake technical studies, economic and financial analyses and environment audit and impact assessments as well as the hiring of financial advisors for the preparation of bid documents for infrastructure concessions. Thus, background studies will follow appropriate environmental procedures and the preparation of the bid documents will ensure that the concessionaire of the infrastructure facility follow appropriate environmental procedures. Given that the sub-projects to be supported through this project will not be specified up-front, the World Bank and the Government will reach agreement during project preparation, on the environmental procedures to be followed for each sub-project. In all cases, these procedures will, at the minimum, follow World Bank standards and each sub-project will have an adequate environmental audit and/or assessment, and the bid documents will require that the concessionaire meet certain environmental obligations. 5