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Environmental Review Summary from World Bank/IFC, Ferrocarril Transandino S.A. l Lorenzo Sousa Debarbieri’s company

This Environmental Review Summary is prepared and distributed in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. 

Any documentation which is attached to this Environmental Review Summary has been prepared by the sponsor and authorization has been given for public release. IFC has reviewed this documentation and considers that it is of adequate quality to be released to the public but does not endorse the content.

Environmental Review Summary

Project number

10024

Project name

Peru Rail

Country

Peru

Sector

Rail Transportation

Department

Gbl Infrastructure & Natural Resources

Company name

Ferrocarril Transandino S.A.

Environmental category

B

Date ERS disclosed

May 11, 2001

Status

Completed

Previous Events

Invested: November 18, 2002

Signed: June 27, 2002

Approved: May 7, 2002

Project description

Under the 30-year concession contract, the Peruvian state railway ENAFER transferred fixed assets and rolling stock of the Southern line and Southeastern line to Ferrocarril Transandino S.A. According to the Concession Agreement, the shareholders of the Concessionaire are allowed to own one railway operating company. Orient-Express and Peruval formed Peru Rail S.A. and took over operations of the network on September 21,1999. In addition, the shareholders formed Meviasur S.A.C., a company responsible for rolling stock and infrastructure maintenance. The project comprises the Project Company’s investments for upgrading and rehabilitation of the railway network, the rehabilitation of rolling stock, the purchase of equipment and radio system and other investments from 2001 to 2004. In addition, the project includes the refinancing of investments in 2000. The Project Company is expected to improve and maintain the railroad according to Class II American railway standards as specified in the bidding documents and the Concession Contract. Major parts of track and superstructure will be upgraded, locomotives will be maintained and replaced, and the telecommunication system will be replaced.

Environmental Category B disclosure requirements

IFC requires that this document is made available through the World Bank InfoShop and to the locally affected community no less than 30 days prior to project consideration by the IFC Board of Directors.

The Summary of Project Information (SPI) provides details of where the ERS has been made available to the locally affected community. The SPI must be sent to InfoShop no less than 30 days prior to project consideration by the IFC Board of Directors.

To view the Summary of Project Information(SPI) for this project, click here

Environmental and social issues

This is a Category B project, according to IFC’s Procedure for Environmental and Social Review of Projects because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. The review of this project consisted of appraising technical and environmental and social information submitted by the project sponsor. The following potential environmental, health and safety and social impacts of the project were analyzed:

· implementation of an environmental management program;

· secondary development impacts;

· management of cultural property; management of right-of-way encroachments; 

· contamination of land and facilities from current and past operations;

· control of liquid effluents and protection of water resources;

· waste management practices in railyards and repair shops;

· vegetation management on the right-of-way;

· wood supply for railway sleepers;

· socioeconomic impact of downsizing of labor force;

· employee training and health and safety programs;

· fire and life safety; and

· public safety and emergency response.

Proposed mitigation for environmental and social issues

The sponsor has presented plans to address these impacts to ensure that the proposed project will, upon implementation of the specific measures agreed, comply with applicable host country laws and regulations and World Bank/IFC requirements. The information about how these potential impacts will be addressed by the sponsor/project is summarized in the paragraphs that follow. 

Implementation of an Environmental Management Program; the sponsors are committed to developing a system of environmental management for the railway operations. IFC recommends that an Environmental and Social Co-ordinator is appointed or retained in order to ensure that these issues are integrated into Peru Rail’s existing management systems. An environmental and social review commissioned by Peru Rail will also be used in external consultations with local interest groups, communities and other stakeholders. It will describe current railway operations and their interface with local communities; environmental improvements and community initiatives which have been carried out since Peru Rail took control in September 1999, together with proposals for the integration of environmental and social issues into the company’s existing management systems. A liability assessment was carried out in 2000. Peru Rail will instigate clean-up operations on the understanding that funds will be made available to the company by the Government or through renegotiation of the Rail Access Agreement. 

Cultural Heritage; Peru Rail will operate in compliance with the WBG policy on cultural property and has actively promoted the sensitive restoration of old railway buildings, coaches and other railway memorabilia. The company is aware of constraints on the refurbishment of Arequipa station which is an historic building. No redevelopment of the property is possible under Peruvian law; the company will refurbish the building to bring it back into active use and according to local regulations The old mansion that used to be the headquarters of the Southern Railroad in Arequipa has been transferred to the Museum of Contemporary Art Trust to provide a museum for Arequipeno art as well as works from other parts of Peru and abroad.

Management of Right-of-Way Encroachments; market stalls and temporary vendors have encroached on trackwork in Aguas Calientes and Juliaca. In Aguas Calientes, these stalls will be relocated by the municipality to a newly built handicraft market by mid – summer 2001. Only one train passes each day along the line to Juliaca moving at no more than 10kph; the train uses klaxons at all times moving in and out of these areas and train guards keep an active lookout.

Contamination of Land and Facilities from Current and Past operations; a land liability assessment was carried out in 2000; Peru Rail is currently negotiating with the authorities regarding liabilities created from ENAFER operations. Refurbishment of main operational stations as well as the upgrading of maintenance shops has already been a priority. Peru Rail need to provide additional containment in areas surrounding existing fuel storage tanks to prevent surface contamination or migration of contaminated drainage water. Peru Rail are to replace old fuelling equipment reducing on-site leakage, as well as the potential for additional contamination.

Track and Infrastructure Repair ; mitigation measures include erosion/sediment control, as well as the re-use and proper disposal of recovered ballast, rails and sleepers. Noise levels at the boundary of railway depot operations will not exceed World Bank requirements due to the distance of noisy operations from sensitive receivers. Flange “squeal” on parts of the line will be reduced in future as additional track maintenance (including lubrication) is completed. Emissions generated from diesel locomotives and maintenance areas (including fumes from paints, glues and fiber-glass resins) need to be controlled.

Control of Liquid Effluents; liquid effluents from main station facilities are discharged to local sewerage networks. Municipal wastewater treatment upgrading is being implemented in Cusco, Aguas Calientes and Puno.

Waste Management Practices – Railyards and Repair Shops; solid waste is disposed in designated areas in accordance with local regulations and to the satisfaction of local authorities.

Vegetation Management on the Right-of-Way and Sustainability of Sleeper Supply; Peru Rail will introduce herbicide controls and design its program to be consistent with WBG Guidelines. Existing sleeper stocks will be used short-term, however, IFC has recommended steel sleepers long-term, as usage will reduce ballast requirements by approximately one third. 

Socioeconomic Impact of Labor Force Downsizing; Peru Rail employed 787 out of 1680 ENAFER staff in August/September 1999. Staff numbers are now at 582, with between 40-70 expected to be made redundant following improvements to communications and crew size changes (from 3 to 2). The GoP paid retrenched ENAFER staff all labor and social benefits granted under applicable Peruvian laws, contracts and union agreements. Peru Rail assumed no liabilities from the retrenchment and were only “obliged” to hire ENAFER staff “operators” who also needed to be on the ENAFER payroll as of December 31, 1998. Downsizing under Peru Rail has since followed Peruvian labor law. The company has a good relationship currently with staff and is working to improve conditions for employees at all levels. Peru Rail are near to agreeing the terms of a new standard to be applied to operational staff; terms will closely reflect FRA standards. Peru Rail has since worked with about 100 ex ENAFER employees in Cusco to help them set up SME type businesses to contract services to Peru Rail; the company is considering doing the same in Puno. Peru Rail also has a management policy to outsource on-board merchandising locally; all products are “Made in Peru” if possible. As a result, material to re-cover train seats has been bought in local markets with Peru Rail also helping these market vendors to organize themselves into an association and create an invoicing system. This group is now selling material to local hotels for bedspreads, curtains and other uses.

Staff Housing; at the time of handover, Peru Rail inherited 550 employee houses. Either ex-ENAFER staff or their relatives presently occupy 38 on the southern line and 18 on the south-eastern line. Unoccupied houses are guarded to prevent occupation by squatters. Peru Rail is working to solve this problem; in some cases Peru Rail has drawn up leases to formalize the process. A portion of the rent is paid to the Ministry of Transportation, the rest to Peru Rail. In other cases, the Ministry of Transportation has initiated legal action to try and recover the houses. All the houses are due to be passed back to the government in 5 years time. 

Employee Training and Health and Safety Programs; key elements include the development of clear policies, effective procedures, employee training and management oversight. A health and safety program for accident prevention, use of personal protective equipment and response to potential emergencies is implemented by Peru Rail with the support of Dupont. Employees exposed to noise above 85 dBA or dust levels above 10 mg/m3 are already required to use personal protection equipment. Audiometric testing is carried out on the workforce once per year on the workforce, together with annual medical examinations.

Fire and Life Safety; Peru Rail transports hazardous materials, caustic and acid substances and liquid fuels. Transportation safety (including state of the art container design) and response systems based on US best management practices are already implemented.

Public Safety and Emergency Response; an Emergency Response Plan has been established in conjunction with the public authorities to handle major transportation and hazardous materials emergencies.

Interface with Local Communities: on the south-east line, Peru Rail is operating an average of 5 trains a day with an increasing during the peak season (June to October). A social service provides access to all stations along the line. The majority of tourists travel between Cusco and Aguas Calientes (AC) by rail and then by bus to Machu Picchu. Rapid urban growth in Aguas Calientes (servicing the tourism industry for the Citadel at Machu Picchu has been the focus of international concern. As of March 2001, significant progress had been made towards controlled development planning. A new urban plan limits development with the Programma Machu Picchu (a bilateral program financed by the Finnish Government) also financing liquid and solid waste management improvements. Ticket prices to enter Machu Picchu have recently been raised to $20, $2 of which will be set aside as funds for education, health and municipal services in Aguas Calientes.

Peru Rail is working with the municipality, tourism authorities and NGO groups to collectively address problems in the area. They are providing a de facto “waste management service” to replace ad-hoc local arrangements, and collect solid waste from Machu Picchu, Aguas Calientes and other small communities along the railroad, as well as designated drop off sites along the Inca Trail where porters leave bagged garbage. At present, the refuse is transported on the train and offloaded at Cusco at a local landfill facility. A purpose built landfill is to be constructed in the Machu Picchu area in the future as part of the Programma Machu Picchu; a site has been selected. Peru Rail is also partnering with San Miguel S.A.and Coco-Cola to set up a plastic recycling program for Machu Picchu. Co-ordination responsibilities are shared with the Municipality. After a three-month trial, the project may be replicated in Puno. Peru Rail has also initiated community clean up days and a beautification pilot project to improve local gardens backing onto the railway tracks along the switchbacks between Cusco and Machu Picchu.

Peru Rail recognize the importance of developing good community relations and is keen to ensure that financial support gets directed to initiatives which provide long-term sustainable benefit to the communities linked to the railroad. Peru Rail has provided IFC with a detailed description of various community projects and tourism initatives that it is involved in. For example, in Ollantaytambo, (a midstation on the Machu Picchu line) an Arts and Crafts Group Co-operative and a Corn and Fruit Co-operative have been organized with the help of Peru Rail. Both are required to comply with specific safety restrictions and participate in cleanup campaigns. Only 30 vendors can enter the station to sell to tourists at any one time; the group also rotates membership. Peru Rail is also offering marketing and information sessions bi-monthly and will soon provide each group with a permanent area where they can build and operate a market as well as additional stalls. 

Interface with Tourist Destinations: Peru Rail is committed to the promotion of sustainable tourism in Peru and is in active discussion with government officials. The company is also a participant in local initiatives to protect and upgrade facilities at MP and the surrounding area, as well as other Peruvian tourist destinations. Machu Picchu ( a World Heritage Site) is very much the anchor of Peru’s developing tourism industry, however, the Tourism Ministry recognizes that in the future, in order for tourism to be sustainable, priority must be given to “diverting” tourists to a wider range of destinations thereby spreading out the peak flows. Peru Rail is a major element in that plan and has already altered train timetables in direct response to requests to even out the number of passengers arriving at Aguas Calientes throughout the day. Tourists use local buses (currently the only means of access) along a switchback road to the entrance to Machu Picchu. Between Ollantaytambo and Aguas Calientes, the exsting railway track enters the Machu Picchu National Park Reserve. Here single line trackwork laid in 1929, operates in steep narrow canyons within a very narrow right-of-way, with room for only one railway line or roadway. All railway operations undertaken within the Park Boundary are undertaken with the necessary permits from INRENA (the Peruvian National Park Management Authority). A vegetation management plan has just been approved by this Authority; no herbicides are allowed.

There is still no unilaterally accepted number of tourists allowed to visit Machu Picchu. The following number of potential tourists was identified by INC in 1998:2,545 persons simultaneously;3,400 persons daily;700,000 persons annually with visitor numbers only reaching “critical” in 2005. More recently, INC (the Peruvian Authority for Cultural Heritage) proposed the following numbers if visitors could be spread throughout the day:2,625 persons visiting Machu Picchu simultaneously;6,800 persons visiting Machu Picchu daily with 1,950,000 persons annually. A maximum number of 500 visitors per day has been adopted for the Inca Trail. The actual number of tourists reported as visiting Machu Picchu on an annual basis for 1998 was 334,563 and 382,545 in 1999 (data supplied by Programma Machu Picchu). Passengers carried by Peru Rail in 2000 totalled 456,188 one-way trips. Peru Rail projects a drop in passenger numbers in 2001. Numbers in 2002 will be at about 230,000 passengers round-trip. Projected annual figures in 2002, 2004, 2006 and 2008 are – 536,992; 588,199; 618,570; 648,913 one-way trips and 270,000; 290,000; 306,000; 325,000 passengers round trip.

Between Cusco and Puno, the existing railway passes through high terrain and isolated valleys eventually running parallel to Lake Titicaca. Lake Titicaca is a Ramsar site and international waterway, managed by an autonomous authority comprising Bolivian and Peruvian technical specialists and management. The lake has been seriously impacted by wastewater discharges over many decades and serious eutrophication is apparent. International donor support (including major funding from the Japanese) has been provided to improve wastewater treatment in the town. Peru Rail has taken their freight ferry, which used to travel across the lake between Puno and Waqi in Bolivia out of service and replaced it with a direct road transport link. There are no plans to reinstate this service. Current and future business activities associated with Peru Rail in Puno do not invoke the World Bank Policy on International Waterways.

Peru Rail intend to promote the use of the railway for tourist destinations such as Arequipa, and Colca Canyon. There is currently a railway station at Arequipa and Puno but Colca Canyon is only linked with the project as Peru Rail intend to offer a stopping point at Sumbay (40 minutes by road from the main access road into the Canyon). Peru Rail estimate 840 passengers will disembark at Sumbay per month compared to an annual figure of 80,000 tourists who currently visit the area by road.

Conclusion

Accordingly, IFC concludes that the proposed project will meet the applicable World Bank/IFC environmental and social policies and the environmental, health and safety guidelines upon successful implementation of the agreed mitigation measures.

Monitoring and compliance

IFC will evaluate the project’s compliance with the applicable environmental and social requirements during the lifetime of the project by reviewing the annual monitoring reports (AMRs) prepared for the project covering: (i) the status of implementation of any measures contained in the Environmental and Social Action Plan and (ii) ongoing performance of project-specific environmental, health and safety and social activities as reflected in the results of periodic and quantitative sampling and measuring programs. Site supervision visits would also be conducted if required.

Source:  THE WORLD BANK GROUP 

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