Page 1 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB2670 Project Name PE Low Income Housing Region LATIN AMERICA AND CARIBBEAN Sector Housing construction (50%);Housing finance and real estate markets (40%);Micro- and SME finance (10%) Project ID P101427 Borrower(s) GOVERNMENT OF PERU Implementing Agency Ministry of Housing, Construction and Sanitation (MVCS) Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared December 4, 2006 Estimated Date of Appraisal Authorization May 2007 Estimated Date of Board Approval July 12, 2007 1. Key development issues and rationale for Bank involvement Peru’s housing situation continues to deteriorate—particularly for the poor. The supply of formal, new middle- and low-income housing in Peru is vastly inadequate in comparison with the historic backlog in supply, the rate of new household formation, and the deteriorating quality of housing stock. In parallel, the demand for incremental or progressive housing solutions remains largely unmet, and urban upgrading programs are not reaching a scale commensurate with demand. Approximately 68 percent of Peruvians live in informal settlements or slums. The Government of Peru estimates that the total deficit for housing stands at 2.2 million units – of which 800,000 units correspond to a backlog in quantitative terms and approximately 1.5 million units account for the stock of informal housing requiring qualitative or progressive improvements. In recent years, Peru has taken important steps to modernize institutional arrangements in the housing and urban development sector. A Ministry of Housing, Construction and Sanitation (MVCS) was created in July 2002 and established a short-term National Housing Strategy 2003-07, that laid the groundwork for broad-based institutional and policy change in the housing sector. Prior to these developments, there was little coordination among key government institutions on housing and urban development policy issues. This has resulted in several programs targeting a range of income levels. The principal decentralized agencies and programs of the Peruvian housing sector are Fondo MIVIVIENDA 1 (FMV) and the Banco de Materiales (BANMAT). The Bank is uniquely positioned to support the Governme nt of Peru’s program. First, the proposed operation is clearly included as a key priority within the Country Partnership Strategy (CPS) that has been negotiated with the new Garcia Administration and is scheduled for board presentation in December 2006. Second, the Bank has extensive and longstanding global experience in the provision of both technical assistance and investment and policy-based lending in the housing sector. Finally, the proposed Program has a tremendous potential poverty and developmental impact. It is estimated that over 56 percent of Peru’s poor live in cities and towns – mostly in slums and informal settlements with limited 1 FMV is also known as the Housing Promotion Mortgage Fund Page 2 access to basic services. Facilitating access to improved and new housing solutions at rates commensurate with demand would have a significant impact on the quality of life for poor Peruvians. 2. Proposed objective(s) Program Objective : The overarching objective of the proposed Program is to significantly and sustainably increase the provision of incremental and finished low-income housing solutions for the bottom three quintile income segments in Peru by facilitating access to an integrated package of mortgage lending, credit-linked subsidies, mortgage insurance, and urban upgrading. Project Development Objective (APL 1) : The objective of the proposed first Adaptable Programmatic Loan (APL) is to facilitate improved access to incremental and finished low-income housing solutions for the three lowest income quintiles through support to existing credit-linked subsidy instruments and related investments. Specifically, the first APL will aim to: (i) provide initial support to the Government in areas where investment would have a high impact on poverty; (ii) support proven and well-designed instruments and methodologies for the delivery of low-income housing; and (iii) facilitate critical technical assistance and analytical work that will lay the foundation for sector reforms to be implemented under the second APL stage. 3. Preliminary description Instrument and Program It is proposed that the operation should be structured as a two-stage APL over a six to eight year period. Both stages of the APL will be focused around clearly distinguishable short, medium, and longer-term objectives and targets with clear policy-related triggers. APL 1:3-4 years ($250m) : The proposed first stage of the APL would aim to address three key short-term objectives: (i) support proven high-poverty-impact interventions; (ii) finance the rollout of well-designed subsidy products that address important gaps in the low-income market; and (iii) support technical assistance and studies that will help to establish the analytical foundations for sector reforms and new product and instrument development. A critical outcome of APL I will be to redesign the housing subsidy program focusing on the development of an integrated suite of products that could more effectively meet the existing gap in reaching key low-income market segments. APL 2: 4-6 Years ($250m) : The second phase of the proposed APL would aim primarily to: (i) support the implementation of a series of structural reforms in housing subsidy policy and land use management, zoning, and regulation practices; (ii) pilot second generation instruments and products ( e.g. local currency-denominated mortgage insurance products, housing microfinance, financial instruments for low- income land development, etc.); (iii) expand support for urban upgrading through support for citywide strategies; and (iv) provide a technical assistance window for further studies, analytical work and product development. Under APL II, the Government would effectively implement the reformed integrated subsidy program that will be redesigned under APL I. The proposed loan would finance these new instruments through a combination of liquidity facility and direct investment mechanisms. APL II will also aim to pilot and evaluate the performance of a series of ‘second generation products’ developed under APL I with the aim to potentially scale up these instruments in subsequent stages. Lastly, APL II would continue to finance the MiBarrio upgrading program, but under a revised citywide strategic focus. Components for APL 1 : It is envisioned that the proposed first APL will support three key investment and technical assistance components. Page 3 Component 1 - Liquidity Facility for FMV ($175m) : The component would finance the creation of a liquidity facility for FMV to support the rollout of the new FMV product aimed at the $10,000 to 20,000 segment of the housing market. Specifically, the facility would support both the good payer subsidy (a flat $3,000 upfront subsidy). The World Bank will also provide a credit enhancement for the 80 percent refinancing that FMV offers to commercial banks making mortgage loans. The liquidity facility could also be used for specific programs aimed to facilitate access to construction finance and bridge lending for small and medium-sized developers. In structuring the facility consistent with OP/BP 8.30, the team will reflect on lessons from Bank experience on the design and management of lines of credit (LOC) as outlined in the recent OED review. Component 2 - MiBarrio Urban Upgrading Program ($70m) : The proposed component would initially finance a series of upgrading subprojects currently in the MiBarrio pipeline. These subprojects would be appraised during preparation and the task team will aim to ensure that a transparent eligibility framework was applied in the selection of these investments. Financing for this initial sample of subprojects would be accompanied by an extensive learning, monitoring, and feedback framework that would inform the redesign of a broader Government program. In parallel, the component would finance the preparation of implementation of a second and potentially third pool of subprojects that correspond to a redesigned MiBarrio Program. It is anticipated that this reformulated program would be organized around a more strategic, citywide approach to upgrading and include high quality technical assistance to beneficiaries in design, constr uction, and materials purchase (along the lines of the highly successful “ Patrimonio Hoy ” program run by Cemex in Mexico). An output based aid (OBA) type instrument for subsidizing household connections for water and sewage will be piloted in cooperation with the parallel World Bank water and sanitation project. During preparation, the task team will evaluate a range of possible design options including the use of umbrella agreements with cities, municipalities, and/or departments. The component will finance under APL 1 a package of only basic infrastructure services including tertiary water, network sanitation, roads, drainage, public lighting, electricity connections and related community infrastructure. The Project will not finance in this first APL investments in primary or trunk infrastructure. Component 3 - Technical Assistance ($5m) : The proposed operation will finance a series of technical assistance activities and studies that aim to: (i) systematically address underlying gaps in knowledge on the microstructure of low-income housing market dynamics in Peru through a series of analytical studies; (ii) support the redesign and development of an integrated housing subsidy program; (iii) support the development of new ‘second generation’ products that may be piloted in subsequent APL stages; and (iv) facilitate a redesign of the MiBarrio urban upgrading program. The component will also finance retroactively, through the use of a PPF, preparation activities and critical studies required at or prior to effectiveness. Much of the Technical Assistance (TA) program will be front-loaded and the recommendations of the studies will feed into the actions required for completion of the second phase triggers. The team will work with the Government during preparation to further specify the range of TA and analytical work required under APL I. Institutional arrangements The Ministry of Housing, Construction and Sanitation (MVCS) will serve as the project implementing agency. A project management group will be established under the direction of the Vice Minister for Housing and Urbanization. The core project management group will include a small number of policy and technical specialists and will rely on considerable coordination and co-execution with other key institutions in the sector. In particular, Component One of the Project will be operated by the Fondo Mi Vivienda (FMV), a limited liability company controlled by MVCS and created under the Fondo Nacional de Financiamiento de la Actidivad Privada (FONAFE). Similarly, Component Two will be implemented with the assistance of a Page 4 technical unit currently managing the MiBarrio program, currently housed within the Banco de Materiales (BANMAT). Lastly, Component Three will likely be implemented through the core implementation group within MVCS, which will coordinate closely with and involve key sector actors depending on the nature of the proposed technical assistance, analytical study, or reform initiative. 4. Safeguard policies that might apply The Bank team has tentatively concluded that the proposed operation will trigger Bank safeguard policies for Environmental Assessment (OP 4.01), Involuntary Resettlement (OP 4.12), Cultural Property (OP 4.11), and Indigenous Peoples (OP 4.10). Given that the Project will support a broad number of investments in urban areas across the country, the specific investments of which will not be identified ex- ante, the team proposes to develop an Environmental Management Framework (covering OP 4.01), a Resettlement Policy Framework (covering OP 4.12) and an Indigenous Peoples Planning Framework (covering OP 4.10) documents. These management instruments will specify screening procedures to ensure subprojects are appropriately designed and sited, provide detailed guidelines on the development of environmental, resettlement action and indigenous peoples’ plans, and outline management and mitigation procedures associated with subproject investments. Component two of the Project will finance in part a sample of upgrading subprojects already in the MiBarrio Program pipeline. Relevant site-specific safeguard mitigation plans will be prepared for all known subprojects and disclosed before appraisal ( e.g. environmental assessment, resettlement action plan and indigenous peoples plan). While not likely, it is possible that Project investments under the first APL will trigger the Indigenous Peoples (OP 4.10) safeguards policy. The project will mainly be implemented in larger urban areas, but it is possible that it will also be implemented in small towns with exclusively indigenous populations. The team recognizes that larger urban areas and small towns represent different realities with respect to the conditions and nature of potential indigenous groups and therefore has decided to trigger OP 4.10. By triggering the policy, the Bank team would work with the client to establish an Indigenous Peoples Policy Framework that would outline screening criteria and management guidelines for consultation and the mitigation of adverse impacts in the case that it is established that OP 4.10 is triggered in the context of a discrete subproject. It is the task team’s understanding that OP 4.10 applies to projects of this nature in larger urban areas only where significant and identifiable indigenous communities are determined to be located in these areas involuntarily, as defined by the concept of ‘forced severance’. 2 The APL approach is designed to achieve social development outcomes. The major purpose of the Sectoral Social Assessment (SSA) is to provide operational guidance on developing the project design, implementation, and monitoring and evaluation frameworks. An SSA will therefore be prepared to examine and support the Borrower’s capacity to carry out social analysis and to appraise the social impact of each sub-project in the APL series. The SSA will carry out a sectoral social analysis of the context and social issues, in this case the Peruvian urban land and low- and middle-income housing sectors. It will combine the social analysis with a participatory process of stakeholder consultations and involvement. The project EA will take the form of a Sectoral Environmental Assessment (SEA), the goal of which will be to: (i) analyze environmental policies, institutions, and development plans for the Peruvian urban land and housing sector (placing special emphasis on low-income housing), identify associated potential environmental effects, and identify necessary measures for environmental management and planning, and/or guidelines; (ii) assess the applicability of, and propose a framework to ensure compliance with, 2 ‘Forced severance’ is defined in the OP 4.10 that can be found at: http://wbln0018.worldbank.org/Institutional/Manuals/OpManual.nsf/B52929624EB2A3538525672E00775F66/0F7 D6F3F04DD70398525672C007D08ED?OpenDocument . Page 5 World Bank Safeguard Policies in the context of the proposed project; and (iii) develop terms of reference for a Strategic Environmental Assessment to evaluate the environmental issues and options associated with the Government of Peru’s (including central and local governments) low-income housing, urban land, and urban upgrading programs and policies. The Strategic Environmental Assessment would be conducted as part of APL I activities. Safeguard Policies Triggered Yes No TBD Environmental Assessment (OP/BP 4.01) X The project EA will take the form of a Sectoral Environmental Assessment (SEA). Additionally, as part of the SEA, TORs will be developed for a Strategic Environmental Assessment, which would be conducted as part of APL I activities. The project's stand-alone EA will also include application of the EMF to the first group of subprojects to be processed under Component 2, which will be identified prior to appraisal. Natural Habitats (OP/BP 4.04) X Adequate screening mechanisms to identify the presence of any natural habitats in subproject areas, and measures to ensure compliance with OP 4.04 will be incorporated in the EMF. Forests (OP/BP 4.36) X Pest Management (OP 4.09) X Physical Cultural Resources (OP/BP 4.11) X Provisions to ensure adequate site screening and chance find procedures in accordance with OP 4.11 will be incorporated in the EMF. Indigenous Peoples (OP/BP 4.10) X The project will mainly be implemented in larger urban areas but it cannot be excluded that it will also be implemented in small towns with indigenous populations. The Bank team would work with the borrower to establish an Indigenous Peoples Planning Framework that would outline screening criteria and management guidelines for consultation and the mitigation of adverse impacts in the case that it is established that OP 4.10 is triggered in the context of a discrete subproject. Individual Indigenous Peoples Plans for any subprojects known prior to appraisal which trigger the policy will also be completed and disclosed prior to appraisal. Involuntary Resettlement (OP/BP 4.12) X The resettlement policy is triggered because it is likely that project investments will cause impacts on land, property and otherwise impact economic activities. A resettlement policy framework will be prepared by the borrower which will provide the necessary guidance for mitigating such adverse impacts, i.e. planning, implementing and monitoring of resettlement action plans. Resettlement Action Plans will be prepared and disclosed prior to appraisal for any investments identified prior to appraisal which would cause involuntary resettlement. Safety of Dams (OP/BP 4.37) X Projects on International Waterways (OP/BP 7.50) X Projects in Disputed Areas (OP/BP 7.60) X The Bank team estimates that the first stage of the APL will have only minor environmental impacts consistent with a Category B rating. Environmental Category: B - Partial Assessment Page 6 5. Tentative financing Source: ($m.) BORROWER 150 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT 500 Total 650 6. Contact point Contact: Abhas K. Jha Title: Senior Infrastructure Specialist Tel: (202) 458-1050 Fax: (202) 614-4213 Email: ajha@worldbank.org