The World Bank Cusco Transport Improvement Project (P132505) REPORT NO.: RES46499 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF CUSCO TRANSPORT IMPROVEMENT PROJECT APPROVED ON FEBRUARY 28, 2014 TO MINISTERIO DE ECONOMIA Y FINANZAS - MEF TRANSPORT LATIN AMERICA AND CARIBBEAN Regional Vice President: Carlos Felipe Jaramillo Country Director: Marianne Fay Regional Director: Franz R. Drees-Gross Practice Manager/Manager: Nicolas Peltier-Thiberge Task Team Leader(s): Felipe Targa Rodriguez, Irene Portabales Gonzalez The World Bank Cusco Transport Improvement Project (P132505) I. BASIC DATA Product Information Project ID Financing Instrument P132505 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 28-Feb-2014 31-May-2021 Organizations Borrower Responsible Agency Ministerio de Economia y Finanzas - MEF COPESCO Project Development Objective (PDO) Original PDO The overall PDO is to improve mobility in the east-west corridor of Cusco Provincial Municipality (San Jeronimo – Distrito de Cusco). Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-83390 28-Feb-2014 24-Jul-2014 11-Nov-2014 31-May-2021 120.00 13.48 106.52 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No II. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES The World Bank Cusco Transport Improvement Project (P132505) 1. The proposed restructuring would extend the Project’s closing date by 29 months, to October 31, 2023, for a cumulative extension of 52 months. The proposed extension is both technically justified and consistent with the important progress achieved to date, including the actual start of the Vía Expresa works and the compliance status with safeguards obligations (including full implementation of the RAP). The proposed 29-month closing date extension would allow the Project to: (i) complete the civil works under the construction contract for the improvement of the Vía Expresa Avenue; (ii) complete the activities under Component 2 of the Project to support the conceptualization of public transport interventions with the potential to improve mobility in the east-west corridor of the CPM in the long run; and (iii) continue supporting capacity-building activities that will strengthen the METRA Project’s safeguards, procurement, fiduciary, and technical compliance, in particular for the execution of the Vía Expresa Project’s civil works. This Project is envisioned as an opportunity to reactivate the local economy following the COVID-19 crisis, in a region that relies heavily on tourism activity. The proposed extension will allow the Bank to continue monitoring safeguards compliance during works execution. 2. The World Bank approved the Cusco Transport Improvement Project (METRA) on February 28, 2014, and declared it effective on November 11, 2014. The International Bank for Reconstruction and Development Loan 8339- PE, in the amount of US$120 million to the Republic of Peru, is on-lent to the CRG with the same conditions. The Project Development Objective—to improve mobility in the east-west corridor of the Cusco Provincial Municipality (CPM) from San Jeronimo to Cusco District—is supported by four components: (1) detailed design studies and civil works to integrally improve the Vía Expresa Avenue (6.9 kilometers of an urban arterial road with four local access lanes, four central lanes, one bidirectional cycle lane, and wide sidewalks with streetscaping and landscaping, with a total width of 50 meters), their supervision activities, the acquisition of land, and the provision of compensation related to implementation of the Project’s resettlement plan (US$143 m, of which the Bank is financing US$112.7 m); (2) studies related to the improvement of mobility in the CPM (US$3.6 m, of which the Bank is financing US$3 m); (3) institutional strengthening and monitoring and evaluation (US$4.6 m, of which the Bank is financing US$4.3 m); and (4) project management (US$1.4 m). 3. This Project has had two distinct implementation phases: (a) from approval in 2014 to December 2018; and, (b) from January 2019 to date. During the first phase, the Project experienced significant delays due to technical and nontechnical reasons. On the technical side, delays occurred mainly because the original conceptual design of the Vía Expresa Project required a significant revision to enhance road-safety standards based on World Bank requirements and to incorporate feedback from beneficiaries in the community that resulted from the Bank-mandated consultation process. These included, for example, in a considerable reduction of the required resettlement from 54 to 9 properties, the removal of one road overpass, and the provision of urban amenities in public spaces for the elderly. On the nontechnical side, Project implementation was affected by: (i) limited oversight and significant institutional capacity constraints at COPESCO’s PIU due to poor project management, frequent staffing changes, and high personnel turnover; and (ii) delays in the finalization of the Vía Expresa’s detailed engineering design stemming from the consulting firm’s financial problems, which resulted in a downsized design team and reduced capacity to address comments in a timely manner in the final deliverables. 4. During the second implementation phase, Project implementation took off, despite suffering a significant procurement delay for the Vía Expresa works contract, and the adverse impacts caused by COVID-19-related lockdowns ongoing since March 2020. To date, the Project has met several critical milestones, including (i) completion of the Vía Expresa detailed engineering designs in April 2019; (ii) signature of the Vía Expresa works and supervision contracts in December 2020 and official start of works on March 15, 2021; (iii) completion of resettlement measures and land acquisition with no pending activities in the Resettlement Action Plan (RAP); (iv) signature of The World Bank Cusco Transport Improvement Project (P132505) interinstitutional agreement with the CPM to implement Project Component 2; and (v) implementation of the Building Information Modeling (BIM) as the first regional pilot in Peru to support the supervision of works and make it more efficient. Based on these significant recent achievements, the METRA Project’s ratings were upgraded: from U to MU, and then to MS for Implementation Progress (December 2019), and from MU to MS for PDO (May 2019). Financial Management (FM) is rated MS, there are no overdue audits, and audit reports have been considered acceptable to the Bank. The PDO has not been modified, remains highly relevant for the Country Partnership Framework (CPF) FY17- FY21, and is achievable thanks to the continuous commitment of the CRG to conclude the improvement of the Vía Expresa Avenue. 5. Project disbursements stand at 11.2 percent (US$13.5 m) as of April 2021, with over 93 percent of the loan committed in a single construction contract for the Vía Expresa. Disbursements are expected to reach 19 percent (US$9.4 m) in FY21, with implementation of the Vía Expresa civil works contract expected to achieve 50 percent during FY22. After having formalized the interinstitutional agreement for the implementation of Project Component 2, CRG and CPM will define and propose a vision, strategic programs, and projects for sustainable urban mobility and inclusive public spaces in Cusco. A new study will be initiated to develop data collection, travel demand modeling, traffic simulation, and alternative scenario analysis for the Integrated Transit System strategy to advance public transport service improvement in Cusco, including a prefeasibility study of a high-/medium-capacity public transit corridor over the Vía Expresa corridor and 28 July avenue to the Wanchaq intermodal transfer terminal, and the Cusco Bicycle and Pedestrian Strategy. 6. The COVID-19 pandemic has affected Project implementation activities. The declaration of a state of emergency in Peru at times and the associated suspension of activities in the public sector has delayed Project implementation. These provisions established a strict confinement of the entire population, and during this period the circulation of private or public vehicles was strictly prohibited, unless by special authorization for essential functions. Most employees in public institutions were not working or were assigned to home-based work, which was the case for most of the COPESCO staff. Several COVID-19 restrictions are still in place as of May 2021 and continue to slow down execution. 7. Safeguards compliance. The Bank team has been thoroughly monitoring the Project’s safeguards requirements, including the full implementation of the RAP and the compensation of informal brick builders and car washers. As of May 2021, and based on the information received by the Bank, the Project is fully compliant with its safeguards obligations. III. DETAILED CHANGES LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications 30-Jun-2020, 31-May- IBRD-83390 Effective 30-Jun-2019 31-Oct-2023 29-Feb-2024 2021 The World Bank Cusco Transport Improvement Project (P132505)